Give me my money! I Want My Money! Oh, wait, I have none.

Anon, you beat me to it. I was just going to ask Kevin to be sure to let us know when we should get our money out of the banks and hide it under our mattresses.

Offtopic: It's "common wisdom" here in Drumland that vaccines have nothing to do with autism....

I'm not sure about that myself, because I suffered from Guillain Barre Syndrome, a neurological disorder that has definitely been linked to vaccinations, and as a result, I've had neurologists (including the one that saved my life) and primary care physicians all tell me not to get any vaccine that wasn't absolutely needed.) But according to MSNBC:

Family in vaccine-autism case speaks

The government has agreed to pay the Polings from a federal fund that compensates people injured by vaccines. The amount of the settlement hasn’t been set yet. U.S. officials reject the idea that vaccines cause autism, but they say that in this case the shots worsened an underlying disorder that led to autism-like symptoms.
...
Hannah [Poling] has a disorder involving her mitochondria, the energy factories of cells. The disorder — which can be present at birth from an inherited gene or acquired later in life — impairs cells’ ability to use nutrients. It often causes problems in brain functioning and can lead to delays in walking and talking.

Experts argued over how common the disorder is, and by implication, how many other vaccine cases might be affected.

“Most children with autism do not seem to have a mitochondrial problem, so this association ... is probably relatively rare,” said Dr. Edwin Trevathan, a pediatric neurologist who heads the CDC’s birth defects center.

The United Mitochondrial Disease Foundation, a Pittsburgh-based group that raises money for research, says there are more than 100 types of mitochondrial disease, and genetic tests can find only a couple dozen.

The Polings were exploring two theories about what happened to Hannah. One is that she was born with the mitochondria disorder and the vaccines caused a stress to the body that worsened the condition. The other was that the ingredient thimerosal caused the mitochondrial dysfunction, Jon Poling [Hannah's neurologist] said.

And the walls come tumbling down !

Yeee Ha, more of this.

I love watching the high rollin phonies get caught in a squeeze.

"There are three kinds of men:
1. The ones that learn by reading.
2. The few who learn by observation.
3. The rest of them have to pee on the electric fence for themselves." - Will Rogers

One of the things that I don't think is made clearly enough about the mortgage crisis is that a key best practice was lost. When we bought our apt, it was literally impossible to get a mortgage without a 20 percent downpayment. This was designed not *just* to make sure that you were financially capable of paying for the mortgage. It was also to make it much less likely that the loan would go under water.

If we'd bought the place for 100K, and it fell to 90, well, we're not going anywhere. We'll ride it out as long as we can, but if we have to, to say, accept a new job, we grit our teeth and eat the 10K lost. I sit on the coop board. I've seen purchase packages where the buyer was putting 5 percent down, and that borrowed from a parent, with mortgage of 80% of the price and a HELOC for the remain 15%.

Our attitude, generally, is that if a bank is willing to write a loan, then who are we to question the buyer's financial decision-making? (We're not really at risk, either, other than inconvenience. If someone doesn't pay the maintenance for two consecutive months the shares revert. *Someone* will pay the maintenance, believe me.)

It's not the teaser rates. It's not the resets. It's not people stretching themselves too thin. It was lending institutions making loans that were imprudently highly leveraged in order to generate fees in current quarters. Bank shareholders should pay, dearly, for this.

Yep, things look pretty grim . . . and we're only in the first inning. Check out the muni bond markets: auctions failing, and even states like California are having problems raising money for projects, despite selling bonds at budget-busting interest rates. Shades of 1929 was an apt comparison by Kevin. This is not going to end well.

Heheh,money for nothing! Very great! http://www.spymac.com/details/?2349694

Good point, jayackroyd. It's not just a credit crisis; it's a solvency crisis. I hope the banks get what they deserve. But it looks like the Fed and Congress are determined to bail them out, no matter what the cost.

Hey Kevin, is that a screenshot? What the hell are you using, Windows 95? That is ugly! Get a Mac, dude, your eyes will thank you

Thanks DevilDog for that phrase. It is indeed. But when, say, Delong uses it, it is in reference to the derivatives that are attached to the loans.

The bigger problem is that the real estate itself is in a solvency crisis because of the degree of leverage that was permitted by the banks on what were intended to be secured loans.

The loans really aren't secured if they are made with a substantial risk of the collateral falling below the loan value. As I said before, the rule of thumb of 20 percent was intended to keep that from happening.

