Thursday, February 28, 2008
In theory third parties and independent candidacies are legal but in reality they are constantly subjected to repressive measures. The winner-take-all election rules are designed to push voters towards choices largely determined by political machines and corporate media sources that are controlled by a well-entrenched elite.
The rule of money at home (through a system of law that prioritizes money over justice) becomes more naked overseas. The current two political parties have exchanged offices periodically for about 150 years now, but foreign policy never changes. The brutal real-estate grab known as the United States of America keeps its foreign troop deployments no matter which party grabs Congress or the Presidency. Troops are redeployed, but never really brought home. The middle class grumbles about paying the taxes for this military machine by getting mad about the crumbs tossed to the poor to keep social peace in the United States.
The corporate press generally won't even cover genuine challengers to the party machines within the parties, much less independent and third-party challengers. Most states make it very difficult for a third party to get ballot status. I have watched third parties do signature drive after signature drive to get ballot status, eating up their precious resources of volunteers and tiny bits of money. Two party machine candidates get free publicity from newspapers, radio and TV, and then they collect and spend vast sums of money to make it seem like there are only two choices available (usually there are only two, often only one).
Congressional districts right down to city council districts have borders drawn to favor incumbents. In most U.S. Congressional districts, even the second fascist party cannot run a viable candidate against the entrenched incumbent.
But fascism is not just a matter of a few men in power giving orders to a few men in trenchcoats. Fascism had widespread popular support in Germany, Italy, Spain, and elsewhere during the 1930's. The majority of Americans are fascists. They get mad if you challenge any of the basic assumptions they have been taught in school, or more likely by watching TV. They fawn over the current media favorite whether it be a McCain or an Obama.
After Al Gore blew the 2000 election, verbal attacks on Green Party members became widespread. Dissent was crushed by a tidal wave of verbal bullying. The Democratic Party launched a wide-spread, well organized campaign to disrupt the Green Party (even as it enabled the invasions of Afghanistan and Iraq). One key component of it was having Dennis Kucinich make disastrous runs for the Presidency within the Democratic Party with the sole aim of drawing voters, and in particularly activists, back to the Democratic Party machine.
It is a kinder, gentler, more smothering form of fascism. Remember what Democrats said about George W. Bush back in 2001? How he would arrest all the dissidents and never give up power? People tend to forget their stupid talking points from the past. Republican Presidents have no more real power than Democratic ones. They are part of a system. Tax rates may be adjusted, troops may be redeployed, but the system goes on. Only Democrat Franklin D. Roosevelt managed the more overt fascist trick of becoming President for Life. On the whole, over a century and a half, the Republican Party has been better on civil rights issues and rotation of office than the other party.
Both the Democratic Party and the Republican Party are war crimes organizations. It is true and it is not hard to piece together from the definition of war crimes and a history book. But thinking about that is taboo. "Leftist" Democrats don't allow themselves to think about such taboo subjects any more than Bible-thumping Republican hypocrits.
I'm sticking with the Green Party and you should too. We need to devise Green Party strategies capable of defeating the fascist parties. The only other honest choice for people of conscience in the United States is the revolutionary anarchist movement.
Tuesday, February 26, 2008
As I've mentioned in prior blogs, I have been reading the Memoirs of a former President of the United States of America, Harry S. Truman.
In this essay I'll take a look on Harry's civil rights record and compare that to what we might expect from likely Democratic Party nominee Barack Obama.
As I've pointed out before, the predecessor of President Truman was Franklin Delano Roosevelt, known as FDR. FDR made a deal with the racist Democratic Party establishment: he could have his welfare programs, and Jim Crow segregation would remain in force in much of the nation. In the end Roosevelt depended on massive government spending on war preparations to pull the U.S. economy out of the Depression.
Harry Truman had saved the country billions of dollars by running a congressional committee that audited World War II defense spending. This got him selected as FDR's running mate in 1944. FDR died in 1945 and Harry Truman became President. Harry pushed for civil rights for Jews and African-Americans (then called colored people). Powerful Democrats did not like that and tried to keep Harry from being the Democratic Party nominee in 1948.
