Friday, May 14, 2010

slouching towards neofeudalism

Video - the elite my base.

TheEconomicPopulist | Detroit Mayor Dave Bing is struggling to save his city from fiscal calamity. Unemployment is at a record 28% and rising, while home prices have plunged 39% since 2007. The 66-year-old Bing, a former NBA all-star with the Detroit Pistons who took office 10 months ago, faces a $300 million budget deficit—and few ways to make up the difference.

Against that bleak backdrop, Wall Street is squeezing one of America's weakest cities for every penny it can. A few years ago, Detroit struck a derivatives deal with UBS (UBS) and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city's credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That's precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab.

What most often happened is that Wall Street rating agencies, the same agencies implicated in corrupt business practices, downgraded the municipal bonds, thus turning the the financial deals into an albatross for broke cities, but a profitable one for Wall Street.

Detroit is hardly alone. No state in the union has been spared the backlash of a one-sided financial deal that transferred public wealth to the already wealthy. Wall Street is raking in huge amounts of money from our broke cities and states at the worst possible time. The SEIU did a study which shows the country's municipal governments losing $1.25 Billion just from these interest rate swap deals alone.

"Elected officials are simply no match for the investment banker that's selling the deal."
Yet in conservative political circles there is little blame directed at Wall Street. They would rather blame the guy picking up their garbage for his $45,000 a year wage, than they would denounce the investment banker who tricked their city government out of hundreds of millions of dollars. Can these people even do math?

The logic of this attitude reminds me of someone who drives all the way across town to "save" a couple nickles on gas, while blindly shoving thousands of dollars into their 401k that someone they've never met on Wall Street manages. Matt Taibbi wrote about this phenomenon last year.
The setup always goes the other way: when the excesses of business interests and their political proteges in Washington leave the regular guy broke and screwed, the response is always for the lower and middle classes to split down the middle and find reasons to get pissed off not at their greedy bosses but at each other. That’s why even people like Beck’s audience, who I’d wager are mostly lower-income people, can’t imagine themselves protesting against the Wall Street barons who in actuality are the ones who fucked them over.
Taibbi describes it as a "peasant mentality". I agree. However, Taibbi doesn't take the logical next step and tells us what it all means - neofeudalism.