Gloom and doom

Updated A colleague at work told me the other day that she's recently read a book (the title of which I did not get) arguing that "every four generations" some sort of significant event occurs which ultimately results in a societal shift toward a different view on whatever spurred that particular crisis. She was wondering if the current economic trends in the US and beyond are such an event and if so what changes that will bring.

Certainly there are dark signs all around us. The collapse of the financial industry; the drying up of credit; the bankruptcies of AIG and Lehman Brothers; the failure of Merrill Lynch; Fannie Mae and Freddie Mac going into what amounted to federal receivership.

And those are just the headlines. What's behind them shows an entire financial industry (and thus an entire economy which runs on credit) even shakier than we've been lead to (or allowed to) believe and far worse than the one seen in the assuring words of Treasury Secretary Henry Paulson,

who told National Public Radio a week ago that people were no longer worried about the possibility of a major bank failure. “I’ve got to tell you,” he said. “I think our major institutions have been stabilized. I believe that very strongly.”

And, he could have added, the fundamentals are sound. Which is doubtless why a week later, at end of trading on Thursday, stock market wealth was down $8.3 trillion from what it was 13 months earlier and why the government has just agreed to a $306 billion bailout for Citigroup, the nation's second largest bank, which had recently lost half its market value in just three days. (The announcement came just hours after Dana Perino insisted she knew of no talks going on between Citigroup and the feds for financial aid. Geez, at least Tony Snow was a good liar.)

Meanwhile, the actual amount of taxpayer support already being given to corporate America was not the nearly $350 billion spent by Paulson and company, it was not even the $700 billion promised on our behalf by Congress. That, Jim Hightower says, is

only the ante. There’s also a secret bailout that Bloomberg News says has now topped $2 trillion! These are emergency rescue loans from U.S taxpayers that the Federal Reserve has quietly committed to America’s biggest banks, investment firms, and insurance companies.

Which financial outfits got this money, and how much did each get? That’s a secret, say the Bushites and the bankers. Well, what did the beneficiaries put up as collateral to protect taxpayers? None of your business, say the insiders.

(Hightower also points out a picture-perfect example of how the game is played:

If you're not a bank and therefore technically ineligible to party with Paulson, don't worry, for he will simply declare you to be a bank. That's what he did for American Express. When the credit card giant knocked at Treasury's door this month, Paulson redefined it as a bank-holding company, gave it the secret password and let AmEx reach in for a $3.6 billion party favor from you and me.

It pays to have friends - literally.)

But of course what loans the government gives to private corporations is our business. It is, after all, our money and ultimately our risk. (Besides, isn't "It's our money!" what the wingers squeal whenever the government wants to spend money on the poor? Where are they now?)

Except apparently, in the view of Paulson and his posse, it's not our business and perhaps not even our money. Not when the business involves business. Not when it involves largess to Wall Street and its nationwide minions.

But while they are succeeding at least for now in keeping that secret, in keeping the whole worm-eaten, weather-beaten edifice afloat the way Monty Python's "the Amazing Mystico" kept buildings up - it only works so long as you believe in it - other very public information tells a story of recession and worse that can't be covered up.

One well-trod example is the possible bankruptcy of GM and the failure of the Big 3 domestic automakers. (I'll get into my thoughts on that in a different post since discussing it first requires dispelling several myths about the current state of the domestic auto industry.) Another, all too familiar and all too painful, example is the rising number of foreclosures, which exploded in 2007 and continued a dramatic climb in 2008: According to RealtyTrac, a company that tracks the figures, foreclosures in the 3rd quarter (i.e., July-September) of 2008 were up an astounding 71% over the same period in 2007. And there's no sign of a let-up.

The number of homeowners caught in the wave of foreclosures in October grew 25 percent nationally over the same month in 2007, data released Thursday showed.

More than 279,500 U.S. homes received at least one foreclosure-related notice in October, an increase of 5 percent over September, according to RealtyTrac Inc. ...

More than 84,000 properties were repossessed in October, RealtyTrac said.

The company predicts that by the end of the year, there will be over a million bank-owned properties on the market. That is, one-third of all properties for sale in the US will be the result of foreclosures. The desperate attempt by Fannie Mae and Freddie Mac to forestall a further collapse by a 45-day freeze on foreclosures on mortgages they hold is unlikely to do more than push many of those foreclosures into the new year.

But there's still more. There are other statistics, numbers that despite their significance too often are a one-day story because they don't have some high official or big corporate PR firm pushing them. But they still tell a devastating story of an economy on the brink of potentially epic collapse.

