Up Ship Creek

While U.S. leaders are assuring us that the recovery has begun and that the worst of the recession is behind us, overseas news services, as usual, are letting the cat out of the bag. According to a report from London, a survey conducted on 961 transport executives showed that the respondents felt that the downturn would be prolonged and venture capital and export credit agencies would play a larger role in ship finance as banks withdraw.

The biggest concern for the executives is the funding gap, with 81 percent of shipping respondents predicting that it will be at least 12 months before the number of banks actively lending to the shipping sector increases, while 79 percent of them see no return to pre-crisis levels of available bank credit within three years.

Executives from the aviation, rail and shipping sectors were surveyed. There were 153 respondents from shipping, 154 from aviation and 654 from railways. 63 percent of shipping respondents anticipate widespread bank enforcement of troubled loans, and 66 percent expect these enforcements to peak in three to nine months, suggesting the worst is yet to come, the survey report revealed.

58 percent thought it likely or highly likely that there will be a significant role for private equity or hedge funds, and a further 61 percent saw the role of export credit agencies increasing, the survey showed.

As one would expect, those executives are mainly concerned with financing, or the lack of it, and that’s because they can’t seem to see the forest because so many trees are in the way. The Paris-based Organization for Economic Cooperation and Development (OECD), however, is more concerned with the cause of the worldwide economic downturn.

In its latest employment outlook report released last week, the OECD stated that the jobless rate in the 30 wealthy OECD countries will hit a new postwar record next year, surpassing the current high. The jobless rate in the 30 OECD member countries will approach 10 percent – meaning that some 57 million people will be out of work – in the second half of 2010.

Calling the short-term outlook “grim” the organization said that there is a risk that the rise in joblessness could result in a permanently higher unemployment level that could take many years to bring back down. “There is great uncertainty looking forward, but labor market conditions appear set to deteriorate further in the coming months,” the report estimated, noting that its own forecasts are for “a rather muted recovery surfacing only in the first half of 2010.

57 million people out of work in the second half of 2010, after “a rather muted recovery in the first half of 2010”? That’s an impending disaster. Nowhere in the OECD’s reports or forecasts dealing with unemployment does it mention job creation, but without a way to put people back to work all speculation about recovery is meaningless. But at least the OECD is conscious of the unemployment problem. On the other hand “executives” everywhere – and not just in Europe – are in a fog.

Four months ago Congress passed a law – they’re good at that – authorizing the formation of a commission to examine the causes of this developing depression. Two months ago lawmakers selected ten commissioners – six chosen by the Democratic leadership and four by the Republican leadership – and they named the group The Financial Crisis Commission.

The Commission held its first meeting last week and began by discussing specific concerns to pursue – like the roles played by derivatives, Fannie Mae, the too-big-to-fail institutions, regulatory bodies like the Federal Reserve and the U.S. Treasury. In other words, they don’t have a clue.

The real work, though – like their television appearances with financial executives and other government officials – aren’t scheduled to begin until December. They say that a final report will be submitted to Congress on December 15th. If you’re expecting an honest-to-goodness report – don’t hold your breath.

The New York Times asks, “Is that slow start an early sign of drift? Does it reflect the apparent ambivalence of lawmakers to rein in the banks?

“To dispel such questions, the commission will have to start now to mount a rigorous inquiry that explains both the underlying and immediate causes of the crisis. Stretching back decades, which beliefs and policies – especially deregulatory efforts – allowed for the tremendous growth of finance as a share of the economy, and for the increasing reliance on debt as the engine of economic growth?

“Providing historical context will be easy compared with investigating more recent events, because near-term events involve people still in power. In the run-up to the crisis, what did regulators, particularly the Federal Reserve, know and do in response to unconstrained lending? What were their thoughts about the way banks and investors worldwide increasingly disregarded risks?

“Publicly, they did not act to curb the excesses. But internally, was there contrary analysis or dissent? Were there chances to take another course that we may learn from now in hindsight?

“Answers to these questions are in files that are not public and in the heads of the people in positions of responsibility at the time. The commission must be aggressive in its pursuit of documents and unflinching in taking testimony at even the highest levels of government and business.

“The commission must also trace the facts and circumstances that connect the implosions of Bear Stearns, Fannie Mae, Lehman Brothers and the American International Group. What were the terms of the derivatives contracts between A.I.G. and its counterparties, like Goldman Sachs, which received $ 12.9 billion via the A.I.G. bailout? What was revealed in the meetings that resulted in the A.I.G. bailout and in the subsequent $ 700 billion taxpayer-provided lifeline for financial firms? Why was Citigroup, a failing institution last year, treated more favorably than A.I.G.? And to what extent have the survivors of the crash, like Goldman and JPMorgan Chase, benefited from the cheap financing, loan guarantees and other government interventions?

“In the months since the inquiry commission was created last May, other significant efforts have been undertaken to get to the bottom of the financial crisis.

“Judge Jed Rakoff of the United States District Court in New York has demanded that Bank of America and the Securities and Exchange Commission be more forthcoming about the identities of bank officials who may have withheld from shareholders important information relating to BofA’s purchase of Merrill Lynch at the height of the financial crisis.

“Bloomberg News has filed a Freedom of Information suit to learn the identities of banks that took emergency funding from the Fed, and the amounts and the collateral they offered. The judge in that case has told the Fed to release the names; the Fed has until the end of September to appeal the decision. The Fed should not appeal. The truth will come out, and in the end, the nation will be better for it.

“The commission can take its cue from those efforts. Probing questions, asked in order to advance the public interest with a goal of ever greater transparency, are what Americans have a right to expect – and what the commission, if it chooses, can deliver.”

A quick review…

1. U.S. leaders are telling us that the recovery has already begun.
2. European executives are telling us that the recovery hasn’t begun but will be delayed, all the while bemoaning the lack of bank financing.
3. OECD members, to their credit, acknowledge the severity of Europe’s unemployment problems and speak of an eventual economic recovery … but fail to say how this will come about.
4. And now The New York Times prepares us for another 9/11- like commission. After calling for a “rigorous inquiry that explains both the underlying and immediate causes of the crisis”, the commission will evade the issue by deliberately complicating things. In attempts to spread blame they will waste volumes on;
5. …”the tremendous growth of finance as a share of the economy, and for the increasing reliance on debt as the engine of economic growth”,
6. …what “regulators, particularly the Federal Reserve”, knew and did “in response to unconstrained lending”, and what they thought “about the way banks and investors worldwide increasingly disregarded risks”,
7. … “the facts and circumstances that connect the implosions of Bear Stearns, Fannie Mae, Lehman Brothers and the American International Group,
8. … “the terms of the derivatives contracts between A.I.G. and its counterparties, like Goldman Sachs”,
9. … “the A.I.G. bailout and its subsequent $ 700 billion taxpayer-provided lifeline for financial firms”,
… and on, and on, and on. But they won’t deal with the simple fact that millions of unemployed Americans no longer have the buying power – the shopping power, if you will – to keep the world’s economies afloat. It’s as simple as that. This Commission is just another hoax.

Banks and financial institutions, therefore, didn’t “cause” this economic turndown, and no new laws or regulations will end it. We need to put 50 million Americans back to work, and only our patented container ship design will make that possible.