Where Do We Go From Here? Does Anyone Have a Map?

Up and down, up and down, that’s been the only news out of this manic-depressive stock market for what seems like weeks now. So, how and when will this level out? It seems pretty clear to everyone – well, everyone who has a functioning brain and is willing to look at the situation realistically – that rescuing the banks is just a first step. The next step is aid for the desperately needy nonfinancial economy.

According to Paul Krugman, we need to put some prejudices aside, forget about being politically fashionable and ranting against government spending and demanding fiscal responsibility. Like it or not, for now increased government spending is exactly what our country needs and we should put our concerns about the budget deficit on hold.

Retail sales have fallen off the cliff and so has industrial production. Unemployment claims are at steep-recession levels, manufacturing is falling at the fastest pace in almost 20 years. All these things point to a nasty and long economic slump. And just how nasty? The unemployment rate is already above 6 percent and it looks pretty certain that it will go above 7 percent, possibly 8 percent and this would make it the worst recession in a quarter-century. It looks as though it could be some time before we see any improvement.

The policy response to the last recession, which followed the bursting of the late-1990s technology bubble, on the surface looks like a success story in spite of there being a lot of fears that the US would experience a Japanese-style “lost decade”, but that didn’t happen – the Federal Reserve was able to engineer a recovery from that recession by cutting interest rates. But it was a slow recovery and came about only because the technology bubble was replaced by Alan Greenspan with the housing bubble.

And now that bubble has burst and we have another huge mess on our hands and right now it seems the initial results of the efforts to rescue the banking system and unfreeze the credit markets have had disappointing results. If there’s another bubble waiting to happen, it’s not obvious and it looks as though Fed will find it even harder to get traction this time.

So, what’s the answer? Krugman feels there’s a lot the federal government can do for the economy – well, McCain and a lot of Republicans won’t like the answer, but it sounds good to me. The federal government can provide extended benefits to the unemployed, which will help distressed families cope and put money in the hands likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages and restructure the terms to help families stay in their homes.

And once again, and how many times have we heard this from many people lately, engage in some serious infrastructure spending. And why do we keep hearing this? The usual argument against public works as economic stimulus is that they take too long; by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Think again, the chances that this slump will be over anytime soon is all but nonexistent, so let’s get with it and get these types of projects rolling.

Right now we need government spending and that is most definitely not the road that John McCain will take. Barack Obama doesn’t have the same knee-jerk opposition to spending but he will have to deal with those who would tell him that he has to be responsible, that the big deficits the government will run next year if it does the right things are unacceptable.

Krugman’s answer for Obama is to ignore them – the responsible thing, right now, is to give the economy the help it needs and stop, at least for now, worrying about the deficit. Now that’s a map that makes sense to me – after all, Krugman is the guy who won the Nobel prize for economics, not those “inside-the-beltway” types.

What Defines Patriotism?

Here I go, asking questions again, but everytime I listen to or read anything about Palin, my mind starts filling up with questions. I look for answers, I read, I research and while I find lots of other people's questions and concerns, I don't always find anwsers. During the VP debates last week did you really learn anything positive? I'm afraid I didn't. According to what Palin said in the debate with Joe Biden, if you’re in the middle class, in her neighborhood, it’s not patriotic to pay taxes. Say what??

Thomas Friedman of the NYT wrote a great column today about “Palin’s Kind of Patriotism” and he is surely as outraged as I am by such a statement. He writes that he wishes she had been asked: “Governor Palin, if paying taxes is not considered patriotic in your neighborhood, then who is going to pay for the body armor that will protect your son in Iraq? Who is going to pay for the bailout you endorsed? If it isn’t from tax revenues, there are only two ways to pay for those big projects – printing more money or borrowing more money. Do you think borrowing money from China is more patriotic than raising it in taxes from Americans?” That is not putting America first. That is selling America first.”

He goes on to say, that he grew up in a very middle-class family in a very middle-class suburb of Minneapolis, and his parents taught him that paying taxes, while certainly no fun, was how we paid for the police and the Army, our public universities and local schools, scientific research and Medicare for the elderly. No one said it better than Justice Oliver Wendell Holmes: “I like paying taxes. With them I buy civilization.”

