Category: Economy

Leave it to Paul Krugman to tell the hard truth about what needs to be done in this financial crisis.

[T]he important thing is to bail out the system, not the people who got us into this mess. That means cleaning out the shareholders in failed institutions, making bondholders take a haircut, and canceling the stock options of executives who got rich playing heads I win, tails you lose.

Not that the Fed shall listen, mind you; Ben Bernanke, like Alan Greenspan before him, cares about the laissez-faire swindlers who caused the latest financial meltdown.  Factoring in the taxpayers only counts for bailing out the criminals, not bailing out the system the crooks abused in order to flush the economy down the toilet.

Krugman goes on to caution:

According to late reports on Sunday, JPMorgan Chase will buy Bear [Stearns] for a pittance. That’s an O.K. resolution for this case – but not a model for the much bigger bailout to come. Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers. And we need it quickly: things are falling apart as you read this.

He’s right, of course.  Bailing out Bear Stearns might be the smart thing to do as an individual case; for better or worse, that bank is large enough that its failure could — as Krugman suggests — hasten the market panic that would make the Depression we now suffer (the one OpEdNews.com contributor Michael Fox wrote had begun back in November)  official.  But if it’s used simply as a model for bailing out the rest of the Wall Street rip-off artists, then we taxpayers shall have been forced yet again to foot the bill for the irresponsibility of Wall Street.  It’s like a mugging victim being told by a jury that the thug who robbed him wasted the cash on booze and women, so now the victim has to reimburse the thief.

If the Democratic nominee somehow manages to survive the general election in November and become president, he (or she) could do a lot worse than to ask for Bernanke’s resignation as Fed chairman, and offer the job to Professor Krugman.

Guess what?  The media has caught on!  Sure, a couple of years after those of us that have been paying attention already knew the answer, but HEY! at least they decided to report on it.  Only because it helps corporate interests, but they did finally report on it.  

Go figure.

What, you ask, did they finally uncover?  The reason your food is costing more money!  WHOA!  Be still, my bank account.

From a story, issued from MSNBC late Friday afternoon.

If you’re fuming about how high gasoline prices have gotten, why not relax with a nice meal?

Perhaps a few beers and a turkey sandwich? Maybe a chicken Caesar salad?

Well, it’s not just the price of gasoline that’s going up. That beer, turkey and chicken are also costing more too.

Let me see.  What do beer, turkey and chicken have in common?  

Hmmmmmm.  Nope, I can’t figure it out for myself. It must be too obvious or something…

As President Bush noted in his comments on the economy Friday, “Prices are up at the gas pump and in the supermarket.”

Welp, I wonder how that happened on Your Watch, oh enlightened Presnit?  

Lets see, shall we?

The negative hits just keep on a-rollin’!

From MSN Money:

Things at Bear Stearns (BSC, news, msgs) were worse than anyone thought — and that realization sent shockwaves through the market this morning.

The financial services giant said it has received financing from the Federal Reserve Bank of New York — funneled through JPMorgan Chase (JPM, news, msgs) — to help boost liquidity. JPMorgan will be the conduit for Bear’s collateral and it won’t be held liable for any defaults, the New York Fed said this morning.

“Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction,” Chief Executive Officer Alan Schwartz said in a press release. “Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.”

Earlier this week, Schwartz told CNBC that things at Bear Stearns were OK. my emphasis

Shares of Bear plunged a whopping $23.73, or 41.6%, to $33.27 in morning trading.

On Monday, the Sargent Shriver National Center on Poverty Law released its 2007 Congressional Poverty Scorecard. The President of the Center, John Bouman, noted that in states with the highest poverty rates, their congressional delegations tended to score the worst.

“Poverty is everywhere in America, but it is interesting that in states with the highest concentrations of poverty, the Congressional delegations seem least interested in supporting initiatives that fight poverty,” said John Bouman, president of the Sargent Shriver National Center on Poverty Law, which released the study. “This appears deeper than simply opposing spending. A member could have opposed any of the measures we analyzed that called for new spending and still could have voted to support half of the poverty-fighting measures on our list.”

Former presidential candidate John Edwards was also on the center’s conference call with reporters.

“We can get the national leadership and we can get the congressional leadership we need,” Edwards said. “But first voters need to be educated as to who is doing the work and who is not.”

The Dow Jones average was up 417 points today.  You know, because the US economy is doing so well, jobs are popping up everywhere and everything financial is coming up Roses!  

OOP’s.  My bad.  Here is the real reason.  

Here is the Headline and some input from CNNMoney:

Stocks surge with the Dow soaring 417 points as investors cheer reports that the central bank is pumping an additional $200 billion into the banking system.

Stocks rallied Tuesday as investors welcomed news that the Federal Reserve will lend up to $200 billion to banks and lenders as a means of loosening up tight credit markets.

According to early tallies, the Dow Jones industrial average (INDU) jumped almost 417 points, its fourth-biggest one-day point gain ever and the biggest one-day point gain since July 2002. In percentage terms, the gain of 3.55% was the best since March 2003.

The blue-chip index had ended the previous session at a 17-month low.

The broader Standard & Poor’s 500 (SPX) index climbed 3.7% after ending the previous session at a 19-month low. It was the biggest one-day percentage gain since May 2002.