From Harry's Memoirs:
When J. Strom Thurmond, the governor of South Carolina, who headed the revolt, made his dramatic departure from the convention floor in Philadelphia with his followers, he was asked by a reporter to clarify his position.
"President Truman is only following the platform that Roosevelt advocated," the reporter pointed out.
"I agree," Thurmond replied, "but Truman really means it."
Truman had shown that by creating a Committee on Civil Rights, which in October 1947 made ten major recommendations, including a federal guarantee of the right to vote and to what we now call equal opportunity employment. In early 1948 he urged Congress to pass legislation that would end segregation in transportation facilities. While the legislation failed to pass, Truman had ordered, as Commander in Chief, that the armed services, including civilian employees under military contracts, be integrated.
Truman's efforts were mainly a failure. Even thought they voted Dixiecrat in the 1948 election, the southern Democrats stayed in the Democratic Party for congressional purposes and held most of the powerful committee chairs that enabled them to block legislation they did not like.
Integration, civil rights for non-European Americans, would come gradually and painfully. Republican Earl Warren, heading the Supreme Court, stood above the political fray and did more to bring civil rights to America than any other person in power. Anarchists, socialists, communists, non-violence activists and black activists of all sorts pushed hard (and even violently) at the establishment until Lyndon Johnson finally said "uncle" and pushed substantial civil rights legislation through Congress.
Barack Obama would be the first part-African to be President of the United States. Even if he loses, just being the Democratic Party nomineee is a first. But what would an Obama presidency mean for Civil Rights?
First, President Obama would find himself in the same situation every President is in: he is an executive officer. Congress legislates. He could choose to vigorously execute the current civil rights laws, or not, but he needs Congress to make substantial changes.
Second, the Obama Presidency will be taken by many to mean that civil rights is no longer an issue. They will reason that if a man with an African father can be elected President, then low-class blacks, like poor white people, are just somehow losers who are individually responsible for their own fate. Many people of color are doing fine or even great, but not very many people of color have white mothers who sent them to fancy white prep schools and fancier colleges, as Obama did.
Barach Obama's positions on civil rights and education at his Web site are all fine and good. But Barach is inheriting an economically exhaused nation with an astonishing national debt and budget deficit.
Senator Obama says No Child Left Behind has "failed to provide high-quality teachers in every classroom." There are many aspects to teachers being of high-quality, the two main ones being motivation and training. But another one the Democrats always leave off the table is firing teachers who refuse to be motivated or to do what is needed. This is because the Democrats, and Barack Obama in turn, are way indebted to the teacher's unions, who unfortunately represent the bad teachers as well as the good ones. I like what Obama says about spending more money, particularly on programs like the "Zero to Five Plan," but where will the money come from?
Quality education for all students, regardless of their parantage, is a key component of both civil rights and a strong economy. But civil rights enforcement is also critical. Here Obama is really weak. Nothing really new is presented. Doing better at enforcing the current law, and subduing ongoing prejudices, is a good thing. But nothing he mentions is going to break up the gang culture that uses young men for cannon fodder. Nothing is going to compensate African-American families for their economic losses under slavery and segregation. I don't see any mention of compensation for the abuses of white working class people or sharecroppers either.
Which brings us back to Taxes. The web site has no page for taxes or the federal budget. In the economy section there is a tax cut plan for a new $500 per person tax credit for working families. That is going to expand the budget deficit and not provide money for education or for breaking the cycle of poverty in America's poorest neighborhoods.
So what we seem to have is a promise of lower taxes and higher spending. Wow. It's so simple. No politician in American history even thought of promising that.
Going back to Truman, I think he really meant to end discrimination against non-white people in the United States. But meaning it and being President is not, in itself, enough.
