Why the rich are rich and the poor are poor

It's the natural order of things!
Crosscut archive image.

The headquarters of Lehman Brothers in New York on Sunday, Sept. 14, 2008. (<a href='http://www.flickr.com/photos/drnewton/'>tshein / Creative Commons</a>)

It's the natural order of things!

My wife wanted to understand the financial crisis:

Judith: Who caused the financial crisis?

Steve: The poor.

Judith: How?

Steve: Poor people borrowed money.

Judith: And then?

Steve: They bought houses at inflated prices.

Judith: And then?

Steve: They could not make their mortgage payments, so the world's financial system collapsed.

Judith: How could some bad mortgages cause the worst economic crisis since the Great Depression?

Steve: People lost confidence in American banks once they learned they were loaning money to poor people.

Judith: Don't the banks bear some responsibility? Bear, Stearns and Lehman were leveraged 30 to 1. Isn't this irresponsible?

Steve: You wouldn't expect them to loan their own money to poor people. These bankers are bright guys. They loaned someone else's money to poor people. So first they had to borrow the money.

Judith: Let me get this straight. Bankers borrowed money and loaned it to poor people and that triggered an economic tsunami. And you blame it on the poor?

Steve: Right.

Judith: But the bankers who caused this got rich. Richard Fuld made $500 million in the eight years before Lehman collapsed. Stanley O'Neal received a $161 million severance for driving Merrill Lynch off a cliff. Is this fair?

Steve: You must provide financial executives with big incentives to entice them to loan to the poor. A banker's natural inclination is to say, "Screw the poor."

Judith: Why did the financial the contagion spread to other countries?

Steve: Foreigners saw how much damage the poor did in America. Then they realized that their own poor could do just as much harm. Everyone panicked.

Judith: How can we solve the crisis?

Steve: By getting money back where it belongs.

Judith: Where does it belong?

Steve: With the rich.

Judith: Why?

Steve: The rich take better care of it. You don't see them defaulting on loans.

Judith: How do we get more money to the rich?

Steve: Usually we can rely on unregulated markets to funnel money to the rich. However, in times of economic crisis when free markets fail, the government must step in.

Judith: What must the government do?

Steve: Bail out banks and prop up the stock market.

Judith: Why?

Steve: Who owns the banks and the stocks? The rich.

Judith: How do we bail out the banks?

Steve: The U.S. government will buy bank preferred stock yielding 5 percent.

Judith: But bank preferred stocks are trading at 7 percent to 10 percent yields. Why should the government take less than market?

Steve: I already told you — to get money to the rich.

Judith: Will this help Joe the Plumber?

Steve: You mean the mafia enforcer, Joey "Joe the Plumber" Giordano?

Judith: No. John McCain's Joe the Plumber. You know — the one who is not named Joe, is not a licensed plumber, and would benefit from Obama's tax plan?

Steve: Of course not. Your average plumber makes $48,000 a year. Apart from Mafia enforcers, no one named Joe the Plumber is rich. The bailout is designed to help Alexis the Investment Banker, Jason the Hedge Fund Manager, and Thatcher the Trust Fund Nitwit.

Judith: And why should we should help them?

Steve: This is the natural order of things. The rich, not the poor, should have money. Otherwise the rich wouldn't be rich and the poor wouldn't be poor. As we have witnessed, disturbing the natural order of things creates instability and leads to economic chaos.


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