I also agree with Mr. Friedman when he reminds us that our country is in serious trouble right now and like him I wonder if the people so ardently supporting Palin have any idea of just what serious trouble our country is in now?

According to him, we are in the middle of an economic perfect storm and we have no idea how much worse it is going to get. People all over the world are hoarding cash, no bank feels they can fully trust anyone they’re doing business with anywhere in the world. And it’s just the beginning.

Only good governance can save us right now and, according to Friedman, he isn’t sure that this crisis will end without every government in every major economy guaranteeing the creditworthiness of every financial institution it regulates. That may be the only way to get lending going again. Organizing something that big and complex will take some really smart governance and seasoned leadership.

It’s not even a question of whether or not John McCain has the stuff to be president, he is endangering this country by putting a total novice like Palin in a position to possibly have to steer us through the most serious economic crisis of our lives and that is total recklessness and the very opposite of conservative. Well, what about advisors? She can find those can’t she? And if they disagree, what happens then?

I also agree with Friedman when he says his biggest fear about Palin is the fact she is promoting our further dependence on oil, which means further dependence on countries like Saudi Arabia and that surely isn’t patriotic! Patriotic is offering a plan to build our economy, not by tax cuts or punching more holes in the ground, but by empowering more Americans to work in productive and innovative jobs. Friedman hasn’t heard of her having that kind of a plan. And needless to say, neither have I.

More Jobs, Now!

Okay, so much for lovely memories, it's back to ugly reality and reality seems to be the one thing this country has been avoiding, but we can’t continue to pull the shades over our eyes for much longer. Banks and brokerage houses are failing all around us. Trillions of dollars in bailout money has been added to the nation’s debt burden, families too numerous to count are being driven from their homes. Maybe it’s time to get back to the basics – like good jobs, the primary component of a sustainable family life. But our economy is never going to be anywhere near what it needs to be until this country figures out how to provide work at a decent pay for at least most of the men and women who want to work.

The amount of debt for the typical middle-income family, earning about $45,000, grew by a third from 2001-2004, according to the Center for American Progress. The reason for all this added debt was the rising cost of housing, higher education, health care and transportation. At the same time, wages grew just slightly, if at all. It’s going to take more than work, obviously and don’t even ask about the debt burden of the federal government.

The fact is that there haven’t been enough good paying jobs to sustain what most working Americans view as an adequate standard of living and that is the fundamental flaw in the U.S. economic system. This latest financial meltdown has created widespread outrage over the excessive compensation of top executives, so where have we been??? The rich have been running the table for the better part of the last 30 to 40 years! The earnings of the average men in their 30s have remained almost flat for the past four decades, according to the Pew Charitable Trusts.

Accordingly, disaster was avoided by the wives and mothers entering the workplace and by embracing huge amounts of debt for everything from home mortgages, cars, clothing and vacations to food, college tuition and medical expenses. And guess what? The middle-class and working families are up against the wall and the only way to continue financing a reasonable quality of life is through a paycheck. But nearly 160,000 jobs were lost in September alone. More than three-quarters of a million have vanished over the past nine months.

According to people who know a lot more than I do, the economy won’t be saved by bailing out Wall Street and waiting for that day that never comes, when the benefits trickle down to ordinary Americans. It won’t be saved until we get serious about putting vast numbers of Americans back to work in jobs that are reasonably secure and pay a sustaining wage.

We have a lot of rebuilding to do; we need to put more of us to work rebuilding our country’s collapsing infrastructure, revitalize the public school system, working to create more energy self-sufficiency and try, for a change, to do a re-take on an economy that still leans strongly in favor of the rich.

Now, let’s hear the politicians talk about that for a while and stop the name calling and slander, the “it’s all about” me and “he’s the bad guy” crap and start working together to redeem this country before it’s too late – for us – you know, the guys at the bottom of the pole!

What Does It All Mean -- Really?

