Transparent Rap … (Repeating Vol. XIX, Art. 30 again, and things have gotten worse.)
Two years ago today we began Vol. XIX, Art. 30 like this: “Steep fall in US job cuts ‘encouraging'”. Those were the headlines in hundreds of U.S. newspapers last week – and if it says so in the newspapers, well who could doubt it? The report went onto say:
“A sharp fall in the number of jobs being lost in the US has raised hopes that the world’s biggest economy could be past the worst of the recession and on the road to recovery.
“The latest non-farm payroll figures on Friday showed the pace of job losses slowed in May. US employers cut 345,000 jobs last month, the labor department said, far fewer than expected and the lowest monthly total since September.”
What’s supposed to be a confidence builder and encourage Americans to begin spending again is just mullarkey. Just two days earlier the Financial Times had published figures released by ADP:
“US companies cut 532,000 jobs in May”
“US companies cut more than half a million jobs last month as the recession continued to chip away at the country’s labor market, while the service market shrank more than expected.
“Private companies cut 532,000 jobs from their payrolls in May, according to a survey by ADP Employer Services. Although that was fewer than the revised 545,000 jobs slashed in April, the number was worse than many predicted …
“Figures from the Institute of Supply Management showed that the US service sector – which represents about 80 per cent of economic activity in the US – was still contracting in May, albeit at a slightly lower pace.”
After reading the gibberish about the “345,000” job losses, here’s what Op-Ed columnists Sandy B. Lewis and William D. Cohan wrote in the June 7th New York Times. “The Economy Is Still at the Brink” they assured us. “Whether at a fund-raising dinner for wealthy supporters in Beverly Hills, or at an Air Force base in Nevada, or at Charlie Rose’s table in New York City, President Obama is conducting an all-out campaign to try to make us feel a whole lot better about the economy as quickly as possible. ‘It’s safe to say we have stepped back from the brink, that there is some calm that didn’t exist before,’ he told donors at the Beverly Hilton Hotel last month.
“Mr. Obama thinks that the way to revive the economy is to restore confidence in it. If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we’ve learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy … wishing for improvement and managing by the Dow’s swings are a fool’s game …
“‘We didn’t ask for the challenges that we face. But we are determined to answer the call to meet those challenges,’ Mr. Obama said … ‘It will take time but I promise you, I promise you, I’ll always tell you the truth about the challenges we face.’
“Keeping that statement in mind … we have come up with a set of questions meant to challenge a popular president, with vast majorities in Congress, to find the flaws in the system, to figure out what’s being done to fix them and to get to the truth about the difficulties we face as we set out to restore the proper functioning of our markets and our standing in the world.
* “Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated – so why then are we so desperately anxious to restore that model as the status quo? Nearly every new program emanating from the Treasury Department – the Term Asset-Backed Securities Loan Facility, the Public Private Investment Program, the ‘stress-tests’ of major banks – appears to have been designed to either paper over or to prop up a system that has clearly failed … let’s seriously consider ripping down the entire structure, dynamiting the foundation and building a new system that rewards taking prudent risks, allocates capital where it is needed, allows all investors to get accurate and timely financial information and increases value to shareholders and creditors.
“As a start, the best-compensated executives at the top of these big banks, hedge funds and private-equity firms should be treated like general partners of yore. If a firm takes prudent risks that pay off, this top layer of management should be well compensated. But if the risk these people take are imprudent and the losses grave, they should expect to lose their jobs. Instead of getting guaranteed salaries or huge bonuses, they should have the bulk of their net worth completely at risk for a long stretch of time – 10 years come to mind – for the decisions they make while in charge …
* “Why is so much effort being put into propping up those at the top of the economic pyramid – the money-center banks, the insurance companies, the hedge funds and so forth – when during a period of deflation like the one we are in, any recovery will come only by restoring the confidence of the people down at the bottom of the pyramid?
“Confidence will return only when jobs can be found and mortgage payments are made. Even if Mr. Obama’s claim is true that his $ 780 billion stimulus package ‘saved or created’ some 150,000 jobs, we seem a long way away from the point where those struggling to get by will feel like spending again …
* “Instead of promising the imminent return of good times, why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need? We used to be a frugal nation. The president should be talking about kicking our addictions to easy credit, to quick fixes and to a culture of more is better …
“Gas-guzzling S.U.V.’s, cigarette boats, no-income mortgages and private jets should be relegated to the junk heaps of history, or better yet, put in a museum dedicated to never forgetting the greed and avarice that led us so far astray.
* “Why is the morphine drip still in the veins of the financial system? These trillions in profligate federal spending are intended to make us feel better again even though feeling pain, and dealing with it responsibly, would be healthier in the long run. It is time to stop rescuing the banks that got us into this mess. If that means more bank failures on a grander scale or the dismemberment of Citigroup, so be it. Depositors will be protected – up to $ 250,000 per account – but the shareholders, creditors and, sadly, many employees will, for the long-term health of the system, need to feel the market’s wrath.
