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From 1980 to 1986, I was a lowly traveling salesperson. My territory included parts of Indiana, Michigan, North Ohio, Western Pa and West Virginia. It was there I saw and felt the devastation of what 25%+ of unemployment looked like ( now referred to as the U-6 Rate). My job was selling Music stores cheap instruments and accessories. I was a Van Jobber. It was a cash and carry business. I was 24 when I started. I had the rosy red cheeks and the unbridled optimism of youth. That and my mobility allowed me to survive.

But what I saw then is what will soon be here now or has already arrived in certain areas. If you were my age or older you probably remember businesses closing and the millions of unemployed. Seeing it up close in the hardest hit areas of the country, was something I didn't think I would see again until now

Back then I recall making appointments to see customers on Saturday for the week ahead When your traveling to sell to businesses that are far apart, you just can't pop in / With Gas at $1.38 then and a van that got about 10 Mpg when it was loaded, we had to be be very careful.

Here's a few things I recall: I would talk to a business owner, make the appointment . Drive up to his or her business three days later and find it boarded up and locked down. One day in the Cleveland area, I went in for Coffee before my first appointment and picked up the Cleveland Plan Dealer. My Appointment and his two sons were on the front page. They had been killed the day before in a daylight robbery.

I recall driving by large lines of people in front of unemployment offices, welfare offices and occasionally businesses that had advertised for one or two positions. Those were the longest lines. I saw most of this along the rust belt. Anderson Indiana at one point had the distinction of having the highest unemployment rate in the country with depression era rates over 25%

When I went into the businesses that were open, I could usually hear a pin drop. I heard things from good customers like "I've done $42.00 in the last 4 days". Imagine learning how to sell in this environment.

This was also the time Iaccoca had led Chrysler through the bail out by the Govt. I really admired that guy. I would see him on TV every night. He was out front selling the new mini vans and the K cars. The commercials were dead serious. It was just him and the camera. People loved it for the most part. Even GM and Ford got a lift as everyone was pushing each other to buy American. Iaccoca was the prime reason. There was a CEO who knew what leadership meant in hard times. You get out in front. You get your hands dirty. You set the example.

It's a long jump from then to now where ex-CEOs are on TV defending a 1.2 Million dollar decorating job for their own office. Or handing out massive bonuses to each other as they had security personnel lead employees out of workplaces they had been in for years, sometimes decades.

Ahh, It's  a "Tough Job", that's why they have one of their boot lickers do it. See, they already paid their dues. Anyway, as I see those times come back to us with a vengeance, I'm close to 30 years older. I don't have the mobility I once did. But I have been preparing for this since late 2006. Some of you have too . Many of you haven't . "It can't happen to me" is still alive and well.

This one is different since there seems to be a lot more Blue collar jobs being lost back then. Maybe I'm wrong, but this one seems to be spread out along all the levels of income. I'm also seeing that some people who are least prepared are those that made the most money. As one guy said in the comments area in BusinessWeek " I can't live on a dime less than $750,000 a year",  when people who made that kind of money were angry about paying a few points more in taxes if now President Obama won. Was that just three-four months ago? Now they probably would happily pay a double digit increase if they just knew they were going to be able to keep their job.

Here's a local  official example:

Indianapolis - Indiana's unemployment rate hit 8.2 percent in December, a 24-year high.

More than 35,000 Hoosiers joined unemployment lines last month, sending the jobless rate well above the national average. The state tied South Carolina, suffering the country's biggest monthly increase in unemployment.

Yeah, we were the leaders there for a few years in foreclosure rates. Only thing different was we never had a housing bubble here. Maybe a few tiny bubbles in some of the gate community McMansions, but not much else.

The jump - more than one percent from November - shocked economists.

"We're talking a 10-15 percent increase in the unemployed individuals in the state of Indiana," said University of Indianapolis Professor Matthew Will.

Shocked Economists? Really? The foreclosure rate didn't help with their crystal ball gazing? In The Indianapolis star , a few  months before the election, there was a story about a 70 year old development firm that was still profitable. It had multiple projects going. It had a five million dollar credit line ( a revolving line)  with National City. That means they have to pay it down for one month out of the year. They had this line with National city and all the predecessor banks who sold out to the next bank who sold it to the next bank before it became National City.

