Mike Booth: The Gringo Chronicles

For more than a year now we’ve been subjected to a barrage of news relating to the subprime mortgage crisis in the United States, and how it created a financial emergency first that country, then the rest of the world. The crisis began in late 2006 with a worrying rise in the rate of home foreclosures in the US. During the following year it spread around the world, affecting not only the real-estate and banking businesses, but also stock markets, consumer confidence, and the general health of the economies of countries around the world. The impression given by the media was that, by defaulting on their mortgages, the poor people of the United States were dragging the world into a recession.

Putting “subprime” before “mortgage” makes it sound as if these lucky mortgage clients are paying lower interest rates, though the truth is exactly the opposite. It’s the clients who are considered “subprime,” for their low incomes or dubious credit histories, not the interest rates they are charged, which are among the highest in the marketplace. So when the borrowers’ inability to pay coincided with falling housing prices, many of them found that their houses were worth less than their mortgages. Refinancing was thus out of the question, and massive foreclosures ensued. The financial institutions, many of whom were deliberately lending to borrowers they knew could never pay back the loans, with an eye to foreclosure and seizure of the properties, soon found that subprime lending was a double-edged sword, as the devalued houses were just as worthless to the banks and finance companies who repossessed them as they were to their previous owners. So many financial institutions started to go under.

According to realtytrac.com: “During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% versus 2006. As of December 22, 2007, a leading business periodical estimated subprime defaults would reach a level between U.S. $200-300 billion.” The US media quickly seized upon these multi-billion-dollar figures to attribute US economic woes to the subprime mortgage crisis. It was as if they knew all along that those low-income, bad-credit-rated people couldn’t be trusted to pay their bills.

Enter Nobel prize economist, Joseph Stiglitz and his co-author, Linda Bilmes, professor of public finance at Harvard’s Kennedy School of Government, with their new book: “The Three Trillion Dollar War: The True Cost of the Iraq Conflict.” These two experts–the Nobel prize carries a lot of weight here–assert that a conservative estimate of the total cost thus far of the Iraq war surpasses three trillion dollars.

One is prompted to wonder: Three trillion dollars is ten times the cost of the subprime mortgage crisis. Isn’t it possible that the cost of the war is a factor in the economic problems with which the US has infected the entire world? Not at all, affirms President George W. Bush in an interview with Ann Curry on the Today Show. Here’s the transcript (courtesy of Media With Conscience):

ANN CURRY: Some Americans believe that they feel they’re carrying the burden because of this economy.

PRESIDENT GEORGE W. BUSH: Yeah, well—

ANN CURRY: The economy, they say, is suffering because of this war.

PRESIDENT GEORGE W. BUSH: I don’t agree with that.

ANN CURRY: You don’t agree with that? It has nothing to do with the economy, the war, the spending on the war?

PRESIDENT GEORGE W. BUSH: I don’t think so. I think, actually, the spending on the war might help with jobs.

ANN CURRY: Oh, yeah?

PRESIDENT GEORGE W. BUSH: Yeah, because we’re buying equipment, and people are working. I think this economy is down because we built too many houses.

And besides, the poor don’t pay their bills. To think otherwise is not only bad economics. It’s anti-patriotic.