5 Myths Helping to Drive Occupy Wall Street
By John Hawkins
10/25/2011
Occupy Wall Street is a lot like Barack Obama's 2008 campaign. It's so vague that everyone sees what he wants to see in the protests. Some people hate the bailouts, others want free stuff, some are mad about jobs being shipped overseas, others are old hippies hoping for a sixties’ revival and that's before you even start talking about the Communists, Nazis, anarchists, and wannabe revolutionaries.
Even though Occupy Wall Street is sort of a smellier, dirtier, less focused, more violent bizarre-world version of the Tea Party, some of the people attending the protests do mean well -- and they do have at least one legitimate grievance. Both parties in power gave the thumbs up to TARP and the bailouts, which were really little more than "heads, we win; tails, the taxpayers lose" crony socialism. Whether it's banks, big agriculture, solar firms, General Motors, or Chevrolet, big business shouldn't be given our tax dollars. If they can only make it with an infusion of taxpayer dollars, then it's better for the country in the long run if they don't survive.
That being said, since the Democratic Party is running a 2012 campaign centered around one of the Seven Deadly Sins, envy, it has worked hard to create a number of myths that someone needs to address.
1) Wall Street created the housing crisis! Most people don't understand the housing crisis and that's largely because a lot of people don't want the public to understand it.
There's a simple reason for that: 90% of the blame lies with government.
Here's a nutshell explanation of how the housing crisis was created. In 1994, during Bill Clinton's presidency, the Community Reinvestment Act was changed. The government started making banks an offer they couldn't refuse: Start making loans to "bad risks" or -- and this was the unspoken threat -- your bank might have an "accident." Maybe the regulators will accuse you of bias. Maybe you'll need a merger and get turned down. Who knows what could happen?
The implicit threat from the government, which was really all about politicians being able to brag that they'd helped get the home ownership rate up, worked wonders.
Although subprime and other risky mortgages were relatively rare before the mid-1990s, their use increased dramatically during the subsequent decade. In 2001, newly originated subprime, Alt-A, and home equity lines (second mortgages or "seconds") totaled $330 billion and amounted to 15 percent of all new residential mortgages. Just three years later, in 2004, these mortgages accounted for almost $1.1 trillion in new loans and 37 percent of residential mortgages. Their volume peaked in 2006 when they reached $1.4 trillion and 48 percent of new residential mortgages.[3] Over a similar period, the volume of mortgage-backed securities (MBS) collateralized by subprime mortgages increased from $18.5 billion in 1995 to $507.9 billion in 2005.
All of this worked out fine as long as home prices kept going up, but when the bubble burst, the whole system was doomed because it was filled with so many people who shouldn’t have been given loans in the first place. Meanwhile foreclosures ramped up and suddenly there was a housing glut created by the tremendous drop in demand. This is why housing prices are still in the dumps across most of the country and probably will continue to be for a good, long while.
This is where the banks and hedge funds blew it with derivatives, which ended up spreading the crisis and creating a credit crunch, not just across America, but across the world. Of course, if the government hadn't created the underlying bubble, there would have been no crisis to spread.
So, cast stones at Wall Street all you like, but there's no CEO in the country who has as much responsibility for creating the housing crisis as people like Bill Clinton, Barney Frank, Chris Dodd and, yes, even a few Republicans -- although to George W. Bush's everlasting credit, his administration did at least make a genuine attempt to work with Congress to fix the problem in 2002 that ultimately was blocked by the Democratic party and went nowhere.
2) Obama is fighting against Wall Street! Like most slick politicians, Barack Obama is a master of deception and misdirection. On the one hand, he incessantly rails against the rich and Wall Street. On the other hand, he pals around with people like Warren Buffet and Jeffrey Immelt while he doles out hundreds of billions of dollars in tax dollars to corporations.
Yes, George W. Bush may have gotten TARP rolling, but people forget that Obama publicly supported the program while he was running in 2008 and expanded it when he became President. Wall Street really got its money's worth out of Barack Obama, although he made sure it paid handsomely for the privilege.
Not only did "Wall Street (donate) twice as much money to Barack Obama's presidential campaign in 2008 as it did to John McCain's," "Barack Obama has received more money from Wall Street than any other politician over the past 20 years, including former President George W. Bush."
