While I applaud much of the Obama administration's effort to pull our nation from the brink of financial collapse, it is painfully clear today the recession is over — for everybody except you — the American citizen.

This graphic from CNN illustrates why American families are still being hammered by the Great Recession. I argued in 2008 when the Bush administration was implementing the TARP rescue program that this was a TOP down approach. Beginning with Ronald Reagan in the 1980s our conservative economic policy directed our nation to focus our attention on America's MOST RICH and hope crumbs would eventually trickle down to individual households. After 30 years, economic data show this experiment was a massive failure. See Growing Income Inequality.

CNN points out Stimulus 1 & 2, about $830 billion, focused on jobs, education and programs that directly affect working families. On the other hand the lion's share of the The Big Bang, about $3.9 TRILLION (83%), went to corporate America. Little went to states and while the federal government was pursuing policies to stimulate the economy, the 50 states were cutting spending, contracting, and acting like a huge anchor on our struggling ship of state.

Yet individual consumers drive a growing national economy (see below, What Recession?). You need money in your pocket. When you have money, you buy and spend. Businesses order more products, which opens up factories. Factories hire more workers, who can then buy and spend and continue the cycle. President Obama appears to be waking up to this disparity. Don't let up ... continue contacting your elected officials.

[6.26.09] Americans clearly aren't the brightest bulbs in the global chandelier, but one can't blame them when we consider all the fear-mongering and false information on TV and in the media. Yet people ... WAKE UP!!! You are now causing the economy to sputter.

Yes, we faced problems of catastrophic proportions due to greedy lending practices, incompetent financial administration and short-sighted portfolio management. Due to the skilled leadership of the Obama administration, this is slowly turning around.

On the other hand, Obama has put more money in your hands. What have you done in return? Hid these funds in your mattress! The savings rate rose in May to 6.9 percent ~ the highest in 16 years! Only a few years ago (2008), we were saving 0.0 percent as a nation. Going from 0.0 to 6.9 percent has created a HUGE drag on the economy.

Consumers account for about 70 percent of the total economic activity for the nation. Our current savings rate (6.9%) represents a 4.8 percent anchor on the American economic recovery. Recent government reports show our economy contracted at a 5.5 percent annual rate. The lack of consumer spending (or our high savings rate) makes up 87 percent of the recessing economy. President Obama is doing his part to stimulate our economy yet it's like 300 million people are dangling their feet in the water as he tries to turn the "ship of state."

Help out! Spend where you can. Don't waste your money, but replace the old windows in your home; install a new, energy efficient furnace or AC unit. Get rid of your old, gas-guzzling clunker and buy a fuel efficient vehicle. Go on a needed vacation. This isn't the time to be saving. Pay down debts, have some fun and help your country...

While I am more confident with Barack in the White House, we face unprecedented challenges, and frankly, the continuation of our nation is at risk. Individually, you are facing an economic tsunami as well. I recommend reading an overview about our desperate situation written by Peter Peterson and David Walker:
I.O.U.S.A :: One Nation. Under Stress. In Debt.

When I speak to Americans about our current meltdown, I begin by focusing on the damage done to our nation by Ronald Reagan, i.e., Reagonomics. For those on the right, this is tantamount to waving a red flag before a bull ... nobody is allowed to criticize their hero. While Mr. Reagan had many admirable qualities, his warped perspective about the role of government, emphasis on deregulation and libertarian principles, set in motion the economic forces that brought America and the western world to its knees in late 2008. Paul Krugman provides an excellent summary of this process:
Reagan Did It

Keep in mind as you read the Citizen's Guide that you were warned ... Al Gore, when running for president in 2000, pleaded with us to put our social security tax revenues in a "lock box." This would have shored up the program. Yet conservative leaders and pundits ridiculed Gore. They hate "New Deal" programs that provide the safety net for Americans. When George W. Bush entered the presidency, he drained the Treasury by giving back historic tax rebates to the most wealthy. These policies helped create the massive economic problems we currently face. Don't forget who [Republicans] led us into this financial quagmire and caused so much suffering and distress. I'm a political economist. My friends rib me because they claim I not only passionately understand this stuff, but can actually teach others about free market principles and financial matters.

Let me get right to the point. The Bush administration's federal bailout proposal, as furthered by Treasury Secretary Paulson, will not work; in fact, it will make our financial crisis even worse. Keep in mind I warned readers in 2002-03 that blazing into Iraq would result in disasterous consequences. Usama bin Laden and al Qaeda prayed for us to take this misguided action — for they wanted to bankrupt the United States of America.