National City cut the line to 2.5 Million. At the time the business owed 3.8 Million on the credit line. It had numerous development projects scheduled for completion by the end of this year. The business used the line to pay subcontractors and employees if the customer wouldn't or didn't make any milestone payments.  It was now in technical default. The bank gave the owner a few weeks to come up with the 1.4 million ( You know they got the penalties, over credit limit fees etc) . When they weren't able to do it , National City padlocked the business before the owner could get to a bankruptcy attorney. Yep , they were slick about it. National City was so slick they got bought out at fire sale prices with TARP money because of all the sub-prime business they did.

What's the point of all this? Whenever an apologist for the TARP program comes out and tells you that banks aren't lending because of lack of demand ( I won't link to his diary on the Huffington Post), just keep this story in mind. In this hard recession which is starting to rapidly look like the big D, we will be able to look back  see a single causal factor. In my mind: It was when Wall Street came a calling in late 2004 with a risk free way to lend money to people who couldn't pay it back and the bankers who eagerly jumped on it in wave one and then the herd of bankers that followed in succeeding waves until 2007 when the music stopped.

The same people we are wasting ( yes wasting) trillions on to fix a problem they caused. No they are not going to lend more money, not because of lack of demand .They really can't because they screwed themselves so bad they still have serious problems with their balance sheets. With Foreclosures estimated at over 5000 a day, and each foreclosure representing a a fraction of the money paid as a result of credit defaut swaps, the hits keep on coming. Bankers as a group are pretty dense, but they have a very uneasy felling about the assets they still claim are good on their balance shett. They should be nerveous.  If not for us, they would and will be torn to shreds.

That's why credit card lines lines are being cut down like weeds with a high power weed cutter as they double and triple the rates on their best customers. God Help you, if you have a low credit score.

The banks aren't concerned about the ability of people to pay as much as they are about the people they know won't pay on  the sub-prime mortgages scheduled for resets. Now the prime mortgages are cratering to the point  where banks get a envelope that doesn't contain a check but the keys to the house because the home is underwater as a result of being surrounded by foreclosed homes that were converted  into crack houses. Loans may be going bad because  people who can't find work thanks to all of the above.

All of this falling back into their laps . They simply don't have the capital to fulfill the available credit that is out there. So they are cutting it down as fast as people make the payments which many credit card holders are seeing through a statement that contains a minimum payment as high as  5% of principle plus the brand new 30% interest rate they got , sometimes without notice from the bank. If they aren't working , that's a problem for the next round of financing from TARP Part 111. Banks have 6 months to charge off credit cards from when the first time the payment is late. If you dig in their 10Qs or 10Ks you can find a receivables aging to give you an idea of what's coming.

At any rate The Fed gave them a solid 18 more months to continue rate jacking their customers,  I assume to help them raise band aid money to cover those gaping self inflicted wounds.

"Hey Buddy, Got an extra 20%" for a band aid?  

They are also cutting down or eliminating credit lines to businesses which is why many of them closed which started a domino effect as people got laid off in a country where 79% of the GDP is in consumer activity.

The Banks really kicked the proverbial wasp nest this time. Why the Govt sees fit to protect them from the bites of the angry wasps probably has something to do with the army of lobbyists that descended on Washington and the fractional reserve banking system we are on. Add that to the counter party risk on the credit default swaps they were told by wall street that would protect them when the mortgages fell and there is your credit crisis. Banks wouldn't loan to each other because they all knew the other banks were doing what they were doing- hiding bad assets. If they wouldn't loan money overnight, our fractional reserve banking system would break if anyone panicked and got wind of what was really happening.

"The Shock Doctrine" really doesn't apply to self inflicted wounds in a convoluted scam that was thought up in 2004 by two young masters of the universe ages 32 and 36 in 2004. It's more like a herd of lazy greedy bankers chasing what they thought was some easy money who really didn't understand all the fancy language being used but if they signed here and there, the boys on Wall Street would have them covered. It may seem like Paulson planned the surprise on congress. But look at the willy nilly way he handled the funds. Does that show a man who is capable of doing of planning to that degree?.

To me it shows the man who was having a fricking panic attack because he knew he didn't want this banking system built on trust and little else to collapse on his watch. He did have to do some diversion by saying the banks wouldn't loan to businesses or consumers if they didn't do this. But the reality was, they wouldn't loan to each other. That's what was meant by credit locked up, dried up or whatever term was used.

