“You must remember this/stable economies are such bliss.” You can play that again Sam. If we know, and I know that you all do, economies ebb and flow almost as predictably as the tides, what is it in the whacky human psyche that does not understand that to ignore history is to repeat the disasters that it offers up on a regular and predictable wave pattern?
We had a doozy of a recession with depression statistics at the end of the Carter and beginning of the Reagan administrations. I pulled the following from Wikipedia: “The unemployment rate in the U.S. reached 10.8% in December 1982—higher than at any time in post-war era. Job cutbacks were particularly severe in housing, steel and automobiles. By September 1982, the jobless rate reached 10.8%. Twelve million people were unemployed, an increase of 4.2 million people since July 1981.
“The recession came at a particularly bad time for banks due to a recent wave of deregulation. The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) had phased out a number of restrictions on banks' financial practices, broadened their lending powers, and raised the deposit insurance limit from $40,000 to $100,000 (raising the problem of moral hazard). Banks rushed into real estate lending, speculative lending, and other ventures just as the economy soured.
“The FSLIC pushed mergers as a way to avoid insolvency. From 1980 to 1982, there were 493 voluntary mergers and 259 forced mergers of savings and loans overseen by the agency. Despite these failures and mergers, there were still 415 S&Ls at the end of 1982 that were insolvent.
“Pressured to counteract the increased deficit caused by the recession, Reagan agreed to a corporate tax increase in 1982. [He did WHAT??] However, he refused to raise income taxes or cut defense spending. The Tax Equity and Fiscal Responsibility Act of 1982 instituted a three-year, $100 billion tax hike—the largest tax increase since World War II.”
Mind you, this was twenty-five years ago when a new Volvo wagon was $7,000, the average price of a home in Greenwich, CT was $151,000 and KKR bought RJR/Nabisco for almost the same amount we just so casually gave to the auto industry to kind of help them through a rough patch so they could stay afloat till the real bailout bucks come in.
Reagan lowered interest rates rates from around 20 percent and by the time he was up for reelection the jobless number was down to 7.2 percent or just a little higher than it is now. Things turned around. That was then, but in between now was the 1991 recession. What, we didn’t learn our lesson? Hell no! People were greedy and we all saw lots of it everywhere. Why then the surprise when (Gee shock!) the housing bubble burst? Why the reprise of surprise when it happened again in ‘2001? And how could we be in this mess now?
BarackO said so many times on the campaign trail: “The definition of insanity is doing the same thing over and over and expecting a different outcome.” When the stock market dropped 23 percent on October 19, 1987 new regs were put in to make sure that trading would stop at a certain point if that were to happen again. Taking preventative measures seemed like a good idea to me. So if we know now what we know about housing bubbles and their predictable burstings, shouldn’t we be working on a solution to that?
But, nooooooo. The government and both houses decided that some un-named economic benefit derived to the country in the notion that the more people that live in their own homes the better it is for everyone. Really? How about all those taxes they don’t pay on the interest portion of their mortgage? Consider also too that most people move every seven years. I feel another eye ache coming on.
Consider this factoid when the Reagan recession started to recede: “Some of the most dramatic improvements came in industries hardest hit by the recession, such as paper and forest products, rubber, airlines, and the auto industry.” (italics mine.) I am inclined to say, no more bailouts and put a hold on handing out money to banks that only want to buy up more banks. It’s more greed no matter the spin they put on it. If money of this magnitude is up for grabs, the grabby will get it. The Russians are probably lobbying like a bastid for a piece and Curtis Sliwa is salivating for a couple of bills to bail out the Guardian Angels. I bet Ted Stevens is kicking his own butt that he can’t be in on the mother of all handouts, owing to the delicateness of his situation.
Democracy is such a pain in the ass. It’s nothing short of mind boggling that it actually works.
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Considering that the $700 billion bailout still is without democratic 'overseers' and is perceived as a 'blank check' - no, no more cashola should be handed out. These industries are still held unaccountable - no one has asked nor are these industries being forthright with: what has been done to avoid this situation and why did they allow it to get to this point seemingly an overnight crisis? (Hey mom and dad - I just spent my last buck on a baseball card and now I cannot go to the Red Sox playoff cuz I cannot afford it - will you puleez give me the money, huh, huh, huh - puleez, ......pretty pUleez?) How many senior executives have departed the companies within the time period that the dam started to leak and where did they go - what are they doing today?
ReplyDeleteAnd if they did: What is the recovery plan and who decides, who is qualified to decide and who must concur if the plan has credence? And, what happens if the plan does not work? What are the odds of success if they receive money?
No decisions should be made regarding bailouts until these questions are addressed and satifactorily answered and the taxpayers agree.
In bankruptcy court they would be appointed a Trustee(s) who would be responsible for overseeing an approved restructuring and provide accountability with benchmarks and performance measures. Let 'em go belly up and see how creative they can be in finding their own solutions.