* “Is there any limits on bailouts? We have now thrown money at the big banks, any number of regional ones, insurance companies, General Motors, Chrysler and state and local governments. Will we soon be bailing out Dartmouth, which just lost its AAA bond rating? Is there no room left for what the Austrian economist Joseph Schumpeter termed “creative destruction”? And what is the plan to get the American people out of all these equity stakes that we now own and don’t want?
“Furthermore, for government leaders to decide who shall live and who shall die in an economic sense opens them up to legitimate charges of crony capitalism and favoritism. We will benefit in the long run from a return to market discipline.
* “Why has Mr. Obama surrounded himself largely with economic advisors who are theoreticians and academics – distinguished though they may be – but not those who have sat on a trading desk, made a market, managed a portfolio or set a spread?…
* “Why is the government still complicit in making the system ever less transparent, even when it comes to what should clearly be considered public information? For instance, it took more than a year for the Federal Reserve to disclose that it had agreed to pay BlackRock – the huge money manager that is 45 percent owned by Bank of America – and others $ 71 million in a no-bid contract to manage the $ 30 billion of toxic assets that JPMorgan did not want when it bought Bear Stearns in March 2008. And that is only one of the five contracts BlackRock has with the government as a result of this crisis – the nature of the other contracts remains secret.
“Treasury Secretary Timothy Geithner has made much of financialstability.gov, the Treasury’s new Web site dedicated to ‘transparency, oversight and accountability’. But look it over and try to find, for example, just one record of a bona fide credit-default swap, or the names of the hedge-fund and private-equity investors who have participated in the Term Asset-Backed Securities Loan Facility bonanza. It was only a lawsuit filed by a watchdog group that convinced the Treasury to divulge details of former Secretary Paulson’s October meeting with the chief executives of the 10 largest Wall Street firms to force them to take money from the Troubled Asset Relief Program. A lawsuit filed last November by Bloomberg News to force the Federal Reserve to reveal the details on more than $ 2 trillion in loans that went to banks including Citigroup and Goldman Sachs is still pending in court.
* “And what has become of the S.E.C.’s year-old investigation into who made short-dated, out-of-the-money bets in March 2008 hoping Bear Stearns would fail – bets that were suddenly worth millions of dollars when the company did collapse later that month?
* “Why do we still not know why Mr. Paulson, Mr. Geithner and the Federal Reserve chairman, Ben Bernanke, allowed Lehman Brothers to file bankruptcy last Sept. 15 but then, a day later, saved A.I.G.? Or why last November this trio decided to absorb potential losses on $ 301 billion of Citigroup’s shaky assets, when conventional wisdom among insiders held that they were worth only $ 150 billion at best?
* “Also, before Dick Fuld, Lehman Brothers’ chief executive, appeared before the House Committee on Oversight and Government Reform last October, it demanded from company executives boxes of documents about what happened at Lehman and why. Where are those documents?
* “Why hasn’t President Obama insisted on public hearings over what happened during this financial crisis?
* “Not a single top executive of a Wall Street securities firm responsible for causing the financial crisis has had the courage or the decency to step forward in front of the cameras and explain to the American people in his own words exactly how and why he allowed his firm to cause the crisis. Both Mr. Fuld and Alan Schwartz, the chief executive of Bear Stearns at the end, in their Congressional testimony blamed the proverbial once-in-a-century financial tsunami. Do they or any of their peers really think this is true? …
“We are in one of those ‘generational revolutions’ that Jefferson said were as important as anything else to the proper functioning of our democracy. We can no longer pretend that our collective behavior as a nation for the past 25 years has been worthy of us as a people. Many of us hoped that Barack Obama’s election would redress the dire decline in our collective ethic. We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring. He must do what is necessary to restore the American people’s – and the world’s – faith in American capitalism and in our nation. Answering our questions may help us get back on track. But time is wasting.”
The above issues comprise the major points developed by Mr. Lewis and Mr. Cohan. Let’s hope that some day in the not too distant future someone of character – or some government investigative body – brings the real culprits to mast. At least we’ll be assured that remedial action will be forthcoming and that trillions of misplaced dollars will be returned to U.S. taxpayers – the rightful owners.
But that would be just a starting point. The overriding issue in this economic turndown has nothing to do with those trillions that have been stolen from us. Even when, or if, those trillions are recovered, our economy will still be a basket case. We’re losing more than a half million jobs every month, and as that young student just reminded us, that decreasing monthly slide only shows that we’re rapidly approaching that month when no jobs will be lost because there were no more jobs remaining to be lost. Maybe at that point Mr. Obama will give some serious thought to the step FDR took sixty years ago to end the Great Depression. He could call for the revitalizing of our shipyards, and millions of jobs and millions of demanding U.S. consumers would be the immediate result. The U.S. consumer is the master link in the international supply chain and unless that link is repaired we will see conditions a lot worse than the once-in-a-century financial tsunami alibi mentioned above.