The Pennsylvania Progressive

More Bad Economic News

More bad news is out today on the economy.  Existing home sales are down 2.2% nationally for the latest month.  Home values dropped 6%.  Remember, this is for ONE month.  These are national averages so your locality could be better or worse.  Markets aren't down because of media reports and people (like me) writing about recession, they are down because they're responding to bad economic news.

Many experts are worried about the grave Federal reserve cut of 75 basis points Tuesday amid reports of a further cut next week.  Though this will relieve pressure on adjustable mortgages its inflationary impact will outweigh that positive.  These mortgagees need assistance in more meaningful ways in the area of regulation and rate freezes rather than moves which will further inflame inflation.  The savings from rate hikes will disappear amidst higher prices overall.

Panic In the Markets

The stock market began yesterday by losing 465 points.  It rallied to close at "just" a 130 point loss.  International exchanges are in full panic mode, one losing 12% of its value the first two days of this week.  The Dow Jones is hovering just above 12,000 after all that celebration by the Bushies when it crested 13,000.  Yes, those were the good old days, corporate profits were setting records, unregulated mortgage securities were making billionaires of hedge fund managers (in a single year), the war machine was cranking out Humvees, and the White House was doing everything possible to make the rich richer and the poor poorer.

Why does this happen every time a Republican gets in the White House?  As Kirk says, it is voodoo economics.  They think they can expand the economy by giving huge tax cuts to the rich.  George Bush slashed income taxes for the top 1%, cut capital gains and inheritance taxes and initiated massive deficit spending.  Democrats have proven, over and over, that sound fiscal policy and eliminating debt is what fuels economic expansion without risk.

The people keep paying for the bad policies espoused by Republicans.  Sure enough each of their presidential hopefuls is on the campaign trail spouting their mantra:  cutting taxes.  What is the definition of insanity?  Doing the same thing over and over while expecting different results?  Why is always the Dems the voters turn to to bail out the Republican disasters?  This time we not only have an economic disaster to contend with but the biggest foreign policy disaster in our history.

Of course it is only the lower and middle classes who hurt so what do the Bushes care?  As Barbara would say, "this has actually turned out quite well for them."  Only in her mind.

Bush's Stimulus Package

The President's stimulus package, wrapped around a short term "shot in the arm" strategy, is stupid.  Giving every taxpayer a rebate wastes resources better used to target those in need, and does nothing to change the underlying problems.  Many recipients of these government checks will use the funds to pay off debt or save, doing nothing to bolster the economy short term.  Channeling those funds into long term unemployment benefits, mortgage rescue payments for people defrauded by criminal mortgage brokers (yes, some of these people should be in prison), and food stamps will do more good.

Until the President and Congress hold those accountable for causing this meltdown and regulate the industry the mortgage market will not rebound.  Until it does we will remain in recession and the feds cannot afford to keep pumping rebate checks into our hands to forestall doom.  If major banks begin defaulting and failing the current mess will seem like paradise.  Something needs to be done and it isn't tax rebate checks.

Stimulus Packages

The Dow Jones industrial average sank another 306 points today amidst record losses and write offs by banks and other financial institutions.  These losses total billions of dollars and foreign investors are rushing in to save storied financial names from ruin.  Washington is now discussing economic stimulus packages but I'm not hearing much sense.  Tax cuts won't solve the problems.

The situation we're facing is due to the mortgage meltdown crisis and resulting layoffs and losses.  People who were victimized by sub prime lenders, immoral business practices and outright fraud need help.  New banking regulations are desperately needed so capital can once again flow into the mortgage market.  There is a crisis of confidence in that sector and investors have fled for safer havens. 

Bringing the economy back from the brink of recession means fixing the mortgage market.  This requires restoring confidence and the way to do that is the sort of regulation needed to protect mortgagees and investors.   Increasing funds available for real estate buyers and insuring those terms are fair to everyone will rejuvenate that sector and stave off further job losses.   The key to turning things around is restoring the real estate market and tax cuts won't do a thing for that.

