Becoming Banana Republic

“The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

“C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.

EDITOR’S NOTE: Economists from the International Monetary Fund, World Bank and G-20 have been describing us as a Banana Republic in the making for 3 decades. They have consistently and accurately estimated the consequences and effects of our policies with incredible precision because we have dozens of countries that fell into the rut we find ourselves. What was in their crystal ball? CLARITY. TRUTH. AWARENESS of HISTORY.

Is it inevitable that we stay this way and get worse. Some say yes. Maybe they are right. But it doesn’t HAVE to stay this way and get worse. It just keeps going that way because you and I let it happen. We could change it in an instant, by merely allowing the facts to creep into our belief  system, by rejecting factoids, infotainment, and the other garbage that passes as journalism. The real stuff is on the Internet — but so is the worst stuff that is pure malice and lies. So you need to use your own head and do your own thinking and stop listening to other people who try to tell us how to think about things.

If we don’t recognize the obvious elephant in our living room and do something about it, then we get what we deserve — bananas. The wealth of this country is in actuality sitting in the hands, legally speaking, of the middle class and even the poor, who have all been deceived into thinking they lost it to Wall Street. What Wall Street actually has are papers and promises that are all counterfeit. But if we accept the lie as true, then it becomes true. If someone tells you its day when it’s night and you accept what they said, it might just as well be day and you better go to work, if you are lucky to have a job. If everyone else seems to be acting as though it’s day then even though it’s dark as pitch, it all seems vaguely true even though it doesn’t completely make sense.

Here is a dose of truth. Those homes that were foreclosed still belong to the people who owned them before the supposed foreclosure. Those mortgages they signed are invalid encumbrances and so are dischargeable in bankruptcy, unsecured, and the naked undocumented obligations are subject to numerous defenses, affirmative defenses and counterclaims. Those mortgage bonds were empty containing nothing but puffs of whatever Wall Street was smoking when they dreamed they could take all the money in the world and get away with it.

The question then is not whether we must be a banana republic because of the inequality of wealth and compensation, the question is whether the supposed inequality is real. If you claim the house, it’s my opinion and the the opinion of a growing number of legal scholars that the house is yours. Presto, $13 trillion in  illusory assets just disappeared along with around $40 trillion in synthetic derivatives. Where did it go? Into the pockets of ordinary people to the tune of around $8 trillion because that is all the property was ever worth.What about Wall Street? What will happen? Turn about is fair play. “That’s your problem pal. Personal responsibility, ever hear of it?”

Seem like a dream? OK. Which do you prefer, my rendition of reality or the nightmare that Wall Street and the US Government is trying to sell us?

November 6, 2010

Our Banana Republic

By NICHOLAS D. KRISTOF

In my reporting, I regularly travel to banana republics notorious for their inequality. In some of these plutocracies, the richest 1 percent of the population gobbles up 20 percent of the national pie.

But guess what? You no longer need to travel to distant and dangerous countries to observe such rapacious inequality. We now have it right here at home — and in the aftermath of Tuesday’s election, it may get worse.

The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.

That’s the backdrop for one of the first big postelection fights in Washington — how far to extend the Bush tax cuts to the most affluent 2 percent of Americans. Both parties agree on extending tax cuts on the first $250,000 of incomes, even for billionaires. Republicans would also cut taxes above that.

The richest 0.1 percent of taxpayers would get a tax cut of $61,000 from President Obama. They would get $370,000 from Republicans, according to the nonpartisan Tax Policy Center. And that provides only a modest economic stimulus, because the rich are less likely to spend their tax savings.

At a time of 9.6 percent unemployment, wouldn’t it make more sense to finance a jobs program? For example, the money could be used to avoid laying off teachers and undermining American schools.

Likewise, an obvious priority in the worst economic downturn in 70 years should be to extend unemployment insurance benefits, some of which will be curtailed soon unless Congress renews them. Or there’s the Trade Adjustment Assistance program, which helps train and support workers who have lost their jobs because of foreign trade. It will no longer apply to service workers after Jan. 1, unless Congress intervenes.