Some of the Bankers who did understand what they were doing probably were counting on those 2005 Bankruptcy reforms passed early in 2005 when they started handing out money. That's when this baby gathered some real  speed. Just one problem;  The 2005 Bankruptcy reform whole platform was based on wage earners and rising home prices. When the jobs started disappearing and housing prices fell. all they had left was the credit default swaps to protect them. It was really insurance, but they called it swaps to avoid regulation. Smart guys right? You may have read the Very Important Term called "counter party risk" which means businesses who sold the banks the swaps/insurance with no capital and spent the premiums on bright shiny things.

With no regulation, anyone could sell these swaps. As long as they were"connected".

Right now Citibank and other are in court suing the people they bought the swaps from for 10 Million here and 10 million there until it adds up to some real money. They may get some of it too, if they can find the guys who sold them. Most of the swaps were sold by AOL's instant messenger, email or maybe a sales call.

I have a vision of a 12 year old hacking his way in to their Instant messengers service where the Swaps were bought and sold . Banks like Citibank would buy a 100 Million worth of protection usually at 6:1- 8:1 rate. So little Jimmy got an electronic transfer to First James Funding for 12 Million dollars. That's when he convinced Mom and Dad, they really could move to Spain.

Now Goldman Sachs, they were some serious people there. They made damn sure to buy their swaps from a real insurance company called AIG who had sold 80 Billion dollars worth ( probably more)  without having one of the company's actuaries take a look at what they hell they were insuring. They probably thought they were selling flood insurance to people in death valley. Housing prices go down? Please!.  So they didn't charge enough. Some of the contracts were as long as 80 years. The word is that when the first check for 85 Billion went to AIG, Goldman Sachs got a substantial amount of that as cash collateral for the swaps they had purchased. Hey no one ever accused Henry of being stupid. Who was the CEO of GS in 2005 and part of 2006 when Goldman was selling sub-prime mortgage backed securities at the same time his trading desk was shorting the banks stock and buying credit default swaps? Oh yeah. Must be a coincidence. Right?

Google it. The payment that AIG made to Goldman Sachs is said to be between 20 and 37 billion. But no one has proven it beyond a shadow of a doubt which may be why no one is saying anything about what was done with the first 350 Billion.

So, as I watch this stimulus package being passed and the promises being made by the same guy who was in on every major deal on TARP (Trap) One, I'm thinking what a lot of you are; why are we giving the people who caused this mess money we need right now. This isn't our grandchildren's money problem.

It's ours problem right fricking now  as Indiana's unemployment  rate (U-3) indicates.

I doubt there is much we can do. The congress critters know best and besides, they've already gotten paid. But when the apologists for TARP come out, as they have done frequently, tell them this: There was a much easier way and we could have still saved our fragile banking system and in the process even strengthened it.

Right now a discussion by Very Serious People is underway to create a Bad bank for over a trillion dollars to buy bad assets from banks ( the original plan for TARP that was switched, probably when a frantic call came from Goldman Sachs telling them him that AIG and others sold them Credit Default Swaps. I don't know about you, but why create a big Bad Bank when we already have 3 or 4 Bad Banks already.  

Why in the hell didn't the Govt just start 4-5 Major money banks using Banking executives who ran conservative banks and didn't get involved in any of this crap? Shift the deposits from the wasp nest kicker bank and trust over to the new banks. Start a string of smaller regional banks for the Sub-Prime Challenged smaller banks. Then give Judges the right to modify mortgages and put a big null and void on all credit default swaps. After 5-7 years, sell the stock of the banks to the public and get the taxpayers money back. The shareholders and bondholders of the banks that have done so much damage gets a lesson about investing in "blue chips" which may in fact be brown chips and we take a hit, and keep on ticking.

But ...Nah, who would  contribute to the congress critters campaigns? Sounds like a lot of work too for many people that are used to Govt hours.

I wonder if President Obama is aware of all this. If maybe they told him but said "what are we to do? If we don't do this, our banking system will crash". Good old Rubinenomics

Oh yeah. All of the above is contained in public reporting. It was a connect the dot game that I played because this is a big fricking problem. A few reporters seem to have gotten close and maybe some bloggers already did. But at any rate, this is where I see the money is going and this is why I feel we won't be seeing it.

Some apologists will talk about the dividends on the preferred or the loans. Please. How many CEOs promised dividends on common or preferred stock  one month and then eliminated it the next. The Govt will turn the preferred into common stock  or get smart and Nationalize the banks and eliminate the people at the top ( don't count on it).

There's plenty of honest conservative bankers out there. They may have to be paid a lot. But if they have the resume, they should get it. Lets not get fixated on ten million when trillions are being burned as I write.

