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Monday, February 20, 2012
Toxic assets in a toxic economic system
Yet the process is beginning again before the last crisis is over, laying the groundwork for another round. The same speculators who profited from the misery of millions of homeowners before are back in the game. Kyle Bass, a hedge fund manager who made $500 million betting that people would become overwhelmed by the cost of mortgages and paying the moneylenders their blood money is snapping up these toxic assets at bargain basement prices as they begin to shift upwards.
Readers may remember John Paulson, another hedge fund manager who bet you'd lose your home. Paulson made $15 billion in 2007, "thanks to the housing bust" according to Bloomberg Business Week. "Thanks to the housing bust"? Think about that for a minute. It's staggering that this man's activity can be mentioned in a favorable light and in such terms. Imagine if we read of a thief who stole $100 from a woman who he robbed and raped in such terms. "He made $100 bucks thanks to his astute skills in victim selection." Paulson made some $5 billion in 2010 through the same parasitic activity but took some speculative losses in 2011. Never mind though, at the same time he invested much of his stolen loot in gold which has risen due to the activity of him and his colleagues and that little nest egg has grown by $3 billion. Paulson is ranked number 39 of Forbes' list of the world's wealthiest individuals.
Along with these individuals, the great squid, Goldman Sachs is snapping up these toxic assets as is AIG, the insurance company that the taxpayers bailed out at the onset of the economic crisis. This toxic asset market is a $1.1 trillion market and the mortgages are not backed by the taxpayer and therefore much riskier. As of 2008, Fannie Mae and Freddie Mac owned or guaranteed about half of the U.S.'s $12 trillion mortgage market.
The thinking is that the price of these mortgage bonds, despite not being guaranteed by the taxpayer are so cheap that prices can hardly fall further and the risk is worth it; what goes down must go up. So outfits like Goldman can buy these to sell to investor as prices rise.
Since the dawn of human society we have interacted with nature to produce the necessities of life. We have learned through experience that the most efficient way to produce the necessities of life is collectively and throughout our existence we have formed societies to facilitate production. Without production there is no life. Our present economic system has not existed for all time. Commerce and business was not looked upon favorably in feudal society and land was power. The capitalist class had to wage a concerted struggle to gain ascendancy and hold sway over society. Capitalism cannot function, could not dominate without free Labor, without a human being that owns no means of subsistence or instruments of Labor of their own and who has to sell their life activity, their ability to work in order to live.
This was undoubtedly a step forward when we consider the increase in our ability to produce what we need and advances in production methods. But this system of production is now bankrupt. I remember when I was young going to Baghdad and Basra overland taking a train from Istanbul down through Turkey, Syria and on in to northern Iraq. I was not religious even then but going through towns like Nineveh and Babylon was an incredible experience for me growing up as I did in the Christian religion. These were places I only knew from the bible.
The same with Africa. You could travel from London to Joburg overland as friends did. Today it is impossible. The number of countries, of nation states that are too unstable to travel in, or live in for that matter, are too numerous to mention. This is not due to racial hatred, that Iraqi's don't like Americans. it is not due to religious hatred either. When I was in Iraq, the Iraqi's were good and kind to me despite the rotten role British imperialism played in that country and the racist attitude these representatives of the British capitalist class had and fostered towards Arabs.
This activity of the aforementioned individuals and outfits is the cause of global crises as the struggle for control of the world's resources intensifies. Globalization, capitalist globalization, is the cause of the regional wars and sectarian and religious warfare that permeates the earth. A "failed state" is not just a failed state, it is a failed economic system on which that state stands and the system that is failing is capitalism, is their precious market which is raping the planet and causing environmental catastrophe. Hunger, homelessness, famine and death from diseases that were thought wiped out a century ago are not "natural" but "social" disasters. The only thing "natural" about them is that they are a natural and inherent part of a system in which the means of producing the necessities of life are owned by and set in to motion under the direction of private individuals for their personal gain. In the case of John Paulson and others, their activity does not even include a role in production---it is purely a parasitic speculative activity.
The figures I gave above, a drop in the wealth bucket, would wipe out hunger, poverty and disease for millions of people. It is our obligation to take that wealth by any means necessary and allocate it in a productive way for the benefit of society as a whole not to mention the environment. That is when civilization will begin.