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A Conspiracy of Greed: Wealth Inequality and the End of the Middle Class

18 | By Shah Gilani

Ever wonder who’s responsible for the widening wealth gap in America? Or how the middle class across the country got hollowed out in a generation?

It’s not a mystery, though what’s happened has been shrouded in false narratives and fake news.

The truth’s in front of us. We’re living it in real-time. It’s just never discussed openly… for a reason. The people who are behind this growing catastrophe have rigged the system into believing this is normal.

Here’s who to blame, how they did it, and who gets hurt the worst…

Who to Blame for the Disappearing Middle Class

Republicans aren’t to blame. Their old-school platform of a smaller federal government, fiscal conservancy, more power to the states, and belief that a lightly regulated path to working hard and standing on your own two feet is what made America the global bastion of entrepreneurship and helped create a middle class is laudable and fair.

Democrats aren’t to blame. Their old-school platform of a larger, more interventionist federal government spending on social programs supporting and safeguarding workers, all kinds of civil rights, protections for the environment, and their belief that government should stand behind those not able to stand on their own two feet or have been trampled by runaway businesses helped create a middle class is equally laudable and fair.

The two parties, with their vision and flaws balanced by democracy, made America great.

What happened is greedy, neo-con, profiteering Republican crony capitalists hijacked the party, while greedy, limousine liberal, profiteering Democrat crony capitalists hijacked their party. Together, as a new class of elites joined the Masters of the Universe, they began manipulating state apparatuses and banking for fun and profit… A lot of profits.

The crony capitalists’ principal enrichment tools are “financialization” and its manservant, “globalization.”

Financialization is the retooling of the economy’s production and distribution assets, consisting of made-in-America goods and services, into credit-driven banking and financial services products.

At its core, financialization is the transfer of low risk, low profit debt into high risk, high profit products.

The net result of the mass commodification of debt-based financial instruments and leveraged debt (grossly under-collateralized by low risk debt) is rampant speculation. This heavy betting, however, isn’t undertaken just for the sake of pyramiding risks for speculative gains. These so-called “products” are now integral and necessary investment tools because traditional, safe investments don’t yield adequate returns in the world of financialization.

In 1980, according to the U.S. Bureau of Economic Analysis, financial services contributed 4.9% to the country’s GDP. At its peak in 2006, that contribution had almost doubled to 8.3%.

More to the point, in terms of profitability, James Kwak, law professor at the University of Connecticut calculated, in 1980 the financial industry’s profits as a share of total U.S. business profits was 7.5%. That share of all business profits in corporate America jumped to more than 41% by the mid-2000s.

U.S. GDP in 2016 was $18.56 trillion, according to the BEA. In full view of financial services share of GDP (which is rising again) and its share of corporate profits (also on the march to new highs), it’s impossible not to see the financialization of the U.S. economy.

How Financialization Snaked Its Way Into Our Government

The road to financialization began with the overturning of longstanding public and economic protections starting with the Depository Institutions Deregulation and Monetary Control Act of 1980, a Trojan Horse that let banks establish holding companies and gave the Fed more power over more banks.

That major deregulatory action was followed quickly by the Garn-St Germain Depository Institutions Act of 1982, which leveled the playing field for banks and their holding companies experiencing competitive disintermediation and decreasing profitability.

Ultimately, a series of subsequent rules- and regulations-trimming by Congressional cronies crescendoed with the Gramm-Leach Bliley Act of 1999, whose main function was the total repeal of the Depression-era Glass-Steagall Act that for decades separated insured, deposit-taking commercial banks from swashbuckling investment banks.

That’s how elitist Democrats and Republicans paved a super-highway for the financialization of the American economy and their enrichment from the country’s transformation.

Who were the Republicans and Democrats behind the wholesale transformation of America, and where are they now? You’d be shocked at how many of them you know as Senators, House members, cabinet Secretaries, principal regulators… Supposed stalwarts of American prosperity, who’ve become filthy rich at the expense of the middle class, on whose backs and from whose labor and savings they’ve enriched themselves personally and their reelection war chests. I’ve written thousands of pages here in Insights and Indictments naming names and calling these sellouts what they really are: crony capitalist pigs.

The proof is in the pudding. Actually, make that pooling.

Without financialization, we never would have had the subprime mortgage crisis and the market and financial system crashes.

