September 19, 2008
Recently, even people unaccustomed to paying mind to the world of finance suddenly began to learn a lot about terms like "sub-prime mortgages," "securitization," "derivatives" and, more ominously, "negative equity," and "the great unwind."
And now, when several blue-chip firms have failed in rapid succession, many Americans are getting another crash course in high finance as they try to understand the collapses, buy-outs, and government takeovers of respected household names like Merrill Lynch, Fannie Mae and Freddie Mac, Bear Stearns, Lehman Brothers and American International Group (AIG).
Why has all this taken Main Street by surprise? In part, according to Kevin Phillips, because we've been served up years of faulty statistics and even faultier economic projects. This, Phillips maintains, has lead to a spiral of false economic security Pollyanna Creep.
Many analysts agree that these failures are the continuing fallout of the mortgage bubble and that there is plenty of blame to be spread among politicians of both parties, businesses and consumers. Kevin Phillips, a political analyst and historian, has been watching this crisis unfold for a long time now, and has a theory about what's gone wrong. As he explains to Bill Moyers on THE JOURNAL:
This is the denouement of the 25-year debt buildup which was undertaken mostly by the financial sector putting themselves on steroids to-- get bigger and bigger and bigger. And we've finally gotten to the point where the bubble isn't sustainable anymore but a lot of Wall Street is dedicated to minimizing the spattering of the bubble, so to speak.
Phillips explains that these are the fruits of what he calls the "financialization" of the United States: the decline of manufacturing and the rise of finance as the central driver of the nation's GDP. It is not a change Phillips believes happened by chance:
You had essentially a financial sector that let's say was sort of neck and neck with manufacturing back in the late 1980s. But they got control in a lot of ways, in the agenda. Finance has been bailed out. I mean, everybody thinks this is horrible now what we're seeing in terms of bailouts. Even a lot of the people who do it think it's bad.
This has been going on since the beginning of the 1980s. [...] Finance has been preferred as the sector that got government support. Manufacturing slides, nobody helps. Finance has a problem, Federal Reserve to the rescue. Treasury to the rescue. Subsidies this, that, and the other.
So bit by bit, they got bigger. And the other reason they got bigger was because this became a country that was further and further in debt. Consumerism was just pushed to the nth degree. People were given the sense that they had to buy everything and they had to borrow to do it increasingly.
But we've seen the central component of the rise of the financial sector is the rise of the debt industry. Mortgage, credit cards, all these gimmicks that Wall Street sells-- just all kinds of products. And, of course, the products are laying an egg all over the world right now.
>>Read more about fluid government indicators and Pollyanna Creep in HARPERS.
Kevin Phillips is a political analyst, historian and author of thirteen books. Mr. Phillips first gained prominence as the chief political strategist for Richard Nixon during the 1968 election. In 1969, he published THE EMERGING REPUBLICAN MAJORITY, which forecasted a major shift to the right in electoral politics - a prediction that has been remarkably accurate. Over twenty years, he has contributed commentary to CBS TV NEWS, NATIONAL PUBLIC RADIO, and THE LOS ANGELES TIMES.
His books have covered the range of history, politics and economics. In 1990, THE POLITICS OF RICH AND POOR, a critique of Reagan-Bush economics, rose to number two on the New York Times bestseller list; in 1999, Phillips stepped back from politics to write a history of three Anglo-American civil wars, THE COUSINS' WARS; his 2002 WEALTH AND DEMOCRACY chronicled the history of America's wealthiest families and their effect on public policy from 1780s to 1991, arguing that America has entered a new gilded age; in 2003, he produced a biography, WILLIAM MCKINLEY; then, in 2004, AMERICAN DYNASTY: ARISTOCRACY, FORTUNE, AND THE POLITICS OF DECEIT IN THE HOUSE OF BUSH rose to number two on the NEW YORK TIMES bestseller list. And in 2006, AMERICAN THEOCRACY explored the corrosive influence of oil, fundamentalist religion and debt on American democracy.
Facing up to the Economy
Bill Moyers talks with economist Dean Baker and journalist Bob Herbert about the economic challenges facing the government and the populace. (August 8, 2008)
THE JOURNAL travels to ground zero of the mortgage meltdown Cleveland, Ohio. Correspondent Rick Karr takes viewers to Slavic Village, one of the hardest hit neighborhoods in the nation when it comes to the spate of foreclosures caused by the subprime mortgage crisis. (July 18, 2008)
Investment industry giant John Bogle says that as more and more money managers take control over corporations on Wall Street, Main Street is paying the price.
(September 28, 2007)
An American Recession?
Veteran market watcher Robert Kuttner and Wall Street insider William H. Donaldson give their read of the current economic landscape and discuss the risks of the deregulation of the financial industry. (October 12, 2007)
Financial columnist Gretchen Morgenson on the SEC, the mortgage crisis and other matters fiscal. (June 29, 2007)
The Downturn on the Homefront
Sociologist Katherine Newman on the global markets' effect on kitchen table issues. (January 25, 2008)
More on American Income Disparity
Steven Fraser on Gilded Ages
Steve Fraser, historian and author of WALL STREET: AMERICA'S DREAM PALACE, discusses the modern parallels and differences to the first Gilded Age, the big disparity between the rich and poor, and the increasing strain on working Americans.
More from Kevin Phillips
Bubble and Bail
"For most of the 20th century, America manufactured things. For the past 30 years, though, it has chiefly manufactured debt. Here's how Wall Street, with the aid of both political parties, gravely damaged the economy. " by Kevin Phillips, THE AMERICAN PROSPECT, May 5, 2008.
"Numbers racket: Why the economy is worse than we know"
by Kevin Phillips, for HARPERS. Phillips explains the funny numbers of government economic indicators.
The Political Economics of Deception
Read the preface from Kevin Phillips' new book, BAD MONEY.
Kevin Phillips on NOW WITH BILL MOYERS
In 2004, Kevin Phillips spoke with Bill Moyers about his book WEALTH AND DEMOCRACY.
NEWSHOUR: Wealth and Democracy
Kevin Phillips spoke with Paul Solman of the NEWSHOUR about his book WEALTH AND DEMOCRACY.
Reviews of BAD MONEY
"'Bad Money' by Kevin Phillips"
by Tim Rutten, THE LOS ANGELES TIMES, April 16 2008.
"Digging a Hole"
by James K. Galbraith for the TEXAS OBSERVER, May 16 2008.
"Phillips Slams Wall Street, Feckless Politicians in 'Bad Money' "
by James Pressley for BLOOMBERG, April 21, 2008.
"What Ails the American Economy? Everything, and There's Worse to Come"
by Barry Gewen for THE NEW YORK TIMES, April 21, 2008.
"Getting it Wrong"
by Robert M. Solow for THE NEW REPUBLIC, September 10, 2008.
"Riches to Rags"
by Daniel Gross for THE NEW YORK TIMES BOOK REVIEW, August 3, 2008.
Published September 19, 2008