ANATOMY OF OUR NEXT MARKET CRASH

Earlier this week I wrote that the market meltdown we're experiencing is not really a product of the credit downgrade, which was brought to us by the GOP's brinkmanship stupidity. Rather, what we're witnessing is a political system that has failed to deal adequately with what brought us the 2008 market collapse: reckless deregulation, poorly targeted tax cuts, a culture of debt, and unabated speculation and gambling on Wall Street.

If we had done something significant about any of these issues in 2009 the GOP-led clown show we saw last week would've been a side show. We would be slowly crawling out of the 2008 mess, and Bernie Madoff would have some Wall Street company while in jail. Instead, we're surviving on artificially low interest rates and the fumes of bailout money, while we continue to listen to those who make calls for more deregulation and reckless tax cuts.

To prove the stupidity has marbled it's way into the hearts of Washington, an entire segment of beltway insiders believe that deregulation, reckless tax cuts, and speculation are not a problem. They even issued a report in December saying as much (the report was "a joke", which I discussed here).

One of the byproducts of our national failure to see the truth is that the banks and Wall Street's biggest financial institutions have been able to (knowingly) violate basic investor protection rules, defraud customers, cook the books and not admit wrongdoing (while avoiding trial), as long they pay a fine. And they pay because the fine is often less than what they collected in fees and profits.

Throw in the fact that no one can understand the "legal" but incomprehensible maze-like paper trail that contributed to our current mess, and what we have staring us in the face is what the author of The Best Way to Rob a Bank is to Own One - William K. Black - called control fraud. And it's slowly destroying the moral justification of capitalism, which informs every American that if you work hard you can get ahead.

As evidence, we see that 30 years of being told that deregulation and tax cuts for the rich would lead to prosperity for all was really a cruel joke. We're now living in a nation where wage increases, which traditionally accompanied increases in labor productivity, are siphoned off into record executive salaries and bonuses.

Worse, instead of being rewarded with more jobs as the "tax-cuts-lead-to-more-jobs" drones like to argue, American multinationals actually eliminated 2.9 million jobs here, while adding 2.4 million jobs abroad over the past decade. Today, after 30 years of tax cuts, unemployment hovers around 9.1 percent (while our national debt has soared to $14.3 trillion).

Throw in the fact that the banks don't trust one another (and haven't for a while), and what you have is an economy surviving on the fumes of a trillion dollar money dump that was largely extorted from the American taxpayer. The fact that the money dump benefited few sectors of the economy beyond Wall Street and America's biggest banks makes it one of the greatest transfers of wealth in human history. 

Simply put, we're in trouble because no one seems capable or willing to take on, as Teddy Roosevelt put it, the malefactors of great wealth (something even Standard & Poor's missed).

Instead, the republicans are guided by a scorched earth policy mentality that says "If we can't govern, neither will you," while the democrats are led by a president (who I voted for and still support) who can't seem to channel his inner FDR - or even his inner Teddy Roosevelt - for fear of antagonizing either Wall Street or the republicans.

This, in a nutshell, explains the financial troubles we're experiencing today. And it's why, unless we see some significant changes from the GOP or the president, we're going to have an even bigger market crash than we saw in 2008.

Count on it.

- Mark