Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Bleak Picture in Asia, More Gloomy ThoughtsOn Asia, from the Financial Times.. A tidbit:"The figures are further proof that Asia's economy fell off a cliff in the closing months of 2008 and raise the likelihood that the bad news will continue to flow as the region's export-dependent nations are forced to cut jobs and manufacturing capacity because of weak western consumer demand. The collapse in Asian exports over the fourth quarter was "nothing short of breath-taking", said Frederic Neumann, Asia chief economist at HSBC. "Economic models and experience suggest that financial turmoil tends to transmit far more gradually into the real economy than has occurred this time around. In fact, the severity and rapidity of the fall in output exceeds anything we have ever seen before." Ambrose Evans-Pritchard has this to say about the global situation in general, and this on a possible reversal in Germany's view of the EU project. Labels: Ambrose Evans-Pritchard, Asia Times, bailout, European Union, financial crisis, Germany Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Warren Buffet Feels the PainMore from Across the Curve. And here's what the FT has to say out it:Buffett's Berkshire has worst results ever By Justin Baer in New York Published: February 28 2009 20:18 | Last updated: February 28 2009 20:18 Warren Buffett conceded that his holding company, Berkshire Hathaway, turned in its worst performance on record as the financial crisis drew the world's economy into a deepening recession, and gave investors little reason to believe a turnaround is imminent. In his annual letter to Berkshire shareholders, Mr Buffett recounted how frozen credit markets dovetailed with tumbling home and stock prices to imperil many of the world's biggest banks and produce "a paralyzing fear that engulfed the country." "By yearend," he wrote, "investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game." The billionaire also urged his legions of followers to remember that the stock market usually rises--the Standard & Poor’s 500 Index has produced annual increases in 75 per cent of the past 44 years--and may do so again even if the downturn persists. "We're certain, for example, that the economy will be in shambles throughout 2009--and, for that matter, probably well beyond--but that conclusion does not tell us whether the stock market will rise or fall," he wrote. Regardless, Mr Buffett wrote, Berkshire will stick with a strategy that has produced an annual compounded growth in book value of 20.3 per cent: maintaining its "Gibraltar-like" financial strength, improving the competitive position of its existing businesses and making new acquisitions that bolster earnings. Read the rest of the article Labels: Across the Curve, Berkshire Hathaway, financial crisis, Warren Buffet Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nordic Economies TankingEven the virtuous Nordics (including Finland)are feeling the full effect of the crisis. From LSE Macroeconomic News, courtesy of Across the Curve. Remember that especially Swedish banks are heavily exposed in Eastern Europe, with loans there up to the value of some 30% of GDP.WRAPUP_1Financial_crisis_slams_Nordic_economies_in_Q4 Macroeconomic News Saturday, 28th February, 2009 By Niklas Pollard STOCKHOLM, Feb 27 (Reuters) The global financial crisis slammed into the Nordic region with full force in the fourth quarter, with the Swedish and Danish economies contracting at record paces while Finland joined its neighbours in recession. Hit by a dramatic fall in demand for its many heavyweight exporters, Sweden's gross domestic product (GDP) shrank 4.9 percent in the fourth quarter from a year earlier and 2.4 percent from the preceding three months, the statistics office said on Friday. The outcome for the Nordic region's biggest economy was the worst GDP reading since Swedish statistics office SCB began publishing seasonally adjusted quarterly data in 1993. It compared with median forecasts of a 2.0 percent decline year-on-year and a 1.6 percent fall on a quarterly basis, as seen in a Reuters poll of economists. 'It was a very, very weak figure. It was, in fact, weak across the board,' RBS analyst Peter Kaplan said.' 'I think that the Riksbank is going to cut all the way to 0.10 percent -- in practice, zero rates. All the Riksbank's models are going to shout 'cut to zero', although the weak crown adds a little uncertainty.' The Swedish central bank has already slashed rates by a total of almost 4 percentage points from September to the current level of 1.00 percent in a running battle to ward of an economic downturn. Sweden's industrial sector, which includes top-flight manufacturers such as world number two truckmaker Volvo and carmakers Saab and Volvo, has so far been hardest hit, resulting in the loss of thousands of jobs. Read the rest of the article Labels: bailout, financial crisis, Nordic region Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Essential Reading from Yesterday's FTIn case you missed it, due to Friday night carousing, or whatever...--Whistleblower contacted US regulators (should they even be called this anymore?) on fraudster Sir Allen Stanford five years ago. --Banking editor Peter Thal Larson writes that the UK plan for Royal Bank of Scotland amounts to nationalization in all but name, "maintaining the fiction that the ailing bank is anything other than fully state-owned." This certainly has relevance in light of US policy with regard to Citi. --The excellent Gillian Tett on how CDOs may be worth even less than the pitiful estimates bandied about these days. And, in a point too rarely rarely made in the financial press, "as the zeroes relating to writedowns multiply, a peculiar--and bitter-- irony continues to hang over these numbers. Notwithstanding the fact that bankers used to promote CDOs as a tool to create more "complete" capital markets, very few of those instruments ever traded in a real market sense before the crisis--and fewer still have changed hands since then." Labels: bailout, CDOs, financial crisis, Financial Times, Gillian Tett, Peter Thal Larsen, Royal Bank of Scotland, Sir Allen Stanford Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Report from Eastern Econ. Assoc. MeetingsI (D&S co-editor Chris Sturr) am in New York City for the annual meetings of the Eastern Economics Association, the sweet kid sister to the Allied Social Sciences Association (which would make the latter the bullying older brother, if we're going to go with the metaphor), from which I blogged a couple of times back in early January (here and here, and here's D&S collective member Arpita Banerjee's ASSA report).It's hard to say what makes the EEA meetings so much nicer than the ASSA. Part of it is that they are much smaller (I don't have the numbers, but the program is much thinner, as are the crowds, and the book exhibit, where we spend most of our time, is about 1/10th the size), and maybe there is a critical mass of left or left-ish or at least not left-averse economists on the east coast. All in all, there is a more relaxed and less corporate feel to the EEA. Our comrades at the Union for Radical Political Economics (with whom we share an exhibit table) are sponsoring seven panels this year, which is a pretty high number for a relatively small conference. Back at the ASSA, one of the plenary sessions that drew big crowds was (as I reported in my earlier post) the spectacle of Marty Feldstein rediscovering fiscal policy after years (a career?) of denying that it was necessary. Meanwhile, at the EEA this year, this year's Nobel Prize winner, Paul Krugman was a big draw, as was another leftish Nobel Prize winner, Joseph Stiglitz, who gave the presidential address (since he's the current president of the EEA). I missed Krugman's talk, but I made it to see Stiglitz, and I'm really glad I did. (Stiglitz was introduced, by the way, by Steve Pressman, secretary of the EEA, who co-authored an article in our July/August 2007 issue on debt poverty in the United States--more evidence of the EEA's left-friendliness.) Stigliz's topic was the current economic crisis ("What else is there to talk about?" he asked), and he set himself two questions: (1) "What shall we do about our failed banks?" and (2) "What role did the economics profession--or rather *some* members of the profession--play in the crisis?" His assessment of the inadequacies of the responses to the crisis so far (including the stimulus, efforts to address the foreclosure crisis, and the bank bailout) was great, though his "Plan B" was a bit rushed and hard to follow. His critique of the mainstream economic views that contributed to the crisis was also a bit rushed, but gratifyingly scathing. One big reservation I had about the talk was that he was nearly as timid on the issue of bank nationalization as he was in the