James Quinn has produced one of the finest analyses of the roots of our financial problems that I've ever read. Here are a few extracts to whet your appetite.
The Baby Boom Generation will never be mistaken for the Greatest Generation that survived the Great Depression and defeated evil in a World War that killed 72 million people. I hate to tell you Boomers, but putting a yellow ribbon on the back of your $50,000 SUV is not sacrifice. Our claim to fame is living way beyond our means for the last three decades, to the point where we have virtually bankrupted our capitalist system. Baby Boomers have been occupying the White House for the last sixteen years. The majority of Congress is Baby Boomers. The CEOs and top executives of Wall Street firms are Baby Boomers. The media is dominated by Baby Boom executives and on-air stars. We have no one to blame but ourselves for the current predicament. Blaming Franklin Roosevelt or Lyndon Johnson for our dire situation is a cop out. Baby Boomers had the time, power, and ability to change our course. We have chosen to leave the heavy lifting to future generations in order to live the good life today.
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When I see “poor” people appearing to live a more luxurious life than myself, I don’t feel jealous. The thought that goes through my head is: Which banks or finance companies were foolish enough to loan these people the money to live this lifestyle? These foolish financial institutions will never get their loans repaid. What does bother me is that the Bush-Paulson-Pelosi Bailout of Stupid Banks will use my taxes to buy these bad loans from the foolish banks. So, who is the fool in this scenario? The “poor” person got to drive a Cadillac Escalade for a period of time, the foolish banks got bailed out, the bank CEOs took home $30 million, and I lived within my means and footed the bill for the reckless actions of others. It appears that the fools are the Americans who lived their lives according to the rules. The anger is building. I don’t think the politicians running this country realize what true anger looks like. They are used to Americans being herded along like passive sheep.
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The regulators were certainly asleep at the wheel. They did not enforce existing rules, foolishly waived leverage rules for the biggest investment banks, and believed that the banks would regulate themselves. They were wrong, but they never made a single loan. The commercial banks, investment banks, auto finance companies, and credit card companies made the ridiculous loans to people who could never pay them back in the search for short term profits. Greedy Wall Street executives created an artificial market for the loans in order to generate billions in fees so they could enrich themselves through stock options and obscene bonuses. They spent their false riches on $2 million NYC penthouses, $100,000 Porsche 911s, and $5 million beachfront estates in the Hamptons. Based on the estimated $2 trillion of losses that our banks have generated, the CEOs certainly deserved annual pay 500 times as high as the average worker. There is no way an “average” worker could possibly be talented enough to lose $2 trillion. You would need to be truly extraordinary to lose that much.
The brutal necessary lesson that should have been learned is that if you loan money to people who can’t pay you back, your bank will go bankrupt. The “poor” people who made a bad decision in buying homes and cars they couldn’t afford have lost those homes and cars. The banks made a bad business decision in making those loans. The taxpayer was not involved in these business transactions. This is where Hank Paulson, Ben Bernanke and George Bush, formerly free market capitalists, decided to commit our grandchildren’s money to bailing out the horribly run financial institutions. Our government has chosen to allow these banks off the hook for their bad business decisions at the expense of taxpayers. Rewarding bad decisions and bad behavior will lead to more bad decisions and more bad behavior. The government has made a dreadful decision that will haunt our country for generations. Now the Federal Reserve has lowered interest rates to 1% again. This is where this horrible nightmare started. The massive printing of currency throughout the world will ultimately lead to a hyperinflationary bust. The law of unintended consequences can be devastating.
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What “essentials” do the Boomers invest all this borrowed money in every year? The U.S. Census bureau provides the answers:
- $200 billion on furniture, appliances ($1,900 per household annually)
- $400 billion on vehicle purchases ($3,800 per household annually)
- $425 billion at restaurants ($4,000 per household annually)
- $9 billion at Starbucks ($85 per household annually)
- $250 billion on clothing ($2,400 per household annually)
- $100 billion on electronics ($950 per household annually)
- $60 billion on lottery tickets ($600 per household annually)
- $100 billion at gambling casinos ($950 per household annually)
- $60 billion on alcohol ($600 per household annually)
- $40 billion on smoking ($400 per household annually)
- $32 billion on spectator sports ($300 per household annually)
- $150 billion on entertainment ($1,400 per household annually)
- $100 billion on education ($950 per household annually)
- $300 billion to charity ($2,900 per household annually)
The priorities of our Boomer led society are clearly born out in the above figures. We spend more eating out than we give to charity. We spend as much on big screen TVs and stereos as we do on education. This may explain why 37 million (12.5%) of all Americans live in poverty and our high school students trail the students of 25 other countries (including Latvia) in science and math knowledge. Our school system processes many more clueless morons who don’t know the candidates for President, versus intelligent, thoughtful, hard working, driven young people. The $160 billion spent on gambling is indicative of the get rich quick without hard work attitude of the Boomer generation. Even worse, households with income under $13,000 spend, on average, $645 a year on lottery tickets, about 9 percent of all their income. Our government feeds this addiction by siphoning off billions in taxes from these gambling revenues to redistribute as they see fit.
