Ponzi Is Us

Commentary By Ron Beasley

I suggested here that Wall Street was nothing but a Ponzi Scheme.  Writing at Forbes Nouriel Roubini suggests that for at least 10 years the entire US economy has been one giant Ponzi Scheme.

Americans lived in a "Made-off" and Ponzi bubble economy for a decade or even longer. Madoff is the mirror of the American economy and of its over-leveraged agents: a house of cards of leverage over leverage by households, financial firms and corporations that has now collapsed in a heap.

When you put zero down on your home, and you thus have no equity in your home, your leverage is literally infinite and you are playing a Ponzi game.

And the bank that lent you, with zero down, a NINJA (no income, no jobs and assets) liar loan that was interest-only for a while, with negative amortization and an initial teaser rate, was also playing a Ponzi game.

And private equity firms that did over a $1 trillion of leveraged buyouts (LBOs) in the last few years with a debt-to-earnings ratio of 10 or above were also Ponzi firms playing a Ponzi game.

A government that will issue trillions of dollars of new debt to pay for this severe recession and socialize private losses may risk becoming a Ponzi government if--in the medium term--it does not return to fiscal discipline and debt sustainability.

I think the root of this problem goes back nearly 30 years with Ronald Reagan's successful attempt to destroy the US middle class.  The spending power of the middle class was what drove the US economy.  To make up for diminishing disposable income the Greenspan Fed flooded the economy with easy credit.  This policy was carried our on steroids by Greenspan before the 2004 election in order to make appear that the "recovery " continued to give George W. Bush an election boost.  This credit frenzy was enough to bring the Ponzi economy down.   

Update

James K Galbraith agrees that much of the current economic problem revolves around the weakening of the middle class and that any recovery must focus on improving the finances of the middle class - that is to say undo Reaganomics.

Comments

[woody]

I suggested here that Wall Street was nothing but a Ponzi Scheme. Writing at Forbes Nouriel Roubini suggests that for at least 10 years the entire US economy has been one giant Ponzi Scheme.

It's been way longer than 10 years. It started with Raygun, in earnest. But even before that, there was a generation of folks who were skeptical of the unchallenged "promises" of the USer economy. They're now know by the acronym "DFH."

Whatever the patina of triviality that was spread over the original movement, the we who were deeply involved DID have a consistent, organized philosophy. We DID sit up talking all night about politics and mobilizing and organizing.

Yeah, we smoked some weed, and dranks some wine (or beer), and maybe dropped some acid. And yeah, we made love a lot.

But I'd guess that's true of every revolution.

And Us DFHs Wuz RIGHT.

[John Ballard]

Good catch.
The RGE newsletter has more links than anyone can ever drill and read, but this week that one by Roubini himself was at the top. It came just in time for me to use in a comment that got out of control... so I made a post of it.

[Dredd]

The 'P' in the ponzi might be American, but the 'onzi' is a very interesting foreign story:

http://blogdredd.blogspot.com/2009/03/aig-iraq.html