There is a sense out there -- is there not? -- of holding back: You don't want to spend what you used to.
Everyone has drawn to a more conservative stance because no one knows what will happen next (and not just economically).
One hears this all the time: folks are waiting for the other shoe to drop.
There is The Great Uneasiness and that uneasiness is because we know in our spirits that for a few decades we have been living in a bubble (of falsities).
This we wrote before the recent Wall Street protests, which may have some merit but with which, in other ways, we do not agree; at least, we differ politically (and culturally) with many of the protesters.
It has always been our opinion that capitalism is a great system when it is based on conservative Christian values -- and when it is as it used to be: a system that rewards those who contribute the most to society (as opposed to finessing it).
How things have changed.
There has always been abuse (see the sweat shops or slaughterhouses or monopolies of the last century) but a shock it is to learn that banks only have twenty percent or even just ten percent of the actual money -- the capital -- to back the money they lend. In other words, they have enough in reserve only to cover a certain number of loans in the theory that they would never have to cover more than that. In some cases, financial "instruments" need no capital whatsoever!
Folks with mathematics degrees from fashionable schools have invented all kinds of bizarre new financial "products": collateralized debt obligations, credit swap debts. There are negative amortized loans in which you buy a home but pay less than usual in interest and as a result your principal increases. Or, there are loans in which you pay interest only (really, you own nothing).
They made these loans to folks who were required to provide virtually no documentation of income.
So, banks lent money or mortgage originators gave mortgages that were less substantial than air and made money doing so not just from the extraordinary interest you pay (a person often pays nearly as much in interest as the cost of a home over the period of thirty years when all the interest is tallied) but from the fees they collect by tranching and selling pieces of your mortgage -- for example, the interest -- to those who are willing to take a risk that the rate will increase and buy the interest on mortgages like a lottery ticket.
One entity out there may own your interest, while another is backing your principal -- by borrowing from another bank, which also generates a fee. Our mortgages have been securitized: turned into bonds and "securities." Chips at the poker table. Meanwhile, there are loan originators that are not banks and are not even subject to normal banking regulations.
In large part, they're the ones who took on risky, "subprime" borrowers without even minimal capital backing (in the event of a flood of defaults). The funding mechanism for homeowning became a "shaky pyramid of debt." Where was the Federal Reserve. What is the Federal Reserve? (Should it even exist?)
"Long before anybody thought to use credit default swaps to short mortgage bonds, Wall Street firms had taken to combining credit default swaps on a variety of corporate bonds and creating CDOs out of them," write two financial authors in the perhaps aptly entitled bestseller All the Devils Are Here. "They were called synthetic CDOs because the CDOs didn't contain 'real' collateral; rather they were based on the performance of existing bonds held by someone else."
Then there's the stock market: it moves like a roller-coaster and like a roller coaster is surrounded by air.
Remember when stocks broke the 1,000 barrier?
Think of this: in the late 1980s the Dow surged to 2000. It was under 1000 the previous decade. It would eventually rise to 13,000. It is now still near that point: despite a plummet, above 10,000. Can you explain what makes the worth of the market more than five times what is was twenty-five years ago, and more than ten times what it was in the mid-1970s -- when inflation has risen only by a fraction of that?
How can it suddenly be at 10,000 -- when, in many ways, the U.S. produces less than it used to?
At the same time stocks increased more than sixfold, the value of the dollar has not even doubled (what cost you a dollar in 1988 now costs $1.92).
This indicates a structure, and society, that is artificial.
What changed so radically to make everything so valuable?
Why should stocks be worth three times what they were adjusting even for inflation?
And why do commodities brokers living the high life on the Upper East Side of Manhattan make more money than the farmers who grow the commodities?
The average pay for Goldman Sachs 35,700 employees was $369,651 last year (you read that right, and it is down from what it was; in 2007, a year of record pay, all workers tallied together including receptionists at Goldman Sachs were paid an average of $575,000).
Our financial system is not rational. Should it even exist, in anywhere near the size that it is? It has been turned into a game played by math whizzes who use Byzantine formulas to concoct constantly new opaque "products." There are securities that even Alan Greenspan says he doesn't understand. This all started up during the 1980s when deregulation of the financial community -- and a dire lack of oversight -- allowed all kinds of entities, from pension funds to insurance companies, to join in as the holders of mortgages, as they do any stock out there.
Bizarre "products" were derived ("derivatives") in ever more complex games of risk. Your lender doesn't even have the money to cover its loans! It borrows (see again, the tranche) to lend! Everything was "leveraged." Bets were made on securities owned elsewhere. Some securities are even called "synthetic" -- because they are just that: manufactured (with no real backing). Games are played. Paper is shuffled back and forth. It is poker with ever-changing cards. For at least three decades, wealth in our nation has been materialized out of thin air and now that bubble, the balloon, is leaking badly.
Notes an analyst for Moody's: "We may have encouraged financial institutions to grow in ways that do not directly facilitate or enhance the reason for having a financial system in the first place."
