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From the Washington Post:

"Consumers are increasingly unable to pay off their credit cards, forcing banks to hoard cash to protect against future losses and lend to fewer people, according to reports yesterday from several of the nation's largest banks.

These financial disclosures showed a spike in credit card loans going bad, putting further pressure on already-stressed balance sheets. J.P. Morgan Chase said the number of credit card loans in default rose 45 percent in the third quarter from the comparable period a year ago and predicted that default rates would sharply accelerate through 2009, with 7 percent of credit card loans going bad. (...)

The deterioration in consumer credit, the latest downturn to whack Americans after the housing slump and mortgage meltdown, threatens one of the linchpins of the U.S. economy. Over the past 10 years, credit card debt has gone up 75 percent as Americans' real wages and savings rate have stayed flat. That means Americans have been spending beyond their means -- and fueling economic growth with borrowed money.

Now, the housing crash, financial downturn and contracting economy have made it more difficult for Americans to settle their bills, setting off a downward spiral. As people fail to pay off their credit card bills and other loans, banks must put away money to cover expected losses. So banks lend less. Americans who tended to rely on loans to fuel their spending must cut back, readjusting their spending habits to conform with what they earn.

"Given that the savings rate has been minuscule, there's no reserves in the tank for the consumer to tap his savings to support his spending," said Scott Valentin, a financial services analyst at Arlington investment bank Friedman Billings Ramsey. But consumers have been driving about two-thirds of the U.S. economy.

Overall, the rate of credit card loans going bad increased 54 percent in the second quarter of 2008 from the same period in 2007, according to Federal Reserve data, the latest available.

A report this week from Innovest, a research firm, said banks and other credit card lenders could record nearly $100 billion in losses because of bad loans through the end of next year. Innovest said financial firms could be reaching a "tipping point" at which years of growth in credit card debt starts to decline."

There are several problems here. The first is the possibility that banks will have to write off even more bad debt. Americans owe about $950 billion worth of credit card debt, and, as with mortgages, credit card debt has been securitized. The second is that banks might hoard cash if they think they will have to write down bad debts, at a time when credit is already very tight. But the third is that, as the Post notes, consumer spending drives a lot of our economy. But there's a problem:

Wages have been flat for the better part of a decade. We made up for that fact by borrowing, both against our houses and on credit cards. Since virtually every form of credit seems to have dried up, and a large jump in people's wages doesn't seem to be in the offing, it's hard to see how consumer spending will not take a very serious hit. And if it does, the economy will suffer enormously.

"They always talk about how the Democrats raise taxes. But the Republicans raise debt ---- which is a deferred tax hike, really. It's a cowardly tax hike. It's a tax hike on people who can't vote and speak up against it at the time."

---- Bill Maher

McCain's talk radio supporters are trying to rewrite history regarding the causes of the financial crisis.

This article sets the record straight.

By David Goldstein and Kevin G. Hall | McClatchy Newspapers

WASHINGTON — As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

In the 2nd Presidential debate, Obama said:

"Prosperity is not just going to trickle down. We've got to help the middle class. Part of the problem here is that for many of you, wages and incomes have flat-lined. For many of you, it is getting harder and harder to save, harder and harder to retire."

Obama's pointing out our nation's increasing income inequality.

The majority of social scientists believe that income inequality currently poses a problem for American society, and Alan Greenspan stated it to be a "very disturbing trend."

As I've often said... this [increasing income inequality] is not the type of thing which a democratic society—a capitalist democratic society—can really accept without addressing. - Alan Greenspan, June 2005

The chart (right) shows that the total share of national income going to the super-rich has more than doubled since 1979. The merely well off have also gotten a slightly bigger piece of the pie, while everyone else has funded this free-for-all. "Everyone else," in this case, means 90% of the country. Our share of national income has gone down in order to make sure that virtually all the fruits of economic growth over the past four decades could go to the well-off, the rich, and the super-duper-rich.