I'm not sure there's a way for me to fully comprehend the finanacial crisis this country faces today. I was born at the beginning of the Great Depression, have rallied through the smaller ones over the years. But today it seems we are being threatened with a situation, that if not handled well, could indeed doom us to another "great depression" that just may make the original look like a kiddie version.

Bob Herbert, Op-Ed writer for the New York Times, had an insightful article this morning, so instead of trying to explain what I feel I'm not really capable of explaining, or at least, anywhere close to the reality of the situation, I thought I would share his thoughts with you today.

September 23, 2008
Op-Ed Columnist
A Second Opinion?
By BOB HERBERT

Does anyone think it’s just a little weird to be stampeded into a $700 billion solution to the worst financial crisis since the Great Depression by the very people who brought us the worst financial crisis since the Great Depression?

How about a second opinion?

Everything needs much closer scrutiny in these troubled times because no one even knows who is in charge, much less what is going on. Have you ever seen a president who was more irrelevant than George W. Bush is right now?

The treasury secretary, Henry Paulson — heralded as King Henry on the cover of Newsweek — has been handed the reins of government, and he’s galloping through the taxpayers’ money like a hard-charging driver in a runaway chariot race.

“We need this legislation in a week,” he said on Sunday, referring to the authorization from Congress to implement his hastily assembled plan to bail out the wildly profligate U.S. financial industry. The plan stands at $700 billion as proposed, but could go to a trillion dollars or more.
Mr. Paulson spoke on the Sunday morning talk shows about “bad lending practices” and “irresponsible borrowing” and “irresponsible lending” and “illiquid assets.”

The sky was falling, he seemed to be saying, and if the taxpayers didn’t pony up $700 billion in the next few days, all would be lost. No time to look at the fine print. Hurry, hurry, said the treasury secretary.

His eyes, as he hopped from one network camera to another, said, as salesmen have been saying since the dawn of time: “Trust me.”

With all due respect to Mr. Paulson, who is widely regarded as a smart and fine man, we need to slow this process down. We got into this mess by handing out mortgages like lollipops to people who paid too little attention to the fine print, who in many cases didn’t understand it or didn’t care about it.

And the people who always pretended to know better, who should have known better, the mortgage hucksters and the gilt-edged, high-rolling, helicopter-flying Wall Street financiers, kept pushing this bad paper higher and higher up the pyramid without looking at the fine print themselves, not bothering to understand it, until all the crap came raining down on the rest of us.
Yes, the system came perilously close to collapse last week and needs to be stabilized as quickly as possible. But we don’t know yet that King Henry’s fiat, his $700 billion solution, is the best solution. Like the complex mortgage-based instruments at the heart of this debacle, nobody has a real grasp yet of the vast implications of Mr. Paulson’s remedy.

Experts need some reasonable amount of time — I’m talking about days, not weeks — to home in on the weak points, the loopholes, the potential unintended consequences of a bailout of this magnitude.

The patchwork modifications being offered by Democrats in Congress are insufficient. Reasonable estimates need to be made of the toll to be taken on taxpayers. Reasonable alternatives need to be heard.

I agree with the economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington, that while the government needs to move with dispatch, there is also a need to make sure that taxpayers’ money is used only where “absolutely necessary.”
Lobbyists, bankers and Wall Street types are already hopping up and down like over-excited children, ready to burst into the government’s $700 billion piñata. This widespread eagerness is itself an indication that there is something too sweet about the Paulson plan.

This is not supposed to be a good deal for business. “The idea is that you’re coming here because you would be going bankrupt otherwise,” said Mr. Baker. “You’re coming here because you have no alternative. You’re getting a bad deal, but it’s better than going out of business. That’s how it should be structured.”

The markets tanked again on Monday as oil prices skyrocketed. Time is indeed short, but alternative voices desperately need to be heard because the people who have been running the economy for so long — who have ruined it — cannot be expected to make things right again in 48 or 96 hours.

Mr. Paulson himself was telling us during the summer that the economy was sound, that its long-term fundamentals were “strong,” that growth would rebound by the end of the year, when most of the slump in housing prices would be over.