So we face a choice. Is our economic priority the jobless, or is it zillionaires?

And if Republicans are worried about long-term budget deficits, a reasonable concern, why are they insistent on two steps that nonpartisan economists say would worsen the deficits by more than $800 billion over a decade — cutting taxes for the most opulent, and repealing health care reform? What other programs would they cut to make up the lost $800 billion in revenue?

In weighing these issues, let’s remember that backdrop of America’s rising inequality.

In the past, many of us acquiesced in discomfiting levels of inequality because we perceived a tradeoff between equity and economic growth. But there’s evidence that the levels of inequality we’ve now reached may actually suppress growth. A drop of inequality lubricates economic growth, but too much may gum it up.

Robert H. Frank of Cornell University, Adam Seth Levine of Vanderbilt University, and Oege Dijk of the European University Institute recently wrote a fascinating paper suggesting that inequality leads to more financial distress. They looked at census data for the 50 states and the 100 most populous counties in America, and found that places where inequality increased the most also endured the greatest surges in bankruptcies.

Here’s their explanation: When inequality rises, the richest rake in their winnings and buy even bigger mansions and fancier cars. Those a notch below then try to catch up, and end up depleting their savings or taking on more debt, making a financial crisis more likely.

Another consequence the scholars found: Rising inequality also led to more divorces, presumably a byproduct of the strains of financial distress. Maybe I’m overly sentimental or romantic, but that pierces me. It’s a reminder that inequality isn’t just an economic issue but also a question of human dignity and happiness.

Mounting evidence suggests that losing a job or a home can rock our identity and savage our self-esteem. Forced moves wrench families from their schools and support networks.

In short, inequality leaves people on the lower rungs feeling like hamsters on a wheel spinning ever faster, without hope or escape.

Economic polarization also shatters our sense of national union and common purpose, fostering political polarization as well.

So in this postelection landscape, let’s not aggravate income gaps that already would make a Latin American caudillo proud. To me, we’ve reached a banana republic point where our inequality has become both economically unhealthy and morally repugnant.

I invite you to comment on this column on my blog, On the Ground. Please also join me on Facebook, watch my YouTube videos and follow me on Twitter.

13 Responses

  1. I am encountering more natural-born US citizens who are leaving out of this country.

    Others who fear that civil unrest is coming are moving away from big cities and heading to less populated areas, especially areas where they have extended family members.

    It is the first time in my life that I’ve seen others acting on their fears, not just talking.

    Due to the downturn in funding, large cities are having to decide how to budget funds to keep the basic services intact. Many have burdens of public employee pension plans that have unrealistic guarantees. Those pension plans are going to have some major cities in the news soon unless the bad news from other quarters forces those stories to page 2 or 3.

  2. Apropos to this thread, here’s a good article on the Fed. Arguably one of the worst things that ever happened to what used to be our called our democracy.

    In the last two years, the almighty Fed has printed trillions of dollars in our name to buy worthless mortgage assets from “too big to fail” banks. It has lent these banks our hard-earned money at about 0% interest, so they could lend our own money back to us at 3%+. These banks also used our free money to ramp equity and commodity markets, which mostly benefited the top 1% of our population who owns 43% of financial wealth, and conveniently, also owns the Fed. The latter has kept interest rates at next to nothing to punish savers and encourage speculation, making everything less affordable for average Americans who have seen their wages stay the same, decrease or disappear. What’s left standing is the perniciously powerful, highly secretive and entirely unaccountable Fed, who now epitomizes the state of American democracy.