Jackroyd,

You nailed it. It's not the borrowers to blame, because the money belongs to the banks and they were willing to risk it to keep the economy going. The banks, however, were supporting a rotten system. That's what Joe Stiglitz' book The Three Trillion Dollar War: The True Cost of the Iraq Conflict is all about.

In order to get Bush reelected in 2004 Alan Greenspan pushed interest rates below what the economy could deal with. It kept the economy out of the recession that would have defeated Bush in 2004, but it meant that investors could not get sufficient return on their money without loosening all reasonable standards on loans. Greenspan encouraged that in his speeches and by not regulating the lenders in any reasonable way.

Consumption kept the economy going, but at the cost of the Housing bubble. The fact that the Fed started raising interest rates in February 2005, right after Bush was reelected, was a dead giveaway.

The borrowing caused by the war and the tax cuts has caused the drop in the dollar value, which is kicking inflation up (along with oil - remember early in the Bush administration when gasoline was about a dollar a gallon? We'll never see that again, thanks to the conservatives.) Investors sent their money outside America where the returns were higher. what else would you do with the tax cut money? Invest inside America at a comparative loss? Of course not. You create new jobs in China.And the unregulated banks

Senator Phil Gramm got the Glass-Steagall restrictions on bank speculation removed in 1998 or 1999 even while he was blocking efforts to track international money used by terrorists and funneled through the Caymans and other off shore banks. In the meantime, Gramm's wife Wendy was at the SEC setting up the conditions that led to the Enron disaster - you remember that one, the one Bush did absolutely nothing about for over two years and even prevented investigation into the criminal aspects of it. Phil Gramm, Dick Armey, and Alan Greenspan are all free market Libertarians who think that the economy is working just like it is suppose to right now - Boom and Bust, Boom and Bust. We are watching the Reagan Revolution work its way out in its inevitable manner, even as the Podhoretz-Cheney-Rumsfeld conservatives create their perpetual war.

Of course, John McCain wants more of the same.

It's sort of hard for the middle class to buy and sell real estate when the total system is designed to steal from them so that the conservative elites can have their unnecessary wars and create pockets of uncontrolled wealth throughout the otherwise devastated economy.

Anyone who thinks that the unregulated free markets set objective prices should ask how home prices got so far ahead of worker incomes. The only answer is that the market was not working. It was being manipulated to build the illusion of wealth, so that homeowners could refinance and use the money to keep the consumer economy going. It took unrealistically low interest rates to make that happen, and those unrealistically low interest rates forced investors to take on greater risk when they lent out money. The government encouraged that lending, because it was supporting government policy and the war in Iraq.

The current set of disasters should discredit the conservatives even more than the Depression did. This is the Reagan Revolution working out its inevitable results.

Maybe we should ban any bowel movements near a fan.

Guillaume-Barre is linked to vaccines, but not to thimerosal in vaccines, which was what Kevin was talking about, wrt McCain and the Imuses.

i wonder when Hillary starts to use mortgage crisis to bash Obama's claims to having better 'judgement' - in sense he likes to claim how prescient he was re the war [a ridiculous claim], but what about sub prime lending? Didn't see him giving any rousing speeches about that.

It's TEOTWAWKI.

Posted by: Jeff Mc Alinazo on March 7, 2008 at 4:48 AM | PERMALINK

What a crappy link - do your blogwhoring somewhere else - your video sucks.

Posted by: blahblah on March 7, 2008 at 5:04 AM | PERMALINK

Gotta love it when the 2% chime in, like they know more than everyone else in world, and say "BUY A MAC"

Keep playing with your silly little toy and when you are sick of paying steve jobs up the bung-hole for an underpowered machines full of glitchy gimmicks and need a machine that people actually write software for and that you can upgrade without having to write another HUGE check to steve jobs for another crappy (glitchy, gimmicky, underpowered) machine - then you will get a PC like everyone else in the world.

But in the meantime - enjoy your little ride on your little yellow rubber duck, pretending you have knowledge and wisdom that no one else in the world understands or appreciates.

LOL!

Gotta love it when the 2% chime in

1) Need to change your talking point to ~8% based on recent sales, net presence, etc.

2) something wrong with the screen capture.

3) the poster wasn't making a serious suggestion

I have a feeling that before long style guides are going to simply ban the words "safest" and "mortgage-backed" from appearing together in the same sentence. Just to avoid embarrassment down the road, you understand.

