Our nation’s financial crisis
Tonight’s New York Times: In Frantic Day, Wall Street Banks Teeter; In one of the most dramatic days in Wall Street history, Merrill Lynch agreed to sell itself to Bank of America for about $50 billion, while Lehman Brothers headed toward bankruptcy.
Tonight’s Wall St. Journal: Crisis on Wall Street as Lehman Totters, Merrill Is Sold, AIG Seeks to Raise Cash. Fed Will Expand Its Lending Arsenal in a Bid to Calm Markets; Moves Cap a Momentous Weekend for American Finance.
Looks like a real meltdown. Let’s try to make sense of it… especially how it might impact things locally.
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Mike Z.- You are inserting your own ideas between my lines, not reading some hidden agenda. Take a look at history for this period in the ’30’s. I think you’ll see that my observations are correct. The only conclusion I came to is that FDR’s government funded projects did not reverse the great depression, nor even help it all that much. There was no incentive or opportunity for capital growth during this period, and mean per capita income did not increase.
As far as the US being the only country that was unscathed by WWII, this is not true. Europe, England and Japan suffered the greatest destruction. There is the bulk of Siberia, China, Australia and Africa that did not suffer great destruction. Also, the reconstruction of Europe, England and Japan following the war was very successful. Look at these areas today. Not only are they reconstructed, but they also are world renowned producers of goods.
As far as a WWIII boosting our economy, I think this assertion is absurd. The weapons of mass destruction that WE have are enough to anihilate all the societies of the world if we did not produce another weapon. Also, if war was that profitable, what we have going on in the Middle East right now should have prevented the economic meltdown we are experiencing. It aparently has not, so that is not a valid conclusion. I’ll stick to my interpretation of history until someone shows me something I’m missing. You can have a different opinion of the events, but this does not negate the actual evidence that is there, unless you want to revise history to align with popular opinions of the present day(revisionism).
The country needs “efficient” infrastructure but this is a dynamic concept. The real crime in Katrina was not the response but that fact that National Geographic filmed a documentary years before that spelled out clearly and logically to anyone watching that New Orleans would absolutely be flooded ~ the question was just when. Neither New Orleans, Louisiana nor the US political system was up to the task of addressing this known fact. The true crime is no special interest lobby existed to fund the political parties on behalf of a flooded New Orleans and so nothing got done. What has changed in our system? Building infrastructure is a technical and skilled undertaking. Time is required to ramp up for increased activity. Just throwing funding at infrastructure will not increase the output. The world in the 1930s was very different than today in that many tasks used unskilled labor then that today use machinery.
All top down solutions to economic problems are subject, despite Paul’s protestations otherwise, to tremendous graft and corruption. The Internet offers a communication vehicle 1000s or 10,000s of times more powerful than what existed in the 1930s. This creates the opportunity for a bottom up injection of capital that could put the US economy into the stratosphere. Society has to be very careful that vested economic interests are not allowed to chain America to a broken system because they might lose their relative economic position in a new more advanced economy. The government has always injected money into the economy – after all it prints and distributes the money. How this is done can change, and should change, based on modern communication tools.
I think the problem with the infrastructure is that the best and brightest minds go into law or business.
Follow the money.
JohnG, you write, “The only conclusion I came to is that FDR’s government funded projects did not reverse the great depression, nor even help it all that much.”
This depends on what you view as “government funded projects.”
I have read arguments that the New Deal made a difference, and others that claim it was not that so much as war spending (which put people to work), and others that claim a change in agriculture policy that benefitted farmers was key.
During cold war (and now), much war spending could easily have given us more bang for the buck if spent on infrastructure instead (roads, schools, high speed internet, renewable energy, energy conservation), and we would have seen more fruits.
If you put people to work and have a strong working class, they will be more confident consumers–and wealthy large business owners down to small businesses all benefit from more confident consumers.
Big business owners during the depression hated the New Deal, and many preferred something like Fascist Italy, with a government that was close and friendly with business. An attempted coup against FDR failed because Smedley Butler reported on the planners.
Business leaders today (on average) tend to be far more savy about the value of economic stimulus and infrastructure investment as necessary to economic recovery.
