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Rajiv
06-12-08, 11:26 PM
A Dark Cloud Over Sunny San Diego (http://jonnyob.blogspot.com/2008/06/dark-cloud-over-sunny-san-diego.html)

An excellent article from a new blogger - "Debt Slavery Emancipation"

A long article, very well worth reading


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A wise and successful man made a comment to me once that has stuck out in my mind ever since. He told me there is one major difference between the wealthy and the destitute. "Rich people earn interest," he said with a smirk. "Poor people pay it."

Throughout my early schooling I had learned about the old English Fuedal system. Back then you were either born into the upper class or you weren't, and if not there was no chance of escaping your class. English Nobility owned land by birthright and the rest of the population had to work in servitude for the right to stay on the land.
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My point with this digression into history is that there will always be oppressors and the oppressed. Like many young people I had assumed that feudal and class systems were a thing of the past. However, the more I studied finance the more I realized that the class system hasn't gone anywhere, it has only become more complex and oppressive, yet it is still centered around one main theme - ownership.

The great thing about this country is that unlike many other countries, with the right education (either academic or real world), daring, luck, and calculated risk, you can actually break free from your class and move up in the world. Back in 19th Century Ireland if you were a tenant farmer paying rent to the English Nobility, you were going nowhere fast.

Today I look around and see people unwittingly signing up for similar servitude. The modern American culture is based on debt and over-consumption. The desire to please Mr. and Mrs. Jones is ubiquitous, and much like the fungus that once spread though Irish potato crops, it is robbing the American public of its last resort to eat - savings.

The average American Jane and John Doe are completely financially illiterate. They treat credit like it was money in the bank and measure their ability to purchase big ticket items on the size of the lowest possible monthly payment, rather than the ultimate long term cost. The American Dream of home ownership is becoming a nightmare as countless "homeowners" realize just how badly they were screwed by the "nice Realtor they met at the cocktail party".

The fact that your average Joe is clueless about personal finance is no accident - it is that way by design. The controlling upper class - the people that actually own everything - are on an endless mission to further entrench their status and create a deeper divide between the classes. The more financial illiteracy, the more secure they become.

Many people are familiar with the works of Sigmund Freud, the famous Austrian father of psychiatry. His work had massive influence in the world of mental health though many, if not most of his theories have been debunked. His not-so-famous, yet much more influential nephew was a man by the name of Edward Bernays. The Bernays family came to the United States in 1892. Edward graduated from Cornell University in 1912 and made his fortune off the backs of the working man, and has had a direct hand in how we feel about ourselves today.

What he saw in the people of the United States was a large population of people he could influence and take advantage of. He recognized that people are ultimately selfish and discovered that he could manipulate that selfishness for profit. He made millions of dollars consulting American corporations how to extract the savings from the American working class.

Bernays called his method of social persuasion of the masses "engineered consent" and posed this question in his book: "If we understand the mechanism and motives of the group mind, is it not possible to control and regiment the masses according to our will without their knowing about it? The recent practice of propaganda proved that it is possible, at least up to a certain point and within certain limits."

The propaganda he refers to is that used by Adolf Hitler to convince an entire class of otherwise upstanding citizens that genocide was an acceptable endeavor. In Hitler's book Mein Kampf he wrote about what he liked to refer to as The Big Lie. He said if you repeat the Big Lie enough times they will soon believe it - much like The Big Lie spewed by the National Association of Realtors that property values always go up. They don't.

Back then working Americans did not purchase consumer goods. They bought only the essentials and saved their money diligently. Bernays discovered methods of marketing that would appeal to their sense of "Self" and convince them to purchase goods that would at least make them appear to be above the working class status. Bernays personally midwifed Mr. and Mrs. Jones. His techniques worked brilliantly bringing him huge consulting fees from corporations looking to pillage the working man's savings accounts.
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To me interest and tax are the same thing - an unrecoverable expense with no return. There is one caveat to this however. A citizen in good standing can't avoid taxes - but he can avoid interest.
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The manic pursuit of the American Dream has ultimately fractured this economy. Millions of people signed 30-50 year debt contracts with the expectation that real estate would continue to appreciate ad infinitum, liberating them from their factory and office jobs. This was an obvious recipe for disaster to anyone who made the effort to do a little analysis. You don't become wealthy by strangling yourself in debt. How can an entire class of people rise in status all at once while adding no value to the economy? On whose backs are they riding?
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It became clear to me that something was terribly wrong with the American Dream when I read a story of an undocumented strawberry picker, whose pretax income was $15,000 per year. He actually received a mortgage for a $750,000 house. What bank would do such a thing? Was the manager smoking some homegrown or what?

Upon further investigation I discovered that the bank managers weren't stoned at all, but giddy from excitement about the scam they were pulling off with the help of their pals on Wall Street. See they knew all along that Pablo the strawberry picker couldn't pay them back. They didn't care. They had already passed off the mortgage to the Wall Street investment bankers, who then packaged and dressed it up with similar loans - smeared some lipstick on the pig if you will - and sold them off to unsuspecting saps in far away countries. Our entire economic system was behaving like a strung out frat boy who knows he can't pay his credit card bills, and so maxes each card out as much as possible before anyone notices.

To get a grasp of this financial system, picture for a moment Pablo the strawberry picker hunched over in a field, hard at work. On his back rests a large inverted pyramid of debt. As long as he keeps picking the strawberries and making his interest-only-adjustable-mortgage-payment, then the portfolio his loan was sold into keeps performing and retaining value. This portfolio, filled with a thousand similar strawberry-picker type mortgages, is then put up as collateral to take out let's say a billion dollar loan from an even bigger bank, in order to lend or invest again. The middlemen rake in the huge fees and enjoy strawberry cheesecake after their steak dinners.

The ultimate purchasers of this debt were foreign investors who had no idea the portfolios were riddled with bad debt - loans made to marginally employed people who were coached to lie on their mortgage applications by the shady loan officers.

One would expect some oversight in the most "Advanced Capitalist Economy in the World." But alas the political landscape in this country has set the stage for what is yet to come. The fox was left to watch the chickens. The companies that had a hand in rating these "Structured Investment Vehicles" otherwise know as packaged bunk mortgages, had their other hand in the cookie jar. The relationship between these companies that had been enabled by the deregulation of the banking system is nothing short of corruption. And who was responsible for this deregulation? None other than Sen. Phil Gramm who is currently John McCain's economic adviser and the intended candidate for Treasury Secretary if the country votes Republican.

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(contd (http://jonnyob.blogspot.com/2008/06/dark-cloud-over-sunny-san-diego.html))

Contemptuous
06-13-08, 12:01 AM
Very well written article Rajiv. Although this bloggers sunglasses look like a cross between Jackie "O" and Sonny Bono impersonating an insect. Wierd looking dude. If I ran into him in downtown San Diego I might conclude the guy was on methamphetamines. San Diego housing market is still dropping hard.

http://bp0.blogger.com/_-GqEps793ZE/SE5kqS8PhwI/AAAAAAAAAAs/RQqIgbUPVk8/S220/j2.jpg