In particular, two articles have troubled me greatly (I reference a few more, farther down), primarily with regard to what they may mean in terms of the Obama administration's shift to the right since mid-terms.
Chamber president pleased with new tone from White House
By Kevin Bogardus and Peter Schroeder - 01/11/11 07:20 PM ET
The Hill Newspaper
Wednesday, January 12, 2011
In his annual State of American Business address, Chamber President and CEO Tom Donohue said the economy is picking up steam and is in much better shape today than it was a year ago, though the recovery remains fragile and uneven.
"Last year, we worried about a double-dip recession," Donohue said. "Today, we are cautiously optimistic recovery will continue and pick up steam as the year progresses."
Donohue predicted that the economy would expand by 3.2 percent in 2011, creating between 2.4 million and 2.6 million jobs. Growth of that size could lead to a roughly 1 percent drop in the unemployment rate...
I want to note that, IMHO, this is a particularly well-done (albeit short), even-handed piece of journalism. And, just in case you had forgotten the recent history between the Chamber and Democrats, there's this from it...
...In the heated days before the election, the White House suggested the business group was using foreign-sourced money for its electioneering, a charge the Chamber said the administration offered no proof to support...
Donohue also praised the President's selection of Bill Daley as his new Chief of Staff, referring to him as a "real pro."
Which brings us to the second article of initial note, a post by M.I.T. economics professor and former International Monetary Fund chief economist Simon Johnson, over at his Baseline Scenario blog, from Sunday: "The Bill Daley Problem."
Johnson's the co-author of one of the most widely-heralded books on the many causes of our Great Recession, "13 Bankers." He's also written two of my most highly-referenced links in my posts within this community in the past 20 months: "The Quiet Coup," and our resulting, "Two-Track Economy." More recently, on December 30th, in the NY Times Economix blog, he sounded another warning that, in 2011, "Fresh Crises Loom in Europe and the U.S."
When it comes to the economy, IMHO, this guy's as prescient as it gets. So, I strongly recommend a read of his commentary from this past weekend concerning Bill Daley.
The Bill Daley Problem
January 9, 2011 at 7:43 am
...The Bill Daley Problem is completely bipartisan - it shows us the White House fails to understand that, at the heart of our economy, we have a huge time bomb...
Bill Daley now controls how information is presented to and decisions are made by the president. Daley's former boss, Jamie Dimon, is the most dangerous banker in America - presumably he now gets even greater access to the Oval Office. Daley is on the record as opposing strong consumer protection for financial products; Elizabeth Warren faces an even steeper uphill battle. Important regulatory appointments, such as the succession to Sheila Bair at the FDIC, are less likely to go to sensible people. And in all our interactions with other countries, for example around the G20 but also on a bilateral basis, we will pursue the resolutely pro-big finance views of the second Clinton administration.
Top executives at big U.S. banks want to be left alone during relatively good times - allowed to take whatever excessive risks they want, to juice their return on equity through massive leverage, to thus boost their pay and enhance their status around the world. But at a moment of severe financial crisis, they also want someone in the White House who will whisper at just the right moment: "Mr. President, if you let this bank fail, it will trigger a worldwide financial panic and another Great Depression. This will be worse than what happened after Lehman Brothers failed."
Let's be honest. With the appointment of Bill Daley, the big banks have won completely this round of boom-bust-bailout. The risk inherent to our financial system is now higher than it was in the early/mid-2000s. We are set up for another illusory financial expansion and another debilitating crisis...
In between, Johnson makes note of America's "...most dangerous government sponsored enterprises...the largest six bank holding companies: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. "
He points out that these six firms, as of Q3 2010, "...had assets worth 64 percent of GDP." He also notes: "...assets in the big six at the end of 2006 were only about 55 percent of GDP. And this is up massively from 1995, when these same banks (some of which had different names back then) were only 17 percent of GDP."
...The social costs of these banks - and their complete capture of the regulatory apparatus - are apparent in the worst recession and slowest recovery since the 1930s.
Paul Volcker gets it; no wonder he has resigned. Mervyn King, governor of the Bank of England, gets it. Tom Hoenig, president of the Kansas City Fed, gets it. Elizabeth Warren, the tireless champion of consumer rights, gets it. Gene Fama, father of the efficient financial markets view, gets it better than anyone.
Johnson notes that the idea of bringing a top banking executive directly from Wall Street in as Obama's chief of staff is "...beyond ludicrous." He forecasts that the results of ongoing support for taxpayer subsidies for our too-big-to-fail banks will be "devastating."