– New claims for unemployment benefits hit a 16-year high last week. The four-week average was even worse: It was the highest in over 25 years.
- The number of people on unemployment is at its highest level in nearly 26 years. Less than half of the unemployed get benefits.
- The official unemployment rate rose to 6.5% in October, the highest in 14 years; it will be higher in November and many economists expect it will hit 8% or even 8.5% in 2009.
- Even that figure is clearly too low: The "official" figure doesn't include the self-employed, part-timers, those working for commission, the underemployed (those who work part-time but want full-time work), or, significantly, "discouraged" workers, those who have just given up on finding work. At any moment, the real unemployment rate is likely about double the official rate. The National Jobs for All Coalition calculates October unemployment at 13.6%.
- In September, retail sales dropped 2.4%, the largest monthly drop since the data collection began in 2003. In October, sales dropped another 1.5%.
- Imports of consumer goods dropped nearly 8% in September.
- As a result of all that plus the explosion of the credit market, consumer confidence is at an all-time low.
- In October, both housing starts and new construction permits were at their lowest levels since the Commerce Department started tracking the figures nearly 50 years ago.
- Exports, which had helped to prop up the domestic economy, fell victim to the world economy and saw their biggest drop in seven years.

The only bright spot, it seemed, was an uptick in mortgage applications - which happened only because they were coming off an eight-year low.

It is bad, it is getting worse, and it is getting worse than was expected faster than was expected.

"This is obviously very, very serious deterioration in the labor market, more than a lot of people had expected even a couple of months ago," said Scott Brown, chief economist with Raymond James & Associates in St. Petersburg, Fla.

"We are looking at the biggest financial crisis since the Great Depression and the biggest economic crisis we have had in the United States since the early 1980s."

Stuart Schweitzer, a global markets strategist for J.P. Morgan Private Bank, calls it “a full-blown, self-feeding downturn.”

The prospect of this dropping down through recession right into a genuine depression is now sufficiently mainstream (even a former chair of Goldman Sachs is talking about it) that people are starting to speculate on what a 2009 depression would look like. (Hint: not at all like the 1930s.)

But the truth is that for many, a depression-type life already exists.

Some 691,000 children went hungry in America sometime in 2007, while close to one in eight Americans struggled to feed themselves adequately even before this year's sharp economic downtown, the Agriculture Department reported Monday.

The department's annual report on food security showed that during 2007 the number of children who suffered a substantial disruption in the amount of food they typically eat was more than 50 percent above the 430,000 in 2006 and the largest figure since 716,000 in 1998.

Overall, the 36.2 million adults and children who struggled with hunger during the year was up slightly from 35.5 million in 2006. That was 12.2 percent of Americans who didn't have the money or assistance to get enough food to maintain active, healthy lives.

Almost a third of those, 11.9 million adults and children, went hungry at some point. That figure has grown by more than 40 percent since 2000. ...

[James Weill, president of the Food Research and Action Center, an anti-hunger group,] predicted the 2008 numbers will show even more hunger because of the sharp economic downturn this year.

"There's every reason to think the increases in the number of hungry people will be very, very large based on the increased demand we're seeing this year at food stamp agencies, emergency kitchens, Women, Infants and Children clinics, really across the entire social service support structure," [he] said....

And note this well: That increase in hunger was, again, from 2007. The sharp increase in foreclosures began in the spring of 2007. October 2008 was the fourth straight month of declining retail sales. Official unemployment has increased more or less steadily since its low of 4.4% in March 2007.

This is not a crisis that suddenly appeared in the fall, it is one that has gripped millions for some time. We do not have hunger and unemployment triggered by an economic crisis, we have an economic crisis triggered by blind greed and the extremists that celebrate it that has exacerbated existing hunger and unemployment.

And what do we hear as an answer? More of the same. More bailouts, more favors to corporations "too big to fail," more propping up of the whole rotten system that regards the hunger of tens of millions as an unfortunate side effect and the futures of tens of millions of workers to be expendable but sees rich corporate executives foregoing some of their bonuses as a significant news event. The fat cats even had the gall to be "concerned" about the move by Fannie Mae and Freddie Mac to suspend foreclosures on the grounds that it might come "at the expense of profit" and they're afraid that the two acting in a "public policy role" might continue after the federal conservatorships end.

Meanwhile, in what could be the most galling response of all, Commerce Secretary Carlos Gutierrez said

Congress could do its part by approving three pending free trade agreements with Colombia, Panama and South Korea, while the White House keeps pushing for an agreement in the long-running Doha round of world trade talks....

The race to the bottom that is globalization is the answer, always the answer, in their fetid little minds.

But from George Bush, bless his Grinch-sized heart and third-rate intellect, came an unexpected (and wholly unintentional) truth. Speaking at the Manhattan Institute on November 13, he said:

In the wake of the financial crises, voices from the left and right are equating the free enterprise system with greed and exploitation and failure.

It's true this crisis includes failures ... but the crisis was not a failure of the free-market system.

[N.B.: The quote is from the video found at the link, not from the article.]