Hmmm. Similar to how "Savings and Loan" got replaced with "Savings Bank" in the early '90s?

Um, guys, can I have a parachute when they get passed out?

Yes, it's getting to be 1929 all over again.

Unfortunately, if you go into a movie theater to seek relief from the stress, this time around you'll have to settle for Judd Apatow instead of Ernst Lubitsch.

The reference to the savings and loan problems is apt. Although that was only 25 years ago, our guru at the Fed. -- Mr. Greenspan -- decided that it was not necessary to regulate banks. That works for a while, but over time, greed takes over and copy cats multiply and it results in what we have today -- a very damaged banking system. Don't let the media fool you. This is not about subprime real estate mortgages (although they are a piece of the problem). Rather, this is about a full menu of complex financial instruments dreamed up by wall street and facilitated by the banking system that allowed big players to gamble legally with huge sums of money. It was fine while they were winning, but it is ugly on the way down.

I follow this stuff all day long....nothing anymore pisses me off *not even the outrageous crap of the Bush Administration* more than the possibility that banks will get bailed out with taxpayer money for their greed and incompetence. If congress bails these bags of excrement out then we have to vote every last one them out in November. Paper stretchers brought this on themselves and they need to lie in the bed they made like the rest of us have to when we screw up.

...this is about a full menu of complex financial instruments dreamed up by wall street and facilitated by the banking system that allowed big players to gamble legally with huge sums of money.

Gambling is the best analogy here. Who would have thought that tax cuts and relaxing regulatory practices would do little more than increase the size of the pot at the Big Poker Game™? With a larger pot and a timid house (regulation)and a drunk sheriff, people are going to start cheating sooner or later and people are going to get shot at the table. Meanwhile, all of the townspeople's money is pissed away on a rich man's game.

Kevin, in this case the issue is not economics: it is journalism. You have done a good job in pointing out various journalistic misdeeds here, but not this time. For the MSM is setting up the very model you are pointing out would be in a "Web page" for 1929. They all know about 1929, so their presentation is the deliberate scare tactic of the MSM. By saying, " If the Journal had had a web page 80 years ago, I have a feeling that this is what it would have looked like in October 1929", you are helping spread the model they are presenting.

You should be criticizing it. There are financial problems, to be sure, but the technology is so different now as to make the 1929 comparison inappropriate. 1987 proved that. Plus financial leaders have had 1929 at the back of their minds for almost 80 years now.

The Republican federal regulators and policymakers went off the tracks, so greedy individuals and institutions were unleashed, and now there is a problem in confidence. Blogs like yours should be criticizing the source of the mistakes (Bush Admin) and pointing out where confidence can come from (Democrats).

That is basically Warren Buffet's line. Go with a winner.

I hope the banks get what they deserve.

You better hope not. Because if the banks get what they deserve, then you and the rest of the public will get what you don't deserve, and then some.

anon wrote:
"Offtopic: It's "common wisdom" here in Drumland that vaccines have nothing to do with autism...."

It's common wisdom for anyone who looks at evidence.

"I'm not sure about that myself, because I suffered from Guillain Barre Syndrome, a neurological disorder that has definitely been linked to vaccinations,..."

That's downright deceptive. GBS is an autoimmune disorder that's triggered by immunological challenges in general, including the actual viral infections that are prevented by vaccines. To only mention vaccines is either profoundly ignorant or dishonest.

"... and as a result, I've had neurologists (including the one that saved my life) and primary care physicians all tell me not to get any vaccine that wasn't absolutely needed.)"

That makes sense.

"But according to MSNBC:..."

Why wouldn't you cite, uh, you know, actual evidence? Do you realize that correlation is weak evidence for causation, but that lack of correlation is very strong evidence against causation?

What many people are not picking up on is that it is mainly a US problem now. The ECB has declined to lower rates and discontinued the injection of additional money into the system. Meanwhile, the TAF auction in the US will increase from $60B to $100B this month. It's getting worse in the US, not better.

The US financial sector is moving into a plague ward with respect to the rest of the world. Our companies and financial institutions are suspect, because few, if any, have convincingly described where the bottom line of the problem is. There has been confusion and denial on an unprecedented level, making any investment in US financial instruments less likely. This is very dangerous for a country that has come to rely more and more on the "world savings glut" to pay for it's way of life.

