Members of the TARP Oversight panel went up close and personal to see foreclosed properties in Las Vegas, Nevada, and were told “a financial giant back East isn’t being cooperative as the Housing and Urban Development Department tries to get loans for homeowners and restructure existing loans to prevent more foreclosures.” [LV Sun] If the $45 billion figure was an accurate estimate of the funding given to the “financial giant” then it would match the amount given to Citigroup on October 14, 2008. [PP.org]
Meanwhile back in the District of Columbia, Steve Preston, Secretary of Housing and Urban Development was making a circuitous argument that blame for the slow assistance to mortgage holders rests with Congress – presumably for enacting limitations on the homeowner relief programs insisted upon by the Bush Administration and Republican members of Congress. [WaPo]
While “the financial giant” may be resisting requests to restructure its mortgages, it certainly isn’t resisting efforts to rearrange its deck chairs (on the Titanic?) Citigroup is reported to be in the process of merging its investment and commercial banking operations in an attempt to “integrate its businesses and successfully emerge from a financial crisis.” Federal officials gave $326 billion to rescue Citigroup in November, a deal that gave the U.S. a 7.8% stake in the firm. [MrktWtch] That 7.8% stake appears to be enough to give Federal banking regulators more incentive to exercise greater oversight into Citigroup’s operations. The Federal Reserve and the Comptroller of the Currency expect to have a virtual veto power over strategic decisions at the firm. [TheStreet] The FDIC has joined the show, advising the company about mergers that would improve liquidity by adding more deposits, and in other instances putting the brakes on deals that seemed “overly ambitious.” [SmartMoney]
As Citigroup wiggles and squirms its way out of its dismal position more information continues to leak out about the rationale behind the $25 billion bailout that included other, far more solvent banking operations. The accepted wisdom of the moment is that the other recipients of government largess were cover so that Citigroup’s problems wouldn’t be revealed for all the world. There may be some history behind this move. When the Reconstruction Finance Corporation was established by the Hoover Administration in 1932 in part to stem the runs on banks, it was initially bogged down in red tape, and failed to distribute much of its funding – but perhaps more to the point, as the agency initially succeeded in reducing the alarming number of bank failures, it began publicizing the names of the banks receiving aid in August 1932. [Wik]
Two objections were raised about the funding for the banks in 1932. First, that some of the loans appeared to be politically motivated, and secondly when the names of the banks were published everyone in the world knew exactly which banks were already in trouble and individuals and institutions began moving their money out of them – exacerbating the problem the RFC was supposed to address in the first place. This may explain, at least in part, the reluctance of the Federal Reserve to speak about the targets of its assistance.
Fast forward to 2008 and we find that the “Federal Reserve has loaned out $507 to banks, $50 billion to investment firms, $70 billion for money market mutual funds, and $266 billion to companies that use a form of short term debt called commercial paper.” “Following a long-standing practice designed to protect investor and depositor confidence in the institutions it deals with, the Fed refuses to name the banks and other companies accessing the cash.” [WaPo] A reasonable person could easily conclude that the “long standing practice” dates back to August 1932.
And now a word from the Real Economy
It’s to be hoped that all the efforts to keep the banks functioning don’t overshadow the problems in the real economy that keep pressing the financial markets. Granted that we have a financial crisis in the country, but that may only be half the story. The other part that sneaks into the virtually obsessive coverage of Wall Street by corporate business writers is contained in headlines like, “Construction braces for painful 2009,” [WaPo] and “Welfare rolls see first climb in years: Job losses bring applicants from Middle Class” [WaPo] “New poll shows 63% are already hurt by downturn” [WaPo] “General Mills profit falls but tops estimates” [NYT] “Honda cuts profit forecast by 64%” [NYT] “ConAgra profit plunges 31%” [NYT] “Retail prices fall at record rate” [NYT]
In all fairness, there have been some voices calling for caution, and risking the Cassandra label for their projections. One of CNN’s senior writers noted in April 2008, well before the official announcement of a recession: “As income gap widens, recession fears grow – Income fell for poor and stagnated for middle class families since late 1990s, making it tougher for them to weather economic downturn.” Santa Clara University published Professor William A. Sundstrom’s discussion on the growing income gap and its implications for public policy. And, as early as 2001 Common Dreams was asserting that “Bush tax cuts widen U.S. income gap.” GOP campaigners in 2008 labeled such admonitions as “whining,” or “income redistributionist,” or even “Socialist.” Conservatives advocated more education and job training for the unemployed, which as Sunstrom points out may get workers a job but usually doesn’t mean they get increased income.
Worse still, few have been paying much attention to the loss of the U.S. manufacturing base – outside Michigan, Ohio, and New York. The media is pleased to refer to the upper middle west as “The Rust Belt,” and move on to other topics. Most of the recent attention paid to any sector in the manufacturing realm has been devoted to the Big Three Automakers, but the estimated global consumer electronics product revenue in 2008 is $223 billion – of which only 4% comprises the North American share. North American manufacturing will likely get only a 12% share of the estimated global computer hardware revenue. [AEAlert] A 2006 publication from the EPI demonstrated the correlation between trade deficits and the loss of manufacturing jobs: “Trade Deficits and manufacturing job loss – correlation and causality” [EPI] but the business press barely nodded at the problems.
Paul Craig Roberts called the trend “Nuking the Economy” in Counterpunch back in February 2006. Roberts wrote: “The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is “the envy of the world.” Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.”
Roberts’ assessment in 2006 is eerily similar to the November 2008 jobs report issued by the Bureau of Labor Statistics: “In November, employment continued to decline in manufacturing (-85,000), with widespread job losses occurring among the component industries. Manufacturing employment has declined by 604,000 since December. Within durable goods manufacturing, job losses occurred in November in fabricated metal products (-15,000), machinery (-11,000), wood products (-9,000), furniture and related products (-7,000), primary metals (-7,000), and computer and electronic products (-7,000). Employment in transportation equipment edged up, as a return of 27,000 aerospace workers from strike more than offset a job loss in motor vehicle and parts (-13,000). In the nondurable goods component, job losses occurred in plastics and rubber products (-12,000), printing and related support activities (-5,000), and textile mills (-5,000).”
Calls for action to stem the loss of manufacturing employment were rejected as “protectionist” by conservatives on the recent campaign trail. During his November 21, 2008 trip to the APEC meeting in Lima, Peru, President Bush was pleading during his radio address that the U.S. avoid “protectionism” that deepened the Great Depression; without, of course, noting that no one is asking for a return to the days of the Smoot-Hawley Tariff legislation. [BostonGlb] However, that doesn’t preclude the conservatives from labeling all voices for “fair trade” as “protectionist.” Nor does it impinge on the conservative predilection for free-marketeering – in which any regulation is “onerous, burdensome, and unwarranted.”
The next jobs report from the Bureau of Labor Statistics is due out on January 9, 2009. We can hope there will be better news than the November figures, but we might as well brace ourselves for another round of disappointment, and hope for a strenuous and inclusive economic stimulation package from the next Administration.