Economic Woes Continue

"It's the economy, stupid" was James Carville's famous message for the 1992 Clinton campaign.  Now after another failed Republican Administration it's the buzzword again and for a different Clinton.  Or Obama or Edwards.  Worries about the economy have been gradually rising in polling about 2008 issues.   Stock market dives, bankruptcies, continued foreclosures and all continue wreaking economic havoc and this is becoming the central issue for 2008.

When the economy tanks it always trumps every other issue barring a world war.  The Federal Reserve says it will decrease interest rates in response but I doubt this will have much effect.  Money left the mortgage market in droves due to the lack of regulation and wisdom.  This tightened credit because there simply isn't enough money available to lend.  Lowering rates will exacerbate that not help.  Investors fled mortgages for safer havens like bonds.  Decreased returns won't lure them back.

Mortgage Meltdown: The Case For Regulation

The deleterious effects the mortgage meltdown is causing the economy is a good example of the boom and bust cycles prevalent when markets go unregulated and unrestricted.  Capitalism, left to its own devices, isn't a good system.  Greed and the quest for profits at any price always leads to economic uncertainty, extremes of income levels and unstable growth.  Markets need to be regulated to balance the order of things, protect consumers, workers and the public and provide a steady economic condition.

The entire mortgage mess went mostly unregulated.  Republicans don't believe in government regulation and this has been one of their core issues for generations.  One of their mantras is to allow unfettered markets to determine their own levels.  Now that philosophy is taking down our entire economy, something which always happens from laissez faire government.

George W. Bush appointed industry executives and lobbyists to run every agency doing regulation.  Coal miners have died as a result of the lack of rules enforcement for example.  No one thought to establish rules reigning in the runaway mortgage bankers who were willing to give loans to anyone with a pulse.  Their greed overwhelmed their good sense and huge salaries and bonuses were too much to allow them to let the government save them from themselves.  Now, as usual, it's the rest of us who need to be saved from a tanking economy brought down by their greed.

"Greed is good."  That was a famous line from a 1980's era movie called "Wall Street."  It showed the excesses of the last extended period of Republican control of the White House.  Unfortunately the line is false.  Greed always forces us to pay a price for its excess.  Unfortunately it is the workers, tradespeople and middle class who take the brunt of the fall when greed eventually takes its toll.  Wall Street doesn't give a darn about us however.

Here's a basic primer of what happened this time.  Once upon a time mortgages were issued by savings and loan banks.  Local bankers dealt with local borrowers, held the notes and collected interest.  From this money they paid savers a slightly lower rate on their accounts and the difference was their profit.  Then the Reagan Revolution deregulated the savings and loan industry.  The result of that binge of greed was a $125 billion taxpayer rescue of the industry.  One of the culprits of this excess was Neil Bush, the current President's brother.

Mortgages now are bought and sold on open markets.  Brokers bundle them together as securities and trade them through hedge funds.  These markets have been completely unregulated.  Some hedge fund managers were earning a billion dollars per year.  Greed is good?  Now the banks and financial companies are writing off tens of billions in losses EACH.  Companies who have never declared an operating loss are now doing so.

The losses are truly historic.  They are the result of Republicans refusing to regulate markets and establish reasonable rules.  Mortgage banks and brokers should not have been allowed to hoodwink people, offer exotic loans custom designed to fail and greedy home buyers thinking they could cash in on a rising real estate market.

Nothing goes up forever however.  The market bubble burst and lots of people are now caught holding the bag.  People bought large McMansions they couldn't normally afford because of their greed and the willingness of bankers to give loans with very creative terms.  The buyers thought they could live in the mansions for several years then sell them for a nice profit before the loans reset or really kicked in.

I bet some of these people can't even afford to heat those palaces now.

Unfortunately we're all feeling the effects of everyone's greed and excess.  Construction workers are losing their jobs, 24,000 of them last month alone, and housing starts (new construction) is at the lowest level in 16 years.  This will reverberate throughout the economy.  A roofer without work lays off not just their employees but those at Home Depot who sell them supplies and transport shingles to job sites.  The same goes for every tradesman in the construction industry.