The denial and obfuscation of the problem is now working to our disadvantage. The longer half-measures and denials continue, the closer comes a real dollar collapse via the shunning of all US financials.

After all, how good is a selling stategy that says, "You gotta buy, otherwise I'll go broke."

Well, at least our leaders had the foresight to spend $2 trillion on putting Social Security on a sound footing, and funding a national guaranteed health-care program, instead of using the money to send 140,000 American servicemen and women to a mostly useless quagmire, a money-pit war where a few thousand of them would die just so their survivors could get conservative brownie points for fighting Muslims.

*snark*

Bottom line: It was a racket.

The wiseguys skimmed the top while the balloon was inflated and the vigorish is tucked away overseas in Swiss bank accounts.

Um, guys, can I have a parachute when they get passed out?

No, but I'm sure I could russell up a lead weight somewhere.

*.

If the Journal had had a web page in 1929, we'd still be waiting for the graphics. Unless you had a Mac. I think they used better triodes or something. My father had a Mac radio that could receive Benny Goodman in stereo.

Keep clapping, kids, and Tinkerbell won't die.

I know I shouldn't feed the trolls, but mhr? Guess what? The New Deal saved your little fucking Capitalist world from the nasty angry proles.

It looks like the Republicans have f***ed up this area of policy about as badly as they can-- time to move on to some other area of public policy, and screw that up totally.

To all the Republicans hanging out on this website, I'd just like to suggest: why don't you go enlist in the armed forces, and try to live out your fantasy of fighting Muslims in Iraq? That way you can give a chance to a Republican soldier to come home- I'm sure there are plenty of soldiers fighting the Muslims who like to be at home instead of in Iraq, and wasting their time looking at websites about how bad their leaders screwed our country up (even though they'll never consider not voting for them, anyway) when they should be doing something like taking their kids out to the park.

I'm sure there are plenty of soldiers fighting the Muslims who like to be at home instead of in Iraq, and wasting their time looking at websites about how bad their leaders screwed our country up (even though they'll never consider not voting for them, anyway) when they should be doing something like taking their kids out to the park.

That is, they'd like to be wasting their time spazzing in from of a computer at home like you Turdicans are doing.

Few people alive remember the Depression. The financial "crises" that are in most people's recollections -- the dot-com boom-bust, the S&L "debacle," the recession of the early 90's, the "stagflation" of the mid-70's -- simply do not compare to what we are on the brink of. What's coming is a economic crisis of Depression proportions, but of course with all new problems (and ultimately solutions). I like the description that James Howard Kunstler advances: The Long Emergency. (Not that I agree with Kunstler, but I like his phrase to describe what the next 10-15 years is going to seem like.)

All snarking aside, there's something that as a non-economist I don't understand. Just the other day, Kevin posted about corporations being flush with cash.

http://www.washingtonmonthly.com/archives/individual/2008_03/013249.php

And here we read about lenders needing a cash infusion. Why can't something be worked out to everyone's mutual benefit?

All a giant, mortgage bubble short squeeze scam? I don't know it, but I'd bet that's how it works. Muzzle the regulators and the press, then go for it.

For example: Enron squeezing the entire state of California with sky high electricity rates, and effectively driving a governor out of office, with Enron traders caught on tape laughing about the pain they were inflicting.

Or, how 'bout this 1980s episode involving the Hunt family -- Texas friends of Bush. Hunt was trying to corner silver and squeeze silver shorts, but got snookered himself when, if I recall, a hoard of unexpected silver appeared out of Mexico to drive silver down. Trappers trapping trappers.

Here's how the NYTimes described the Hunt situation. Take special note of Hunt's suspicion that it was all a setup designed to steal his wealth. Note, also, that the Hunts retreated to the courts for protection.

http://query.nytimes.com/gst/fullpage.html?res=9B0DE7D6143AF934A1575AC0A961948260&sec=&spon=&pagewanted=all

" . . .But more recently, it's the Hunts' losses that have been larger than life. After almost cornering the silver market in the late-1970's, the brothers took a thumping in the early 80's when prices for the metal plummeted. Then oil prices nose-dived, and matters went from bad to awful. The Hunts, whose assets have a liquidation value of $1.48 billion, now owe their collective creditors $2.43 billion.

This means that the three Hunt brothers and their 13 sons and daughters (family chart, page 28), who are among the ultimate beneficiaries of the fortune that H. L. Hunt placed in trust for Bunker, Herbert and Lamar are facing the loss of virtually all of their wealth.