This solution will not be pain free. There are few good options left. The federal government must initiate a ground up rescue. By preventing foreclosures, halting bankruptcies, and restructuring homeowner debt, the paper IOUs at the bottom of the commercial credit food chain will remain viable. If the foundation remains strong, then the subsequent levels of securities IOUs will remain solvent as well. Ultimately, this is an issue of confidence. If a domino at the bottom falls, it will take others with it. As Wall Street firms have leveraged their obligations 20-30 times (or more), the fall of a single domino causes a financial chain reaction throughout the global economic community.

Periodical Updates Added Below

History
On Friday, September 19th, Secretary Paulson released an amazingly brief, three-page, document that outlined his plan to "save the U.S. financial system," i.e., fat cats on Wall Street. There wasn't much to the proposal: give the secretary $700 billion in a "clean bill" — meaning no strings attached, no oversight, and no allowable review from federal agencies or the courts. Talk about creating a Financial Tsar!

The $700 billion requested by Paulson is a strange figure. How did he come up with this? "It's not based on any particular data point," a Treasury spokeswoman said. "We just wanted to choose a really large number." [source]

We've heard the false cries of the wolf from the Bush administration previously. Therefore, let's break this down. This crisis stems from the trouble in the housing market. If we use the research of Devilstower:

"There are some expectations that foreclosures could triple from today's historically high levels, meaning ultimately three pecent of mortgages could be in trouble.

One percent of all mortgages — the amount now in default — comes out to $111 billion. Triple that, and you've got $333 billion. Let's round that up to $350 billion. So even if we reach the point where three percent of all mortgages are in foreclosure, the total dollars to flat out buy all those mortgages would be half of what the Bush-Paulson-McCain plan calls for.

Then we need to factor in that a purchased mortgage isn't worth zero. After all, these documents come with property attached. Even with home prices falling and some of the homes lying around unsold, it's safe to assume that some portion of these values could be recovered. In the S&L crisis, about 70 percent of asset value was recovered, but let's say we don't do that well. Let's say we hit 50 percent. Then the real outlay for taxpayers would be around $175 billion."

Bush entered the White House in 2001 with a budget surplus. He immediately begin demanding tax cuts to benefit his base — "the haves and have mores." Bush Republicans, including John McCain, have made it clear they would love to swamp the federal government with debt. They hope to end FDR's "New Deal" programs, such a Social Security and other safety net programs. This is part of their libertarian, free-market ideology. This blank check for $700 billion channeled to friends on Wall Street would go a long way to handcuffing the next president, particularly one interested in universal health care.

Rip off common citizens coming into office ... rip them off heading out the door. By any measure, scholars will conclude that George W. Bush was the greatest Republican president in U.S. history!

George W. Bush's Incompetence
Bush's negligent practices run deep. Although the CIA, in their daily presidential briefing on August 5, 2001, warned George W. Bush that Usama Bin Laden was preparing to strike inside the U.S., Bush neglected to take action. Five weeks later 19 Middle Eastern radicals attacked our nation. Bush claimed his month long vacation did not impair his judgment.

In the fall of 2002, Bush and members of his administration horrified Americans about an imminent and impending danger from the Middle East. In response the U.S. preemptively attacked Iraq six months later. No weapons of mass destruction were found; Saddam was not linked to the 9/11 terrorists. The crisis was cunningly invented to rush us into a $3 trillion war over oil with no end in sight. Secretary Paulson told us this week we must rush to bailout Wall Street. Sound familiar?

In August 2005, one of the deadliest hurricanes in history hit the U.S. coastline. While Bush and John McCain toasted McCain's birthday by eating cake in an airport celebration, nearly 2,000 Americans lost their lives. Bush told the nation that his FEMA director, Michael Brown "Brownie," was doing "a heck of a job."

Now, less than 45 days before the November presidential election, Bush announces that we are facing a Second Great Depression and the SOLE SOLUTION is to put hundreds of billions of taxpayer dollars into the unregulated and unreviewable hands of the same people who, due to their extraordinary greed and poor judgment, got us into this financial mess in the first place. Did I mention I have a bridge to nowhere in Alaska to sell you?

As with many of the current administration's plans, this proposal is flawed due to its top down approach. Bush and his Republican ideologues believe that stimulating the most wealthy will lead to economic gains that will trickle down to Main Street. Companies considered "to big to fail" will receive the lion's share of the proposed $700 billion package. Yet it is the little guy, the family living on Main Street and considered by Bush followers as "too small to save," who will rescue the nation from the grips of a Second Great Depression.

