The Ugly Truth

From the Associated Press — “Summers: Wall Street firms better thanks to gov’t”

“WASHINGTON – President Barack Obama’s top economic advisor says the improved health displayed by some large Wall Street firms would have been impossible without government help …

“Summers spoke to a Washington economic think tank. His remarks came as firms that received billions of dollars in infusions from the Troubled Asset Relief Program were reporting better than expected second-quarter earnings. Among them were Goldman Sachs Group Inc., J.P.Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.”

In his remarks at the Peterson Institute on Friday, Mr. Summers said that efforts at an economic rescue have made progress and that the nation has moved back substantially from the brink of an economic catastrophe it faced at the beginning of the year. That “economic collapse looked all too real six months ago,” he said.

According to the AP, “Summer’s speech comes as the administration approached its sixth month in office and as the public and members of Congress are becoming restless with Obama’s economic policies. The administration is calling for patience to let its initiatives take hold.”

What initiatives? Except for the government’s bailout – in hundreds of billions of dollars paid out to brethren on Wall Street – what else has been “moved back from the brink of an economic catastrophe it faced at the beginning of the year”?

The banks on Main Street, USA, maybe? Not according to the Associated Press. Read this:

“WASHINGTON – Regulators on Friday shut two banks in California and two smaller banks in Georgia and South Dakota, boosting to 57 the number of federally insured banks to fail this year.

“The Federal Deposit Insurance Corp. was appointed receiver of the four banks. The two biggest were Temecula Valley Bank, in Temecula, Calif. … and Vineyard Bank National Association of Rancho Cucamonga, Calif. …

“The two smaller banks were First Piedmont Bank, based in Winder, Ga., … and BankFirst, based in Sioux Falls, S.D. …

“Friday’s move brings the number of bank closings in California this year to eight.

“With First Piedmont, 15 Georgia banks have failed since the beginning of 2008, more than any other state. Most of the failures have involved banks in the Atlanta area, where the collapse of the real estate market brought economic dislocation …

“The 57 bank failures nationwide this year compare with 25 last year and three in 2007 …

“As the economy has soured – with unemployment rising, home prices tumbling and loan defaults soaring – bank failures have cascaded and sapped billions out of the deposit insurance fund …

“The number of banks on the FDIC’s list of problem institutions leaped to 305 in the first quarter – from 252 in the fourth quarter. The FDIC expects U.S. bank failures to cost the insurance fund around $ 70 billion through 2013 …

“The largest U.S. bank failure ever also came last year. Seattle-based thrift Washington Mutual Inc. fell in September, with about $ 307 billion in assets” … [and surprise, surprise!] … “It was acquired by JPMorgan Chase & Co. for $ 1.9 billion in a deal brokered by the FDIC!!”

These reports are making it more and more evident that bills aren’t being paid … because paychecks are no longer being received … because more and more Americans are becoming unemployed. The result – the soured economy – is becoming obvious to some, but the cause-and-effect connection between our soured economy and our accelerating unemployment still escapes the economic advisors in Washington. It’s ugly in small time banking and it’s ugly in big time politics.

It’s also ugly in the maritime industry. made it a point to report it just that way:

“The Shipping News Is Ugly” was the headline on this July 15th story:

“HOUSTON – After one of the worst years in its history, the container-shipping industry is poised for vast rounds of purging and consolidation, with major players taking advantage of the tough environment to grab more market share.

“‘Most thoughts are that the container-shipping industry is going to be in trouble for a number of years,’ says Douglas Mavrinac, a shipping analyst at investment firm Jeffries & Co. in Houston. ‘I mean, there is no light at the end of the tunnel.’…

“The stressed environment follows a flood of orders for new vessels and added fleet capacity made before the shipping craze went flat in 2008. That capacity will trickle into the market for the next three or four years …

“Drewry Shipping Consultants, of London, has said the container sector faces a $ 20 billion ‘black hole’ by the end of the year … There will be more ‘casualties and continued unsustainable rates unless the industry market-share mind-set is discarded,’ Niel Dekker, editor of the firms container forecaster report, said early this month …

“‘We believe that consequently, the basic make-up of the industry will change as companies either go bust, amalgamate or shrink, shedding assets and personnel in the process,’ he adds. (Maersk Line, the shipping behemoth’s container unit, reportedly cut at least 5,500 jobs since 2008, or 24% of its employees.)

“Ports are also taking a blow. Here in Houston, total tonnage is down 13% so far this year – in line with the national average – including a 25% drop in grain and food aid, 46% fall in import autos, 84% drop in bagged goods, 8% drop in import steel, and 7% drop in containers. Monthly container volumes have fallen at many ports by at least a third.”

According to a senior VP at Ports America, “I’ve been in the business 40 years and I have never seen anything like this. To have the whole world in a downward spiral is not something I think anybody of this generation has seen.”

The drop in maritime trade has added to U.S. unemployment rolls, led to business failures – especially among drayage companies serving container ports – and discouraged investors and lenders who normally provide funding for port and shipping operations.

“They are all suffering,” said Paul Bingham, managing director at IHS in Washington. “Workers are seeing fewer jobs, fewer hours. Some port authorities have laid off workers or given retirement incentives and offered furloughs.”

Tough on the banks and tough on the maritime industry. Now let’s look at the airlines. For starters, according to The Christian Science Monitor, “American Airlines on Wednesday reported a $ 390 million loss during the second quarter of this year. The nation’s other major carriers will report on their performance in the coming week, and they are also expected to announce significant losses.

“The main reason for the losses is the depth of the current recession, which has prompted companies to forego business travel and many vacationers to stay at or close to home, eschewing air travel altogether.”

Airline officials attribute the multi-million dollar losses to “the current recession”, “the economic downturn”, “the H1N1 flu virus”, and “spiking oil prices” – despite admitting that American is now paying 58% less for fuel than it did a year ago. Not a word about unemployment, however, the real cause of all the stay-at-homes. Just another example of officials with their heads in the sand.

For businesses that are not looked upon by the government as being “too big to fail”, for the little banks on Main Street, for the maritime industry, for the airlines – for every struggling industry in the U.S., in fact – these are ugly times. And don’t believe those who say the “recession” has bottomed out. It hasn’t, and it won’t – unless another Emergency Shipbuilding Program is initiated by the present chief executive. It worked once before and it’s the only way out of this present mess.

The longer they put it off, the worse conditions will become, and those conditions will be like nothing this country has ever experienced or anticipated. Desperate times call for desperate measures, and desperate times, as the above reports show, are already being felt by many.

No economist knows how to bring about an economic recovery. No one has a clue. No U.S. official, and no one overseas. Other “recessions” have come full circle, and so will this one – somehow – they keep telling us. That kind of disinformation, though, will have repercussions much louder than “the shot heard ‘round the world” – and we all read about that one, didn’t we?