That, as Lamar Hunt elliptically put it, ''would be a very dramatic end result.''

So far, the brothers have managed to hang on by clever use of the courts to protect their prized assets, placing the family's Placid Oil Company and a huge trust fund in bankruptcy. They have also filed a $1.5 billion lending-fraud lawsuit - the biggest of its kind - against 22 United States and foreign banks. The Hunts accuse the banks of having had a secret agenda to bankrupt them by lending them money they couldn't possible repay, and then take over their business at fire-sale prices.

The banks deny the charge. ''Why would a bank knowingly loan money to somebody who couldn't pay it back?'' asks R. Paul Wickes, a Dallas attorney for the First RepublicBank, a major Hunt lender. But the suit has kept the banks from getting payment of the Hunts' debt."

Get a load of the the banker's "Who, us?" response. The answer to the banker is, first -- that scene in "Goodfellas" where they bust out that poor guy's restaurant. That is to say, it's not the banker's money on the line, just his reputation, which can be fixed with a little help from friendly press. Warren Buffett has 99% of his wealth tied up in the company he's running. Most executives do not, so the temptation to bust out your own company is there, big time.

Or how 'bout this one run on farmers, and shareholders of farm implement companies, back in the 70s and 80s. (Note the "Encouraged by the Federal Government" line.) (Note the "BUT THEN, EXPORT MARKETS DWINDLED . ." and ask yourself how that happens. How does a big push like this get set in motion without the export markets in place to keep it all rolling?)

http://query.nytimes.com/gst/fullpage.html?res=940DE5DB1030F937A35756C0A96E948260&sec=&spon=&pagewanted=all

"This gun-shy attitude is a sharp contrast to the boom mentality that prevailed in the late 1970's, a golden era for farming. Crop prices were high, exports were strong and land prices were soaring. Encouraged by the Federal Government, farmers leveraged existing holdings to bring 45 million more acres into production and bought the equipment needed to plant, cultivate and harvest the added crops.

But then export markets dwindled, surpluses mounted, crop prices fell and rising interest rates turned debt into a crushing burden. Land that sold for $4,000 an acre in the late 1970's went for less than half that by the mid-1980's.

Not only were cash-short farmers reluctant to buy new equipment, but bankruptcies dumped vast quantities of good used equipment on the market. Sales of new larger tractors fell to about 16,000 in 1986 from a peak of 74,000 in 1979. Annual sales in the 1970's had averaged nearly 50,000. Capacity Cut by 50%"

Thersites wrote:

And here we read about lenders needing a cash infusion. Why can't something be worked out to everyone's mutual benefit?

Obviously the amount of money the lenders need is beyond the scale of what any single corporation can pull off as a loan with their own funds. Even if that (incredible task- think of Hercules cleaning out the Augean stables) is accomplished, they still have to get by other economic problems. So the corporations probably can't be persuaded to see the risk to themselves as "worth it" when there is so much else that could still go wrong.

Things like this- human nature- are why you need things like governments to enforce taxes and partially regulate the economy so everyone's mutual interest is dealt with. Bush and his cronies have been making government less and less able to do this. Despite what you hear, all the stuff about how letting the rich and the corporations keep all their money and have no oversight over them is just coming from the rich, and it's totally selfish- all the lines about how it's going to redound to society's benefit are totally made-up conning.

You can't spend more than you can afford. Maybe fiscal conservatism will have a new vogue after decades of borrow and spend, free trade, waste, parasitic migration, and consumption (growth) economics.

Oops, I meant to write, "Despite what you hear, all the stuff about how letting the rich and the corporations keep all their money and have no oversight over them is going to be so great for our economy..."

Commenter: What's coming is a economic crisis of Depression proportions...

Anyone not think the MSM is working its magic even here?

Boo! Did that make you jump?

> Why can't something be worked out to everyone's mutual benefit?

Because the people sitting on the cash are not going to hand it to the people who need cash unless they are assured that they will get a decent return on it. Which means that they also need to understand the degree of risk in the investment.

All those special investment vehicles have done a GREAT job obscuring the degree of risk (except that it's known to be much higher than was assumed).

Nobody with cash wants to move till the value and risks are (better) known.

Listen, guys...

*assumes patronizing, melodramatic tone of voice*

If we did not attack Iraq... I am sure... We would have had... Another 9/1...