I strongly encourage you to read Johnson's entire post, linked up above.
And, if you do read the entire Johnson piece, then the following, from Forbes, by editor Robert Lenzner, becomes a must-read accompaniment: "US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages."
US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages
Jan. 12 2011 - 8:36 am
The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.
They are allowed to accrue interest on non-performing mortgages " until the actual foreclosure takes place, which on average takes about 16 months.
All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off the books of the banks.
This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.
Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs...
Now, onto other important (IMHO) stories on our economy from the past four or five days...
UNEMPLOYMENT, GROWING INCOME INEQUALITY, THE ONGOING DESTRUCTION OF THE U.S. MIDDLE CLASS...
Late Sunday, across the pond, Ambrose Evans-Pritchard authored the following in the UK's Telegraph: "Deepening crisis traps America's have-nots."
Deepening crisis traps America's have-nots
Sunday, January 9, 2011
The US is drifting from a financial crisis to a deeper and more insidious social crisis. Self-congratulation by the US authorities that they have this time avoided a repeat of the 1930s is premature...
Evans-Pritchard points out that, upon closer inspection, the highly-touted holiday shopping season results actually provided very significant support for the prescient observations of M.I. T. economist Simon Johnson's tome from mid-2009, linked above.
In another reference to Dickens (much like Johnson), Evans-Pritchards calls it: "A Tale of Two Shoppers." The high-end retailers, such as Tiffany's, Nordstrom's and Saks did exceptionally well. The mid-range stores (Macy's, etc.), as the AP noted in the NY Times on Friday, did so-so. But, the discounters pretty much "languished," repeating the word the British columnist used to describe their performance. He continues, noting the political failure of the Federal Reserve's second round of quantitative easing...
...Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.
Yet surely Ben Bernanke's `trickle down' strategy risks corroding America's ethic of solidarity long before it does much to help America's poor.
The retail data can be quirky but it fits in with everything else we know...
Even a lead business/economy story in Tuesday's NY Times verifies the reality that the Fed's supposed (QE2) "effort" to combat joblessness has, so far, done little more than to very modestly, at best (and even that's somewhat of a stretch), drive down borrowing costs.
At that point, Evans-Pritchard starts listing some details on "...everything else we know..."
-- Food stamp recipients now number 43.2 million, "...an all time-high of 14pc of the population."
-- The US Conference of Mayors has noted that visits to soup kitchens are up 24% for 2010 versus 2009.
-- 643,000 homeless Americans, on average, seek shelter each night.
-- "Positive" spin concerning jobs data, released last Friday, focused upon more than a net 100,000+ gain in jobs for the month (BLS' Household Survey), while most in the MSM totally overlooked another truth that the number of jobs actually contracted by 260,000, falling to 153,690,000 in the BLS' Establishment Survey.
-- The "...'labour participation rate' for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948." But, as Evans-Pritchard also noted: "The only reason that headline unemployment fell to 9.4pc was that so many people dropped out of the system altogether."
-- Long-term unemployment (people out of work more than six months) is now at 42% of the total number of jobless, which is "...twice the peak of the early 1990s. Nothing like this has been seen since the World War Two."
And, it's here where Evans-Pritchard goes "there"...to the subject of income inequality.
The Gini Coefficient used to measure income inequality has risen from the mid-30s to 46.8 over the last quarter century, touching the same extremes reached in the Roaring Twenties just before the Slump...
...Extreme inequalities are toxic for societies, but there is also a body of scholarship suggesting that they cause depressions as well by upsetting the economic balance. They create a bias towards asset bubbles and overinvestment, while holding down consumption, until the system becomes top-heavy and tips over, as happened in the 1930s.
Evans-Pritchard notes that: "Multinationals are exploiting 'labour arbitrage' by moving plant to low-wage countries, playing off workers in China and the West against each other. The profit share of corporations is at record highs across in America and Europe..."
This truth fits like a glove with one of the top stories from none other than the voice of the U.S. status quo, Tuesday's Wall Street Journal: "Downturn's Ugly Trademark: Steep, Lasting Drop in Wages," by Sudeep Reddy. Kossack Tasini posted an excellent diary on this piece, and it was one of the most highly-rec'd diaries in this community, on Tuesday: "American Dream Done: WSJ--Steep, Lasting Drop in Wages."
Reddy notes that there are currently 14.5 million Americans that have been on our nation's jobless rolls for more than six months. He points out that: "Unemployment has stood above 9% for 20 straight months--longer than the early 1980s stretch--and is likely to remain above that level for most of 2011, putting downward pressure on wages."