Paul- I specifically refered to FDR’s projects as opposed to government funded projects in general. The industry that was built for the war effort was government funded, so there is example of this type of spending increasing the wealth of individuals. But, the government got the money they invested in the war effort from the private sector, through sales of war bonds and taxes. It just didn’t appear out of thin air. The war effort expanded business, not infrastructure. This is the difference, in my opinion, between then and the present calls to invest in infrastructure. Even the light rail system and the bus system in the Cities are not self sufficient without injection of government dollars. If they tried to be, the cost would pretty much eliminate those users the systems were established to serve. That is why I opine that government spending does not increase the GDP unless it somehow is plowed back into business ventures. We are living in different days, now, than the 30’s. I don’t think we can resurect these 30’s ideas and have them work. We need to come up with some plan corresponding to our time that will work. I think it is interesting that President Elect Obama’s government financial plans seem very similar to the last 8 years of the Bush presidency. I opine from this that government systems do not necessarily drive economic principles unless they are imposed by a totalitarian government, and I don’t think either one of us desires that. What I am looking for is that centrist balance that allows businesses and individuals to prosper and be able to support a government that will provide the necessary services that cannot be economically provided by the private sector.
Anyone remember the headlines about the bailout and how urgent it was?
Unless I am missing something the bailout hasn’t done much in the way of stemming off the economic crisis.
The only beneficiaries so far are the banks and AIG. We have approved $ 700 billion in the bailout, this doesn’t account for the money we already spent before the official bailout on AIG , Bears and Stearns, Fannie Mae and Freddie Mac.
Add to this the proposed $ 35 billion of the UAW bailout (insert carmaker here), which btw by all estimates won’t be nearly enough.
Now we will be adding close to one trillion dollars on an economic stimulus package., that will benefit who???
In case you forgot, we really don’t have that money and we are already $ 5 Trillion in debt and a budget deficit in 2009 that will be $ 1 Trillion dollars.
Have we lost our minds???
Yes, you can go on and blame Bush and the Republicans if it makes you feel better. Once it is out of your system think about the reality of it.
This is a collective debt caused by irresponsible politicians that now try to make us believe that they can remedy the situation??
Dodd, Frank and Pelosi will appoint a car czar that will decide which cars we should built? Are you kidding me?
The same people will also fix the mortgage crisis? OMG are we really that gullible?
Let’s continue the partisan bickering while in the meantime our elected officials are “fixing the country”.
For “we the people” it doesn’t matter who caused the debt, because we all be paying it back, including our grand children.
John, you wrote, “But, the government got the money they invested in the war effort from the private sector, through sales of war bonds and taxes. It just didn’t appear out of thin air. ”
I read an article recently that talked about how banks do this: they make money appear out of thin air. They give a loan for a mortgage, and they don’t go and borrow money to lend it to you to buy a house. They just write down that they’ve loaned you this money, and they consider their loan to you an asset, just like your savings account. Your mortgage will pay them money in the long haul. So they just make up money, and they don’t have to print it.
So here’s my proposal:
1. The government should temporarily buy up all the banks that go bankrupt. Then instead of those poorly managed, bankrupt banks making money off mortgages and loans and credit card fees, the government will compete with private banks. The government could, through these banks whose ownership they would assume, lower interest rates directly, competing with private banks. They could lower finance charges, and lower the fees charged when a consumer buys a product using a credit card, competing with private banks. All these fees and interest fees could replace many taxes. The article I read described how North Dakota has such a bank with an agricultural focus, and it can, if it wants to, reduce loan interest rates to 1%. That’s economic stimulus power.
2. Make universal, single-payer health care a reality. This would go a long way toward saving the automakers.
3. Temporarily buy up the big three automakers, and refocus them. Make cars with better mileage, and refocus the whole industry more toward retrofitting existing cars and vehicles with hybrid engines (takes less money, and creates less carbon, to retrofit an existing car than to make a brand new one). Give tax breaks or rebates to people, depending on income as incentive, to upgrade and retrofit.
4. Nationalize the oil industry as a public utility, so that oil companies can’t get in the way of conversion to renewables. Then, once we’ve converted, and once oil companies are downsized and refocused, either let them be private again, or keep them nationalized.
5. Nationalize defense industries, to take the private profit out of national defense.
6. Keep a capitalist system for other aspects of the marketplace, but not for national defense, health care, oil/transportation, or perhaps even banks. We know capitalism works well in some areas, not others. This is not about capitalism vs socialism, but vs pragmatism. The financial collapse is proof that deregulation doesn’t work, and that capitalism doesn’t police itself. Left to its own devices, it creates huge balloons of greed, debt and trouble.
Paul – you should publish that on cooks.com as the perfect receipe for a civil war.
David, of course it was a Republican — retired Marine General Smedley Butler, author of “War is a Racket” — who proposed #5, “5. Nationalize defense industries, to take the private profit out of national defense.”
Republicans and Democrats both would have a hard time stomaching that one, given all the pork in the military-industrial complex that provides jobs and votes.
I love graphics: http://www.ritholtz.com/blog/2009/06/7-factors-that-led-to-crisis/