*end patronizing, melodramatic tone of voice*

Having another 30 or 40 people get killed in a terrorist attack would have been infintely worse than having our whole economy destroyed by the Republicans. For me the evidence is overwhelming- Iraq was the country that would give dangerous weapons to Osama if we didn't invade. And it's not like if Iraq hadn't distracted the jihadis, they would have obtained weapons from the Koreans, the Iranians, or any one of dozens of other rogue states or armed gangs that hate us or want money.

At least this way we got our Iraq war, and if that's the only thing I ever get in life, besides getting to shoot my mouth off about the Iraq war, I'm happy.

Totally ignore Swan- he obviously (1) Does not care at all about our nation or anybody in it; (2) is dumb (3) is uneducated, and has no idea what he's talking about, and has no experience whatsoever studying or reading about the economy or politics. Especially the more and more football you have watched or the more time you have spent thinking about your car, the more your opinion is worth versus Swan's- and that's truly, whatever you want to think. Even if you think the sky is perpetually purple, that's got to count for more than whatever Swan has to say about it.

C'mon, all my conservative cohorts!! We've got to get all our stupid power together, and then that will magically turn the world into a paradise!!!!! Just sit around, simultaneously being as stupid as possible-- now!!!

Listen, I'll tell you a reason my opinion ought to be worth more than Swan's!!

I'm more superstitious, ignorant and uneducated than he is!! And it pisses me off that liberals I meet aren't in awe of me (for all they know, I might be the real-life Rambo)!! That ought to count for something!!

The smart money is doing three things: (1) hiding in treasuries (its safe), (2)betting on commidities (high risk, high return), and (3) day trading (only computers can move the market up and down 200 points within a trading day). The markets are particularly unfriendly to the average investor now -- its a fools game.

Late to the wake, as always. Just wanted to correct a factual error in Rick B's post upthread, which was spot on otherwise as far as I am concerned. Wendy Gramm never served at the SEC. She headed up the CFTC.

moe99

The financial situation is indeed dire. What I find most disturbing about the WSJ article Kevin quotes, though, is the way it describes margin calls in elementary-school terms. The WSJ is the premiere newspaper for investors. Do its editors really think investors who turn to the WSJ for news are that ignorant? If so, are they right?

Re: betting on commodities - from the household perspective. How much food do you have in your pantry? If the Big One (earthquake, snowstorm etc.) hit, how long could you survive on what you've got stored?

FEMA now suggests a 2 week supply. Sharon Astyk, who teaches classes on food storage, says two weeks for a family of four means 25 pounds of grains (flour, pasta, barley, oats, rice, etc.), 10 pounds dry beans, twelve cans of fish/meat, and more.

Ms. Astyk has been warning us that storing food for a long haul - like four months, not just two weeks - is a good hedge bet against a big economic catastrophe. She's also worried about peak oil and climate change, but you don't have to be to see the logic of having extra food stored.

If your finances suddenly took a nosedive, and inflation went nuts, that two months' supply of beans, pasta, rice and bread flour might save your skin.

Storing food is a form of investing in commodities. The risk is that you won't need it for an emergency, and prices go down rather than up. But you still have the food to eat - if stored properly.

Michael Hill in the Feb 11th WaPo approaches the issue from another angle; Don't Blame the Subprimes makes the point that everyone is missing: back in the 60's homes were available at twice (in some areas the ratio was cloer to 1 to 1). Twenty years ago it was 3 to one; in the last ten years it has jumped to four to one. This doesn't even begin to describe the situation in Silcon Valley where Hill points out the ratio is THIRTEEN to one.
Like many in my age category (59) I can bore with storys of life in the "good old days": making $2.70/ hr in a lumber mill making school money (darned good money in those days!). One can say..'but there were no computers..internet..cell phones'..etc, which miss the point; housing has clearly become unaffordable, especially if one is paying off student loans for twenty years.
Suggestions..solutions? The current Harpers has an artice on our recent bubbles..and concludes that they are the only way we keep our economy afloat.

Thersites,

You read correctly

Just the other day, Kevin posted about corporations being flush with cash.

People - consumers - do not have enough money to buy goods and services at the rate the are used to. Pay (after inflation) has not gone up since about 1970, so consumption has grown because women went into the workforce for paychecks. That increased family consumption until the early 90's when it peaked out (no more wives to put to work), to be augmented by credit card loans that were paid off by refinancing the family home.