Downturn's Ugly Trademark: Steep, Lasting Drop in Wages
By SUDEEP REDDY
Wall Street Journal Blog
JANUARY 11, 2011
...But the decline in their fortunes points to a signature outcome of the long downturn in the labor market. Even at times of high unemployment in the past, wages have been very slow to fall; economists describe them as "sticky." To an extent rarely seen in recessions since the Great Depression, wages for a swath of the labor force this time have taken a sharp and swift fall.
Many laid-off workers who have found new jobs are taking pay cuts or settling for part-time work when they get new ones, sometimes taking jobs far below their skill levels.
Economists had wondered how far this dynamic would go in this recession, and now the numbers are starting to show it: Between 2007 and 2009, more than half the full-time workers who lost jobs that they had held for at least three years and then found new full-time work by early last year reported wage declines, according to the Labor Department. Thirty-six percent reported the new job paid at least 20% less than the one they lost.
More than eight million Americans lost their jobs during the recent recession. Many are returning to the workforce--but in jobs that pay them far less than they used to earn.
The severity of the latest downturn makes it likely that many of the unemployed who get rehired will take wage cuts, and that it will be years, if ever, before many of their wages return to pre-recession levels, says Columbia University labor economist Till von Wachter. "The deeper the recession, the lower the wage you're going to get in the next job and the lower the quality of your next job," he says.
Yes, we've heard all of this many times--but without the Wall Street hubris injected into the propaganda telling us, for the foreseeable future, 'the middle and lower classes must suffer' while the upper class doesn't miss a meal or a dividend check--in recent weeks, haven't we? Here are a few links to some other, less recent, reality-based stories about these inconvenient truths...
-- "Career Shift Often Means Drop in Living Standards," Catherine Rampell, New York Times, January 1st, 2011
-- "Does Recovery Mean New Jobs at Lower Pay?" Mark Thoma, Economist's View, December 31st, 2010
-- "Alarming New Stats: Poverty Rate, Income Inequality Surging," Joan McCarter, Daily Kos/Alternet.org, September 16, 2010
--"America Without A Middle Class -- It's Not As Far Away As You Might Think," Elizabeth Warren, Alternet.org, December 9, 2009
Interestingly, over the past few days and in response to the Bureau of Labor Statistics' most recent employment report, announced last Friday, both Paul Krugman and University of Oregon Economics Professor Mark Thoma have made particular note of this chart, from the St. Louis Federal Reserve Bank/Branch: Civilian Employment-Population Ratio. If nothing else, just some more food for thought.
Here's DDay, over at FireDogLake on Monday, telling it like it is in state budget hell: "Crushing State Budget Cuts Wiping Out Stimulative Effects of Tax Deal"
Crushing State Budget Cuts Wiping Out Stimulative Effects of Tax Deal
By: David Dayen
Monday January 10, 2011 11:01 am
...In a state where the budget woes have, by some estimates, grown more dire than even those in California, it seems that months of inaction might at last be overtaken by some combination of timing (elections are far away) and fear (the state's national reputation and bond ratings seem to be sinking as fast as its debts are mounting).
In a moment when states around the country are wrestling with withered revenues, Illinois faces a deficit of at least $13 billion; more than $6 billion in unpaid bills to social service agencies, schools and funeral homes; the most underfinanced state pension system; and growing signs of concern from bond investors.
Between California and Illinois, you're looking at about $45-48 billion dollars to balance budgets, between tax hikes and program cuts. The anti-stimulative effect of that almost totally wipes out the $55-60 billion in stimulative measures that aren't just extensions of current law in the tax cut deal.
That's not a commentary on how the tax cut deal could have ended state budget crises (although an innovative policy solution could have at least put that in motion and at lesat begun to set up some counter-cyclical fund so states don't have to contract during recessions). It's more a commentary on how economic forecasters assumed major growth from this tax cut deal, even though it's almost entirely composed of poor stimulus and would be overwhelmed by budget cuts at the state and probably federal level. Austan Goolsbee likes to talk up the stimulative power of that tax cut deal, but he's looking at it in a vacuum. Fiscal policy in 2011 and 2012 is still very likely to be contractionary, and nobody in Washington is arguing for that to change. Vain hopes of "stimulus" seem very odd, in this context.