I don't much beleive in Conspiracy theories. I look for a simple explanation and the simplest one is climatic greed gone wild and people who were only looking at this quarter's results when they lit the fire on this baby.  

Note: If this diary finds any traction, I'll be away for a bit. But I'll check back later.

Originally posted to Dburn on Tue Jan 27, 2009 at 05:26 PM PST.

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Comment Preferences

  •  Thank you (6+ / 0-)
    Recommended by:
    Dburn, JuliaAnn, Bronx59, Shhs, MKSinSA, badger1968

    You ask the old Roman question: who benefits. This is not totally a game of looseing. Very insightful. I would not call it a conspiracy theory, more like a coincidence theory. It had not dawned on me that banks would be using TARP money to buy up assets they had pushed into bankruptcy. Get catch.

    •  I would suspect (3+ / 0-)
      Recommended by:
      Tam in CA, MKSinSA, edtastic

      That based on what I've been reading that we are just at the tip of the iceberg. There is so much debt out there. I think the total Mortgage debt is 10-12 Trillion. Right now 1-6 mortgages are in trouble although I haven't heard anyone put a dollar value on it.  I think Paul Krugman recognizes that which is why he is calling for a much larger stimulus package.

      I would hope that privately he is thinking; "don't give a dime to the guys who caused this". I think the only way out is to bifurcate the financial system in this rescue package. Be prepared to write off the first 350 Billion.

      Then start up or bulk up good conservative banks with venture type capital . They don't need to be paying interest. In order to take on the trillion in deposits that B of A, JP Morgan and Citi have to start with, they have to have a strong 100-200 billion dollars in equity. Pure equity. Once they have it, then shift the deposits over. Call a moratorium on interest rates for 2 years paid on deposits. The money is safe. People are buying treasuries with 0 interest now so it isn't outrageous to think in those terms.

      Then once you have the deposit base and the capital base, you can start loaning money overnight to other banks and establishing credit to businesses and individuals who have proven set of needs.

      The suffering will still be occurring. This doesn't stop marginal businesses from going bankrupt or individuals either. But lets get rid of the 2005 reforms and let them get a fresh start. A real fresh start. Like letting bankruptcy judges negotiate mortgages.

      Then we have handle on what and where to put the balance of the stimulus. We will have this recession /depression one way or another. But I would prefer it to be in a way were we know what the hell we are shooting for as payment  for the pain.

      No one can promise anything, but the way we are approaching it now, we may as well right a big check to each American and say "Your on your own" because we are headed there anyway except wall street is picking up the money.

      Support Col Hackworth's because tomorrow is just a promise, not a guarantee

      by Dburn on Tue Jan 27, 2009 at 06:16:38 PM PST

      [ Parent ]

  •  A wonderfully written (4+ / 0-)
    Recommended by:
    Dburn, Tam in CA, not a cent, badger1968

    diary and contemporaneous economic history of the Midwest. There is so much in this and you've covered the financial crisis beautifully. You write this of the current job crisis:

    This one is different since there seems to be a lot more Blue collar jobs being lost back then.

    That's because we have managed to export the bulk of our blue collar jobs, leaving overly, high-paying jobs based on pretend wealth that support a service sector with jobs that pay almost nothing. The gap between the two is what has migrated overseas and why so many well-paid folks are losing their jobs now.

    •  Good Point (2+ / 0-)
      Recommended by:
      MKSinSA, pstoller78

      That's because we have managed to export the bulk of our blue collar jobs

      Now we are exporting white collar jobs. I think we need to rethink the exporting of jobs. Brand it as a imported service and slap a duty on it with no more tax deductions for the costs as a business expense. The more jobs we send out, the less money stays here.

      Even if a large company loses money, the employees are all paying taxes and the social security system is getting refilled. Once they send the full spectrum of jobs out, no more tax receipts and less corporate taxes.

      Support Col Hackworth's because tomorrow is just a promise, not a guarantee

      by Dburn on Tue Jan 27, 2009 at 06:21:40 PM PST

      [ Parent ]

    •  Thanks for the compliments too (2+ / 0-)
      Recommended by:
      MKSinSA, edtastic

      At 52 you start to care about this kind of thing enough to spend more time than I should have, looking into it...