The refinancing thing became totally overextended about 2002 or so, but the potential recession would have defeated Bush in 2004, so Greenspan lowered interest rates drastically while refusing to regulate or even investigate mortgage lending practices. Bush was reelected in November 2004 and Greenspan started increasing interest rates in February 2005 which set off the credit collapse.

But that cash the corporations have? It is there to be used when consumption creates demand for more products. It's not consumption money. It's investment money (just like any money the wealthy retained after the tax cuts.)

Total GDP demand is
GDP = Consumption + Investment + net government spending + net exports.

Consumption is 70% of the total. Investment goes where consumption leads. Investment spending contributes relatively little in total macro consumption. Another way to say that is if there is no consumption demand, there is no reason to spend investment money.

So that cash corporations hold will sit there drawing interest (at a rate less than inflation) until consumers get back to spending, and the consumers have no money to spend.

Exports will not change that. Net exports will be negative, or at best neutral, as the dollar drops and we have to spend more for oil and raw materials to keep our economy sputtering along. The increasing price of oil will sop up any increase in jobs created by exports. Remember dollar-a-gallon gasoline early in the Bush regime? I do. I paid $3.26 per gallon yesterday, and that price will not drop. And I am paying about 25% more for food than I was last October. We are in a consumption-driven recession, and there are no more magic bullets to keep it at bay.

So you can ignore that cash the corporations are holding. If they want to get any return on it that is higher than inflation they will have to invest it outside the U.S. The investment opportunities in the U.S, do not exist and won't for at least several more years.

No increase in consumption means no increased investment which means no increase in jobs beyond those created as new workers enter the job market, and we aren't keeping up that that 100,000 workers per month. No increase in jobs means no increase in consumption.

The drop in the value of the dollar means that there will be no international bail-out, either, and the lowered interest rates the Ben Bernanke is causing will cause both a drop in the dollar and increase in inflation here in the U.S. Any corporation with cash on its books will have it invested outside the U.S. (parked, not creating new businesses or contributing to consumption inside the U.S. because there in no increased consumption) to avoid the inflation loss.

Oh, yeah. Theresites also asked

we read about lenders needing a cash infusion. Why can't something be worked out to everyone's mutual benefit?

Why give cash to a bankrupt who will just use it to increase the golden parachutes of the departing failed executives (like CountryWide's CEO or the departing hedge fund CEOs) and never pay back even the principle?

Never - never - never lend cash to someone likely to lose it, and the big lenders have no idea how much money they have already lost. The values they place on their portfolios are purely imaginary, and they don't dare determine the real value because too many are in fact already bankrupt. Their executives and accountants just go to their offices every day, put on blindfolds and hum "La-La-La-La" until quitting time and hope no one will actually give them real data on how bad their investment portfolios really are. Those are the guys who are trying to get the golden parachutes, of course.

Our current recession is a consumption-driven recession. Posted by: Rick B

Given that 70% of our economy is consumer spending, I believe all U.S. recessions are now consumption-driven. And if we reduce our consumption that, of course, begins to affect countries that export consumer goods to the U.S. So there, China! Who's got a big enough market to buy your crap now? Huh? Huh?

1) Need to change your talking point to ~8% based on recent sales, net presence, etc.

You're lying - and using numbers to make it sound better - enjoy the ride on your little yellow rubber duck!

Funny how even with pull-out-of-your-ass numbers, the mac cult can only suggest a mythical 8 percent...

Real groundswell of support there buddy...

"Bottom line: It was a racket.

The wiseguys skimmed the top while the balloon was inflated and the vigorish is tucked away overseas in Swiss bank accounts."

Posted by: Buford on March 7, 2008
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I guess they converted to Euros since they all know the American dollar has to be inflated tremendously to allow everyone to make their payments (for oil, mortgages, payrolls, etc.).

Somehow the criminals in charge always get away with their crimes.

So, knowing all that, what is the natural recourse to 'catch' the bad guys and correct the situation?

What exactly do we have to sell to Europeans and Euro-holders (at terribly inflated prices I suppose) to force them to hand over the loot and rebalance things? What do we tend to sell to Europeans?

I think I may have written like 1 or 2 too few sentences in my earlier comment responding to Thersites, so just in case anyone is reading this far down on the thread this late: I meant that a lot of corporations would all have to contribute the money, and that the corporations might think it was unlikely to pay off for them to try to save the economy that way, because the economy has a lot of other problems anyway. So, it might be hard to organize that without the government compelling them to do it.