interview he did with Amy Goodman (which we blogged about a couple of days ago). I have pretty extensive notes from the talk, and there were some great bits (e.g., he quipped, a propos of the way the "experts" denied the crisis for so long, seeing recovery around the corner, until we had turned corner after corner: "The light that was at the end of the tunnel turned out to be a train coming right at us."). I would like to write up more on his talk, but in my hotel room on a Friday night in NYC with the nightlife beckoning, this post is starting to feel like a grotesque combination of a diary entry and a term paper, so I will aim to say more tomorrow with more EEA updates. Labels: ASSA, bailout, EEA, financial crisis, Joseph Stiglitz, Martin Feldstein Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama's ($1.7 Trn Deficit) First BudgetFrom The Financial Times:Obama forecasts $1,750bn deficit By Andrew Ward and Edward Luce in Washington Published: February 26 2009 11:24 | Last updated: February 27 2009 09:56 Financial Times President Barack Obama on Thursday unveiled the most expansive blueprint for federal government involvement in the US economy in more than a generation in a ten-year budget outline that showed this year’s deficit quadrupling to $1,750bn. The document, which lays out ambitious plans to create universal health insurance and adopt an economy-wide carbon permit trading system by 2012, was heavily panned by Republicans. The budget would see George W. Bush’s tax cuts for the wealthiest expire by 2011 and introduce new tax increases on families earning $250,000 or more to pay for healthcare expansion. In a sign of intense partisan battles to come, Mitch McConnell, the Republican leader in the Senate, where the US president needs supermajorities of at least 60 votes to push bills through, said: “Unfortunately, at this juncture, while the American people are tightening their belts, Washington seems to be taking its belt off." The budget also allowed for about $750bn for "financial stabilisation efforts", on top of the $700bn already granted to Wall Street. The potential aid was shown as a net cost of $250bn because the government would anticipate recouping some of the money. Peter Orszag, White House budget director, said there were "no plans" to seek more aid for banks but the measure indicated it was a strong possibility. The 134-page document outlines a legacy inherited from Mr Bush of what it calls "mismanagement and missed opportunities and of deep, structural problems ignored for too long". Read the rest of the article Labels: bailout, Barack Obama, budget, financia crisis, fiscal policy, fiscal stimulus, taxes Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US and UK Increase Stakes in BanksFrom Reuters, again:Governments tighten grip on banksFri Feb 27, 2009 11:55am EST Reuters By Steven C. JohnsonNEW YORK (Reuters) Governments on both sides of the Atlantic moved to tighten their grip over banks on Friday to stem a financial crisis that has pushed the U.S. economy into its deepest contraction in more than a quarter century. U.S. stocks sank to a 12-year low after Washington struck a deal in which it could end up with more than a third of crisis-hit Citigroup. The World Bank and other development banks launched a $32 billion lending plan to help east European banks and businesses survive a deepening recession. Citigroup (C.N) shares tumbled some 30 percent after the U.S. Treasury struck a deal to convert $25 billion of its preferred stock to common shares, which could give it a stake of up to 36 percent in the bank by diluting existing investors. While the government will not add to the $45 billion it has already invested in what was once the world's largest bank, the stock conversion will shore up the most conservative gauge of the bank's health. The U.S. government is struggling to shore up its banks as part of its approach to restoring growth. Data showed the U.S. economy shrank a staggering 6.2 percent in the last three months of 2008, its biggest slide since the first quarter of 1982, as exports fell and consumers cut spending. "The fear is the government having a big stake in the company will create obstacles for Citigroup to be competitive, and there remain questions about the viability of the financial system," said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York. "The (gross domestic product) number," he added, "just threw gasoline on the fire." Across the Atlantic, investors were eyeing Lloyd's Banking Group (LLOY.L) as the second major British financial firm lining up to tap a government-backed insurance scheme. The bank, which revealed a 10 billion pound ($14.28 billion) loss for 2008, said it had not finalized a plan yet but said talks with the UK government were "well advanced." On Thursday, Britain agreed to insure 500 billion pounds ($715 billion) of risky bank assets and struck a deal that could raise the government holding in Royal Bank of Scotland (RBS.L) to 95 percent. Global development banks also launched a two-year plan to lend up to 25 billion euros to shore up troubled banks and businesses in eastern and central Europe. The crisis has dried up credit and capital flows into the once-booming region, pressuring exchange rates and forcing some countries to seek help from the International Monetary Fund. Fannie Mae (FNM.P), the government-controlled company seen by the U.S. administration as a key conduit to stabilize the housing market, reported a $25.2 billion fourth-quarter loss, forcing it to ask for $15.2 billion from the U.S. Treasury Read the rest of the article Labels: bailout, banking crisis, banking system, Citibank, Fannie Mae, financial crisis, Royal Bank of Scotland Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US 4Q GDP Falls 6.2%, Biggest Drop Since '82From Reuters:U.S. fourth-quarter GDP drop biggest since 1982 Fri Feb 27, 2009 12:29pm EST Reuters By Lucia Mutikani WASHINGTON (Reuters) The U.S. economy suffered its deepest contraction since early 1982 in the fourth quarter, shrinking at a much worse-than-expected 6.2 percent annual rate as exports plunged and consumers slashed spending. A month ago, the Commerce Department had estimated the economy shrank at a 3.8 percent pace in the October-December quarter. But downward revisions to inventories, exports and spending led it to issue a much weaker figure on Friday. "It's just doom all over. There's nothing good to take away from this report. I think there's a few more bad quarters to come," said Boris Schlossberg, director of currency research at GFT Forex in New York. The grim data shocked Wall Street, which had braced for a downward revision, but not one nearly so deep. The consensus was for a decline of 5.4 percent. U.S. stocks fell, with the Standard & Poor's 500 Index hitting a fresh bear market low, weighed down by the data and news the government could take a large common equity share in troubled financial firm Citigroup. Government bond prices rallied. A separate report showed mounting job losses turned consumers gloomier in February, evidence the U.S. recession continues to deepen. The final Reuters/University of Michigan consumer sentiment index fell to 56.3 from January's 61.2. Read the rest of the article Labels: bailout, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Over 250 Banks On The EdgeThe FDIC reports that 252 US banks were on its list of troubled at the end of 2008, meaning they are at high risk of failure. This is the highest number since 1994. The total value of the assets of the banks on the watch list are $159 billion.Fourteen banks have failed so far this year, or an average of nearly two every week. From CNN: NEW YORK (CNNMoney.com) -- The government's closely watched list of troubled banks grew during the fourth quarter to its highest level since 1994, regulators said Thursday. Full story here. Labels: bad bank, bank failures, banking crisis, banking system, FDIC Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US Jobless Claims At Record HighThe US shed 600,000 jobs in January alone. It's looking like we'll lose another 700,000 in February. From the wires:WASHINGTON (Reuters) - The number of U.S. workers drawing jobless aid jumped to a record high in mid-February, while the recession undercut demand for manufactured goods last month and sent new homes sales to their lowest since 1963. Full story here. Labels: economic meltdown, unemployment, unemployment benefits Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Chicago Factory Workers To Be RehiredA rare piece of good news on the jobs and labor front. The former workers of Chicago's Republic Windows and Doors factory will be getting rehired by a California company that is buying the plant. More good news -- the company specializes in energy efficient and eco-friendly products.See our previous posts and commentary on the amazing organizing effort