No work means no demand for new trucks, hurting the auto industry.  Lack of money for mortgages has already resulted in companies closing and laying off thousands of offices around the nation.   The glut of homes on the real estate market is further depressing prices while buyers are having trouble getting approved for new mortgages.  Companies are also limiting the relocation of employees through transfers because they cannot sell the homes involved.  This affects moving companies, storage facilities and the hospitality industry.

Examples of other effects are too numerous to mention but by now you get the idea.  All this because the government refused to establish clear, fair, equitable, sensible rules and regulations and then enforce them.  Regulation is essential to a good, stable, growth oriented economy and we must begin to realize that free markets enslave workers and consumers to greed.

Bush Applies Band Aid to Mortgage Crisis

President Bush is finally addressing the concerns for the economy due to the mortgage meltdown crisis.  It isn't much but, again, what to do and to what extent are difficult decisions.  How much do you reward bad, risky behavior and to what extent do you allow such risk to undermine the entire economy?

The time for action was back when we all watched the mortgage industry seducing homeowners with promises of easy money, no closing costs, no paperwork, and low interest rates.  They were their own worst enemies, taking advantage of a GOP Congress and Administration solely concerned with corporate profits.  No one was looking out for the consumers who were getting fleeced.  No one warned them these were foolish choices.

Not everyone is savvy when it comes to finance.  Most people should understand it isn't smart to use your house to finance your car, SUV, or Christmas lists.  People did so however.  They were bombarded on television with commercials from Ditech and all the other banks:  eliminate your credit card debt quickly and easily with one simple loan.  It was stupid but Americans did it to the tune of billions of dollars.

There should have been some regulation to provide disclosures that this was poor financial decision making and what the potential consequences could be:  losing your home for that Explorer, plasma TV or vacation.  People chose their consumer goods.  This wild spending is what fueled the economy under Bush.  Without it the recession would have continued and unemployment would have been much worse.  As a result he was living to live with the risk that this could unravel and take the country's economy down.  Bush bet it would happen under the next president and not be his problem.

Now it's here and the effect economically could be devastating.  Housing and construction resonate throughout our economy and will affect almost every segment.  It's a result of bad decision making not only by the bankers and homeowners but by our lawmakers in Washington who refused to reign in the madness.  Let's remember the bankers who only saw huge profits and leveraged these loans into securities and traded them through hedge funds for huge profits.  Let's not let them off the hook.

The tough decisions are where to draw the lines.  At what point is saving the economy better than rewarding risky financial behavior?  Let's be sure they make the correct decisions.

Market Decline Will Hit Taxpayers

The Dow Jones Industrial index is dropping like a stone in Raystown Lake.  The market fell over 220 points Friday following a decline of 8% just since August.  The meltdown in the mortgage and credit markets is hitting the banking industry hard with billion dollar write downs happening everywhere.  The loss of assets and profits is affecting stock values.  Stocks are driven hugely by profits and as banks and other financial companies write off $5-11 billion in assets and fire their CEO's  the markets are sinking.

How will this affect tax payers?  Pension plans.  Governments are heavily invested, as they should be, in stocks.  Historically stocks gain in value long term and pension funds should be invested long term.  Pension plans must also be funded so they can meet their obligations.  Underfunded pension plans have been plaguing companies and governmental entities for years.  Companies defaulting on their pensions are bailed out by the federal government.  Guess who funds the federal government?

The other part of the tax payer double whammy here is when your school district and county government must pay into their pension plans to cover the shortfalls from market declines.  The overall value of a fund must meet its obligations.  If the value of those investments declines these institutions must infuse cash into the plan to keep it solvent.  In other words, if your county has pension obligations of $200 million and a value of only $185 million they have to add $15 million to the plan.  Last year their stocks may have been worth $200 million.  Now it isn't and guess whose taxes will be raised to fund that $15 million?