Friday, February 22, 2008
Consider this song from the 12th Dynasty, written around 1900 B.C., when the religion based on the resurrection of Osiris was all the rage:
This goodly destiny is fulfilled
The body perishes, passing away,
While others abide, since the time of the ancestors
The gods who were aforetime rest in their pyramids.
Likewise the noble and wise, entombed in their pyramids.
As for those who built houses, their place is no more.
Behold what has become of them.
I have heard the words of Imhotep and Harzozef,
Whos utterances are of much reputation:
Yet how are the places thereof?
Their walls are in ruin, their places are no more,
As if they had never been.
None cometh from thence
That he might tell us of their state.
That he might restore our hearts
Until we too die.
Let the heart dwell upon that which is profitable for thee.
Follow thy desire while thou livest.
Follow thy desire and they pleasure
And mold your affairs on earth
After the mandates of your heart,
Until the day of lamentation comes to you,
When your stilled heart cannot hear their mourning.
Lamentation recalls no man from the tomb.
Celebrate life, do not rest before death,
For you take nothing with you to death
And no man returns from death who has gone there.
This song stands in contrast to the worship of Osiris and the "Chapters on Going Forth by Day," better known as the Egyptian Book of the Dead. Already at that time people believed that they would be judged after death and be sent to a pleasant or unpleasant afterlife according to that judgement. Just as Christians and Moslems do today. It is believed that men acted in a just manner because they feared this judgement. Apparently fear of the government was not enough.
If you believe that, then the attitude expressed in this song is a dangerous one. If you will not be judged after death, then perhaps you will be unjust in this life. You might steal or murder or be unkind or unhelpful to your neighbors.
On the other hand, a system of social control based on nonsense about life after death is no guarantee of good people or a good society. Religions often group people into categories, allowing the treatment of slaves or woemn, for instance, to be an exception to the rules for treating peers. Religious rules can suppress the truth in favor of dogma.
And faith can be shattered, leaving people dependent on fictions morally adrift.
Note that the creator of the song does not say there is no afterlife, so feel free to pillage. Just as a community can create civil laws for the guidance of its citizens, so people who do not believe in the afterlife can be good neighbors.
In fact, I prefer people who don't believe in the afterlife. They value life, usually including the lives of others. They don't expect other men to slave away building them a pyramid. They don't dream of the mummy life. They tend to their gardens and their handiwork because that is what makes life pleasant.
I'll be commenting quite a bit about the worship of Osiris because much of what is essential about Christianity is borrowed directly from this Egyptian religion.
Friday, February 15, 2008
If you believe in social justice and peace, the record is not encouraging it. I'll review the highlights before analysing the potential of an Barack Obama presidency.
The first Democratic Party President of the United States was named Andrew Jackson. He was, in short, a murderer and genocidal maniac. He thought nothing of killing white gentlemen who disagreed with him over minor points. He had a 16 year old boy volunteering in stead of his older brother in the War of 1812 executed for not kowtowing to him. He traded in slaves, breaking up families. He provoked Native Americans to defend their land so he and his friends could exterminate them and steal the land. I can't think of a more brutal, unjust person in American History.
But the monstrous nature of Andrew Jackson's "frontier" personality is not the key take-away from his administration. The ruling class, which Jackson belonged to, needed two parties in order to rule effectively. These parties have to be competitive, and they have to control sections of the population that are sometimes at odds with one another. Andrew Jackson was used as a nucleus of a party, the same Democratic Party that we have today, that kept newly enfrachised, relatively poor, white male voters in line with ruling class interests by poising them against even more oppressed workers: women, Native American Indians, and African American slaves.
After losing the Civil War the Democratic Party established a strong base in the former states of the Confederacy and allied itself with corrupt, mostly Catholic, urban machines in the Union states. The Republican Party became the preferred party of industrialists and Wall Street by 1872. Still, there were times when the true leaders of the ruling class preferred a Democratic Party President. In particular, when a big grab was planned involving a war.