Home mortgages used to be made “locally” by bankers, thrifts, and credit unions that knew their communities, knew the value of properties and neighborhood borrowers. Mortgage loans mostly stayed on the books of lending institutions until maturity or until properties were sold.

Financialization, with its cheap come-on capital, its pooling techniques, its structuring, its tranches, derivatives and synthetic derivatives of derivatives, turned a utility service into a speculative pyramid of leveraged loans that looked and acted more like a Charles Ponzi scheme than the sophisticated, high-yielding, safe (a lot of them packaged with government approval and guarantees) financial instruments they were made out to be by rating agency co-conspirators.

We know how that ended.

The Other Victims of Financialization

The other prime example of the financialization of America is the pooling of student loan debt.

As if leveraging-up the American dream of homeownership wasn’t slippery enough, leveraging-up students and adults stepping up the ladder of a higher education in pursuit of better wages and career opportunities is an even more egregious financialization scheme with the same profit motive.

What happened to professors, administrators, state schools’ and private schools’ goals of helping Americans get a higher education for the fair wages they earned and the balanced budgets they hoped to achieve?

They got greedy. They’re all in the big for-profit game now, thanks to financialization.

Hopeful students are suckered into cheap loans which are, of course, pooled, leveraged, sliced, diced, and sold to investors. The cash those investors fork over can be used to make more loans, to pyramid (or Ponzi, if you choose) students hopes and dreams that a higher education means a higher standard of living.

And if those loans are in arrears, in default, and don’t get paid back, investors don’t worry.

The government, thanks to crony capitalist Congressmen and women, have fixed that profit-leaking hole. Making student debtors “low risk” by having the state guarantee payment of interest and principal to investors – while extracting more payment from grossly indebted students (most of whom never graduate) no matter the cost or the poverty level of those beleaguered, unemployed, underemployed, and generally struggling indebted borrowers – means that more loans can be “sold” like dream-catchers to the uninitiated who have no idea about the trap they’re being lured into.

And as for the neo-liberal educators and liberal schools who want more kids to get a better education, they’re making hundreds of thousands of dollars in salaries and tens of millions of profits every year.

That’s financialization at work.

Then there’s financialization’s manservant, globalization. As if domestic financialization isn’t enough, the world has become a spoke in the profiteers’ wheel of fortune.

Next week I’ll tell you the truth about globalization, and how it is essentially the slave of financialization.

Then I’ll tell you how to play the game while we work together to destroy it.

Sincerely,

Shah

18 Responses to A Conspiracy of Greed: Wealth Inequality and the End of the Middle Class

    • Henry S. Arnold says:

      The middle class has declined, not because of greed, but due to government deficit spending covered by a printing press money and causing devaluation of our money (inflation).

      Those that own assets see them grow, while the average guy, with little or no assets, sees the purchasing value of his paycheck go down. Thus the well off grow richer and the working man growers weaker.

      No bad guys here, only the government

  1. ralph johnson says:

    perfect, succinct analysis in this new age of alternative facts…..kudos, my friend, for telling the basic immoral Washingtub methodology.

  2. Andrew says:

    Shah,

    Thank you for your article “A Conspiracy of Greed: Wealth Inequality and the End of the Middle Class”. Prior to reading your article, I thought the leftist Democrats were the problem with the destruction of America’s Middle Class. But after reading your article, I believe it would be correct that “Democrats are to blame for the destruction of the American Middle Class” is an oversimplification of the death of the American Middle Class. Instead, like you wrote, it’s been certain Democrats AND Republicans that have allowed such deregulation as you have described that have contributed greatly to the gradual demise of the American Middle Class. What an insight!

  3. ERV AMDAHL says:

    I have been preaching a lot of what you are saying, but am not as educated in what is going on compared to how you have shown it. If we can come up with a plan to turn this around and rebuild the middle class, that is what would make our country great again, not what Trump is proposing.
    I’m with you if you want o run for office. I know when I was growing up on a farm in SD people worked together and if neighbors suffered problems all the neighbors would chip in to help them out.
    Doctors made a good living, but they didn’t try and gouge you and they took time to look you over and come up with remedies to cure the problems not push pills and banks would work with you if you needed loans to plant your crops and didn’t try to rip you off but tried to be a partner in your indevor where you could both come out as winners. the middle class is what made our country the envy of the world and when it came to protecting our citizens, that came first whether it was making sure your foods didn’t have all kinds of chemicals in them and our water didn.t get poisoned with the likes of fracking and pipelines that were rushed into service for their profits as the way they do things now, cutting costs on piplines so they can satisfy their greed instead of taking time to do it right where pipline leaks would be very rare. I could go on but you already know all this that the greedy put profits before safety, health, and the public.

