economy – Page 13 – Hank Kalet

Forget the tea parties, where’re the pitchforks

If anyone is to blame for the public being fed up with government bailout programs, it’s the guys in the banking industry who took the economy into the toilet but made more than a few pretty pennies in return.

Thousands of top traders and bankers on Wall Street were awarded huge bonuses and pay packages last year, even as their employers were battered by the financial crisis.

Nine of the financial firms that were among the largest recipients of federal bailout money paid about 5,000 of their traders and bankers bonuses of more than $1 million apiece for 2008, according to a report released Thursday by Andrew M. Cuomo, the New York attorney general.

We will continue to need significant public spending to get us out of this mess, but it’s time we stop coddling the Wall Street sharks — like the people surrounding the president — and start helping everyone else.

Green shoots or long shots?

The Wall Street guys in the Obama administration have what can only be described as a tin ear. Consider Treasury Secretary Tim Geithner’s comments today in Paris:

Treasury Secretary Timothy F. Geithner said Thursday that financial markets were sending “important signs of recovery,” as he also sought to play down concerns about a new wave of bonuses on Wall Street.

The comments were in part a reaction to the quick resurgence in earnings at two of the largest United States investment banks this week. JPMorgan Chase announced a $2.7 billion second-quarter profit from stellar trading and investment banking results on Thursday, while Goldman Sachs announced a $3.4 billion quarterly profit on Monday.

Goldman has earmarked $11.4 billion so far this year to compensate its workers, raising the prospect that high bonus incentives might prompt another period of excessive risk-taking.

“We are seeing some very important signs of recovery and repair in U.S. markets, which is essential for recovery,” Mr. Geithner told an online forum moderated by the French financial publication Les Echos. “The best signs of this are in the amount of new capital that has come into the U.S. financial system, the improvement in risk premia and credit spreads, and the beginnings of improvement in consumer and business confidence.”

So the banks are making money. That’s great. But what about the rest of us?

Well, jobless claims are down, though the job market remains a shambles. The Economic Policy Institute crunched some of the numbers last week and found that there were 14.5 million jobless workers in May for about 2.5 million available jobs or “5.7 job seekers per available job.” The June numbers, EPI says, which will come out later this month, are likely to push the ratio to more than 6 to 1.

Plus, the EPI says,

Unemployed workers are currently facing record high rates of long-term unemployment: in June 29% of the unemployed had been unemployed for more than six months. With nearly six times as many job seekers as available jobs, this number comes as no surprise.

This is why Robert Reich, the former Clinton labor secretary who should have been Obama’s treasury secretary, thinks the focus on when the recovery will begin is off base.

In a recession this deep, recovery doesn’t depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

Problem is, consumers won’t start spending until they have money in their pockets and feel reasonably secure. But they don’t have the money, and it’s hard to see where it will come from. They can’t borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water — owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can’t are hunkering down, as they must.

Eventually, he says, consumers will start consuming — replacing “cars and appliances and other stuff that wears out, but a recovery can’t be built on replacements.”

Don’t expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don’t rely on exports. The global economy is contracting.

We are a long way off from a real recovery — primarily because recovery is the wrong word to describe what is going to need to happen.

This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.

What we are looking at is likely to be wrenching and painful. But the status quo — or “the centre,” as Yeats wrote — cannot hold.

More stimulus is needed

David Leonhardt’s column in today’s business section of The New York Times should be required reading for all of those pundits who have started talking and writing about the “green shoots” or recovery that they see evident in the economic figures.

The reality is that, while some indicators have shown small glimpses of progress, the economy remains in a downward spiral — characterized by longterm unemployment and under-employment.

Leonhardt writes of the “downturn … moving into a new stage.”

It has already been through three: the prologue, when credit markets began to quiver in 2007; the big shock, when the collapse of Lehman Brothers, in September 2008, led into almost six months of terrible economic news; and the stabilization, when the news became more mixed. Now comes Stage 4: the slog.

He defines the slog as a time when the recession can be said to officially have ended, based on increased economic output, even if the larger economy remains “weighed down by troubled credit markets and huge household debts,” meaning it could “be awhile before growth is fast enough to persuade companies to hire large numbers of workers.”

This would make for an odd contrast, in which the economy was getting better but feeling worse. These broad measures of unemployment and underemployment could approach a hard-to-fathom 25 percent in California, up from 12 percent a year ago. In several other states, including Florida, North Carolina and Washington, the rate could yet reach 20 percent — and, unfortunately, the stimulus bill does not do a good enough job of targeting the hardest-hit states.