In 1912 Woodrow Wilson was made President. He was portrayed at the time, and is portrayed in most "standard" (approved by the powers that be) history books as a liberal peacemaker. He maneuvered the U.S. into World War I, which resulted in major economic gains for the Morgan family and the like. He talked about peace and international borders based on national self-determination. But he kept the Philippines enslaved by the U.S. and was an overt racist and segregationist. I would go on about what a jerk he was but moving on ...
When the possibility of real social reform came to the United States in the Great Depression, in stead we got President-for-Life Franklin D. Roosevelt. After the Democrats in Congress blocked Herbert Hoovers' attempts to provide relief for distressed Americans, the measures Hoover had advocated were passed under Rooosevelt. But something far more ominous was done as well: the power of the Federal Government was vastly strengthened. And the real agenda was war, which Roosevelt prepared for with more vigor than he committed to his welfare programs. Roosevelt demanded that the Japanese give up their colonies while the French and British were to be allowed to keep their Asian colonies. The attack on Pearl Harbor was a surprise, because the astonishingly large fleet of battleships in the harbor were being readied for an attack on Japan to follow up on a war ultimatum Roosevelt had already issued to the Japanese.
Harry Truman is the only executive of any nation to order the use of atomic weapons in war, and against civilians.
John F. Kennedy is the former Democratic Party politician who is most often compared to Barack Obama. They both went to Harvard Law School. Kennedy was young when elected President. Kennedy was a racist who refused to follow up on progress made towards recognizing the civil rights of African-Americans during the Eisenhower administration. But he gave racism a liberal gloss by upholding the Warren Court decisions in rhetoric, if not in reality.
Kennedy was favored by the ruling class because they needed some dirty jobs done. Communist insurgencies were at work in virtually every country in the world when Kennedy took office. Kennedy began a 16 year global reign of terror against people who dared to rebel against Wall Street. He invaded Cuba. The invasion of Cuba failed because the Cuban people did not rise up against Castro as Kennedy had deluded himself into believing. He upped the ante in Vietnam. He supported the ongoing colonial policies of the French and British. But most important, he lowered tax rates for rich Americans. The war against the poor in the rest of the world was to be financed by taxes on the backs of American workers.
Why was Bill Clinton made President? The ruling class loved Bill. He pushed through trade globalization treaties that would have been resisted by grass-roots Democrats if a Republican president had been pushing them. He feinted left on medical care and then used the leftover "reform" energy to set up the rapacious HMO system. He did nothing about global warming in 8 years in office. He had U.S. war planes attack Iraq on a daily basis for 8 years, enforcing a cruel embargo and the "no-fly zone."
So why does the ruling class need a Barack Obama in the President's office so badly now? It is not just that people are tired of George W. Bush. Something bigger is up.
I am just speculating here. I don't think it is the "war on terror." Islamic fundamentalist warriors could be controlled with an extra billion dollars or so a year to the CIA, not the hundreds of billions of dollars per year the wars on the people of Palestine, Iraq and Afghanistan have cost. If it is just a matter of money you could let the Taliban take over Afghanistan again and then finance a guerilla insurgency against them that would keep them too bogged down to do much on an international scale.
At the top of the capitalist food chain analysts and decision makers may pay attention to detail, but promoting Barack Obama to the Presidency is part of a big picture. It could have to do with the global food shortages that have emerged in the past few years and appear to be accelerating. Maybe we are about to do major military intervention in Africa and need to put a black face on that. Most likely, though, working class Americans are about to have the economic screws put to them in a way we have not seen since the Rockefellers turned their machine guns on us over a century ago. On the other hand there is something happening that even I don't know about. An unknown unknown.
But Barack Obama knows. You don't get the kind of free-ride from major corporate media that the Obama campaign has gotten without there already being a tacit understanding in place.
Barack Obama simply does not have the spine to stand up to a bunch of powerful men in the situation room of the White House. The guy has never made waves in any political office he has held, and he won't as President.
Bad things are going to happen. Obama's job will be to tell his progressive and middle class and rich-liberal supporters to get in line and follow orders.