  4. david says:

    Shaw Gilani ,much of what you have written is beyond my scope ; however, I do understand one thing -Globalization and the irresponsible immigration policies of the western nations are causing extreme harm to our nations . We have been sold out by (our, — so-called ) politicians accepting illiterate and or dangerous poorly or even ,non-vetted immigrants . These immigrants appear to have more rights than legal citizens !They are using up our taxes at an incredible rate with little or no intent of pay- back to the countries that gave them succor !This is not meant to be a rant , more of a cry for justice for the people who have made our Western Democracies so great. It seems as if we cannot vote out the ruling class no matter what we vote for;(Are they all corrupt or does being in the Government make them that way)–just thinking out loud . If I could I would leave for another world !

    • eb13 says:

      If I could I would leave for another world ! = it’s in the works, the ruling class is on the way to the anther world. Did you see the movie?

    • Steve Bartlett says:

      A response to “david”: It seems to me, David, that, in protesting immigration, you are blaming the victims. The great majority of current and recent immigrants are fleeing for their lives and the lives of their children. It’s worth remembering that nearly all of us Americans are here because one or more of our ancestors were among immigrants who fled to America to escape persecution and suffering in some other land. We are a land of immigrants. You say you are making “a cry for justice for the people who have made our Western Democracies so great.” In the case of our democracy and its economy, it was immigrants who made America great. They now deserve our compassion, and whatever help we can give them. In the past, immigrants (by and large) far more than repaid what this country gave them. I believe it will be the same this time.

  5. Dennis Harford says:

    Thanks Shaw,
    This election and the reaction to it has really opened our eyes to the depravity at the higher levels of socio/economica. The Jeckyll Island book was but a crack in door.
    Unfortunate that so few are paying attention.

    Regards,

  6. Steve Chell says:

    I’m not educated in financial services, but everything I read hear rings true to what I’ve seen happening. I hope you’ll include the “named names” next week. I would like to support your efforts to make changes. This column was emailed to me by a friend. I will share it further. Thank you!

  7. Anonymole says:

    > This: “Republicans aren’t to blame.” Is not true. Republicans are responsible for the disassembly of labor, the suspension or dilution of social support net, and the corporatism that runs government. Corporations are why we have inequality. Corporations owned and run by the plutocrats.

    The only way to cure inequality is progressive taxation and the return of the social safety nets that allow the bottom 3/4’s of people the breathing room to not have to live from paycheck to paycheck.

    Your theory about financialization *does* enter into things. But it’s much less influential than the corporatism that rides roughshod over the American worker.

  8. Mildred says:

    Hi Shah, I appreciate your writing in words that can be understood by men and women of the lost middle class, grateful that you take ” We the people…” under your wing of knowledge. I’m with you when you say ,” Let’s go get’em” Mildred

  9. Nick M. says:

    Hi, Steve Bartlet,
    Please note that “David” said that prior immigrants were “vetted”, They didn’t sneak in over our borders. Before leaving your old country, you applied for papers to immigrate here, at the US Consulate, where you were investigated for criminal background, and other undesirable qualities. There was and still is, a quota allocated for each country. If you wanted to bring in anyone, even a son or daughter, still to this present day, you signed a document stating that you would be financially responsible .All immigrants were tested for mental acuity and health at port of entry. Fail either, and you went back from wence you came.
    Oh, by the way, “paid back” is a poor choice of words. Gave back is the expression. And that by virtue that you came here to better your life, and took a skilled, and often an unskilled job, at poor wages. A work week was six days, Sunday was a day of rest. A work day was 10 hours, for the magnificent salary of 50 cents for the day, for which you were happy to receive. I could go on, but you get the general idea.

  10. Kc says:

    Shah, I want to thank you for all the educational articles that you have written. We are sooo…Happy that “You are Old”!Winks! I remember one of the first articles that I read was about money, it’s history what it has become. I’m sure that many people know ‘something is going on, but it is beyond many of our understanding & education. Thank you soooo much for taking the time to enlighten us.

  11. Brian McGrath says:

    The Amerikan people elected “them”. They will get what they asked for, even if they didn’t know they asked for it.

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