Saturday, September 20, 2008

The consequences of the U.S. economic downfall

Were thought to be the abandonment of a free market based neoliberal system of economy, according to "Pathology of the U.S. Economy Revisited" and according to our class. This financial disaster that has been brewing for years and years is a perfect example of why unregulated capitalism is not self sustaining. The scheme that came tumbling down was a combination of over extended credit and risky second mortgage loans that depended on a constantly inflating housing bubble to be viable. When the bubble popped the mortgages popped with it, and along with the people getting evicted from their homes because they can no longer pay their mortgage bills go all of the investors who gambled on mortgages, who invested in mortgages and traded them between themselves in the hope of getting a good piece of the pie. And with them goes the interlocked pieces of the finance world that incorporated mortgage futures and mortgages themselves, that are now weakened and failing because of it.

Predatory lending has already hit but I think I misspoke when I said that the credit bubble has really broken as part of the housing decline. When all of this starts impacting people to the point where they can't cover their credit card bills we'll really be in trouble. That time may be coming soon if the economic instability of the financial sector does in fact boil over into the economy as a whole.

And yet Paulson of the Treasury Department acts as the only options were to bail the banks out with a promise of no new regulation or let the financial world implode. Regulations keeping the pursuit of short term gain from sabotaging long term economic stability aren't in the offing. And despite everything the crisis isn't seen as a crisis of capitalism as a whole since at the present time the chaos is relatively in check. Things are getting harder for people in a general sort of way, we've been in a recession for a long time now, but the problems haven't manifested in a striking way in everyday life like they have in the financial sector.

Once that moment comes I think people will begin losing faith in the market as a whole and will stop thinking that socialism is such an infringement on their liberties.

What all of this adds up to is that those economic liberties, the liberty to be a completely self determining economic entity who can have the American dream through mortgaging his house and running up his charge cards, the liberty to not have to depend on unions for your daily bread, are going to increasingly be revealed to be the untenable pipe dreams that they are. It lasted a while when the U.S. was on the top of the economic heap but now that real constraints are coming into being it's unaffordable and unsustainable.

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