More on this from Zero Hedge: "More Bad News For States: State Revenue Plunges By 31% In 2009 To $1.1 Trillion As Spending Increases," 1/5/11
Meanwhile, Newt Gingrich is jumping into this fray HERE in, "Newt Gingrich Pushing Bill To Allow States To File Bankruptcy Allowing Them To Renege On Pension And Benefit Obligations," Zero Hedge, 1/10/11
Some unpleasant news for pensioned workers who believe that their insolvent state will be able to afford ridiculous legacy pensions in perpetuity. According to Pensions and Investment magazine, Newt Gingrich is pushing for legislation that will allow insolvent states to be taken off bailout support and file bankruptcy, in the process allowing them to renege on pension and other benefit obligations promises to state workers. And if there is anything that will get government workers' blood pressure to critical levels, it is the threat that money they had taken for granted is about to be lifted, courtesy of living in an insolvent state (pretty much all of them). And obviously what this means for equity investors in assorted muni investments is that a complete wipe out is becoming a possibility, as Meredith Whitney's prediction, which everyone was quick to mock and ridicule, is about to come back with a vengeance.
HOUSING ECLIPSES DEPRESSION-ERA STATISTICS AS OUR COUNRY'S MORTGAGE AND FORECLOSURE CRISIS WORSENS...
Do I need to say anything about a new, brutal fact which speaks for itself? See: "Home price drops exceed Great Depression: Zillow."
Home price drops exceed Great Depression: Zillow
By Al Yoon
NEW YORK | Tue Jan 11, 2011 8:40am EST
NEW YORK (Reuters) - Home prices fell for the 53rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump, according to Zillow.
Home prices have fallen 26 percent since their peak in 2006, exceeding the 25.9 percent drop registered in the five years between 1928 and 1933, the housing data company said in a report on Monday. Prices fell 0.8 percent over the month.
It is a dubious milestone for the U.S. housing market which has failed to gain much traction despite a host of government programs to reduce delinquencies and encourage demand with temporary tax credits and lower interest rates. Many economists expect further price drops, even if there are some anecdotal signs of growing demand, such as in pending home sales data...
Here's Reuters' Felix Salmon making note of last Friday's Ibanez decision by the Massachusetts Supreme Court, which--as Joe Biden would say--is really "a big fucking deal." "The Ibanez case and housing-market catastrophe risk."
(I posted a diary about this story last week. The link's right HERE.)
The Ibanez case and housing-market catastrophe risk
Jan 7, 2011 15:58 EST
The 16-page decision in the case of US Bank vs Ibanez does not make for easy reading. But it's a very important case: it's a solid precedent saying that if a bank doesn't own a mortgage, then it can't foreclose on a home. That was the decision of the lower court in Massachusetts, back in March 2009, and it has now been unanimously upheld on appeal to the Massachusetts supreme court.
After speaking to crack Reuters reporter Jonathan Stempel, I'm even more worried about this case than I was before...
Here are a couple more links to great, related coverage on a story, IMHO, you'll be reading about for years to come...
No Federal Preemption by a Trustee of a Mortgage Backed Security Trust from Senior Counsel of the Office of the Comptroller of the Currency, from 4closureFraud via Zero Hedge, 01/10/11
Massachusetts Ruling on Foreclosures Is a Warning to Banks, Gretchen Morgenson, NY Times, 1/7/11
SUMMING IT ALL UP...
You may have missed these three great pieces (like many other stories, above, all worthy of their own diary) from the past few days...
From Paul Krugman, over at his NY Times blog: "Economics and Morality," 1/10/11
Bob Herbert's scathing op-ed from this past Saturday's Times: "Misery With Plenty of Company," 1/8/11
And, last but not least, Frank Rich from the Sunday edition of the same paper: "Let Obama's Reagan Revolution Begin," 1/9/11
Please feel free to reference this post the next time you hear about our "improving economy," or when someone writes a piece about a gain in some tertiary economic indicator. I'm sure you'll then be told all about unemployment being a "lagging economic indicator" of a recovery (even if this time, according to the Congressional Budget Office, it's projected to "lag" for at least another five or six years).
Or, perhaps you'll be told all about how someone just sold their home at a profit, and they can't see what the fuss about ongoing declining home prices is all about.
Or, maybe, in response to a statement you might make about how we're now witnessing the greatest economic inequality between the social classes since the metric was first implemented by our government, many years before the Great Depression, someone will mention how their friend just landed a job after being unemployed for a year.
IMHO, at that point maybe then you'll realize that our economic recovery really has morphed into "a more insidious social crisis." That's the way it is sometimes when things degenerate to a point where the only thing left to maintain one's sanity is to focus upon hope for the future due to the fact that the present is so depressing for the 100,000,000 poorest in one's own country, few want to even talk about it.