Survival__ Structuring Prosperity for Yourself and the Nation - Charles George Smith [11]
7. The financial Plutocracy, observing that actually producing goods is not very profitable unless you can fix prices as per ADM (Archer Daniels Midland) or gain government subsidies and tax giveaways (oil lease depreciation, etc.) sinks its capital into the FIRE economy (finance, insurance and real estate), eschewing real-world investments as comparatively unprofitable.
Though rarely noted, this is a longstanding trait of capitalism stretching back to 1400-era Venice. When trade became less profitable than mainland farming, the Venetian Elite stopped funding trade and bought farms on the mainland. As a side effect, Venice ceased to be a military and trading power. But the Elite remained immensely wealthy.
8. As the tech bubble expands, middle-class investors see the Plutocracy (those with enough capital to qualify as angel investors and vulture, oops, I mean venture capitalists) reaping huge gains, and they enter the dot-com stock bubble buildup with a vengeance.
9. In a happy accident, the Soviet Empire collapses just as productivity begins its computer-fueled rise in the U.S. In a so-called Unipolar World in which U.S. military, political and financial influence is unrivaled, non-U.S. investors seek the relative safety and high returns (based on appreciation of the dollar) of U.S. financial instruments.
10. The dot-com bubble implodes in a speculative meltdown, and retail investors (a.k.a. the middle class 401K investors) are devastated. The ephemeral wealth they once possessed, however briefly, fuels their speculative desire to get into the next get-rich-quick game, which just so happens to be "something everyone understands:" real estate and housing.
11. Having exhausted the dot-com play, Plutocratic capital is seeking a new high-profit home. The miracles of derivatives (CDOs, credit default swaps, etc.) and securitized debt (mortgage tranches, etc.) open up vast new opportunities for leverage, off-balance sheet shenanigans and outright fraud/debauchery of credit. As chip wafer plants disappear from Silicon Valley (too dirty, too costly, etc.) then they're replaced with paper: mortgage-backed securities. (Over-reach and windfall exploitation writ large.)
12. Sniffing gold in them thar exurban hills, the under-capitalized and over-indebted U.S. working class and middle class reach for the chalice of easy-money gold: leveraged real estate. (Over-reach and windfall exploitation writ small.)
13. With the Federal financial regulatory agencies in a Republican/ Democrat-enforced somnambulance, the coast is clear for brigands, shysters, fraudsters, con artists, liars, cheats, and assorted riff-raff in the realty, mortgage and appraisal businesses, who all feed the ravenous maw of the money-center banks' apparently limitless appetite for real estate assets to securitize and leverage in exotic and stupendously profitable ways.
14. For a wonderful five years circa 2002-2006, the game is afoot and no-down-payment Jill and $100 million-bonus Jack are immensely enriched. Meanwhile, the underlying real economy is becoming ever more imbalanced and ever more fragile as real production and real productivity plummet as everyone rushes to the speculative riches of exurban McMansions and malls.
15. Elite and middle-class interests seem to converge during this speculative mania: everyone is benefiting from the real estate bubble except the poor, who are bought off with minimal social welfare programs and endless entertainment (via TV) then safely ignored, as they don't vote or spend.
But this convergence was illusory; while the Plutocracy and State functionaries benefited (via stupendous capital gains for the former and vastly richer pension promises for the latter), the private-sector middle class is in essence the bag-holder: when the newfound "wealth" in housing and stock market gains vanish, it is the middle class wealth which is destroyed en masse.
16. This last best speculative leveraged credit bubble pops (alas, exponential expansion of credit cannot go on forever), gutting