What does this mean to you, American citizen?  Well, it means that the Federal Reserve is going to have to print more money in order to bail out the companies that, not unlike a Las Vegas gambler, placed all their money on number 18 on the Roulette wheel and the wheel stopped on 24.  Close, but a loser.

The Fed will make up to $200 billion available to a group of 20 big investment firms for a term of 28 days, rather than overnight. The program is being coordinated with central banks worldwide.

http://money.cnn.com/2008/03/1…

Nobel Prize-winning economist Joseph E. Stiglitz and co-author Linda J. Bilmes report in a new book that in 2008, its sixth year, the Iraq war will cost approximately $12 billion a month, triple the “burn” rate of its earliest years.

YIKES!  I can see where that might have an effect on our economy beyond the already trillions-of-dollars deficit we currently are dealing with.

From AP:

The flow of blood may be ebbing, but the flood of money into the Iraq war is steadily rising, new analyses show.

Actually, with the current amount of violence in Iraq beginning to climb once again, that statement might be incorrect in itself.  Anyway, back to the wars and the economy.

Beyond 2008, working with “best-case” and “realistic-moderate” scenarios, they project the Iraq and Afghan wars, including long-term U.S. military occupations of those countries, will cost the U.S. budget between $1.7 trillion and $2.7 trillion — or more — by 2017.

Interest on money borrowed to pay those costs could alone add $816 billion to that bottom line, they say.

The nonpartisan Congressional Budget Office (CBO) has done its own projections and comes in lower, forecasting a cumulative cost by 2017 of $1.2 trillion to $1.7 trillion for the two wars, with Iraq generally accounting for three-quarters of the costs.

Well, here is another GREAT idea from the Bush Administration.  They are going to be sending out letters through the IRS to Americans to remind them of the tax rebates that will begin being mailed in May of this year.  

It will only cost $42 million of our tax dollars to send these little love letters!  Just a drop in the bucket in BushWorld.

The western financial system is caught in a trap. On the one hand, there is an urgent need for clearing prices to be established for impaired assets to restore confidence; on the other hand, if this is done in a mark-to-market world, there is a risk that some banks will run out of capital.

(Gillian Tett, Financial Times)

Bank bankruptcies are a realistic prospect in the coming months. And yet, this is not even the worst…

The global economy is facing twin shocks. Natural resource markets are delivering a supply shock of 1970s dimensions, while the financial system is delivering a shock comparable to the bank and thrift crises of the 1988-1993 period.

(Tim Bonds, Barclays Capital, in the Financial Times)

The February jobs report released this morning shows a decrease of 63,000 jobs for the month.  This is the largest single-month decline in about 5 years.  To make matters worse, the 82,000 gain reported for December was revised down to 41,000;  and the loss of 17,000 jobs in January was revised to a worse loss of 22,000.

How effective was the Bush administration in dealing with the worsening job problem?  Well, they tried:

One bright spot was that the government added 38,000 jobs in February on top of 4,000 new-hires in January.

The right-wing “less government” screamers will be thrilled with that, won’t they?  

The mortgage crisis is affecting more aspects of the economy than just housing.  The resulting credit crunch will hinder businesses of all sizes from expanding, which means less new jobs being added.  And if the uncertainty starts prompting job layoffs, which the February report shows is happening, the layoffs can snowball very quickly as businesses react to each other’s downturns.  By contrast, job increases tend to ramp up slowly when a recovery begins.  If a business laid off 100 workers in an economic slowdown, they generally don’t hire all 100 back immediately when they start to recover.

The economy is becoming a bigger campaign issue every day.  States like Ohio, where the economy was already a big issue, is expected to be a harbinger of the crucial Pennsylvania campaign.  Voters faced with job uncertainty, ballooning mortgage payments, and $4.00/gallon gas are going to be in a foul mood.  Obama and Clinton will both face constant questions about NAFTA, gas prices, unemployment, and the mortgage crisis.  Their answers on these questions will be just as important as questions about the Iraq war and health care.

It should be no surprise that the economy could be the biggest issue in the general election.  John McCain’s argument that security is the main reason for choosing a president will ring quite hollow to an electorate that risks losing their houses and jobs.  The economic pain felt by voters is real and is growing.  Undecided voters for the general election have had plenty of time to form opinions about the candidate’s views on the Iraq war, security, health care, taxes, and global warming.  The determining factor to sway undecided voters could be how the candidates respond to the growing economic crisis.  

That was then:

From George W. Bush’s 2005 inaugural address on January 20, 2005:

To give every American a stake in the promise and future of our country, we will bring the highest standards to our schools, and build an ownership society. We will widen the ownership of homes and businesses, retirement savings and health insurance – preparing our people for the challenges of life in a free society. By making every citizen an agent of his or her own destiny, we will give our fellow Americans greater freedom from want and fear, and make our society more prosperous and just and equal.

From the White House, Bush Discusses Home Ownership at Indiana Black Expo on July 14, 2005:

I like the idea of home ownership, and I hope you do, as well. Three years ago, I set a goal of creating 5.5 million new minority home owners by the end of this decade. And we’re getting results. We’ve already added 2.3 million new homeowners, minority homeowners, putting us ahead of schedule. Today, nearly half of all African Americans own their own homes.

Hey all, I’m back again with another installment of EENR for Progress. This edition was inspired by John and Elizabeth’s Edwards recent announcement of the Iraq Recession Campaign. Tonight I’m going to focus on the interconnectedness of our failing economy and the Iraq war. Follow me below the fold……