David Kirkpatrick

December 5, 2008

The financial meltdown is not slowing

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 12:19 pm

On top of this week’s bleak jobless rate report, not one bit of economic news seems very heartening. I guess the biggest upside (if you can call it that) is the fact everyone finally agrees we are in a recession.

All the head-in-the-sand, la-la-la-la-singers out there are at least facing reality. That’s a start. If they had a bit more contact with “Main Street USA,” a major presidential campaign topic, they’d realized this thing has been going on for a long, long time. The US may not be in a new Depression just yet, but our economy has a lot of Americans in depression.

From the link:

The year-long U.S. recession has taken a turn for the worse recently, two top Federal Reserve policy-makers said on Thursday, raising expectations for aggressive policy action by the central bank as soon as next week.

Separately, Federal Reserve Chairman Ben Bernanke urged more aggressive steps to halt home foreclosures, one of the most visible outcomes of the severe U.S. downturn.

Chicago Federal Reserve Bank President Charles Evans said that the economy is “contracting markedly” as consumer spending sinks and the jobless rate rises, and that a recovery might not be on tap until 2010.

“The outlook has clearly deteriorated” in the past six weeks, Evans told reporters after a speech to the Michigan Bankers Associationin Dearborn.

Evans’ comments were echoed by Atlanta Fed President Dennis Lockhart, who spoke at an energy conference in New Orleans and termed the near-term outlook “not encouraging.”

“Employment is expected to weaken further,” Lockhart said. House prices likely will continue to fall, with a further erosion of household wealth, while consumer spending will likely decline at least for the next few months.

If this financial crisis has grabbed your interest, or if you’d like a bit deeper analysis than daily Dow Jones reports and jobless announcements, the New Yorker published “Anatomy of  a Meltdown,”  by John Cassidy in the December 1, 2008 issue. That article can be found here.

It’s a bit long, but it does explain the steps the Fed has been taking for a whole lot longer than the general public understands to try and put “a finger in the dike” as the original strategy was phrased. Obviously that strategy was a non-starter and now we are staring down flat-out corporate socialism in the United States.

I highly recommend spending the time with Cassidy’s breakdown of the current financial crisis. He presents a very thorough timeline of actions taken, failures seen only in hindsight and a national economy still careening out of control.

From the New Yorker link:

The most serious charge against Bernanke and Paulson is that their response to the crisis has been ad hoc and contradictory: they rescued Bear Stearns but allowed Lehman Brothers to fail; for months, they dismissed the danger from the subprime crisis and then suddenly announced that it was grave enough to justify a huge bailout; they said they needed seven hundred billion dollars to buy up distressed mortgage securities and then, in October, used the money to purchase stock in banks instead. Summing up the widespread frustration with Bernanke, Dean Baker, the co-director of the Center for Economic and Policy Research, a liberal think tank in Washington, told me, “He was behind the curve at every stage of the story. He didn’t see the housing bubble until after it burst. Until as late as this summer, he downplayed all the risks involved. In terms of policy, he has not presented a clear view. On a number of occasions, he has pointed in one direction and then turned around and acted differently. I would be surprised if Obama wanted to reappoint him when his term ends”—in January, 2010.

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