He has been wrong every step of the way, right up until early last week, about the severity of the economic crisis. As for President Bush, the less said the better.

The free-market madmen who treated the American economy like a giant casino have had their day. It’s time to drag them away from the tables and into the sunlight of reality.

Wake Up Call Maybe?

You really think it could be that? Well, if not read it and weep -- if you aren’t already weeping as a result of the past few days. How about this headline for today?

“Bush seeks $700 billion for bailout

The Bush administration is asking Congress to let the government buy $700 billion in bad mortgages as part of the largest financial bailout since the Great Depression.”

What more does it take to get those “Hoosiers for a hot chick” Republicans, “skin color” skeptics and just plain “head in the sand” numb skulls to wake up? No, there are no roses or coffee to smell, just the sound of our country on the skids.

We so desperately need new leadership, not more of the same or maybe even worse. We need a new outlook, a new approach, new plans to get us out of the hole we’ve dug ourselves into – I say we because in spite of all the warnings over the past eight years, we have let this happen. We need to bring jobs back to our country, we need to rebuild our infrastructure, mend our roads and bridges, upgrade our schools and our hospitals and health care.

I’m certainly not smart enough to have any answers, but I do believe Obama has many of those answers and he’s also smart enough to find the right people who have the answers when he doesn’t and the courage to admit when he needs help.

No more of this delusional notion of McCain’s that the “fundamentals of the economy are strong”. Hello! does he even know what the fundametals are? If the economy isn’t his forte, do you really believe that it’s Palin’s forte? Wake up, people! Wake up before it’s too late!

Where Do We Go From Here and How Do We Get Started?

I have heard from so many people who are upset, scared, uncertain as to where our country's financial mess is going to end up and where is it going to leave us? I'm certainly not wise enough to have any answers -- I'm looking for my own, but Thomas Friedmans Op-Ed column in the NYT yesterday did have, what seemed to me to be some very valid thoughts. I didn't want to pick and choose statements to post, so I'm posting the whole article and hope it will be of some benefit as we think through where we find ourselves these days.

September 17, 2008
Op-Ed Columnist
Keep It in Vegas
By THOMAS L. FRIEDMAN

Watching some financial stocks just get wiped out in recent months, I often hear a voice in the back of my head, and it is the same voice as one of those dealers in Las Vegas who coolly tells you as he sweeps up your chips after you’ve busted in blackjack: “Thank you for playing, ladies and gentlemen.”

That’s what happens when bubbles burst. You feel wiped out, and the coolness with which the dealers — in this case the markets — sweep away all your chips is unnerving. It’s easy to over-react, and it is important that we don’t. Now is the time for coolly sorting out what markets can do best and what governments need to do better.

Let’s understand what happened here. Wall Street — the financial industry — became a bubble in recent years thanks to an excess of liquidity and the oldest bubble maker in history: greed. Some of the smartest people forgot one of the oldest rules of investing: There is no such thing as a risk-free return. When you reach too far for yield, sooner or later you get burned.
In the ’90s, the no-lose, risk-free, high-yield return was supposed to be dot-com stocks. This decade’s version are subprime mortgages and financial stocks. Just like the dot-comers in the 1990s, the financial stocks got inflated to ridiculous levels and salaries for Wall Street executives reached ridiculous heights. You are now watching live and in color that bubble burst: “Thank you for playing, Lehman Brothers.” That’s really sad for a 158-year-old company.
The market is now consolidating this industry, with the strong eating the weak, which will impose its own fiscal discipline. Good. Maybe then more of our next generation of math geniuses will think about going into engineering the next great global industry — energy technology — rather engineering derivatives.