Since coming to office, Bush has focused his tax relief on those at the top. While trillions of dollars have been channeled to the most wealthy, the economy has performed miserably. Under eight years of Clinton stewardship, American businesses generated over 22 million new jobs. In contrast, Bush's Republican ideology has squeezed job creation to about five million net positions.

Bush's flawed ideology fueled a tragic insurgency in Iraq as well. The administration's plan sent too few troops into the theater, allowing our military to focus only on Saddam and his henchmen (remember the playing cards of bad guys), while leaving tens of thousands of Bathist officials and military personnel without money or dignity — but plenty of weapons and roadside bombs.

This is not the appropriate forum to debate the pros and cons of top down v. bottom up solutions, but let me give you an example of how leaders become captured by their own rhetoric and political biases.

A Child's Example
A number of years ago, I read a story about a delivery truck that had become wedged under a low handing freeway structure. The clearance was posted as 12 feet but the truck actually measured 12 feet two inches. It passed under the structure for a few feet and became wedged part way through.

City officials and their top engineers climbed ladders to inspect the dilemma. They measured the truck and freeway clearance numerous times. They discussed possibilities of bringing in hydraulic jacks to lift the structure and free the truck.

While the "experts" pondered their options, a young boy on a bike stopped by to watch the spectacle. He listened for 15-20 minutes as the engineers argued over the best way to lift the low hanging freeway.

Finally, the curious boy walked up to one of the officials and asked a simple question, "Why don't you let some of the air out of the tires on the truck?"

The experts had focused on the top down approach, while the solution was at hand from a bottom up perspective. It took a child's mind to see the most practical and effective solution.

Our "experts" in Washington are trying to lift the low hanging freeway structure. Their proposal hopes to take the economic pressure off the shoulders of leading financial firms on Wall Street. They want to buy up all the bad debt hemorrhaging in our economic system.

Adult Solutions
One of the best summaries of our current situation comes from Devilstower. This blogger captured the key ingredients of this financial meltdown. Citing research from Bob Moon and Kai Ryssday, American Public Media's Marketplace, Devilstower lists some key economic figures:

The value of the entire U.S. Treasuries market: $4.5 trillion.

The value of the entire mortgage market: $7 trillion.

The size of the U.S. stock market: $22 trillion.

The size of the credit default swap market last year: $45 trillion.

We know the $4.5 trillion U.S. Treasuries market is healthy. The $22 trillion invested in the U.S. stock market, while clearly suffering a bronchial infection, is fundamentally stable.

America's internal and external debt exceeds $60 trillion, over 400 percent (4 times) of the country's annual GDP of a bit over $14 trillion. This debt can be broken down as follows Source: Daily Recogning:

• Family debt (including mortgages)— $15 trillion
• Financial debt — $17 trillion
• Non-financial firms' debt — $22 trillion
• Municipal debt — $3.5 trillion
• National debt — $11 trillion

Richard Daughty, writing in Asia Times Online, points out that, "since 1983, debt has expanded by 8.9 percent a year, GDP by 5.9 percent. The disparity in growth rates may not look like much, but it generated a powerful result over time. Over the 25 years, total debt — private and public, financial and non-financial — has risen by $45.1 trillion, GDP by only $10.9 trillion." Source: Corporate earnings go cliff-diving

It is the estimated $7 trillion mortgage market, due to the bursting housing bubble, where the root of the problem lies. The defaults and lack of confidence in these investor IOUs are creating unprecedented insecurities in the credit default swap market (CDS), which is believed to be closer to $70 trillion today than Moon and Ryssday's estimated $45 trillion.

This is where the top of the U.S financial truck has become wedged under the low hanging freeway structure. While national experts measure and re-measure the truck and overpass, they propose to lift the structure with a cash infusion of $700 billion to buy up the bad assets.

In this top down approach, the $700 billion becomes a paltry drop in the bucket of the $70 trillion in CDS obligations. It is approximately 1/1000th of the total. This is like paying $1 (one dollar) toward a debt of $1,000 (one thousand dollars). The single dollar does little to instill confidence that one can eventually repay the obligation. Conversely, this additional, yet ineffective, infusion of dollars in the market will likely fuel inflation and decrease the value of the dollar in world markets.

The solution? We must let the air out of the truck tires. The solution isn't to save the $70 trillion CDS market; the solution doesn't rest with the entire $7 trillion mortgage market. The problem stems from the bad commercial paper that is circulating in the global economic system.

While the Bush administration, under the direction of Secretary Paulson, wants to find the "insurgent" paper — needles in haystacks — and remove it from the system by authorizing the federal government to buy it, the solution is to prevent any more commercial paper from becoming "bad."