    We have all become subject to the misguided and/or malicious whims of a few wealthy individuals operating the levers of economic policy, with no adequate means of challenging their power. Our most treasured contribution to political society has been reduced to a bunch of meaningless articles and amendments, containing equally meaningless words. We the people, in our pursuit of “a more perfect union”, have fallen into an age-old trap. Our economic policies, currency and laws are all manufactured by our very own private dictator, who amasses a fortune from our collective exploitation and destruction. Then, this despot continues to operate like nothing ever happened. We can scream “ABOLISH THE FED” all day, non-stop to every single politician at the top of our lungs, but it will never happen. The reality is that there is only one way back to a true democratic system now, and this path will require nothing less of us than the courage of our forefathers.

    Grab the pitchforks, the time has come.

    Read more: http://www.businessinsider.com/fed-is-unconstitutional-2010-11#ixzz14f5DEERf

  3. neidermeyer,

    Fits like Michael Jackson’s glove!

  4. Frankielee ,

    I can compress your post into four words … “Who is John Galt?”

  5. The flat or even regressive tax rates today encourage this greed.The rates were dropped and leveled from the traditional progressive rates which ran to 70% and higher prior to Reagan. That era dropped the rates and started the race for who could steal the most. Early favorites include Lay at ENRON. Under the old rate structure there simply was not enough money left after taxes to claim excessive amounts of income. Not worth going to jail–right Michael Milken? So then inheritance tax put another kibosh on high living. Everything worked fine from the 40’s to the 80s and since then there is no restraint. The only way to have the culture survive with regressive rates is strong enforcement of rationale laws designed to curb financial fraud.

  6. Yes, there are elites in every human culture (and in the social apes as well). But unlike a troop of chimps ruled by an alpha male, today’s elites cannot operate the vast complex structure of the the U.S. economy, government and society themselves. They need hundreds of thousands of well-educated, hard-working people to believe in the system of meritocracy, justice, opportunity, etc., people who will choose to invest their entire productive lives in sustaining the structure the elites influence/control.

    The corollary to this structural need for highly motivated, dedicated people to work the gears is that if their belief in the machine fades, then the machine grinds to a halt.

    In the Armed Forces, the key layer of staffing is in the middle: lieutenants, captains, chief petty officers, etc. If those non-coms and junior officers leave the service, the Force is essentially gutted, regardless of the generals and admirals and high-tech weaponry and the valor of the recruits.

    There is some evidence that just such a migration is occuring.

    In a large law firm, the essential layer is the hungry-to-be-partner attorneys who labor insane hours for years, enriching their bosses as they pursue the carrot of “partner.”

    In the retail world, it is the store managers and assistant managers who keep the store running smoothly.

    In construction, it is the foremen/women and onsite supervisors who get the building built.

    In every case, the person takes on the burdens in the belief that their career will be enhanced and they will make more money/gain more prestige. Yes, we all understand this. But they also must believe in the structural fairness, justice, opportunity, security, meritocracy, etc. of the machine they willingly serve–even if their belief is subconscious or rarely in their conscious thoughts.

    This belief is far more vulnerable than the Powers That Be seem to understand. You see the alienation, the bitterness, the disbelief, in factory workers when the factory shuts down, and their livelihoods are gone–and all too often, so too are the pension and benefits they were promised.

    You see it in the face of an academic who worked long hours for years “on the tenure track,” carrying much of the department’s teaching load, when she/he is ultimately denied tenure. Thank you for working for $40,000 a year for years alongside people doing the same work for twice the salary; good night and good luck.

    When the most dedicated servants of the system awaken to the realization that they are not benefitting from their service as they’d once believed, that their near-religious faith in the System has been bruised by the grim knowledge that the few are benefitting from the lives and sacrifices of the many, then they simply quit, or move down the chain to an undemanding position.

    You can still work in law without having to bill 80 hours a week. You can resign your commission at 20 years and go live on a farm and leave all the headaches behind. You can resign from the commissions and boards and “career-enhancing” stuff you’ve crammed in after your regular hours. You can refuse the offer of the position of supervisor, or manager, or head of sales, because you now see the extra pay and phony prestige isn’t worth it.