But we also need to understand the uniqueness of this bubble in order to identify where smart government needs to step in. One reason this financial bubble got so big is now well known: you and your neighbor went out and got subprime mortgages, which enabled many more people to become homeowners — a real blessing. Your local finance company or bank, which extended those mortgages, later resold them to an aggregator who put them into big packages with thousands of other subprime mortgages. Then those loan packages were chopped up and sold in small pieces as corporate bonds to all kinds of institutions, who were reaching for extra yield. Your subprime mortgage payments went to pay the interest on those bonds.
But as the housing market collapsed, and people couldn’t cover their mortgages or sell their houses, the bonds lost value and, therefore, the banks that held them lost capital, and the whole pyramid started to crumble. This infected the entire housing market, so banks no longer knew the value of their mortgage-backed assets. The result? They stopped lending. Hence, the current credit crunch. This credit crunch is what makes this crisis so lethal. We can’t tolerate a prolonged situation where banks won’t lend to good companies.

That’s why Congress needs to create another Resolution Trust Corporation like we used to get out of the savings-and-loan crisis of the 1980s. As then, so now, we need a government agency to buy the toxic mortgages off the banks’ balance sheets, hold them and sell them in an orderly way later. That would prevent a fire sale of homes and mortgages now and restore confidence to banks so they start lending again.

In the long run, though, regulators need to find ways to limit the amount of leverage investment banks or insurance companies can take on at any one time, because given how intertwined they all are in today’s global economy, one bank blowing up can now take down many.
“We are at the end of an era — the end of ‘leave it to the markets’ and of the great cop-out that less government is always better government,” argues David Rothkopf, a former Commerce Department official in the Clinton administration and author of a book about the world’s financial leaders who brought about this crisis: “Superclass: The Global Power Elite and the World They Are Making.” “I think, however, it is important to stress the difference between smart government and simply more government.

“We do not need a regulatory ‘surge’ on Wall Street,” he added. “We need a complete rethinking of how we make global financial markets more transparent and how we ensure that the risks within those markets — .many of which are new and many of which are not well understood even by the experts — are managed and monitored properly.”

In sum, government’s job is to police that fine line between the necessary risk-taking that drives an innovation economy and crazy gambling with other people’s savings in ways that threaten us all. We need to make sure that what happens in Vegas stays in Vegas — and doesn’t come to Main Street. We need to get back to investing in our future and not just betting on it.

Time To Step Back -- Again

I know, I've said I was going to do this step back thing several days ago and I've truly tried to step back and look at things with a wide angle view, but I'm afraid I've failed miserably. All I can see is the mayhem and madness of politics in general and I know that the Republicans look at the Democrats and say the same things. And where does any of it get us. The protestors, the riots -- let's admit though, there are more protesting the Republicans than Democrats. But it all just brings back the nightmare of the 60s, when there was another unpopular war and an enormous upheaval in our society. Looking at both then and now from the perspective of my seventy-five years, I can see the similarities, but I can also see major differences.

Vietnam was an unpopular war, too, being fought for all the wrong reasons, just like this one and there were as many against it as there are against the war in Iraq. Our whole society was moving out and away from the slow moving days of the fifties and everything seemed to be changing. And yet there wasn't the problem with the economy then that there is today and that is what I see as adding a large helping of desperation to the mess we're facing now. The war in Iraq needs to end and our over-taxed military need to come home. But then what are they coming home to? Fewer jobs, lower pay, broken school systems, the economy in tatters, the infrastructure badly in need of repair, the reality of climate change and global warming. None of which the Republicans see as any kind of major problem. For them the only problem is their favorite prop -- terrorism! I'm sorry, but at this point, that is not the major problem in this country and looking for other wars to jump into is not going to make our country more stable or more safe.

I don't have the answers, maybe no one does, but I know for sure the Republicans don't have a workable plan to fix any of our problems and just a bandaid is not going to fix the massive wounds we are suffering right now. And for people to say that they don't care what happens as long as we're all pro-life! Do they want to bring more innocent children into this mess? What possible kind of thinking is that? Somewhere along the line our core values have been badly screwed.

I have no wise person to quote tonight, I'm not sure I believe in a new day tomorrow, but I do know for sure that more of the same is not going to work. All I can do is hope that people with courage and wisdom and the ability to see a broader horizon will win this election. Someone who can see the way to a new day for our country, for our people, for our place in the world as a leader. A leader that sets an example of how hopes and dreams can be realized, both here and around the world. I believe there is such a person and that person is Barack Obama.