I hope I am wrong, but things really don't look good from where I'm sitting, peering out at the world and back into history.
Monday, February 11, 2008
Until I read David Halberstam's The Fifties (See pages 430-441) I did not know about what could be called the Brown murders. After the Brown decision was made the usual racist social institutions, particularly but not exclusively in the states of the former Confederacy, organized a backlash. This consisted largely of threatening rhetoric and well-established methods of economic coercion and public humiliation of African Americans
The Reverend George W. Lee of Belzoni, Mississippi tried to pay his poll tax and register to vote in 1955. When the local sheriff, Ike Shelton, refused to accept the poll tax, George Lee threatened to take the matter to court. On May 7, 1955 Lee was murdered while driving his car. Sheriff Shelton engineered a cover-up. No one was arrested.
A small number of African Americans had been registered in the South since the Xth Amerndment had given them the right to vote; most were registered Republican not just because Lincoln had freed the slaves but because the Democratic Party and racism were synonymous throughout that period of time. Lamar Smith, however, must have been Democrat, but that did not help him when he voted in the Mississippi Democratic Party primary in Brookhaven. In broad daylight on August 13, 1955, in front of the Lincoln County Courthouse, he was killed by a shotgun blast. No one was brought to trial for the murder.
It was the 3rd Brown murder that shook the news media and then the nation from their slumbers. Emmett Till was fourteen years old. He lived in Chicago, but had gone to Tallahatchie County, Mississippi, to spend the summer with relatives. He was not a civil rights activist, but he made the mistake of making a lewd remark, or a remark that was interpreted as lewd (we don't know his side of the story) to Carolyn Bryant a married white woman who worked as a store clerk. Till was murdered by the the husband, Roy Bryant, and his half-brother J.W. Milam a few days later. He was shot in the head and dumped in the Tallahatchie River on August 28, 1955. He had been brutally beaten before being shot.
This time there was a trial. This time the national press showed up. Among others, a black Congressman from Detroit, Charles Diggs, attended the trial. The jury set the men free. Bryant and Milam later sold their story to Look magazine for $4000 described the killing in detail.
But outside the South both white and black Americans were repulsed by what they had heard. Even among predjudiced white segregationists in the South their was repulsion at the brutality of the murder.
It would be a many years before civil rights legislation would end most segregation in the United States. But with then Vice-President Richard Nixon pushing for executive action to uphold the Supreme Court ruling, with the national press largely turned against segregation, and with African Americans willing to push harder for their rights, in retrospect we can see that the tide had turned. Civil Rights were for all American citizens, not just white men.
Wednesday, February 6, 2008
Just in case you missed the Green Party results for the California Presidential primary, here they are:
Ralph Nader 61.7 % with 15332 votes
Cynthia McKinney 25.3% with 6279 votes
Elaine Brown 4.5% with 1114 votes
Kat Swift 3.0% with 768 votes
Kent Mesplay 2.1% with 526 votes
Ralph Nader won, which I'll get back to in a second. The most obvious point is that only about 25,000 Green votes were cast in all of California, excepting I think there were a lot of write-ins for Barack Obama. This is a dismal turnout, and if you are not depressed enough by American politics already, I'm going to go into why.
For statewide offices in California Green Party candidates have polled far higher. For instance, in the 2002 race for Governor, Peter Camejo received 393,036 votes.
Before declaring an end to the Green Party, consider what people in Mendocino County were saying about how they wanted to vote in the primary. There were two common themes among greenish voters here: people could not vote in the Green Primary because they had switched to Democrat, usually back in 2004, to vote for Dennis Kucinich. And people who were mad they were registered Green because they wanted to vote for Barack Obama.
Let's take the Barack Obama greens first. A secondary comment was that the Green Party primary was not exciting because they had not heard of any of the candidates except Ralph Nader, who no longer excited them. Since there was close to zero press coverage of the Green Party candidates, of course they had not heard of them. If the corporate press that they say they hate and distrust had not whipped up Barack's campaign he'd be as obscure as any other black person in Congress.