by these workers here. From the Huffington Post: CHICAGO — The factory where laid-off workers staged a highly publicized sit-in that garnered national attention last year was sold to a California company that hopes to rehire them and open in about a month, the workers' union and the new owner said Thursday. (This is the complete post) Labels: labor organizing, Republic Windows and Doors Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). G.M. Loses $9.6 BillionJust posted to the New York Times website. Sorry if this ruins tomorrow morning's paper for you. It probably won't be such a good day for Rick Wagoner either, and he's probably ruining lots of UAW members' days too.DETROIT—The chief executive of General Motors met with government overseers on Thursday to explain the carmaker's financial situation, hours after G.M. reported a $9.6 billion south-quarter loss and said it was rapidly spending its cash reserves. The G.M. chief, Rick Wagoner, is expected to ask for more assistance as he sits down with the auto industry task force created by President Obama. The panel, led by Treasury Secretary Timothy F. Geithner and Lawrence H. Summers, the White House economic adviser, will oversee the restructuring at G.M. and Chrysler. Even as the meeting unfolds, G.M. finances were reaching a crucial point. The company said Thursday that its cash reserves were down to $14 billion at the end of 2008, including $4 billion it had borrowed from the government that month. G.M. spent $19.2 billion of its cash reserves in 2008. It spent $6.2 billion of the reserves—$2 billion a month—in the fourth quarter alone. Since then, G.M. has borrowed $9.6 billion more, but the company expects to go through that money quickly, and says more aid is necessary to remain solvent. "The economic situation is having a dramatic impact on our industry, on General Motors," G.M.'s chief financial officer, Ray Young, said on a conference call Thursday. "We're still forecasting a cash flow burn of $14 billion in '09, so we will need some additional funding support." The company has said that it needed a minimum of $11 billion to $14 billion in reserves to finance operations, but the estimates were made before the recent drop in auto sales and cuts by G.M. in response. G.M. lost $30.9 billion, or $53.32 a share, in 2008. For the fourth quarter, it lost $9.6 billion, or $15.71 a share, as its global sales fell 26 percent. In 2007, the company lost $43.3 billion, a record, mostly the result of a noncash accounting charge; it adjusted the figure higher by $4.6 billion on Thursday. The losses, though, are unlikely to shake investors, who have already realized the automaker's perilous state. G.M. said last week that it might need as much as $30 billion to complete the restructuring plan that it has submitted to the Treasury Department. Read the rest of the article. Labels: auto industry, auto industry loans, bailout, financial crisis, General Motors, Rick Wagoner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stiglitz Criticizes O.'s Speech, Favors Single-PayerThis seems pretty explosive to me: Nobel-Prize-winning economist Joseph Stiglitz came put in favor of a single-payer universal health program as "the only alternative" in an interview with Amy Goodman on Democracy Now!. Hat-tip to Dr. Christine Adams of Health Care for All Texas. Very interesting also that he also criticizes Obama as having "confused saving the banks with saving the bankers." (Amy Goodman's phrase, but Stiglitz responded: "Exactly.")There's also a discussion of nationalization, and from what I can tell Stiglitz calls for a Swedish-style "nationalization," which is really just temporary receivership (or what Krugman usefully calls "preprivatization"—though this is what Krugman favors too). This puts him barely to the left (on this issue at least) of Alan Greenspan, who as we've reported here, has said that "nationalization" will probably be necessary. Wish Amy had asked him about full, permanent nationalization... Click here for Fred Moseley's argument for it in the March/April issue of D&S. We'll have an article about single-payer in that issue too. Here is the beginning of the DN! transcript: AMY GOODMAN: Your first assessment of the speech last night? JOSEPH STIGLITZ: Oh, I thought it was a brilliant speech. I thought he did an excellent job of wending his way through the fine line of trying to say—give confidence about where we're going, and yet the reality of our economy—country facing a very severe economic downturn. I thought he was good in also giving a vision and saying while we're doing the short run, here are three very fundamental long-run problems that we have to deal. The critical question that many Americans are obviously concerned about is the question of what do we do with the banks. And on that, he again was very clear that he recognized the anger that Americans have about the way the banks have taken our taxpayer money and misspent it, but he didn't give a clear view of what he was going to do. AMY GOODMAN: Let's go to the clip last night. During his speech, President Obama acknowledged more bailouts of the nation's banks would be needed, but didn't directly say, as Joe Stiglitz was saying, whether the government would move to nationalize Citigroup and Bank of America. PRESIDENT BARACK OBAMA: We will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible; force the necessary adjustments; provide the support to clean up their balance sheets; and assure the continuity of a strong, viable institution that can serve our people and our economy. AMY GOODMAN: President Obama on Tuesday night. Joe Stiglitz, is he holding the banks accountable? JOSEPH STIGLITZ: Well, so far, it hasn't happened. I think the more fundamental issues are the following. He says what we need is to get lending restarted. If he had taken the $700 billion that we gave, levered it ten-to-one, created some new institution guaranteed—provide partial guarantees going for, that would have generated $7 trillion of new lending. So, if he hadn't looked at the past, tried to bail out the banks, bail out the shareholders, bail out the other—the bankers' retirement fund, we would have easily been able to generate the lending that he says we need. So the question isn't just whether we hold them accountable; the question is: what do we get in return for the money that we're giving them? At the end of his speech, he spent a lot of time talking about the deficit. And yet, if we don't do things right—and we haven't been doing them right—the deficit will be much larger. You know, whether you spend money well in the stimulus bill or whether you're spending money well in the bank recapitalization, it's important in everything that we do that we get the bang for the buck. And the fact is, the bank recovery bill, the way we've been spending the money on the bank recovery, has not been giving bang for the buck. We haven't gotten anything out. What we got in terms of preferred shares, relative to what we gave them, a congressional oversight panel calculated, was only sixty-seven cents on the dollar. And the preferred shares that we got have diminished in value since then. So we got cheated, to put it bluntly. What we don't know is that—whether we will continue to get cheated. And that's really at the core of much of what we're talking about. Are we going to continue to get cheated? Now, why that's so important is, one way of thinking about this—end of the speech, he starts talking about a need of reforms in Social Security, put it—you know, there's a deficit in Social Security. Well, a few years ago, when President Bush came to the American people and said there was a hole in Social Security, the size of the hole was $560 billion approximately. That meant that if we spent that amount of money, we would have guaranteed the—put on sound financial basis our Social Security system. We wouldn't have to talk about all these issues. We would have provided security for retirement for hundreds of millions of Americans over the next seventy-five years. That's less money than we spent in the bailouts of the banks, for which we have not been able to see any outcome. So it's that kind of tradeoff that seems to me that we ought to begin to talk about. AMY GOODMAN: So, you say Obama, too, has confused saving the banks with saving the bankers. JOSEPH STIGLITZ: Exactly. AMY GOODMAN: Should they all have been fired? JOSEPH STIGLITZ: Well, I think one has to look at it on a bank-by-bank basis. Clearly, the banks that have not been managed very well, we need to not only fire them, we have to change their incentive structure. And it's not just the level of pay; it's the form of the pay. Their incentive structures encourage excessive risk taking, shortsighted behavior. And in a way, it's a vindication of economic theory. They behaved in the irresponsible way that their incentive