Closing the income gap continues to be one of Obama's highest priorities. (NYTimes: Closing Income Gap Tops Obama’s Agenda for Economic Change). McCain wants more tax cuts for the rich; Mr. Obama wants tax cuts for the poor and middle class. And economic history is on Obama's side (NYTimes: Would Obama’s Plan Be Faster, Fairer, Stronger?)

John McCain wants you to forget about his role in our country's last major financial crisis and costly bailout: the savings and loan crisis of the late '80s and early '90s.

But voters deserve to know that the failed philosophy and culture of corruption that created the savings and loan crisis then are alive in the current crisis -- and in John McCain's plans for our economic future.

Here's a superb 13-minute documentary about John McCain's role in that financial crisis --

It is documentary quality, sobering, narrated by one of the original Keating-5 investigators, and absolutely devastating to John McCain's claims to be a born-again reformer.

It should be seen by every American, and everyone who is going to vote in the presidential election.

Watch it now and share it with your friends:

NYTimes: The Reckoning: Agency’s ’04 Rule Let Banks Pile Up New Debt

Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.

A lone dissenter — a software consultant and expert on risk management — weighed in from Indiana with a two-page letter to warn the commission that the move was a grave mistake. He never heard back from Washington.

This article is now the most popular on the NYTimes site.

NYTimes: The Reckoning: Agency’s ’04 Rule Let Banks Pile Up New Debt

Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.

A lone dissenter — a software consultant and expert on risk management — weighed in from Indiana with a two-page letter to warn the commission that the move was a grave mistake. He never heard back from Washington.

This article is now the most popular on the NYTimes site.

Agency’s ’04 Rule Let Banks Pile Up New Debt

By STEPHEN LABATON

“We have a good deal of comfort about the capital cushions at these firms at the moment.” — Christopher Cox, chairman of the Securities and Exchange Commission, March 11, 2008.

As rumors swirled that Bear Stearns faced imminent collapse in early March, Christopher Cox was told by his staff that Bear Stearns had $17 billion in cash and other assets — more than enough to weather the storm.

Drained of most of its cash three days later, Bear Stearns was forced into a hastily arranged marriage with JPMorgan Chase — backed by a $29 billion taxpayer dowry.

Within six months, other lions of Wall Street would also either disappear or transform themselves to survive the financial maelstrom — Merrill Lynch sold itself to Bank of America, Lehman Brothers filed for bankruptcy protection, and Goldman Sachs and Morgan Stanley converted to commercial banks.

How could Mr. Cox have been so wrong?

Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

The cost of deregulation is indeed very high --- to the U.S. taxpayer.

The I-35W Mississippi River bridge catastrophically failed during the evening rush hour on August 1, 2007, collapsing to the river and riverbanks beneath. Thirteen people were killed and approximately one hundred more were injured. The average age of American bridges is 43 years, approaching the normal lifespan of 50 years. One fourth have a problem.

The U.S. has built 810 schools, 4800 water and sewage projects, 1047 roads and bridges.

Not in America. In Iraq.

Al Franken has an excellent video about this called 'Invest Here'.

Now the LATimes is reporting today that after the I-35W bridge collapse killing 13 and injuring 100 last year, 'Urgency has buckled since Minneapolis bridge collapse' due to lack of state funds for infrastructure projects.

From an AP story 'Little progress made in bridge repairs across US':

"An Associated Press review of repairs on each state's 20 most-traveled bridges with structural deficiencies found just 12 percent have been fixed. In most states, the most common approach was to plan for repairs later rather than fix problems now."

Of the 20 deficient bridges studied in Ohio, 40% have not been fixed or improved.

With $10 billion a month spent in Iraq we're short money for bridges and roads, tin-cupping to fund American schools, underfunding our water systems. And now President Bush is predicted to leave a record $482 billion deficit to his successor.

Update (Aug 6, 2008): NYTimes is reporting ('As Iraq Surplus Rises, Little Goes Into Rebuilding') that

Soaring oil prices will leave the Iraqi government with a cumulative budget surplus of as much as $79 billion by year’s end, according to an American federal oversight agency. But Iraq has spent only a minute fraction of that on reconstruction costs, which are now largely borne by the United States.