The Kucinich greens are a sad lot. Consciously or not, Dennis Kucinich had a mission in 2004: to destroy the Green Party. He did great at that. He claimed he was going to move the Democrats to the left, but instead he made a joke of the left within the party. So he killed two birds with one stone. The dope-addled Kucinich Democrats of Mendocino County mostly fell into the we-love-Obama camp. After all, they had trained themselves for over a decade to hate the kind of Democratic Party that the Clintons represent. And Obama is not Clinton.
Anyone who thinks that because they are now what passes for the far left in the United States, people registered in the Green Party must be particularly astute or even news-aware don't know the Greens of Mendocino County, or of California. Green Party members, as a whole, hardly ever vote. They pay little attention to the news, and get most of their knowledge of the world from the corporate media. When focused they are as smart as anyone and may remember some of the lessons they have learned about corporate control of the media, the candidates, and the two party system, but they drift away from that pretty easily.
Cynthia McKinney is a far better choice to lead the Green Party ticket in 2008 than Ralph Nader, but she was smashed in the primary. Interestingly, there was only one city where the press covered the Green Party primary at all: San Francisco. There was a Green Party Presidential debate there, and while there was no TV coverage, the daily paper wrote a short article and enough people attended to create a buzz. Cynthia edged out Ralph there, 46% to 44%. If there had been statewide televised debates I think the statewide electoral results would have been similar.
Why? Because Greens, like other voters, mostly vote based solely on name recognition. Ralph Nader has way better name recognition than Ms. McKinney, an African-American who has served several terms in the House of Representatives for her Georgia district.
If there is anything that will make the Green Party rise from the ashes, aside from strong local candidates, it is a Democratic Party owning the White House and Congress at the same time. Then people will hear a parade of excuses about why nothing much can really be done about the economy, the environment, or the U.S. military budget.
Another Nader candidacy will be another disaster. It may throw the election to the Republicans not because Nader will get many votes, but because he'll make John McCain look like a young man.
Tuesday, February 5, 2008
The current United States economic crisis is a direct consequence of the repeal of the Glass-Steagall Act [passed as the Banking Act of 1933]. While restoring the act's provisions will not end the crisis, it would go a long way to preventing future economic near-meltdowns.
The Glass-Steagall Act was enacted in 1933 after Congress had looked into the causes of the Great Depression. It was a wise law and did much to protect the American economy until it was effectively repealed by the passage of the Gramm-Leach-Bliley Act in 1999.
Before Glass-Steagall a bank was a bank and could even be a stock brokerage house. We can categorize banks into three varieties. Retail banks mainly take deposits for checking and savings and make loans for housing, consumer items, and business needs. You can include Savings & Loans and Credit Unions in this broad category.
The second type is an investment or merchant bank. A merchant bank deals mostly with businesses and mostly lends out its own capital. It may take ownership stakes in businesses, or speculate in stocks. It may arrange for corporations to raise money by selling bonds. It do other services for fees, like arranging mergers and acquisitions.
The third type of bank is usually called a brokerage house. It might do some things a merchant bank does, but its principle business is buying and selling securities for clients for a fee. If it helps launch new stocks or bonds for companies, or speculates with its own money, it may become more of a merchant bank.
In many cases as a brokerage house or merchant bank grows it adds functions and the two categories start resembling each other. Before Glass-Steagall a banking corporation could legally function as all three types of banks, though many banks, especially smaller ones, kept to their specialties. So, for instance, a bank could take retail deposits from customers, lend money out for residential house mortgages, run an internal brokerage operation, and even originate stock and bond offerings.
There were many reasons for bank failures during the depression, and economists still argue about what made the stock market and economy collapse. The congressional committee that wrote the Banking Act of 1933 concluded that a major cause of the economic collapse that followed the stock market collapse was the blending of functions in banks. Basically, instead of taking non-business deposits and lending them out as mortgages, some banks had used those funds to speculate in the stock market in the late 1920's, or had loaned them to investors (margin loans) who speculated in stocks. When the market crashed these banks then were unable to repay their ordinary depositors. In addition Citibank's brokerage arm had advised clients to buy stocks that it knew were overpriced and at the same time shorted those stocks so as to profit from the downswing.