On another note: the media should give up on the latest AIG 'outing' - this is standard operating procedure for companies relying on independent Reps to sell their products. This one did not seem as extravagent as others I have seen first hand at the Four Seasons or Pebble Beach. If AIG is to survive they need to sell products and these Reps need to be educated and comfortable with the product they are selling with incentive. A hot dog rally with Charlie Brown and perhaps Lucy dancing on the table would hardly be incentive and they will not sell products because AIG are 'nice guys'. This is not an attractive product to sell these days. It would have cost a helluva lot more to visit each Rep individually and taken a lot more time. The media should focus on the bigger picture -- and perhaps also now lay off coverage of Palin -- can you stand the back to back interviews this week?
Well I say if you are big AUTO and you want a peice of my butt Too! Yes! with one very small (and we all know easy thing to do). we give you our butts but you give us 50 mpg cars and trucks by 2010.
ReplyDeleteSo easy so simple we help you, you help the hand that keeps you feed.
Mgtree
I am not humored by the auto industry. They've had how many freaking decades to retool their assembly lines to make fuel efficient cars. Take a lesson from the founder of Ford. One model, one color and a price that everyone can afford. The gubermant's got no business subsidizing the costs for the hockey mom's tank-mobile. Better yet get a horse or a mule.
ReplyDeleteThe American auto industry has been on the operating table for many years, and they do not deserve a bailout since they have steadfastly refused to modernize their companies and build reliable, high mileage cars (and trucks).
ReplyDeleteA friend of mine with whom I teach economics talked with a friend of his recently. The Fed friend echoed my own observation about the decline in the value of stocks: don't panic, either the market will eventually rebound or the US economy will get so bad that the US will no longer exist as we know. The Fed friend made the same observation. The only problem is that some folks need to get their remaining money out of the market even though the value has declined substantially.
The disgust aimed at the Big 3 US automakers is justified. They have no doubt been destroyed beyond repair by their own executives- greedy and corrupt corporatist kleptocrats who marched hand-in-hand to oblivion with their lying, thieving buddies from the oil and gummint mobs.
ReplyDeleteNonetheless, the failure of the industry must be viewed through this lens (from Pete's beloved Wikipedia):
Bankruptcy of the Big Three would be very expensive to the American economy as a whole and the government, and shows just how important the auto industry is to the entire U.S. economy. Economists estimate closing the Big Three would mean loss of 240,000 very high paying jobs at the Big Three, a loss of 980,000 high-paying jobs at the suppliers and local dealers, plus the loss of 1.7 million additional jobs throughout the economy--a loss of 3 million jobs. It would cause a decline in personal income of $151 billion the first year, and $398 billion over three years. The federal, state and local governments would lose tax revenue and spend on welfare programs a total of $156 billion over three years.
This would affect every one of us, as well as set off a global wave of industry-related economic disaster that would come back to smack us doubly hard.
The big 3 are not "too big to fail"; they failed long ago and are now just walking cadavers. Taxpayer money thrown at these zombies would only add to the top execs offshore bank accounts. Not a dime for these human chancres responsible for crimes against the American economy and its people.
The auto manufacturing infrastructure and its skilled workforce should be commandeered and retooled for electric, hybrid, flex-fuel, public transit vehicles, trains, or whatever future transportation hardware will be useful and profitable.
Supply side has been a painful and abject failure. Let's invest in the demand side of the economic equation. . .you know; the side that represents jobs, paychecks, people and actual human-made products. Then let the results trickle up.
Hell- we could even convert our correctional facilities to handle the coming flood of white-collar criminals. The current residents can be released to satisfy the demand for labor in our burgeoning green manufacturing sector.
These comments remind me of an excellent book: "Natural Capitalism" by Amory Lovins. Get the hence to the library or a good book store or Amazon.com and settle in for an enlightened understanding of how to convert from old to new thinking about our economy.
ReplyDeleteGood reading choice Bear. Lovins is always an informed and entertaining author- and a real maverick thinker, my friends!
ReplyDeleteI would also recommend Ralph Nader's (waiting for booing to subside..) seminal text on the history and ramifications of corrupt corporate dominance of our economy, politics and society- Taming the Giant Corporation: How the Largest Corporations Control Our Lives
Although published waaay back in 1976, this eye opener is totally relevant today.
I'm all for bailing out the Maine lobster industry- long's I getz me some 3 pounders for my vig.
ReplyDeleteWhile all eyes are focused on the Bailout Clown Car Circus, let's not forget that the most common cause of personal bankruptcy in the US is not mortgage, credit or any other banking related debt.
ReplyDeleteA recent study by Harvard University researchers found that the average out-of-pocket medical debt for those who filed for bankruptcy was $12,000. The study noted that 68 percent of those who filed for bankruptcy had health insurance. In addition, the study found that 50 percent of all bankruptcy filings were partly the result of medical expenses. Every 30 seconds in the United States someone files for bankruptcy in the aftermath of a serious health problem.
Another devastating and sadistic victory for our privatized "free market" juggernaut of capitalism. Corporate Insurance health care you can't possibly believe in, my friends.
Oh sweet Jeebus; please oh pulleeze let this be true:
ReplyDeleteCheney and Gonzales indicted by Texas grand jury
A grand jury in South Texas indicted U.S. Vice President Dick Cheney and former attorney General Alberto Gonzales on Tuesday for "organized criminal activity" related to alleged abuse of inmates in private prisons.