Tag Archives: Great Recession

Frank Rich on backing down to the banks

Liberals may be outraged but Frank Rich is right on Obama backing down to the banks and letting them do whatever they want to do

Since Obama has neither aggressively pursued the crash’s con men nor compellingly explained how they gamed the system, he sometimes looks as if he’s fronting for the industry even if he’s not. Voters are not only failing to give the White House credit for its economic successes but finding it guilty of transgressions it didn’t commit. The opposition is more than happy to pump up that confusion. When Mitch McConnell appeared on ABC’s “This Week” last month, he typically railed against the “extreme” government of “the last year and a half,” citing its takeover of banks as his first example. That this was utter fiction — the takeover took place two years ago, before Obama was president, withMcConnell voting for it — went unchallenged by his questioner, Christiane Amanpour, and probably by many viewers inured to this big lie.

The real tragedy here, though, is not whatever happens in midterm elections. It’s the long-term prognosis for America. The obscene income inequality bequeathed by the three-decade rise of the financial industry has societal consequences graver than even the fundamental economic unfairness. When we reward financial engineers infinitely more than actual engineers, we “lure our most talented graduates to the largely unproductive chase” for Wall Street riches, as the economist Robert H. Frank wrote in The Times last weekend. Worse, Frank added, the continued squeeze on the middle class leads to a wholesale decline in the quality of American life — from more bankruptcy filings and divorces to a collapse in public services, whether road repair or education, that taxpayers will no longer support.

2012

Greg Ip in the Washington Post

Let me take a stab at what the next crisis will be. Our deficit, as a share of GDP, is at a peacetime record, and the debt is climbing toward a post-World War II record. Thoughtful economists agree on the response: Combine stimulus for our fragile economy now with a plan to slash the deficit and stabilize the debt when the recovery is more entrenched.

Yet the approaching November midterms have made it impossible to advance a serious proposal for doing that. Congress has been unable to pass a budget, and the government is operating on a short-term "continuing resolution." President Obama’s plan for reining in the national debt consists of appointing a bipartisan commission that won’t report until after the midterms. Even if the commission can agree on a realistic plan to chop the deficit, the polarized state of Congress suggests slim odds of adoption.

With neither party able to muster the support to get serious about reducing the deficit, both may prefer to kick the problem down the road to after 2012, in hopes that the election hands one of them a clear mandate.

For now, there’s enough risk of Japanese-style stagnation and deflation that U.S. interest rates could remain very low for a while yet. But if that risk fades, investors in U.S. Treasury bonds will want to know how we’ll get our deficits and debt under control — and could demand higher interest rates to compensate for the uncertainty. By then, though, the 2012 campaign may be upon us. The Republican nominee will assail Obama’s fiscal record and promise a determined assault on the debt. Obama will respond by blaming George W. Bush and promising to unveil his own plan once he’s reelected. Neither will commit political suicide by specifying which taxes they’ll raise or which entitlements they’ll cut.

Will investors trust them, or will they start to worry that the endgame is either inflation or default, two tried-and-true ways other countries have escaped their debts? If it’s the latter, we’ll face a vicious circle of rising interest rates and budget deficits, squeezing the economy and potentially forcing abrupt and painful austerity measures.

And if, instead, the markets continue to give us the benefit of the doubt, relieving our politicians of the need to act: Circle 2016 on your calendar.

The Next Big Bubble: Commercial Real Estate?

Is commercial real estate the next big bubble in the United States?

“There is a large overhang (empty space) of commercial real estate that will take years to absorb. In addition there are $1.3 trillion in commercial mortgage notes coming due in the next 3-4 years but only $800 million in debt capacity for these loans.

Wall Street will likely experience another crash in 2013-2014 unless something is done.  Traditional loans on commercial buildings used to go through banks.  Then in 2003-2004, Wall Street learned they could securitize loans and act as banks or alternative lending institutions.

This led to strong competition for loans, more people bought buildings and the balloon expanded.  But then it popped, values have plummeted and remain way down.  Most of these loans were made with ten year notes.  So unless things improve dramatically in the next few years, when the notes come due, they will be foreclosed, values will drop again.

Maybe the recession isn’t over yet

From Bob Herbert in the New York Times

For those concerned with the economic viability of the American family going forward, the plight of young workers, especially young men, is particularly frightening. The percentage of young American men who are actually working is the lowest it has been in the 61 years of record-keeping, according to the Center for Labor Market Studies at Northeastern University in Boston.

Only 65 of every 100 men aged 20 through 24 years old were working on any given day in the first six months of this year. In the age group 25 through 34 years old, traditionally a prime age range for getting married and starting a family, just 81 of 100 men were employed.

For male teenagers, the numbers were disastrous: only 28 of every 100 males were employed in the 16- through 19-year-old age group. For minority teenagers, forget about it. The numbers are beyond scary; they’re catastrophic.

This should be the biggest story in the United States. When joblessness reaches these kinds of extremes, it doesn’t just damage individual families; it corrodes entire communities, fosters a sense of hopelessness and leads to disorder.

The unemployment that has wrought such devastation in black communities for decades is now being experienced by a much wider swath of the population. We’ve been in deep denial about this. Way back in March 2007, when the official unemployment rate was a wildly deceptive 4.5 percent and the Bush crowd was crowing about the alleged strength of the economy, I wrote:

“People can howl all they want about how well the economy is doing. The simple truth is that millions of ordinary American workers are in an employment bind. Steady jobs with good benefits are going the way of Ozzie and Harriet. Young workers, especially, are hurting, which diminishes the prospects for the American family. And blacks, particularly black males, are in a deep danger zone.”

The official jobless rate is now more than twice as high — 9.4 percent — and even more wildly deceptive. It ticked down by 0.1 percent last month not because more people found jobs, but because 450,000 people withdrew from the labor market. They stopped looking, so they weren’t counted as unemployed.

A truer picture of the employment crisis emerges when you combine the number of people who are officially counted as jobless with those who are working part time because they can’t find full-time work and those in the so-called labor market reserve — people who are not actively looking for work (because they have become discouraged, for example) but would take a job if one became available.

The tally from those three categories is a mind-boggling 30 million Americans — 19 percent of the overall work force.

This is, by far, the nation’s biggest problem and should be its No. 1 priority.