This solution will not be pain free. There are few good options left. The federal government must initiate a ground up rescue. By preventing foreclosures, halting bankruptcies, and restructuring homeowner debt, the paper IOUs at the bottom of the commercial credit food chain will remain viable. If the foundation remains strong, then the subsequent levels of securities IOUs will remain solvent as well. Ultimately, this is an issue of confidence. If a domino at the bottom falls, it will take others with it. As Wall Street firms have leveraged their obligations 20-30 times (or more), the fall of a single domino causes a financial chain reaction throughout the global economic community.

Bush and Paulson want to find and buy back the bad paper within a seething network of $70 trillion worth of obligations. Good luck! By stopping the bleeding at the source, with the little guy on Main Street, confidence is restored. Increased margin calls are no longer necessary. Capital is infused into the system at the most effective point — the bottom. Let's look at a real life example:

"As the credit bubble grew in 2006, Bear Stearns, then one of the leading mortgage traders on Wall Street, bought 2,871 mortgages from lenders like the Countrywide Financial Corporation.

The mortgages, with an average size of about $450,000, were Alt-A loans — the kind often referred to as liar loans, because lenders made them without the usual documentation to verify borrowers’ incomes or savings. Nearly 60 percent of the loans were made in California, Florida and Arizona, where home prices rose — and subsequently fell — faster than almost anywhere else in the country.

Bear Stearns bundled the loans into 37 different kinds of bonds, ranked by varying levels of risk, for sale to investment banks, hedge funds and insurance companies.

If any of the mortgages went bad — and, it turned out, many did — the bonds at the bottom of the pecking order would suffer losses first, followed by the next lowest, and so on up the chain. By one measure, the Bear Stearns Alt-A Trust 2006-7 has performed well: It has suffered losses of about 1.6 percent. Of those loans, 778 have been paid off or moved through the foreclosure process.

But by many other measures, it’s a toxic portfolio. Of the 2,093 loans that remain, 23 percent are delinquent or in foreclosure, according to Bloomberg News data. Initially rated triple-A, the most senior of the securities were downgraded to near junk bond status last week. Valuing mortgage bonds, even the safest variety, requires guesstimates: How many homeowners will fall behind on their mortgages? If the bank forecloses, what will the homes sell for? Investments like the Bear Stearns securities are almost certain to lose value as long as home prices keep falling."[source]

NOTE: The emphasis is mine in the above paragraph. Bloomberg News estimates that 23 percent of the remaining loans are "toxic" — meaning currently delinquent or in foreclosure. By ending foreclosures and assisting homeowners who are delinquent, we stop the financial bleeding. This brings stability to Wall Street and also balances government assistance. We keep families in their homes and stabilize home prices in neighborhoods where they are currently in free fall.

And, just as one default can multiply through the system 20-30 times, each secured mortgage multiplies confidence upward through the network. The global panic and potential financial meltdown is averted and capital begins to loosen up and again flow freely. Let's hear how Hillary Clinton would implement such a plan:

"I've proposed a new Home Owners' Loan Corporation (HOLC), to launch a national effort to help homeowners refinance their mortgages. The original HOLC, launched in 1933, bought mortgages from failed banks and modified the terms so families could make affordable payments while keeping their homes. The original HOLC returned a profit to the Treasury and saved one million homes. We can save roughly three times that many today. We should also put in place a temporary moratorium on foreclosures and freeze rate hikes in adjustable-rate mortgages. We've got to stem the tide of failing mortgages and give the markets time to recover.

... This historic intervention demands a historic shift in priorities: an end to the broken culture on Wall Street, and the broken economic policies in Washington.

Corporations that will benefit must be held accountable, not only to large shareholders but also to the American people, who are rightly tired of business as usual: short-term profit at the expense of long-term viability; lax oversight and regulation; obscene bonuses and golden parachutes regardless of performance; reckless risk-taking that has placed the markets in jeopardy; rewards for foreclosing on middle-class families and selling mortgages designed to fail; and outsourcing good jobs to serve short-term stock prices instead of America's long-term economic health." [source]

By putting billions of dollars into the hands of Main Street Americans who are in trouble, turbulence in the markets will be calmed. The initial $150 billion infusion in relief by the Bush administration went to everyone. It wasn't focused. Families in need couldn't prevent their financial collapse with a one-time check for $600 or $1,200. Families doing well didn't need the money. Struggling households must be rescued and saved from mortgage default and bankruptcy. If their IOU remains good, all IOUs up the chain remain structurally sound. Confidence is restored.

Let the air out of the tires of this runaway truck or suffer the collapse of the entire financial freeway system. It's your money and you've been warned! Don't trust the Robbers who are running the bank.