Brother Can You Spare a Dime?

Food for Thought

Now that the excitement, tears, and post-election euphoria of the presidential election has receded, the headlines have returned to the country’s very serious economic woes, and the news gets worse by the day. It is becoming more evident that the “top-down” bailout of Wall Street pushed by the Bush Administration is not working at the current funding level and the lame duck and his banking-insider treasury secretary will soon be asking for more. Already, AIG—whose executives continue to enjoy lavish getaways, now at the public’s expense—got yet another nearly $40 billion in the past few days. The corporate capitalists that control our government who constantly whine about “socialism” for ordinary citizens every time a new program like universal health care is proposed, have no compunctions about seeing that the rich get it in a sleight-of-hand inversion of the Robin Hood method.

Outside of a banking system on death’s door, the Detroit car industry stands on the precipice of bankruptcy. The gas-guzzling cars they have been making for the past decade are no longer in demand and even used ones aren’t selling. It seems that a $25 billion public bailout is imminent. (There was a report this week that predicts the share prices of the major US car manufacturers may sink to ZERO in the next year.)

The mortgage crisis gets worse as more and more homeowners sink into negative equity and struggle to make interest-only payments. Mounting foreclosures have brought more relief to the shady, greedy investment banking cabal largely responsible for the mess, but none for the embattled home (non)owners. Consumer spending is way down from even last year’s not-so-great figures and nearly all retail chains and mom-and-pops are struggling, and many are going out of business. Unemployment is increasing by leaps and bounds every month, and some economic experts are saying the true unemployment rate is near 15 percent. Most employed people I know are wondering if they will even have a job in a few months, and those that are unemployed often find themselves in competition with hundreds of others for a job—if they haven’t already given up.

The situation here in Silicon Valley and the surrounding greater Bay Area is entirely in line with these national trends. I have lately noticed that there are rarely more than a few shoppers about in Valley Fair, Oakridge, or the new mall on Coleman near downtown, day or night.  Even Santana Row seems quiet. Mervyns is liquidating, Ann Taylor, Linens ‘n Things and several others are in bankruptcy, and a few other giant chain retailers like Best Buy and Circuit City are hanging on by their fingernails. Many of my friends in the Bay Area book publishing industry are experiencing significant drops in sales and are very concerned.  The very bad Christmas retail sales projections are likely to make matters worse and perhaps hasten the end of other main street stores.

An article in the New York Times this week reveals the sad state of the mortgage crisis in the surrounding area, where many Silicon Valley workers live. Mountain House and other locations around Tracy and Stockton are experiencing a full scale emergency, with the majority of properties purchased in the past five years worth a fraction of what the “owners” owe on their mortgages. In parts of San Jose, the number of “underwater” homeowners who bought in the past five years is 50-60 percent or more. In Santa Clara County, 15 percent of all homes are similarly underwater.

There is a new plan in Washington to send a lifeline to distressed homeowners that allows modification of their mortgages to make their payments “more affordable.” I wonder what that means exactly, especially if there is no negotiation to re-establish a realistic value for the homes under the current circumstances.  This seems to be to be a case of too little too late. If we are going to effectively bail out the system driven to the brink by the corrupt mortgage practices and real estate price fixing of the past decade, we should be remedying the matter from the bottom up, not the other way around as we are now, and resetting values based on the market. Otherwise, these distressed home owners may as well just walk away from their mortgages.

Many experts say these are the worst economic circumstances faced by a new president since FDR took office in 1933.  With the situation rapidly deteriorating, it is conceivable that we may yet reach the 25 percent level of employment of that Great Depression year and experience a similar collapse of the banking system. Will we soon be singing our own version of that era’s biggest hit, “Brother Can You Spare a Dime?”

I don’t know what the solution is, but we got into this mess by way of 25 years of deregulation that allowed the corporations to usurp power vested in the people by the Constitution. We have taken the first step as a people to remedy that with the election of new, dynamic leadership. Once the president-elect’s economic team is in place and working to solve the potentially catastrophic problems we face in the coming months, the new Congress needs to roll up their sleeves and get to work re-imposing control over the US financial sector, exercising their Constitutional duties of oversight to ensure that the financial system runs on behalf of the citizens, not corporations and their corrupt lobbyists.  Whether the new administration and Congress has what it takes remains to be seen. They can’t do any worse then what we have had the past eight years. However, we are going to need much more—an unprecedented effort from the best minds alive and an extraordinary level of cooperation from the American people. The survival of our democracy and way of life may very well depend upon it.

13 Comments

  1. This simple-minded notion that “deregulation” is the cause of our problems should be thought through a little more closely.
    Who are the regulators? Who will hire the regulators? Where will the regulators’ instructions come from? Who will regulate the regulators? Will Barney Frank be one of the regulators?
    No. It’s OVERregulation that caused this mess- not DEregulation.
    And Jack, I am in total agreement with you that the corporations have usurped the power in this country and it is awful. But corporations only acquire this power and influence through ties to Government that are initiated by meddling politicians attempting to control them. A bond is formed between Government and that industry, and power begins to flow both ways.

    We always go on about “separation of church and state”. The idea is to make sure that the church doesn’t gain too much power. We should apply the same principle in assuring “separation of business and state”. Just as the church would not gain untoward power, neither would industry be empowered by it’s unholy alliance with the government.

    The best regulator is the marketplace. Despite claims from Big Government types on both sides of the aisle, the marketplace hasn’t been given a chance to work in a long, long time.

  2. Jack #2,

    Thank You.
    This perfectly illustrates my point.

