Posts Tagged ‘Wall Street bailout’

Benchmarking the U.S. employment recovery

September 26, 2012

Double click to enlarge.

Double click to enlarge.

I’ve posted a number of charts like the one at top showing how much worse the current employment recovery is than the recoveries following previous recessions since World War Two.   But the second chart provides another and maybe more meaningful comparison—the U.S. recovery versus employment recoveries in foreign nations following financial crises.  The current U.S. recovery is not out of line with the experience of foreign nations.

The most significant comparison, though, is with the current U.S. recovery, shown by the thick red line, with the aftermath of the 1929 stock market crash, shown by the dotted black line.  What it indicates to me was that the United States was on a slide toward another Great Depression, like that of the 1930s, but that the slide was prevented by the bank bailouts and the Obama stimulus plan.

I’ve criticized the Obama administration for failing—really, not seriously attempting—to put anything in place that would prevent a repetition of the recent financial crash.  The Obama administration has blocked prosecution of financial fraud and meaningful legislation to regulate or break up the “too big to fail” banks, while the Federal Reserve Board, through its Qualitative Easing programs, has given money to the big Wall Street banks at near-zero interest rates without any requirement that the money be lent in the real American economy.  I think the United States is on track for a bigger crash and a bigger bailout, if indeed a bailout is possible the next time around.

But give credit where credit is due.  The swift action of the Bush administration, the teamwork of the Bush and Obama administrations during the transition, and Obama administration’s follow-through prevented a collapse of the financial system, and the Obama stimulus plan also helped shore up the economy.   I can’t prove this.  There is no way to turn back the calendar and see what would have happened with no bailout and no stimulus, but I think the Hoover administration’s experience after 1929 provides a good indication of what would have happened.   But now that the collapse has been averted, the U.S. government and banking system is busy recreating the circumstances that led to the collapse in the first place.

Click on Does this graph prove the recovery has been impressive, after all? for the thoughts of Ezra Klein on the Washington Post’s Wonkblog.

Click on Checking In on Financial Crisis Recoveries for the source of the chart in a report by Josh Lehner of the Oregon Office of Economic Analysis.

The secret $1.2 trillion bank bailout

August 23, 2011

The prevailing wisdom in Washington and on Wall Street is that creating jobs, rebuilding the nation’s infrastructure and even maintaining basic government services is unaffordable.  Yet the Federal Reserve System was able to come up with $1.2 trillion to bail out failing banks and financial institutions.

This information was kept secret until Bloomberg Business News pried it loose a few days ago.  To get the information, Bloomberg needed the Freedom of Information Act, lawsuits that went to the Supreme Court and an act of Congress.

The size of the bailout boggles the mind.

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages.  … …

The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.

via Bloomberg.

The Federal Reserve Board’s justification for the bailout, according to Bloomberg, is that the bailout was necessary to prevent the collapse of the financial system, that the loans were (mostly but not always) at above-market interest rates, that they were (mostly but not always) backed by adequate collateral, and that the loans were paid back.

I agree it was necessary for the Fed to act to prevent the banking and financial industry from collapsing.  There would have been a domino effect that would have spread through the whole economy, as in the bank failures of earlier eras.  But the rescue should have been like the rescue of General Motors and Chrysler.

In the auto industry rescue, government help was conditioned on getting rid of the incompetent managers who’d caused the problem, letting the stockholders and bondholders take a loss and restructuring the companies so they will be on a sounder footing in the future.

In contrast, the bank bailouts protected the jobs and bonuses of top management, shielded stockholders from loss and allowed a continuation of everything that led to the problem in the first place.


A new definition of chutzpah

June 7, 2010

The Yiddish word “chutzpah” means a combination of audacity and impudence, as exemplified by someone who murders his mother and father and then asks for mercy from the court on the grounds that he is an orphan.

Maybe we need a new word for the audacity and impudence of the Wall Street banking and financial community who brought the U.S. and world economy to the brink of disaster, were bailed out of their mistakes through hundreds of billions of dollars of direct and indirect subsidies and now tell us that we have to cut back on spending to help the unemployed and retirees because otherwise we will lose the confidence of the financial community.


Lessons of the Wall Street bailout

February 9, 2010

The bipartisan support for the bailout of Wall Street shows the falsity of two myths.

One is that the Democratic Party exists to protect the little guy from big corporations.

The other is that the Republican Party exists to protect the little guy from big government.