You think Wall Street is giving Barack Obama all that money for no reason? Come on, even if you were born at night, you'd need to have been born last night to believe that.
3) The war in Iraq created our deficit problem! Whether you agree with the war in Iraq or not, it hasn't been a cheap endeavor. That being said, if you listen to some people talk, you'd think we wouldn't have any deficit woes if not for the war.
Not true at all.
According to CBO numbers in its Budget and Economic Outlook published this month, the cost of Operation Iraqi Freedom was $709 billion for military and related activities, including training of Iraqi forces and diplomatic operations.
The projected cost of the stimulus, which passed in February 2009, and is expected to have a shelf life of two years, was $862 billion.
The U.S. deficit for fiscal year 2010 is expected to be $1.3 trillion, according to CBO. That compares to a 2007 deficit of $160.7 billion and a 2008 deficit of $458.6 billion, according to data provided by the U.S. Office of Management and Budget.
Whether you're in favor of the war in Iraq or not, this country isn't at risk of becoming Greece because of the war in Iraq.
4) Republicans want to kill Social Security and Medicare. No politician in his right mind would try to reform Social Security and Medicare for purely political reasons. It's extremely easy to demagogue the issue; old people show up at the polls and they care desperately about their Social Security and Medicare benefits.
It's understandable that people feel that way. After all, if you've paid into Medicare and Social Security all of your life and then, after you start getting your benefits, someone comes along and says, "You might not get as much as you were promised," it's natural to be angry.
Here's the thing: The government has promised to pay out a lot more in Social Security and Medicare benefits than it can afford to pay -- 100 trillion dollars more actually. There is such an unfathomably large gap between what people expect to be paid and what they're going to receive that we won't even be able to borrow that much money.
The danger at this point is not that we'll reform entitlement programs; it's that we won't do it and it will put us so deep in hock that we'll default on our debt, which could lead to Social Security and Medicare checks stopping entirely. This is a real danger and it's entirely possible that it could happen within a decade or two. When you consider that all the Republican plans to change the programs impact people 55 or younger, it becomes clear that the risk to people who already rely on the programs doesn't come from the GOP; it comes from the people fighting to keep Social Security and Medicare in their current unsustainable form.
5) Our country could fix its problems if the rich paid "their fair share!" Many people incorrectly believe that the rich are getting by without paying taxes and if we somehow forced them to pay their "fair share," all of our problems would be solved.
That's simply not true.
We already have the most progressive tax code of any western nation, which isn't exactly a shocker when you consider the fact that 47% of Americans pay no income tax at all while we have the 2nd highest corporate income tax in the world and "taxpayers with at least $100,000 in adjusted gross income each year account for 12% of the tax returns, 49% of the income and 75% of the taxes."
In other words, the "rich" are paying through the nose already and setting all notions of fairness aside, it’s impossible to loot enough from them to pay off our deficit and debt, much less finance any new spending.
"In fact, in 2006, the Census Bureau found only 2.2 million households earning more than $250,000. And most of those are closer to the Lubbock city manager than to Carlos Slim, income-wise. To jump from the 50th to the 51st percentile isn’t that tough; jumping from the 96th to the 97th takes a lot of schmundo. It’s lonely at the top.
But say we wanted to balance the budget by jacking up taxes on Club 250K. That’s a problem: The 2012 deficit is forecast to hit $1.1 trillion under Obama’s budget. (Thanks, Mr. President!) Spread that deficit over all the households in Club 250K and you have to jack up their taxes by an average of $500,000 — which you simply can’t do, since a lot of them don’t have $500,000 in income to seize. Most of them are making $250,000 to $450,000 and paying about half in taxes already. You can squeeze that goose all day, but that’s not going to make it push out a golden egg.
….Every time you raise the threshold for eating the rich, you get a much, much smaller serving of meat on the plate — but the deficit stays the same. The long division gets pretty ugly. You end up chasing a revenue will-o’-the-wisp." — Kevin Williamson
Even if Obama were to get his way and Republicans agreed to pass all the new taxes that Obama wants, it wouldn't make a significant dent in our deficit THIS YEAR -- much less get the deficit under control long term, pay off the debt, or fix our long-term problems with Social Security and Medicare that are dragging our nation towards insolvency.
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To read another article by John Hawkins, click here.
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To read more about the OWS, or to watch videos, click here.
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