There are other bubbles.
There are the tremendous costs of college (for exactly what final product?). There are medical costs. There are unsustainable pensions. And we can get back to those loans: the Bible -- and the Catholic Church -- have long warned against usury, which is defined as excessive interest and in the purest third-meaning in the dictionary even interest, period: we are not supposed to make a profit over a loan, or at least not one that is engineered to enrich the lender (and cause distress to the one who borrows).
Our society is off base -- at least if you study the precepts of Catholicism.
For Catholicism and its saints have long preached that one should not charge as much as one can (soak the consumer for everything one can get) but rather sell an item at a price that simply and only tallies the money spent on creating the product and the actual hours one put into the effort.
We live in a society where squeezing as much as you can out of a fellow human is considered smart business.
We'll see in purgatory. It is not the Christian way. The "markups" on many products -- by the standards of the Catechism -- are not conscionable.
Look at what pharmaceuticals cost -- and how they suddenly drop so drastically in price when they no longer necessitate a prescription.
Do you remember how phone companies used to charge so much for long distance that calling from one side of the state to another could cost five or ten dollars for an hour?
Now, there is unlimited long distance -- meaning it hardly ever cost the companies anything to start with, or certainly not nearly what they gouged.
Go try and buy a cell phone now.
It has shifted there: you need a data package -- at another $30 a month. Did you ever analyze how much you spend on your cell?
Meanwhile, health care continues to skyrocket. It's one growth industry despite the recession. Its costs have increased nine percent in the past year!
We ourselves -- our bodies -- have become commodities.
Incredibly, many of those most abused by the greedy have been orchestrated into defending them.
Here is paragraph 2424 of the Catechism:
"A theory that makes profit the exclusive norm and ultimate end of economic activity is morally unacceptable. The disordered desire for money cannot but produce perverse effects. It is one of the causes of the many conflicts which disturb the social order.
"A system that 'subordinates the basic rights of individuals and of groups to the collective organization of production' is contrary to human dignity. Every practice that reduces persons to nothing more than a means of profit enslaves man, leads to idolizing money, and contributes to the spread of atheism. 'You cannot serve God and mammon.'"
If you made money this way, it is perhaps time to discern future income.
Capitalism is a fantastic system -- when backed by Catholic morals.
The old law was that people were compensated for what they contributed honestly.
Now, it's the opposite.
Those who manipulate and have assumed control over our financial community sell air and often walk away with billions, even though they not only didn't contribute, not only didn't invent some incredible new product, not only didn't serve anyone, but took advantage of millions.
If this sounds overheated, our apology; it is not said with anger. We are commissioned to report the truth. Read that book on the financial crisis.
You will be educated.
You will also be shocked.
Have you noticed all the store sales now -- how little you pay for clothes at some shops, now that they need your business?
That tells you the incredible, excessive profit margins that had been in place.
At half price, they still turn a nice profit.
Meanwhile, you have to talk to a machine on the phone or go online and struggle through a maze even to give someone your money.
"The development of economic activity and growth in production are meant to provide for the needs of human beings. Economic life is not meant solely to multiply goods produced and increase profit or power; it is ordered first of all to the service of persons, of the whole man, and of the entire human community. Economic activity, conducted according to its own proper methods, is to be exercised within the limits of the moral order, in keeping with social justice so as to correspond to God's plan for man" (Catechism 2426).
Go ahead and figure out how much interest you have paid on your house -- in all probability, to someone who didn't even have the real money to lend (just the financial positioning). Or who holds that second lien (sometimes, on a negative-amortization loan).
"It is a sin against the dignity of persons and their fundamental rights to reduce them by violence to their productive value or to a source of profit" (2414).
While there is currently a clamor for deregulation, it was ironically the opposite -- deregulation, in the financial community, in the Eighties and Nineties -- that has led us to a false economy, a false standard of living, and the brink of a true crisis.
We are not at the end of it.
We may patch things for a year or two. We may waste money on "stimulus." We may print money backed by nothing.
But the crisis will not end until we descend to the same extent as we have risen artificially.
There is much more until we reach that point.
A recession, perhaps; but not yet a very deep one. Right now, folks are perhaps cutting down on the number of cell phones in the family, and shaving down a few nights out at restaurants, and looking for bargains at J.C. Penney's or Belk's or Macy's. Macy's!
Frugality is starting to take hold, if only as yet in a small way (and thank God -- Who wants us to waste nothing!). We will be better off for it. We are being simplified. Time spent spending money can now be spent in prayer.
We can feel and pray for those who have lost honest jobs. So many have!
And there are certainly good, devout rich people (including in the financial sector).
Don't throw them in with the bathwater.
But when we note that the biggest health problem among the rich and poor in our nation is obesity, we can see that we are certainly not near anything like a depression -- although a depression it would be if the real money were counted, currency backed by actual manufacture and sweat or silver or gold, by real land, by real estate -- not the fluff-stuff of that casino called Wall Street.
-- by Michael H. Brown