structures would have led them to behave. Read or listen to the rest of the interview. Labels: Amy Goodman, bailout, bank nationalization, Barack Obama, financial crisis, Joseph Stiglitz, Paul Krugman, single-payer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama's Address (Dave Lindorff--Counterpunch)Recently posted to Counterpunch. Hat-tip to Bob F. For an assessment of O.'s address by frequent D&S blogger Larry Peterson, click here; someone just left a nice comment on it: "Thanks, Larry. Some of the best writing on the economy is here at Dollars and Sense."Obama's Address to Congress Smooth? Yes. Transformative? No. By DAVE LINDORFF | Counterpunch | February 26th, 2009 Barack Obama's first address to Congress provided Americans with yet another example of competent speechmaking, and I suppose, given that we've just endured eight painful years of oratorical farce, being able to listen to your president without wincing is something. The problem is that the way forward proposed by the president as laid out in this address was almost always half-hearted, wrong-headed or doomed. Obama declared at the outset of his address that the economic crisis was the major issue confronting the country, and while one could argue that this crisis is merely a symptom of much bigger issues, like the nearly completed deindustrialization of the nation, the death grip of militarism, and the growing political power of corporations, one could also concede that there is an urgent need to deal with the deepening recession. But clearly, the proposals offered by the president for tackling the crisis are not up to the task. He spoke primarily of the need to "get banks lending" again, explaining that this would require pouring still more hundreds of billions of dollars into these failing institutions. You'd think that with a whole stable of bankers at his elbow, the president would by now have heard from at least someone that this is nonsense, but apparently not. Nobody in the White House or the Cabinet seems to want to point out to the boss that the reason banks aren't lending is because most people—and companies—aren't interested in borrowing. The economy is tanking and assets are sinking in value by the day. Why would anyone want to borrow to invest in such an economy? Furthermore, even if someone did want to borrow, banks will not want to lend unless they think there's a reasonable prospect of having the money repaid. That means they want to see income, they want to see a full order book, they want to see, in the case of a mortgage, an asset that is fairly valued. None of this exists. That's why the first $350 billion that was given to the banks last fall was simply pissed away and lost, not lent out, and it's why the same thing is likely to happen to the next $350 billion Obama is preparing to give away. It won't matter if he establishes a monitoring system for the second tranche of the Troubled Assets Relief Program bailout funds, or a mandate that they be used for making loans. What is needed to fix this crisis is job security, and the only way to create that is by creating jobs. Obama talks of creating 3-3.5 million jobs, but most of these won't even be created, even in smaller numbers, until the end of this year, by which time the official rate of unemployment could be above 9 percent , and the real unemployment rate possibly more than twice that (that would be including people who've given up looking for work, or who are involuntarily working part time). Read the rest of the article. Labels: Barack Obama, financial crisis, jobs, recession, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Alternative Job Creation Plan (S. Aronowitz)This is from Bob Feldman—he sent it to me before the last item he sent for me to post about alternative job creation plans (the one from a 1973 book), but I forgot to post it. It raises interesting issues that we have covered in D&S, e.g. the idea of a "basic income guarantee" (and he might have also mentioned the related idea of "employer of last resort," which we covered in our March/April 2008 issue), and the key issue of tax havens, which we'll be covering in our May/June issue.Aronowitz's Alternative Jobs Creation Plan Of 2005 If you're wondering what an alternative left jobs creation program to the Obama Administration's recently enacted "stimulus" economic program might look like, here's what CUNY Grad School Professor Stanley Aronowitz proposed in his 2005 book Just Around The Corner: The Paradox of the Jobless Recovery: "Slightly less than 10 percent of the annual military budget (not counting emergency Iraq funds), $50 billion, would create almost 2.5 million jobs...Jobs could be created to build low-and moderate-rental or limited-equity cooperative housing (where `owners' are obliged to sell their apartments back to the co-op rather than offer them for sale in the private market)... "...The housing story of the postwar era has been one of federal, state and local abandonment and betrayal of the brave New Deal public-housing program. It was replaced by a program that used public funds to subsidize private developers... "Where will we get the funds for creating public jobs and for building new housing...? We urgently need to reinstitute a progressive tax system where large corporations and wealthy individuals are required to pay their fair share and no individual or profitable business is exempt from paying taxes. In addition, in the interest of creating these jobs, loopholes for upper-middle-income taxpayers should be closed. And the bloated military budget, much of which neither enhances our security nor is justified if we had a reasonable foreign policy that was not oriented toward empire, could be slashed and reorganized. The savings could help fund a labor-intensive public-service jobs program. "Would this jobs program require a new government institution such as the New Deal Public Works and Works Project Administration (PWA and WPA)? Probably...It would be important to stipulate that these are public jobs to expand public goods, and slots should not be crated to subsidize wages in the private sector. Right now, huge quantities of federal funds are shoveled into private contractors' pockets... "...When will working people share in the benefits of the technological revolution of our time? "We need to amend the Wage and Hour Act to provide for overtime pay for work performed after 6 hours in any day, and after 30 hours a week... "What to do about the unwaged and the underwaged?...America needs a basic-income guarantee...It is time to revive the concept of a basic guaranteed income for all Americans... "...Corporations that register offshore must be required to pay U.S. taxes. Those who avoid such taxes should lose their right to sell their goods and services in this country. (Of all U.S. corporations, 60 percent failed to pay taxes in 2003. Many of them were registered in another country, usually a Caribbean site; others simply took advantage of gaping loopholes in U.S. tax law.)" --b.f. Labels: basic income guarantee, Employer of Last Resort, jobs, militarism, Stanley Aronowitz, tax havens, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Closures and Layoffs (Feb. 22-28)From Mark Heschmeyer of the CoStar Group:Nationwide: The Goodyear Tire & Rubber Co. is taking aggressive action to reduce tire production and cut costs by approximately $700 million in 2009. Actions include further reducing personnel levels by nearly 5,000 in addition to almost 4,000 reductions in the second half of 2008 and freezing salaries. In addition, Goodyear plans to eliminate between 15 million and 25 million units of additional manufacturing capacity worldwide over the next two years. Local: [There's a long table listing company, location, whether it's a closure or a layoff, how many workers are involved, and when it will happen—very useful, but the table won't transfer to blogger. Click here for the full report.] Labels: closures and layoffs, Goodyear Tire, Mark Heschmeyer, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dull Compulsion (vi): Obama's SpeechThe Dull Compulsion of the EconomicA series of posts by D&S collective member Larry Peterson Obama's Mixed Up Metaphor I suppose it's a luxury, of sorts, these days, to look at a presidential address as something more than an opportunity for a good laugh, but President Obama's first attempt to articulate his vision of economic recovery to the suffering nation was, if more sincere and confident, all the more incoherent. And it wasn't just me: markets clearly didn't buy Obama's line, falling on the morning after the speech. They recovered later, but much of this was on the back of a rising oil price (which boosted oil stocks), while losing the momentum that saw Tuesday's rally bring the indices away from dangerous lows. The main problem with the speech was crystallized in one particular statement of