by Heather Wokusch

"Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we." - George W Bush

Much in the same way that US investors were "steered" into rip-off mortgage loans, the entire country has been "steered" into an economic crisis. The question is how to get out of it.

In the subprime loan scandal, unscrupulous brokers conned home buyers with poor credit histories into deals designed to profit lenders and bleed borrowers. Contract "teasers" hid ballooning monthly payments while a lack of regulation allowed the scam to continue unabated. Millions more Americans now face losing their homes.

The Bush administration similarly used promises of cakewalks and increased security to con the US public into wars with Iraq and Afghanistan. US taxpayers have spent over $450 billion on Iraq alone, while Bush/Cheney cronies continue making a killing from military contracts. Meanwhile, global security has degenerated and over 4,100 US service members have died in Iraq and Afghanistan, along with an untold number of coalition troops, contractors and civilians.

Bush's military adventurism, not to mention his administration's exorbitant tax cuts for the wealthy, gutted the surplus of $128 billion Clinton handed him in 2001 into a deficit of well over $200 billion today. And Bush has simultaneously increased the national debt by over $3 trillion (to roughly $9 trillion), effectively nailing each and every US citizen with a bill for almost $30,000.

While heavy borrowing from Asia has mopped up some stateside red ink, there's an inherent threat: China, for example, has an estimated $900 billion in US bonds and can increasingly call the shots on the US economy and foreign policy.

Just weeks ago, Beijing warned that if the Bush administration pushed for a revaluation of the Chinese currency, then Beijing would sell dollars, thereby threatening the greenback's reserve currency status. Washington backed down. It had little other option.

In other words, the US itself has become as vulnerable to its lenders as any other subprime borrower.

Overall, the US debt situation looks so dire that the non-partisan Government Accountability Office Comptroller recently warned, " America is on a path toward an explosion of debt. And that indebtedness threatens our country's, our children's, and our grandchildren's futures. With the looming retirement of the baby boomers, spiraling health care costs, plummeting savings rates, and increasing reliance on foreign lenders, we face unprecedented fiscal risks."

Financial analysts say credit markets are facing a Minsky moment - the inevitable downward spiral when over-leveraged investors have to sell valued assets just to pay back their loans. Some analysts have even coined a new term, suggesting we are in a "Minsky meltdown" - the prelude to a wider market crash.

But it looks more like a "Minsky massacre," not an unavoidable economic downturn but rather a coldly-calculated hit, with the intention of transferring wealth from the lower and middle classes to an unaccountable few at the top.

Bottom line, this economic downturn isn't hurting everyone. Select brokers and lenders made a fortune off the backs of subprime borrowers, and now that the related hedge funds are collapsing, well-leveraged private equity firms can buy assets at fire-sale prices.

And as Jim Hightower recently noted, a "hands-off regulatory ideology" is complicit: "There are no less than five financial agencies at the federal level that could have protected people, yet the subprime surge was allowed to proceed .... The Federal Reserve Board, for example, has direct authority under the Home Ownership and Equity Protection Act to 'prohibit acts or practices in connection with mortgage loans that the board finds to be unfair, deceptive or ... associated with abusive lending practices, or that are otherwise not in the interest of the borrower.' The Fed simply ignored this law."

The US has been down this road before. The Savings and Loan (S&L) crisis of the late 1980s was also characterized by loose lending requirements, lax regulation, obscene profits for the few - and US taxpayers left holding the bag for $125 billion.

Ironically, the Bush family was involved in that scandal too, with Bush Jr.'s brother Neil serving on the board of the disgraced Silverado Savings and Loan, which went bust and stuck US taxpayers with a $1.3 billion debt. Regulators accused Neil of "multiple conflicts of interest" but he never did jail time - thanks at least in part to the S&L bail out engineered by his father, Bush Sr., who happened to be President at the time.

Just as in the S&L crisis, the poor and middle class have borne the brunt of the current subprime disaster, an especially nasty fact given the nation's huge wealth gap. As Inequality.org points out, "The richest one percent of U.S. households now owns 34.3 percent of the nation's private wealth, more than the combined wealth of the bottom 90 percent. The top one percent also owns 36.9 percent of all corporate stock."

It's probably no coincidence that terms associated with both corporate and developing country indebtedness are being used to discuss the US subprime meltdown (payment defaults, vulture funds, distressed debt, etc). Perhaps the US hasn't reached banana republic status yet, but the increasing wealth gap, not to mention ballooning budget deficits, low capital spending and reliance on foreign capital are disturbing signs.

Doesn't help either that the Federal Reserve stopped releasing M3 money-supply data in 2006. M3 data (covering Eurodollars, repurchase agreements and large-denomination time deposits) is critical in determining how fast the Fed is printing money, which in turn impacts inflation.

So, what further fallout from the subprime scandal can be expected? Millions more Americans will lose their homes, and as The New York Times recently reported, "for the first time since federal housing agencies began keeping statistics in 1950," the median price of homes in the US will fall.

Ratings agencies, such as Standard & Poor's and Moody's, will take some heat for their role in the scandal, but the Bush administration will focus on bailing out predatory lenders rather than helping Americans keep their homes. Congress and most presidential candidates will protect financial services campaign donors by not pursuing true reform.

Meanwhile, Asia and Europe will continue "decoupling" from increasingly volatile US markets, threatening the dollar's reserve currency status even more. Fresh off its recent war games with China and four Central Asian republics,
Russia will more actively confront the US on the world stage. The Bush administration will move closer to a war with Iran.

Of course, these dire predictions don't have to materialize - we can regroup and fight back. One avenue is by urging Congress members to take action, such as changing foreclosure rules to protect homeowners and supporting Rep. Barney Frank's (D-MA) National Affordable Housing Trust Fund Act (H.R. 2895). Rep. Ron Paul's (R-TX) push to have the Fed start releasing M3 data again (H.R.4892 ) is also urgent.

At the very least, we must frame the Bush administration's war-making as a direct threat to the US economy, not to mention national security, and just like maxed out home buyers, confront our nation's culture of debt.

Action Tips:

1. For online videos about the subprime issue and "Money as Debt," visit Brasscheck TV.
2. Check out two groups working on affordable US housing: the Community Land Trust ("to encourage affordable resident ownership of housing and local control of land and other resources") and the National Housing Trust Fund ("a dedicated source of funding for the production, preservation and rehabilitation of 1.5 million affordable homes in 10 years").
3. Learn more about "America's growing economic divide" at
Inequality.org.
4. Concerned about predatory lending? So is The Center for Responsible Lending ("a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices").

Heather Wokusch is the author of The Progressives' Handbook series. For a video of this article or to contact Heather, visit www.HeatherWokusch.com.