Glass-Steagall forced banks to chose between being what we now call a bank, an institution that takes retail deposits, and a brokerage house or merchant bank that specialized in stocks, bonds, and related activities.
In the 1990's a concerted effort was made to overturn Glass-Steagall. While the banks and brokerages pushed at Congress and the Clinton Administration, the Federal Reserve led by Alan Greenspan and other regulators looked the other way while retail banks started merchant bank activities and vice-versa. Leading the charge was Robert Rubin, U.S. Treasury Secretary from 1995 until 1999 (he was a former Goldman Sachs partner). Having done the dirty deed, he joined Citigroup and still serves as its chairman.
Citigroup has been highly involved in the mortgage-based economic meltdown of 2007. Citigroup now consists of a retail banking arm, a merchant banking arm, and a stock-brokerage arm, an insurance arm, etc. Other large banks such as Bank of America, and JPMorgan Chase, all engage in multiple activities that would be prohibited by Glass-Steagall if it were still a law.
So has does that figure into the current credit and liquidity shortage resulting from the deflating of the housing bubble?
Banks, that is retail or consumer banks, used to hold mortgages. They took in deposits and made loans including mortgages. However, back in the 20th century mortgages started to be resold. After a bank lent money to buy a house, it had less money to lend. By selling the mortgage the bank received its money back and could make another loan. When this happened a bank was acting more as a mortgage broker than in its old capacity of lending out its deposits and making a profit from the difference in interest rates.
Next came repackaging. The idea was to spread risk and allow the lenders to select a level of risk, and of return on investment, that they liked. This is also called the securitization of mortgages. Mortgage origination companies suddenly had a new economic role. They originated mortgages and made their money on the transaction fees. The mortgages were repackaged by banks, which also repackaged their own mortgages. The mortgages were blended and sliced and diced to be sold as securities. Often the end holder of the mortgage-backed security was a pension fund, a financial institution, or a wealthy individual or family trust looking for higher returns (interest) than could be gotten by buying U.S. treasuries or corporate bonds.
It all smelled so sweet while the bubble was inflating. People got houses. Rich people got high-dividend securities that were AAA rated because, after all, housing prices always go up so all that risk was more theoretical than real.
Or you could look at it this way: what appeared to be a security was actually a loan. They people who borrowed the money don't know who the lenders are and would not care about them anyway. And loans don't always get paid back.
The problem for the banking system, beyond individuals failing to make their mortgage payments, is that the very credibility of the system was endangered by combining retail and merchant banking. Many of the mortgages were made with some fraudulent misrepresentation to the buyers. At the other end banks minimized the risks involved when selling the mortgage securities to the end lenders. Citicorp and Merrill Lynch, among others, came out looking particularly stupid because they bought their own sales pitch.
Some banks lost a lot of money quickly because they had speculated in the securities they had created. They also had become dependent on the fees generated at each stage of the process.
So the banks became illiquid in 2007 and had to be bailed out by the Federal Reserve. Now we are in February 2008 and many people can't get the loans they need to buy houses, even if they have downs and good credit records. So banks that made foolish loans two years ago can't make good loans today.
Citicorp's retail operations, its banks that take in deposits, have been endangered by its merchant arm that created and held mortgage-backed securities. We are really lucky that there is federal deposit insurance to reassure depositors. If Citicorp depositors had decided to more their deposits to other banks in 2007, we might be in a Depression already today.
We need a clear firewall between retail banking and the securities market. Hopefully the current hard weather will convince people to fix this problem instead of waiting for another Great Depression.
I believe the criminal behavior that led to the passage of the Gramm-Leach-Bliley Act needs to be investigated and punished. But that is a pipedream given how corrupt America's political and economic systems have become.