Taxpayers will be hit from all sides in this crisis.  Homeowners are getting hit with rising interest rates on the adjustable mortgages, their schools and local governments will hit them with a tax increase to fund their pensions, and as companies increasing bail on their pension obligations federal taxes must fund them.  The cumulative effect, along with rapidly rising energy costs, means less discretionary spending on consumer goods and major purchases, further slowing the economy.

I want to watch and see how George Bush blames this one on Bill Clinton.

$3.10 Per Gallon

I got gas yesterday and it was painful.  This is the most I've ever paid for regular.   Soon we may get nostalgic for three dollar a gallon gas if Bush and Cheney attack Iran.  Meanwhile heating the house this winter is going to entail chopping a lot of oak and feeding our wood stove.   Oil is hitting $100/barrel on fears the United States is going to take military action against Iran and start World War III.  The speculation is causing a steep rise in oil which we saw, literally, during our trip home from Boston last week. 

On last Thursday we departed Medford, Massachusetts and filled up at $2.78.  As we entered New York from Connecticut a few hours later it had risen to near $3/gallon.  We got off at Poughkeepsie for dinner and all the stations were charging $3.05 so we got three gallons hoping it was one of the "close to the interstate" ripoffs.  That got us to Mount Pocono and a Wawa where, again, it hovered around $3.00.  At that point it was obvious we'd witnessed a startling rise in gas prices in just one day.

In the week since it's up to $3.10 a gallon and I've cut back severely on my driving.  I'd already cut back because I'm having to save money for legal expenses but now I'm going to be staying home even more.  Between the gas prices and cost of heating oil some people are going to have very difficult winters.  Some will die.  Some will have to make dire decisions between food and medicine or heat.  This is part of the price we're paying for bad policy making.  With foreign policy decisions driving up the costs of energy and no universal health care and no regulation of the food industry people are more at risk than ever.

So what is the solution for this at the White House?  Another war of course.  Now they're preparing to attack Iran based on the same lies and flimsy "evidence" that made Iraq such a success.  BushCo says they don't need Congress' approval or permission to go to war regardless of what the constitution says.  That's because George W. Bush and Dick Cheney refuse to even acknowledge we have one let alone abide by the document.  They make their own rules, their own laws.  They alone decide what is constitutional and what isn't.

They've decided they want another war.  Say good bye to this cheap gas if that happens.

Unpleasant Economic Statistics

According to recent polls the economy now ranks third in importance of all issues facing Americans (after Iraq and health care).  The Bush trickle down economics have trickled down to average Americans, trickled down into more hours for less wages (after inflation), higher housing costs, higher energy costs, and staggering increases in the cost of health care.  The trickle down economy is now strangling the middle class as foreclosures and the mortgage meltdown begin affecting the overall economy.  Some numbers foretell a coming recession George Bush is not going to be able to blame on Bill Clinton:

August saw a net jobs loss of 4,000

The economy needs to create 120,000 new jobs each month just to keep pace with population growth

Foreclosure rates rose to 5.52% in June

The cost of employer provided health insurance rose 6.1% this year

Health insurance premiums have risen 78% since George Bush took office

Employee wages have risen 19% in that same time period

Americans covered by company provided health insurance dropped by 5% between 2000 and 2006.

10% of children, or 8,700,000 kids, are uncovered

Countrywide Financial laid off 12,000 employees last week

Americans are working harder and longer but keep falling behind economically.  Meanwhile the rich keep getting richer.  Incomes of those in the top 1% increased 450%.  Households in the top quintile gained 84% in income.  This is, as John Edwards says, a tale of Two Americas, the haves and the have nots.   Things are getting much worse for working people as they await the benefits of the trickle down economy.  Those benefiting from trickle down work building yachts, selling Rolls Royces, managing investment funds, and selling top shelf jewelry. 

For the rest of us trickle down means being stamped down economically.   Ronald Reagan asked a clear question in 1980 which helped him get elected and it's one every American needs to ask themselves this time:  are you better off today than you were six years ago?  The numbers say most people will answer that in the negative.