After a decade in which household income barely outpaced inflation, a slow recovery could leave many people hard-pressed and frustrated. In just the last week, the Labor Department reported that the number of people filing new claims for jobless benefits dropped — but so did consumer confidence and Mr. Obama’s approval rating. Welcome to the slog.

Economists already are talking about a jobless recovery — which raises the question of how it can be called a recovery if large numbers of people remain unemployed. Part of the reason is that the stimulus should have been larger and more focused on creating jobs — i.e., modeled on many of the New Deal programs that put Americans to work. Basically, the government should be paying people to do jobs that need to be done.

Remember, the New Deal put people to work building roads, dams and parks and electifying regions of the south and west (the Princeton Arts Council building originally was built with New Deal money).

Instead, the Congress pared back the stimulus, reducing needed aid to cash-strapped states, and shifted much of it into tax cuts that are unlikely to do much to jump-start the economy.

At the same time, the federal government has been doling out money to private firms with few strings attached — GM is closing plants rather than retooling for green industry — further accelerating the decline of the manufacturing sector.

A second stimulus plan will be needed, one that targets the hardest hit areas (as Leonardt points out) and not on tax cuts. My fear, however, is that the minimal impact the current stimulus is having combined with the unwise and untransparent bailouts of the banking and investment industry will make voters suspicious of doing anything at all.

Quote of the day: Bankers with bad attitudes

Visit msnbc.com for Breaking News, World News, and News about the Economy

Elizabeth Warren, chairwoman of the Congressional Oversight Panel for Troubled-Asset Relief Program Funds, offered this comment on last night’s Rachel Maddow Show what Congress should be telling the banks and credit card companies and why oversight of the industry — in the form of a consumer protection panel — is necessary:

I‘m just saying, look, if you can‘t explain it so the person on the other side can understand it, then you shouldn‘t sell it to them.

Seems a pretty straightforward rule.

Offering a little help, though a lot is needed

The state Legislature has approved a bill that would create a “Community Food Pantry Fund” that would distribute money to community food pantries through the state’s food purchase program. The money would be generated by a voluntary check off on state tax returns and the money would be used to be food.

It’s a decent — if only partial — solution, maintaining the current charity structure but simplifying both donation and distribution.

The legislators who sponsored the bill — Democrats Gordon Johnson, Wayne DeAngelo, Elease Evans, Albert Coutinho and Herb Conaway — said in a press release that the legislation would address hunger issues by taking advantage of New Jerseyans’ generosity.

“The global economic meltdown means hunger isn’t being limited to the poor,” said Johnson (D-Bergen). “New Jersey is a generous state, and we can and should make it easier to spread that generosity and do whatever we can to ensure no one in this state goes to bed hungry.”

“The global economic crisis is hitting our state hard and may get worse,” DeAngelo (D-Mercer) said. “People who never thought they would ever visit a food pantry are now relying on them to put food on the table for their families. These are tough times, and anything we can do to make it easier for people to help those less fortunate is a good thing.”

I’m glad to see the legislation pass — and I expect the governor to sign it shortly — but as I said, this is just a half measure. State and federal governments — which are the people’s representatives, an extension of the citizenry — have a responsibility to take care of those who get battered by our poorly structured economy, which is set up to favor people with money and tosses aside those deemed expendable.

As I wrote last week,

The cyclical nature of our economy in which the booms are inevitably followed by busts leaves each of us vulnerable. It has become a cliché that most of us are one misfortune — a lost job, a health-care crisis, a divorce — away from a visit to the soup kitchen.

This leaves private charitable organizations vulnerable, as well. When the money dries up donors tend not to contribute, leaving the mostly private agencies that act as our de facto safety net with less money and food to distribute at a time when more money and food is being requested.

It is the reason why government programs like Social Security and welfare, unemployment and disability insurance, food stamps and school lunch programs, Medicare and Medicaid and the other New Deal and Great Society programs we have come to rely on were created.

We dismantled much of it over the last 30 years, stigmatizing the poor and others in need and leaving it to the private, underfunded and understaffed agencies to take care of what is a very public problem.

The thing to do, if we hadn’t gutted our ability to generate revenue, if we had not made taxes a bad word and turned government into a pejorative, would be to rebuild what we’ve deconstructed, to fix what we’ve broken. Government has its uses and one of its most important is to protect its citizens, and not just from crime of a terrorist attack, but from corporate greed and the vicissitudes of the irrational marketplace.