The 2nd Great Depression: Insight into the causes of the Economic Crisis
57Cluster F#@K into the Poor House
Congratulations. As a tax payer you now own major companies like, the American Intercontinental Group, or AIG. You should be proud, that’s a Fortune 500 company. It was our money, 85 billion dollars worth, that bailed them out; probably our money that sent their top CEOs for that luxurious spa treatment too. I hope their cuticles are nice and trim as I sit in my apartment with barely enough money to afford my hot dogs and cereal. They claimed that they have been planning the trip for their CEOs for months, routine business procedures. In the light of what has happened, they should have had the decency to cancel. It’s that kind of spending that sent us into this mess in the first place. Why did we this near second Great Depression occur in the first place? No one really understands that virtually pointless bailout. It’s floating all over the news and each person has a different opinion about its necessity.
700 billion dollars? Where did that number come from? Well, supposedly the founders of this hypothetical “rescue plan” just wanted a really big number. These are the people running our government? What started out as a three page summary evolved into roughly 450 pages full of pork barrel spending. Things like home owners and college students could be expected to be added into the bill considering the difficulties of getting a loan and a mortgage these days. However, why were things like wooden arrows for kids and the makers of Puerto Rican rum added into the bill? It’s like junk mail jamming up your inbox. After the bill was passed, we still didn’t see an immense relief come to the American people.
Who is to blame? You could blame the people who have defaulted on a loan or credit card. There is some sixty-two billion, no forgive me, trillion dollars in defaults. This is the reason why the banks are no longer lending out to people or to other banks for that matter. They’re afraid they will never see their money again and end up declaring bankruptcy themselves. It’s this living the “American Dream” that’s been placed in our heads. We think we can just spend, spend, spend, without consequences. Now for the irresponsibility or just sheer desperation of many individuals we’re all suffering – myself included. I took out loans to go to college – a normal occurrence these days. I can’t pay them back yet, but luckily I can defer while I’m in school. This doesn’t help the economy one bit. So long as people keep deferring, defaulting, applying for forbearance and declaring bankruptcy our economy will never stabilize.
Now don’t get me wrong. I’m not blaming all Americans for this fall. This happened as a result of banks letting their clients bite off more than they could chew. There was a 90 year old woman who shot herself in the chest when police came to her house to evict her. She had a thirty year contract on her house which she signed a few years ago. Now how is a ninety year old woman supposed to pay Fannie Mae for thirty years? It’s impractical. The banks got greedy and approved people for homes they knew they couldn’t afford. They used the money (plus interest) that they were going to make from these unsuspecting homeowners and sell it to investors who then used it to invest in the stock market. It makes sense those companies like Fannie Mae and Freddie Mac are at the epicenter of this disaster for underhanded practices from their lenders. People are crunching hard trying to pay their bills and they’re spending less money on goods. While supply is up, demand in insanely low and profits spiral down. Now that there is less money circulating, poor Wall Street had a catastrophic and painful drop resulting in this current recession.
Sadly enough all of this does remind me of the Great Depression. In the 1920s people had installment plans similar to modern payment system of paying back over time. Americans went through an orgy of giving an “IOU” to banks, spending and buying cars and houses during these prosperous times – you know those young zoot suit wearing men and their flapper girlfriends. The lenders demanded their money back even pulling money out of other banks leaving smaller banks to go bankrupt. Then the Dust Bowl hit. Farmers who could no longer grow crops lost all their source of income and could not pay the banks. So the banks forced the sharecroppers from their property. Sound familiar? My own grandfather was forced to leave school and start working in elementary school. America was bankrupt. Somehow Franklin D. Roosevelt used big budget spending and pulled the American people out, but his plan still put a heavy burden on business owners. There’s never a perfect solution, but the plan offered Americans a new way and hope by offering them jobs that they could learn new skills and work on long-term project. I was in eleventh grade when I thought, installment plans sounds a lot like today’s credit system; what’s to stop it from happening again? There’s still a debate on whether it was the free market or the government to blame for the incident, but when the stock market crashed in 1929 the whole world felt it and it was indeed a very Black Tuesday.
I don't think this current problem will amount to a second Great Depression, but it's annoying that history does repeat itself in some manner. Suburban sprawl caught up with us. There are houses still being built, but for who? Plenty of people want to live in them, but there are already millions of foreclosed houses collecting dust and weeds. The splurge into housing investments took off because there was so much potential monetary gain into the huge amount needed for mortgages. Mortgage literally means “dead pledge”. When you pledge your house to the bank for payment, it’s like selling your soul (okay, maybe not so dramatic).
What’s there for the future? I say the future lies in natural resources and clean energy. I’m not going to point fingers, but it is sometimes interesting to look at the world through hindsight. I believe that under the leadership of Al Gore that out country would have gone in a different direction. That he would have used the surplus left after Clinton towards funding “Green” jobs or ones that work on a long-term project towards a cleaner future. He did win a Nobel Prize for his efforts in creating a healthier environment. We called tree-huggers hippies in the past, but now that philosophy of saving our planet is resonating and has the potential to create jobs and opportunities. The people have cried for another chance at the American Dream; I just hope the president listens.