the president: "You see, the flow of credit is the lifeblood of our economy." I suppose we've all become so inured, in the wake of the fall of Lehman Brothers, to economists and economic commentators using the metaphor of the circulatory system, so that we are conditioned to accept such references to the financial system, tacitly assuming money in the place of blood. But to use the metaphor in relation to credit is another thing altogether. And the fact that this statement made it past the president's handlers, and attracted no comment, so far as I have seen, concerns me. As anyone who read my post of last week knows, I'm hardly a stickler on the issue of the definition of money; and I'm certainly not going to push some rigid definition that neglects the central role of credit creation in any modern economy. But the economic crisis has featured not only a credit system that was a little oversized: as we all know now, credit creation, under the sleepy eyes of the ideologues and crooks who "regulated" the financial industry for decades, reached altogether ruinous heights in the run-up to the crisis. So, far from being like blood, the credit injected into the economy for much of the time leading up to the crisis resembled the tainted blood samples we've read about in China, only watered down by a factor involving several digits. This is important because Obama appealed earlier in the speech to the capacities that would allow the nation to fend off the crisis: the work being done in the laboratories, the imaginations of entrepreneurs, and so on. And, in this vein, Obama said his entire agenda "begins with jobs." Some of us would say that this is more like the true lifeblood of the nation's economy. But Obama, after making his circulatory analogy, and even adding a few boilerplate denunciations of bankers, tries to steer us in the following rhetorical direction: we have to accept that rescuing the banking system, in much the same form as we have come to know it, is absolutely essential to reviving the economy. Why? Because only bank lending will create the means of reproducing, and even enhancing the American lifestyle: "That's what this is about. It's not about helping banks; it's about helping people. Because when that credit is available again, that family can finally buy a new home. And then some company will hire workers to build it. And then those workers will have money to spend, and if they get a loan, too, maybe they'll finally buy that car, or open their own business." Failure to do this, on the other hand, will lead to years of stagnation, and more remedial government spending down the line. This doesn't exactly sound like a jobs-led recovery to me: it sounds more like the type of trickle-down thinking that brought us the subprime mess in the first place. And the fact that Obama failed to mention our abysmal, if rapidly rising savings rate, reveals clearly the level of duplicity being at least tacitly employed in the speech, especially insofar as President Obama did mention the looming Medicare crisis. This is all the more the case if one looks at some of the appeals to patriotism Obama made. No doubt, many of them could not but have been looked at by attentive foreign creditors as hints of a possible protectionism to come: "Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders and I know you don't either. Its' time for America to lead again." So it seems Obama is trying to force the peons into signing onto his program: one that has, as one of its main goals, no less, a re-uptake of highly leveraged players looking for big yields, who have been sitting on top of big, if declining cash piles on the sidelines as the crisis has progressed, into the financial system, with the huge loans they depend on being backed somehow by taxpayers and foreign bondholders. And these people have hardly shown themselves to be big job-creators. This is what the so-called P-PIF (Public-Private Investment Fund) seems to be about. So Obama must find something to connect, rhetorically, the former with the indispensable banking system, while downplaying the fact that the latter still, somehow--and they continue to borrow US bonds as fast as the Treasury can print them, even as their economies decline--hold an important veto power over the plan. And then, Obama added insult to injury by saying "three-quarters of the fastest growing occupations require more than a high-school diploma" when he discussed his education proposals. As Doug Henwood noted in his fine book, After the New Economy in 2003, "Of the top 30 occupations [projected by the Bureau of Labor Statistics], about 40% of job growth will be among those in the lowest quarter of the income distribution. Another 28% will be in the top-paying quartile, with only 31% in the middle two. Less than a quarter of the top 30 jobs will require a bachelor's degree or higher; 54% will require short on-the-job training." The upshot? "It's hard to see from this how "the problem is that many people don't have the right skills,"" and that "[i]t is, however, easy to see the polarizing tendencies in today's labor market...It produces a fair number of high-end jobs, a lot of low end jobs, but not much in the middle (New Press, pages 72-73)." Though his emphasis on education is laudable, the structure of the American economy remains less than favorable for most job seekers, educated or not, and will remain so, whether or not their taxes subsidize the "indispensable" recapitalization of the banks, and the re-integration of leveraged players into the financial system. This is all the more the case, of course, as the economy continues its unavoidable (given all that bad debt) decline. And it is the rhetorical device of a circulatory system which is the focal point which is employed to illustrate a totally disingenuous connection between the debt-based financial system and working people (especially inasmuch as it airbrushes the connection of foreign creditors in propping up this arrangement to the latter, even as it attempts to appease them with appeals to their patriotism, while tacitly threatening the foreigners who pay a big part of the bill). And as long as working people accept this ruse, he's right: the financial system will have to be revived in much the way it was, even if that serves no economic purpose for the workers. But if we can look beyond Obama's flawed metaphors--as well as those of economic commentators and the financial press--maybe we can move in a better direction. Labels: bailout, Barack Obama, Doug Henwood, financial crisis, Larry Peterson, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bank Throws $Million Bailout PartyYou know it's bad when entertainment blog TMZ breaks a story on a bank blowing millions on a party after it received $1.6 billion in bailout funds, which is exactly what happened to Chicago bank Northern Trust.The bank not only spent millions sponsoring a golf open at the Riviera Country Club in Los Angeles, it flew hundreds of clients and employees to LA, put them up in some of the fanciest hotels in town (including the Ritz), treated them to swanky dinners, hosted a private concert by Chicago (because they are a Chicago-based bank, of course) rented a hanger for a private concert with Earth, Wind, and Fire, rented out the House of Blues for another fancy dinner and a private concert with Cheryl Crow, and gave female guests trinkets from Tiffany and Co. TMZ has posted pictures and camera footage of all the fun. For it's part, the bank claims that it is all part of the normal course of business, and that it is doing fine financially. It did, however, lay off 450 workers (4% of its workforce) in December. No word of whether laid-off employees were invited. Labels: bailout, banking crisis, financial crisis bailout, Northern Trust, TMZ Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Cheese Sandwiches For School KidsCash-strapped school districts from California to Florida are taking a tough approach on the growing number of school kids whose parents have fallen behind on their school lunch bills. Instead of hot meals, the children are given a cold cheese sandwich, a piece of fruit, and a milk carton.From the wires: ALBUQUERQUE, N.M. - A cold cheese sandwich, fruit and a milk carton might not seem like much of a meal - but that's what's on the menu for students in New Mexico's largest school district without their lunch money. Rest of the story here. Labels: economic crisis, school lunches Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Delasantellis on Foreclosure EndgameHe has some great observations about US politics setting the upper middle class against the working and lower classes as well. From his Asia Times column:A scam at the heart of the US By Julian Delasantellis Asia Times, February 26th, 2009 Travelers visiting New York city from Americas's rural heartland in the 1980s might have