      Support Col Hackworth's because tomorrow is just a promise, not a guarantee

      by Dburn on Tue Jan 27, 2009 at 06:34:03 PM PST

      [ Parent ]

  •  May explain why Obama won Indiana (5+ / 0-)
    Recommended by:
    Dburn, Shhs, badger1968, Losty, Dragon5616

    The economy was in terrible shape there during the election and people who don't usually vote Democratic went for Obama. Never discount the importance of an economic downturn in changing long-term voting habits. The key now is to get those converts to stay with the Democrats.

  •  A midwestern Jerome A Paris (3+ / 0-)
    Recommended by:
    Dburn, MKSinSA, Dragon5616

    The mess we are in is a veritable onion with layers of stupidity and greed.

    You may have read the Very Important Term called "counter party risk" which means businesses who sold insurance with no capital and spent the premiums on whatever.

    But, CDS is the multiplier that turned a fiasco on the scale of the SNL mess into what we have now.  Our financial systems need to be regulated to the extent that they are no longer essentially high stakes gambling or this will happen again and again and again . . .

    "I shall never surrender or retreat." --Lieutenant Colonel William Barret Travis

    by badger1968 on Tue Jan 27, 2009 at 06:03:12 PM PST

    •  Very true on CDSs (3+ / 0-)
      Recommended by:
      JuliaAnn, MKSinSA, badger1968

      That's why I suggested they be legislated out of existence. I have been comment on CDSs for awhile but it seems to damn complicated.

      If you listen to the House Financial Services Committee meeting with Bernanke and Paulson on Nov 18th, you can her Carol Maloney from NY ask if any of the TARP money was going to pay off the side bets from  the CDSs. Bernanke started speaking Greenspan and then Barney Frank cut her off putting process before outcome or truth in this situation.

      Warren Buffett was correct in calling them a financial WMD. I can't beleive we are still paying them off. That's why Geithner was cheered by Wall Street. The Status Quo continues. He's in charge of the IRS?

      Unreal.

      Support Col Hackworth's because tomorrow is just a promise, not a guarantee

      by Dburn on Tue Jan 27, 2009 at 06:29:37 PM PST

      [ Parent ]

  •  Sorry - some corrections here (1+ / 0-)
    Recommended by:
    edtastic

    That's why I suggested they be legislated out of existence. I have been commenting on CDSs for awhile now but it seems too damn complicated for people to get their hands around.

    If you listen to the House Financial Services Committee meeting with Bernanke and Paulson on Nov 18th, you can here Carol Maloney from NY ask if any of the TARP money was going to pay off the side bets from  the CDSs. Bernanke started speaking Greenspan and then Barney Frank cut her off putting process before outcome or truth in this situation.

    Warren Buffett was correct in calling them a financial WMD. I can't beleive we are still paying them off. That's why Geithner was cheered by Wall Street. The Status Quo continues.

    Support Col Hackworth's because tomorrow is just a promise, not a guarantee

    by Dburn on Tue Jan 27, 2009 at 06:32:17 PM PST

  •  Written in a way (3+ / 0-)
    Recommended by:
    Dburn, JuliaAnn, MKSinSA

    even an ecomonic ignoramus like me can understand. Thank you for this informational and even enjoyable read. Not that the facts were pleasant - just your way of explaining them.

    •  Thanks Tam (3+ / 0-)
      Recommended by:
      JuliaAnn, Tam in CA, MKSinSA

      Much appreciated

      Support Col Hackworth's because tomorrow is just a promise, not a guarantee

      by Dburn on Tue Jan 27, 2009 at 06:58:35 PM PST

      [ Parent ]

      •  This was worthy of more attention (2+ / 0-)
        Recommended by:
        Dburn, MKSinSA

        I think perhaps the title didn't do it justice, as it was about so much more than just unemployment in Indiana.

        My son is just about to start a macroeconomics class, so I told him he couldn't have picked a better time. Makes me think of the chinese saying/curse, 'May you live in interesting times'.

        •  Re: The title (0+ / 0-)

          You're right. It needed some help.

          A strange thing happened to me on the way to writing a short diary. :-) I got carried away by all the reading I have done on this and by the diary written on Huffington Post defending TARP from someone who diaries here often.

          Then It all came out. I don't write diaries often . But this one was worth the time. If a few people read it, that 's fine with me.

          That's great your son is starting a Macroeconomics class. I think the one thing they should teach is how the Toxic policy translates into  suffering at the micro level.

          Support Col Hackworth's because tomorrow is just a promise, not a guarantee

          by Dburn on Wed Jan 28, 2009 at 05:10:42 AM PST

          [ Parent ]

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