- Watch this video
Daily Show's parody of the financial crisis. The news networks attempt to explain the situation to American viewers.
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Here is an article about the fed chairman during the time of the Great Depression and what he thought caused it. The same thing is happening again for the same reasons. Please read:
In Review: America's Most Egalitarian Banker
Marriner S. Eccles, Beckoning Frontiers: Public and Personal Recollections. New York: Alfred A. Knopf, 1951.
At the start of the Great Depression, Marriner Eccles hardly seemed someone who might lead a charge against the economic orthodoxies that justified grand hoards of private fortune. By the early 1930s, after all, the Utah-born Eccles had become the top banker in the Mountain West, the organizer of the first multibank holding company in the United States.
But Eccles had also come to understand, after watching the great speculative bubbles of the 1920s pop into massive misery, that prosperity — to endure — needs to be shared. Eccles began speaking out on that theme, shortly after the Great Depression began, and soon caught the attention of the early New Dealers.
In 1933, Eccles would become an assistant secretary of the treasury. A year later, Franklin Roosevelt would appoint him to the Federal Reserve Board. He would become Board chair in 1935 and remain in that central position for the next 13 years. No one individual, over those years, had more of an impact on economic policy in the United States.
Looking back on those years, in his 1951 memoir Beckoning Frontiers, Eccles would do his best to explain the impact he set out to make. Mass production, he noted at the outset, demands mass consumption, but people can’t afford to consume if the wealth an economy generates is concentrating at the top.
In the years leading up to the Great Depression, that concentrating was accelerating. A “giant suction pump,” charged Eccles, “had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth.”
“In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands,” Eccles observed, “the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”
Sound familiar? The decade of the 1920s that Eccles describes in his 1951 memoir comes across today as eerily familiar. Then as now, the U.S. economy was floating on a sea of debt.
Then as now, inequality was hollowing out the nation. Eccles put the matter bluntly: “Had there been a better distribution of the current income from the national product — in other words, had there been less savings by business and the higher-income groups and more income in the lower groups — we should have had far greater stability in our economy.”
How would Eccles have reacted to our current debt-ridden, war-torn economy? We can’t, of course, know for sure what Eccles would do. But we do know what he did. In 1942, during World War II, a high-powered team of New Deal officials that included Eccles proposed to President Roosevelt that “a ceiling of fifty thousand dollars after taxes should be placed on individual incomes.”
In our current dollars, this $50,000 ceiling would equal about $700,000. What did FDR do with the Eccles proposal? He turned around and asked Congress to place a 100 percent tax on all individual income over $25,000.
Congress would eventually set the nation’s top tax rate at 94 percent on all income over $200,000, and that top tax rate would hover around 90 percent for the next two decades, years that would see the greatest period of middle class prosperity in U.S. economic history.
In 2005, the latest year with statistics available, America’s leading hedge fund managers and the rest of the nation’s top 400 income-earners faced a top tax rate of 35 percent. They actually paid, after loopholes, just 18.2 percent of their incomes in tax.
Marriner Eccles would not approve.
Stat of the Week
In the two decades between 1986 and 2005, America’s top 1 percent of taxpayers saw their share of the nation’s income jump from 11.3 to 21.2 percent. Over those same years, the federal income taxes the top 1 percent paid dropped by an equally stunning margin, from 33.13 percent of total personal income in 1986 to 23.13 percent in 2005, the most current year with IRS stats available. Taxpayers needed to report at least $364,657 in 2005 to enter the top 1 percent.
About Too Much
Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org
Dodomar says:
14 months ago
yea this is an interesting bit of infromation. it's annoying that the wealthy have to be punished, in a way, for making so much, but i think it's only fair. i never full knew the details of the new deal, but i didn't realize they taxed the wealthy by so much. i just remember learning in my old american history class that a part of the new deal was supplying jobs that unemployed people could in a way "overwork" or put a lot of detail into their work so they could get paid for longer. for example, my middle school was orginally created during this post-depression period and everything down to the doorknobs was very intricately built. that's probably the reason why older buildings have such amazing architecture.
the funniest thing i think about our "capitalist" economy is that when you really look at it, it isn't very capitalist at all. taking from the rich to give to the poor (pretty much everyone not in the top five percent) it isn't welfare but it does enforce equality of profits. i guess the difference is that in communists nations the ruler could just stick his nose into any bank account and take as much money as he wanted. wall street, in particular, likes the idea of having capitalism when it comes to profits and keep it all for themselves shameless in their mansions. but once they go bankrupt, they want to "spread the wealth around" and take american tax dollars to get back on their feet. is that fair?