been able to regale the folks back home with tales of encounters with knife-wielding drug addicts and/or disease-scourged prostitutes, but it's not like their predecessors who made the same trek back in the 1950s didn't have a tale to tell around the cracker barrel as well. They might have come back to the square dance and talked about playing and losing at the game of three-card monte. Set up on rapidly movable folding card tables, in order to remain mobile against the disproving eyes of the constabulatory, three-card monte games were operated by New York sharpies who, when spying a rural rube from Racine, Wisconsin, or maybe Red Wash, Utah, would invite the visitor to play a simple card game. Three cards from a deck would be dealt face up-one a face cardsuch as a King or Queen. Then the cards would be turned face down, the "dealer" would arrange and re-arrange them on the table, and, the contestant would be invited to chance a wager as to which card was the face card. This was a lot harder than it seemed, especially with the dealer usually employing sleight of hand to hide the face card in his sleeve. No matter how hard he tried, no matter with how much concentration he watched the dealer's hands, the contest could never be won by its very nature; the player was destined to lose the card and his wager - rather like the chances of those facing foreclosure in the current mortgage and financial crisis of ever gaining relief from their hardship. Read the rest of the article Labels: Fannie Mae, financial crisis bailout, Fredddie Mac, housing market, Julian delasantellis, mortgage innsurance, mortgage meltdown, securitization Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Job Creation Proposal from 1973From Bob Feldman:Perlo's 1973 Alternative Jobs Creation Proposal Revisited Most hip anti-war people in the United States (and most long-time readers of Dollars & Sense) probably realize by now that the U.S. government's recently passed "economic stimulus" legislation won't really create enough high-wage jobs for U.S. workers to really restore economic prosperity for most U.S. working-class people; or quickly stop the rapid rise in long-term unemployment rates for U.S. blue-collar and office workers. Yet until anti-war left dissidents in the United States are able to quickly present some kind of anti-militarist alternative left jobs creation program for U.S. working-class people to mobilize in support of on the U.S. streets, the suffering of U.S. working-class people in the current U.S. historical "era of permanent war abroad and economic depression at home" will probably continue to increase--until there's finally some kind of upturn in U.S. capitalism's business cycle. In a 1973 book, The Unstable Economy: Booms and Recessions In The U.S. Since 1945 (International Publishers), a Marxist economist named Victor Perlo indicated what an anti-war alternative left jobs creation program for the U.S. economy might look like by proposing the following: "Nationalization and government operation of major economic units are essential for overcoming monopoly domination of the economy to the extent necessary for realizing significant progressive reforms. "Plants abandoned by private owners, or left with substantially curtailed operations, are prime targets for nationalization. Conspicuous in this respect are enterprises in the aerospace and other armament-connected industries, whose private owners have proved unwilling or unable to shift to civilian production. Also there has been large-scale phasing out of electornic plants, as multinational corporations have shifted output to foreign lands. There continues a constant flow of industrial enterprises from urban areas, where workers are organized into relatively strong unions, into rural areas, and especially to open-shop southern areas offering special tax concessions and a prospect of low wages and no resistance to inferior working conditions. "The government should take over all such plants, fully maintain employment, and charge the corporation with all transitional costs. "It should take over munitions plants generally, thereby weakening the economic base of the notorious `military-industrial complex.' "The transportation system should be nationalized...The entire system should be made into an integrated public system for freight and passengers, covering all modes of transportation, with lowered fares and rates, greatly increased and improved service. "The telephone system and other `public utilities' should be made really public, to end the superhigh charges and corresponding private profits now guaranteed by business-dominated regulating commissions. "Along with a system of socialized medicine, available without charge to all, there should be nationalization of the drug industry, hospitals, and related industries. "The construction of new housing should be nationalized. That is the only way to build quickly the tens of millions of units needed to decently house America at rents the illl-housed can afford, with adequate employment opportunites for Black and other minority workers... "Nationalization of industry should not be like that of the `public authorities' and some quasi-government corporations run by boards of directors and managers from the officialdom of the private big corporations and banks, for the profit of these enterprises rather than service to the public. "Democratic nationalization is required, involving direct, major participation by the workers of the nationalized enterprises in their management, and a real voice for the users of the services. It calls for boards of directors to be elected directly by the voters and by the enterprise workers... "Aa whole series of measures would be directed towards cutting unemployment...A major element in the fight against unemployment is to win a shorter work week and the elimination of overtime. This, of course, would directly add millions of jobs... "...The demand has become popular among workers for continuation of unemployment insurance for the full term of unemployment. This should be accompanied by expanding coverage to all workers, minimizing the waiting periods, ending the exclusion of strikers and other categories of workers, and ending the humiliating compensation offices with their pressure on the client to take sub-standard jobs at sub-standard pay. "A uniform Federal system should be substituted for the state systems, and the payments should be financed out of general revenues. "Every enterprise, private and public, should be required to employ Black and other minority workers at least in proportion to their numbers in the area's population at each occupational level, including the highest managerial and professional levels... "All Government support for and privileges granted to existing foreign investments would be ended. New private corporate foreign investments would be completely prohibited or sharply curtailed. This would encourage economic growth in the United States, by making it not longer possible for big corporations to give priority to overseas operations while cutting back at home..." --b.f. Labels: 1973, employment, jobs, militarism, nationalization, Victor Perlo Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Rich Americans Suing UBSFrom yesterday's Times—interesting ongoing case about the Swiss bank UBS, the world's largest private bank, which agreed to pay $780 million "to settle accusations that it used undisclosed offshore private banking services to help wealthy Americans evade taxes." The Justice Department is trying to force UBS to disclose 52,000 of its U.S. clients' names, which could be very juicy. Don't you want to know who they are, how much money they have in UBS, and how much in taxes they have evaded? Well--these folks don't want you to know.Group of Rich Americans Sues UBS to Keep Names Secret in Tax Case By LYNNLEY BROWNING | February 24, 2009 UBS was sued on Tuesday in a Swiss federal court by wealthy American clients seeking to prevent the disclosure of their identities as part of a tax-evasion investigation by the United States Justice Department. The lawsuit accuses UBS and Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority, or Finma, of violating Swiss bank secrecy laws and of conducting what Swiss law considers illegal activities with foreign authorities. It also named Peter Kurer, the chairman of UBS, and Eugen Haltiner, the chairman of Finma, as defendants. The suit, filed by a lawyer in Zurich, Andreas Rued, on behalf of nearly a dozen American clients, underscores the growing clash between Swiss banking secrecy laws and those of the United States. Tax evasion is not considered a crime in Switzerland. Disclosing client names under Swiss law is a criminal offense and can expose bank executives and officers to fines, prison terms and other penalties. UBS is the world’s largest private bank and Switzerland