He's absolutely right: The crisis is not a failure of the free-market system. It is the free-market system. It is a core feature, a basic, persistent, feature of a system that by its nature rewards greed and selfishness, that by its nature creates haves and have-nots, the elite and the evicted, that by its nature goes through boom-and-bust on a regular basis, cycles that over time serve to concentrate wealth in fewer and fewer hands, that by its nature turns everything into a commodity whose worth is measured merely in money, in its potential for profit, that by its nature values the work that people do not on how it, to quote a well-respected document, "promote[s] the general welfare" but on how it promotes some investor's bank account, that by its nature cannot eliminate poverty or unemployment or hunger because by its nature it invariably, unavoidably, necessarily, favors cold "efficiency" over human justice.

It is possible - and some are already suggesting - that this is a crisis that system will not survive. It is safe to say that "the American free-market system" as it has existed will not; in fact, it already hasn't because no matter how hard the elites may try to ignore or downplay it, it is unavoidably true that the federal government is now a bigger player in the private sector than it ever was before, enough that some right-wing flakes are talking about it being "socialism."

That role could be leveraged in the public interest. There could be restrictions on any bailouts, restrictions such as, off the top of my head, oversight of investment decisions or even a direct say in those decisions. A direct public role in management. Credit controls, including demanding that the decision to issue credit, while it must take into account the ability of the borrower to pay it back, should be based on the benefit to the community and judged in accordance with its environmental impact rather than on its potential to produce profit for the borrower.

Would that last drive away a good number of potential developers more interested in the green in their wallets than the green in the environment, more concerned with the cocktail parties they go to than the human parties they employ? Yes, and good riddance to them. Would that stop beneficial development? Of course not: Do you really believe there aren't people and organizations that would be interested in doing non-profit (or low-profit) housing and commercial projects if there was financing at rates they could afford?

But I said that role could be leveraged in the public interest. Will it? I doubt it, at least right now, and surely the haves will not give up their privileged positions of power easily.

There's an old (and false) notion that the Chinese character for "crisis" combines characters for "danger" and "opportunity." Even though the story isn't true (the characters for "crisis" actually read something like "critical moment danger," which is exactly what a crisis is) there is still a degree of wisdom in the notion that a crisis might present an opportunity. I keep thinking about my co-worker's book and how crises can lead to change. The Great Depression did have one salutary effect: It smashed the "The chief business of the American people is business ... The man who builds a factory builds a temple" thinking that drove the Roaring '20s - and the country straight into the depression. It opened a space for increased power of the working classes and labor organizing, and for a new social covenant between government and the public, including such as Social Security, a federal minimum wage, and unemployment insurance. It's taken the elites seventy years to roll back some of those gains (particularly involving organized labor) and even now some basic ones seem beyond their reach.

So yes, we are facing a crisis, yes, we are likely to experience the worst recession since the Great Depression and yes, we may even hit another depression. And yes, we must struggle, we must demand, demand, that Congress and the president act on our behalf, not that of the corporations whose only reason for existence should be to act as economic conduits for our needs and desires rather than as giant vacuum cleaners sucking up economic resources for the 1% of the population that controls 38% of the wealth.

But we need to go beyond those immediate demands. We also need to be thinking about new ways to organize our economy and about how we get from here to there. Now, those ideas are already out there; we don't have to create a vision from scratch. So we could have an opportunity here: The forms to which we have become accustomed will not survive. The changes may be dramatic, they may be subtle but still significant. In either event, we can be assured that the powers-that-be will do their best to make them invisible, to pretend that nothing has really changed. But it already has and it will. We need to take this opening to push new ideas into that gap between what was and what will be.

I intend to drag out some of my old ideas - ones I wrote about in the past one place or another - and toss them up here to see what the reaction might be. I invite anyone reading this to do the same. (Here in comments, preferably, so I'll be sure to see them, but in short form, please.)

Footnote: One of those bits to get you through a cold winter, when every bit of hope is gone.

As more Americans turn to charity amid worsening economic gloom, operators of food banks and other aid groups are relying on the surprisingly resilient generosity of their neighbors and finding that even when times are tough, people still give. ...

The Center on Philanthropy at Indiana University says that historically, charitable giving has been recession-proof.

Contributions to American charities have increased during 39 of the past 40 years in today's dollars, and a change in the tax laws - not the stock market crash - can be blamed for the drop in 1987, said Melissa Brown, associate director of research for the center. Between 69 and 72 percent of people give routinely, she said. ...

"At a time when people have things and they know that other people don't, Americans' generosity wins out," said Justin Greeves, senior vice president of Harris Interactive, which regularly polls Americans about their charitable giving.

In fact, according to a survey by the Christian relief group World Vision, 2008 could actually be a better-than-usual Christmas for donations to charitable organizations.

So let me be the first to cover it all from Thanksgiving right through New Year's Day: Happy Holidays. The human heart lives.

Updated with the information about housing and construction starts and the link to the Hightower Lowdown at "extremists who celebrate it."