What the data proves is that Boomers love to shop and eat, whether they have the money or not. The top 100 retailers in the U.S. have 250,000 stores that generated $1.7 trillion of sales last year. How could America function without 31,000 McDonalds, 35,000 KFCs, Taco Bells, & Pizza Huts, 15,000 Starbucks, 7,000 Wal-Marts, 2,000 Home Depots, 4,000 K-Marts/Sears, and 8,000 Blockbusters? There are 91,000 shopping centers in the United States. The Advertising industry spends $275 billion per year to convince you to spend money you don’t have for things you don’t need. This generation lacks self control, morals, a work ethic, and savings ethic. Based on the recent actions of our government and corporate leaders, we seem to lack any ethics at all. It is immoral for the boomer generation to run up $53 trillion in unfunded future liabilities in Social Security, Medicare and Medicaid to leave as our gift to future generations, while we live it up today. Optimists like to point out that Europe and Japan have much worse unfunded liability problems than the U.S. That is like taking pride in being the best looking horse at the glue factory. In the end, we’ll all still be glue.
The 25 year Boomer borrowing and spending binge is coming to an end. The hangover will be really bad.
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Part two of the great Boomer credit contraction will be the collapse of credit card companies who have mailed out 27 billion credit card offers in the last five years. They are now reaping what they have sown. As Boomers could no longer borrow from their homes, they switched to credit cards to make mortgage payments and car payments. That well is running dry. The losses to card companies will make the losses in 2000 to 2002 seem like good times. Losses in the 1st half of 2008 soared to $21 billion. Losses are expected to total $55 billion in the next year and a half. This brings me to the latest outrage perpetrated upon the U.S. citizens by Hank Paulson and his Treasury cronies. The credit card industry, which collects 23% interest and $12 billion in late fees from consumers, is lining up to get their piece of the $700 billion bank handout. Capital One has just received a $3.6 billion injection from the American taxpayer, one week after projecting that their write-offs will be $7.2 billion in the next twelve months. This will allow them to send another million offers to more people who shouldn’t have a credit card. Why not? The taxpayer will pay, if the losses are too high. Why aren’t the pundits on CNBC outraged at this misuse of taxpayer money? Would the bankruptcy of Capital One hurt our country in any way?
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The Great American Empire has begun its long slow decline. It may take a few generations to reach its nadir, but the poor decisions already made and crucial decisions postponed in the last 25 years by our Boomer dominated leadership has put our country on a path to a declining standard of living. The U.S. is like a punch drunk ex-champion boxer who still thinks he has what it takes, but is living off his old press clippings. He lived the good life, got fat and didn’t do the hard work required of a champion. A slew of young brash fighters are itching to take him down. It is just a matter of time. In our heyday during the 1950s, manufacturing accounted for 25% of GDP. In 1980 it was still 22% of GDP. Today it is 12% of GDP. By 2010 it will be under 10% of GDP. Our Government bureaucracy, which contributes nothing to the advancement of our society, now is a larger portion of GDP than manufacturing. Services such as banking, retail sales, transportation, and health care now account for two-thirds of the value of U.S. GDP. We have become a nation of bureaucratic paper pushers. Past U.S. generations invented the airplane; invented the automobile; discovered penicillin; and built the Interstate highway system. The Baby Boom generation has invented credit default swaps; mortgage backed securities; the fast food drive thru window; discovered the cure for erectile dysfunction; and built bridges to nowhere. No wonder we’re in so much trouble.
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Ultimately, it is up to the Baby Boom generation to change our country’s course. The oldest Boomer is 62 years old and the youngest 45 years old. It is time for Boomers to take a hard look in the mirror and rethink their priorities. It is time to cast aside the $88,000 Range Rovers, $1,200 Jimmy Choo boots, $5,000 Rolex watches and daily double lattes at Starbucks. It is time to live within your means, distinguish between needs and wants, reduce debt, save 10% of your income, make sure your kids get a good education, not try and keep up with the Jones’, show compassion for your fellow man, and possibly pay more taxes and get less benefits, for the good of the country.
There's a lot more at the link, including some very informative graphs. Go read it all - and ponder.