is the world’s largest offshore tax haven, with trillions of dollars in assets. The lawsuit, which UBS described in an internal memo late Tuesday, stems from UBS’s agreement last week to turn over to federal authorities in Washington the names of 250 wealthy Americans suspected of using secret UBS offshore accounts and entities to evade taxes. UBS reached a $780 million deferred-prosecution agreement to settle accusations that it used undisclosed offshore private banking services to help wealthy Americans evade taxes. But the bank is still under scrutiny by the Justice Department, which is seeking to force it to disclose the names of the 52,000 American clients it suspects may have evaded taxes. Mr. Rued could not be reached for comment. [This is the full article.] Labels: Switzerland, tax havens, taxation, the rich, UBS Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Eastern Europe's Economies TankingFrom RGE Monitor, Nouriel Roubini's outfit. Who knew that the Baltic countries have been running current account deficits much larger (relative to GDP) than the United States?Eastern European Tinderbox: How Explosive Could It Get? Read the whole piece here. Labels: Eastern Europe, economic crisis, Europe, Nouriel Roubini Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economic Ignorance (Michael Yates)A great post from Michael Yates' blog.Michael Steele is a Nitwit and Wolf Blitzer is a Jackass Economic ignorance is widespread in the United States. People think they know something about the subject, but few do. My mother is convinced that China is the cause of all our economic problems. When I challenge her, she doesn't think it matters that I have spent forty years studying and teaching the dismal science. If Lou Dobbs says it's so, it must be true. I once taught classes for automobile workers who were employed at a General Motors plant near Pittsburgh. A man insisted that recessions were caused by the media. Newspapers and television were apparently so pessimistic and intent on presenting only bad news that the public became too demoralized to spend money. It never occurred to him to ask why the media, which depend on us spending money for their existence, would want this to happen. Had my UAW student argued that the media were a constant source of economic misinformation, he would have been on to something. Every day I watch that talking heads on television and read the columnists in our newspapers and I marvel at the stupidity that passes for wisdom. Dick Morris, the prostitute-loving former presidential advisor and current Fox News savant, sagely advised nearly every night during the Obama-McCain campaign that economic recovery would not be possible unless the capital gains tax was eliminated. There is no evidence remotely consistent with this view, but analysis seems irrelevant to Morris and his Fox friends. To any suggestion that it might be necessary for the federal government to temporarily nationalize some troubled banks, most of which are now insolvent, Fox's wise men and women screamed "socialism." Never mind that this would be socialism for the rich, with the wealthy reaping the rewards of a boom but the public pays for the losses in the downturn. Their answer is always that markets will regulate themselves, though there is even less evidence that this ever happens. They also say that during a recession, taxes should never be increased. But if the taxes are levied on the highest incomes, the recipients of these incomes can pay them without reducing their spending at all. That is, they can pay the taxes out of their savings, money they wouldn't have spent anyway. Then if the government uses the taxes paid out of money that wouldn't have been spent in the first place to do things like build public transit systems or housing for the poor, total spending, output, and employment will all rise. "Well," you say, "That's Fox." Let's hit the remote and tune into CNN. You might catch the demagogue Lou Dobbs blaming immigrants, again without proof, for all our economic woes. If you are really lucky, you'll see newscaster Wolf Blitzer. Here is a man with an empty head. A few weeks ago, I saw something on his show that amazed even me. He was interviewing Michael Steele, who had just become the first black person to be selected to chair the Republican National Committee. Steele was a constant presence on Fox News during the recent presidential campaign, and like almost all Fox commentators, he said plenty of stupid things. Not as many as Sean Hannity or Ann Coulter. But no one would mistake Steel for a bright guy. The topic of the exchange between Steele and Blitzer was the economic stimulus package proposed by the Obama administration. The U.S. economy is in the midst of its worst crisis since the Great Depression. Legendary Wall Street investment banks have failed, as have scores of commercial banks. Millions of homeowners have been either foreclosed or are expecting to be soon. Credit is frozen, as lenders don't trust that borrowers will pay them back and borrowers are so strapped with debt that they cannot take on new loans. The unemployment rate is at 7.6 percent and heading toward double digits. This translates into 11.6 million people, and these do not include the 7.6 million people who want full-time work but can only get part-time jobs and the 734,000 workers too demoralized by the lack of employment opportunities to look for work. If these two groups were counted as suffering labor market distress the same as the officially unemployed, the unemployment rate would be 13.1 percent. State governments across the country are facing serious tax revenue shortfalls and have or will cut their spending, which will cause spending, output, and employment to fall, and exacerbate the crisis. Economic misery has spread to every corner of the globe, and this means that U.S. exports, until recently the one bright spot in our economy, have started falling and will continue to do so, increasing unemployment still further. There is not a hopeful sign on the horizon. Not one. Over the past year or so, the Federal Reserve and the Treasury have pumped a couple trillion dollars into the financial system with little result. The Fed has pushed its target interest rates to near zero without getting banks to lend or businesses to borrow. Many mainstream economists, including Joseph Stiglitz and Paul Krugman, have concluded that only direct and massive fiscal stimulus, in the form of federal government spending can plug the hole in spending now plaguing the economy. Obama's economic team proposed a trillion dollar stimulus plan, since enacted into law, albeit with too many tax breaks for business and not large enough to compensate for the enormous drop in private sector spending. Included in the legislation is aid to state and local governments, which will help them to maintain employment and social services in the face of declining tax revenues. Monies are provided for the unemployed, as well as for infrastructure spending. Our roads, bridges, ports, sewage systems, schools, hospitals, communications and energy networks, and public transit systems are all in need of repair, upgrade, and expansion. Federal spending on these, especially those that are already in the planning pipeline, will have a dramatic impact on spending and employment. When Blitzer interviewed Steele, the plan had yet to be voted on by Congress. I paraphrase but Steele said this about it: "The government has never created a single job." I did a double take. What??? Not one job? So the $787 billion dollars the Congress had just approved won't put anyone to work? It is bad enough that monetary policy hasn't worked. Now fiscal policy won't do the trick either, according to Mr. Steele. Boy, we are really in a bad way. But wait a minute. Do you know a police officer? A firefighter? A public school teacher? A secretary at the local college? An air traffic controller? A career military officer? A clerk at the state liquor store? A janitor in a federal office building? A mail carrier? Do you have a son or daughter on duty in Iraq? All of these are public employees, hired directly by local, state, or federal government. The Bureau of Labor Statistics (BLS) collects employment data every month in a survey of hundreds of thousands of private and public establishments. The BLS produces among the best labor market statistics in the world. It is a creation of the government, and all of its workers are public employees. For January 2009, the BLS estimated that there were 134,580,000 non-farm employees in the United States. Of these, 22,539,000 were public employees, 16.7 percent of all employment, divided as follows: Federal government employees: 2,792,000 State government employees: 5,187,000 Local government employees: 14,560,000 I hate to tell Mr. Steele, but every one of these jobs was created by the government. And