    In a way, a belief in the value, transparency, trust and reciprocity of the System is like a religious belief. The converts, the true believers, are the ones who work like crazy for the company, or the Force or the firm. And when the veil of illusion is tugged from their eyes, then the Believer does a reversal, and becomes a devout non-believer in the System. He or she drops out, moves to a lower position, or “retires” to some lower level of employment.

    One trigger of such destruction of belief in the worth of the System is the loss of a job or house–an event I unfortunately anticipate will become very common. “But don’t these people have to work to support their lifestyles?” Yes they do, until they realise they can live on half the money they thought they needed as an absolute minimum.

    Not that most people choose this–they find out via bankruptcy or being laid off, or by watching their buddies and friends getting laid off (or killed/wounded) around them. Their belief in the goodness and reciprocity of the System–that if you work hard and keep your nose clean, we’re gonna take good care of you–fades and then dies.

    Immigrants are by self-selection believers, and the rise from poverty to relative wealth they see around them offers visible proof that sacrificing one’s productive life for the System is rewarding.

    But once you’ve reached the plateau of relative wealth, then the proposition becomes contingent on exactly what happens to you and your family. If your kids all get advanced degrees and they can’t find a decent job in their chosen profession, then you start wondering. If you get laid off, despite your decades of selfless service, then you start wondering. If you get passed over in favor of some brown-noser, you start wondering.

    And then you realize you don’t have to work 60 hours a week, or live in a big house. An apartment works just fine, and 40 hours a week is enough. Let somebody else step up and take all the heat and the guff and the never-catch-up endlessness of the work.

    At that point–a point I anticipate will come to pass in the next 5-10 years–then the elites’ machine grinds to a crawl. People don’t have to throw their bodies on the gears of the machine–they just have to stop believing, stop taking that promotion, and stop wanting to trade their entire lives for a thin slice of more more more.

    If that day comes, then the social contract will have to be rewritten, or an entirely new set of elites will have to emerge with a new social contract which people are willing to believe and trust.

    Charles Hugh Smith

    http://www.oftwominds.com/blog.html

  7. The Fed is leading the United States to ruin in ways that are claimed to be well intentioned and benign viewed in isolation but which take us finally into a locked room reminiscent of the Sartre play “No Exit.”

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/5_Jim_Rickards_-_Fed_May_Go_Bankrupt.html

  8. Funny, you should mention Banana Republics. LOL I’m Nicaraguan, and my family and I were saying that we might as well all go back to Nicaragua and El Salvador. At least in most Central American countries you know to expect the corruption and the officials don’t even deny it. Here, government still wants to pretend like corruption does not exist and that all is well.

  9. Well, some of you may know the condition of Cuba BEFORE the revolution. Widespread poverty, illness, death, not enough food and lots of creepy guys at the top with lots of money, fancy cars, mansions, and guns. They had to have lots of guns because the rabble (the poor and starving) were getting pretty raucous. It is happening here in the good ole USA. I read once that people have to be desperate to have a revolution. I hope we can save America.
    http://www.challengingforeclosure.com
    Sirak@challengingforeclosure.com

  10. I love this, Neil. I’m sticking with you.

    To put it in Bible terms, ” For as he thinketh in his heart, so [is] he:…” Proverbs 23:7 KJV

  11. we have been living in an illusional world for a very long time now. Problem is that now the truth is emerging that our nation is “plastic” There is no where left to turn for these “Banks” that have been artifically inflated to the point of no return. They are in panic and are trying to panic this nation. We cannot run to them and beg for their mercy, the time has come to stand up for your self and your family. Remember mirada rights that have been given to us. We will prevail.

  12. Nobody is buying their goods either. Nobody is buying Cars Houses Furniture The malls are empty etc…

  13. How could the rich be so rich if their properties and businesses are all worthless. The Dollar is worthless. The properties are worthless and in effect their stocks are also artificially high. For the dollar is worthless.

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