this does not tell the whole story. For three decades, governments have been busy privatizing, that is, contracting out public services to private businesses. Everything from local transit services to prisons to college food services to security forces in Iraq. The workers are private employees, but they are paid from public funds. What is more, all of these workers, direct and indirect public employees, spend their paychecks every month and this spending generates a lot more employment. These wages amount to at least 1.5 trillion dollars, which will support plenty of spending on outputs that someone has to produce. When the Obama plan is implemented, it probably will not end our current economic crisis. But one thing is certain: the money spent will cause employment to rise. The government will create jobs, just as it has always done. We could put Steele's statement to a test. If we put the most charitable light on what he said, perhaps he meant that public employment always "crowds out" private employment. A public worker just replaces a private one but doesn't add anything to total employment. This is an argument conservative economists have used to say that public investment just takes the place of private investment, which would have occurred but for the public spending. Therefore, if Steel is right, we could eliminate every single government job and employment would not fall at all, because private employment would rise by he same amount that public employment fell. To put it so baldly tells us just how preposterous Steele's remark was. What mechanisms would cause the private sector's demand for labor to rise by more than 20,000,000 persons? Would falling wages from all the new unemployed scrambling for and willing to labor for next to nothing do the trick? How could it when the massive public layoffs would cause the demand for private sector goods and services to drop drastically? Employers don't hire when demand for what they make collapses. Steele and his fellow nitwits think that what another nitwit, Ronald Reagan, called the "magic of the marketplace" will somehow right our economic ship. This is not only a foolish idea. It is a dangerous one. After Steele made his statement, Wolf Blitzer had a golden opportunity to challenge it and educate his audience. Instead he said nothing. He just moved on to his next question. It was as stunning example of the depths to which journalism has sunk as you'll ever see. That a jackass like Wolf Blitzer has a prime spot on a major news outlet anddraws a very large paycheck every month is enough to make me sick. I hope it makes you sick too. Addendum: I just watched Louisiana governor Bobby Jindal (he calls himself Bobby after a character on the Brady Bunch) give the Republican response to President Obama's speech to Congress. If Steele is a nitwit and Blitzer a jackass, Jindal is a dolt. Labels: economics, ignorance, jobs, Lou Dobbs, Michael Steele, Michael Yates, recession, Wolf Blitzer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). CEOs Not Worried About Pay CapsAs they say, it's good to be a Bankster.From the WSJ President Barack Obama's crackdown on Wall Street pay contains loopholes, and may have limited impact in restraining compensation, according to some executive-pay consultants and management attorneys. Full story here. Labels: executive pay, Wall Stree bonuses Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Diamonds No Longer De Beers Best FriendDiamond behemoth De Beers has announced that it is shutting down all its mines, something that hasn't happened since the Great Depression.From the Telegraph: Debswana, a joint venture between De Beers, the company founded by Cecil Rhodes, and the government of Botswana, produces a fifth of all the world's diamonds – around half of de Beers' global output – from four open-cast mines in the arid country. Labels: De Beers, diamonds, global downturn Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Detroit Houses Going For $7,500Actually, $7,500 is the median price of a home sold in Detroit in December, so many went for even less.From the Chicago Tribune DETROIT — It may be tough to get financing for a new car these days, but in Detroit you can buy a house with a credit card. Read the full story here. Labels: Detroit, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UAW Reaches Deal With FordFrom the wires. Ford hasn't received bailout money, but pressed the union for concessions because they didn't want to be disadvantaged if the union made concessions with Chrysler and GM. The deal still needs to be ratified by the union.DETROIT – The United Auto Workers and Ford Motor Co. said Monday they agreed to let the automaker change how it pays for a health care trust fund for retired workers, a deal that could serve as the model for cash-starved General Motors Corp. and Chrysler LLC. Full story here. Labels: auto industry, auto industry loans, Chrysler, ford, GM, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). AMEX Takes Bailout, Boots CustomersLike other credit card companies that have received bailout billions, AMEX is hiking fees, penalties, and interest rates. Now the company, which received over $3 billion in TARP money, is taking the added step of offering $300 vouchers if customers cancel their accounts. Most financial analysts caution that it is a bad deal for cardholders.From the Wall Street Journal: It used to be that credit-card companies lured customers with cash rewards. Now American Express Co. is paying to get rid of them. The card issuer is offering selected customers a $300 AmEx prepaid gift card if they pay off their balances and close their accounts. Full story here. Labels: American Express, AMEX, Credit card industry, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Lines Swell At Food BanksAnother sobering sign of the times from the Times. Highlights both the lack of a safety net in the United States as well as the shame associated with falling on hard times, even during the greatest global economic crisis in a generation:Newly Poor Swell Lines at Food Banks Full story here. Labels: economic crisis, economic indicators, food pantry, food security, New York Times Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dean Baker on C-Span 2Dean Baker was on C-Span 2 this weekend; you can view the segment online, here. Hat-tip to Joel H. Here's what the C-Span website said:Plunder and Blunder:The Rise and Fall of the Bubble Economy Author: Dean Baker About the Program Mr. Baker discusses the growth and "predictable" collapse of the housing and stock market bubbles and is critical of both the Reagan and Clinton administrations. He details the mistakes of Alan Greenspan and Clinton Treasury Secretary Robert Rubin. He offers suggestions for preventing additional financial crises and advocates massive government spending to combat the recession. About the Author Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He is a frequent guest on National Public Radio, Marketplace, CNN, CNBC and other news programs. Mr. Baker has authored several books, including "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" and "The United States Since 1980." He received his Ph.D in economics from the University of Michigan. Labels: Alan Greenspan, Dean Baker, financial crisis, housing bubble, Robert Rubin Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nigerians Scammers Pluck $27 mil. from CitiNigerian scammers have decided to skip the middleman and go straight to the bank. According to the NY Times, the scammers convinced the sharp minds at Citibank that they represented the National Bank of Ethiopia. The bank duly wired $27 million to the scammers. Citibank only became aware of the fraud when the folks from Ethiopia noticed some unauthorized withdrawals and some of the recipient banks weren't able to process the transactions.Citi has refunded the money to Ethiopia--not a hard thing for them to do since they aren't lending the billions in taxpayer bailout funds they have received. From the Times: Swindles in which someone overseas seeks access to a person's bank account are so well known that most potential victims can spot them in seconds. Read the full story here. Labels: bailout, Citibank, Nigerian Scam Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Anatomy Of a Foreclosure In ClevelandThere's a fantastic site detailing the foreclosure crisis in Cleveland (with the straightforward name of Foreclosing Cleveland). They have a wonderfully depressing story detailing the varied interests involved in the foreclosure of one particular home. The result says a lot about how we got into this mess.From the site: Here’s 4111 Archwood, a vacant foreclosed house four blocks down the street from me. Read the full post here. Labels: Deutsche Bank, foreclosures, mortgage meltdown, Polly Cleveland Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