    Oh what a tangled mess we create
    When first we practice to regulate

  3. Just as a point of clarification: The awful financial bailout bill that Jack positions as a “Bush Administration” bill was in fact a bipartisan bill, actively endorsed by leaders of the Democrats in Congress (Pelosi and Reid) as well as, to their eternal shame, the two major party candidates, Obama and McCain. You can’t blame that crummy bill on just Bush: they *all* are in the tank with the bankers and the union bosses, talk of change, notwithstanding. Our political classes have lost the courage to let bad decisions actually have consequences, so will continue to write big government checks to delay paying for problems caused by previous big government checks. Hold onto your wallets!

  4. You have to be completely out of touch with business and society at large to claim that deregulation has driven and/or created these problems.

    Just for giggles, here are nine departments that “regulate” our economy:  Transportation, Housing and Urban Development, Health and Human Services, Education, Energy, Labor, Agriculture, Commerce, Interior.

    Here is a short list of federal agencies: IRS, FRB FDIC, EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, NASA.

    Does anyone know how many pages of banking regulations there are?

    Anyone who has started or runs a business knows the infinite amount of ridiculous red tape that does very little to protect consumers, but does a lot to make people “feel” better.

    This “8 years of deregulation” mantra is one of those lines you hear at a cocktail party and privately dismiss everything else that individual has to say.

  5. There once was this fellow called Blame
    Who was oh so upset at the game
    For real change he screamed loud
    Then brought back the old crowd
    And dammit if things weren’t the same

  6. Jack,
    Welcome to Alcohol Anonymous!  Our nation has finally hit bottom, and we can either learn from our mistakes or drown! I see this hard Universal lesson as one that is long over due. Greed, complacency, a nation of people who place material wealth over humanity, and money over family and friends has brought us to our knees. Thank God for that! Now there is HOPE!

    Now we have choice. We can get off our asses and start paying attention to what really matters here, and what matters here is one another, the well being of our children, our planet, the animals that inhabit it. We need to start valuing life. We need to get back to helping one another, and spending quality time with our families, and voting responsibly to make sure our leaders truly give a dam about us, not profit, or lobbyists, or foreign countries that profit from us hand over fist. We need to stop out sourcing jobs, and relying on foreign countries for our food, toys, clothing, cars, energy, oil, etc. We are a great nation of intelligent, skilled people who can move forward from this a better people if we dare. It is all about choice.

    #6-FFF, there’s a lot of truth in your poem. Nice job.

  7. We need to pay some attention to the role of the San Jose Mercury News in all of this. As the monopoly paper for Santa Clara Valley, why hasn’t the Merc printed at least on an annual basis full-length, in-depth analysis articles on what these banks, housing financial agencies, and investment banks were doing?

    The writing was on the wall in early 2004 when high-priced housing development was “exuberant” and everyone paid props to the trend-lines that were going to go up and up forever. Those of us watching knew there were not that many unhoused people who could swing a $500k to $900K house.

    Did the Merc ever warn about the wild over-construction that was taking place? No, the Merc pretended to think that the Planning Department could do no wrong, and the Planning Department really thought the developers could do no wrong.

    If you sidled into a bank lobby during the past 3-4 years to roll-over a CD, you were often promptly introduced to an “investment counselor” who insisted on selling you one of the tawdry debt instruments packaged as an asset and insisted that private insurance (AIG) was just as good as FDIC. So why didn’t the Merc warn residents that they approached a bank lobby at their own risk? It was patently clear that this trend-line to the stars was doomed, at least by the beginning of 2004.

    And now, do we see the Merc scolding Senators and Members of Congress who did sell out for selling out to the bailout hype, all without any kind of oversight or transparency? No, we do not.

    Ironically, most of the weird financing arrangements that have been accused of bringing “the house down” nationally are to be found locally in municipal financing of the airport and the new city hall, and the Merc declines to blow the whistle on these financing extravagances as well.

    Perhaps the Merc’s motto is “Keep ‘Em Dumb.”

    PS: No, I never fell for the hype.

  8. When my customers left me and went to China, I felt the pangs of a nation lost in it’s own demise.
      My customers went to Japan, then they went to Taiwan then theywent to China, Then they went to Hell.
      Our above ground metals, rubber, paper, all went to China. We depleted the resourses of our country. Steel Mills? Gone! Manufactureing busineses, gone! The same people that did this to us are getting our money to bail them out of their addiction. The tresurury is empty beacuse they wanted it to be. Obama must take back the billions and apply it to the cause.
      If we melted down every hugh V8 cars and trucks built in the last 20 years, we could restructuer the new age. Cut the export of waste to China, and we could be come self sufficient.
      All off shore manufactureing would have to pay a signifient bounty to import products from our recycled metals etc. The chinese demand for scrap is fueling the theft all over this nation of copper an other metals and recyclables.
      For years I would put out the aluminun cans , bottles for the little old gal with the shopping cart to collect. She was collecting for the Chinese. The scrape dealers were making bank, while giving this old Gal zip. I’m disgussedwith where we have fallen.
      I recall 8 yeras ago when we got a newMayor. I lost the Hall of Fame project. After many years I was not allowed to even quote the project that I had conceptualized, with the designer. We sucked it up and turned what we felt was a political move into a positive event. We were forever connected to the San Jose Arena Hall of Fame, and we survived the mayor!
      This melt down of today did not happen because we were not awake, it happened while we were asleep at the wheel.
      Who do I blame? ME!!! No Mas!!!!!!!!!!
              The Village Black Smith

  9. I don’t think we really, truly appreciate how difficult it must be for JMcE to lampoon the insanity that goes on around SJ. 

    You just can’t make up stuff that’s goofy enough to top the local news.

    14 billion? 

    For buying rainbow colored straight jackets for all SouthBay denizens?

    Good grief.

  10. DW #8- Good point and well said.

    finfan #6- Good one. Very elegant indeed!

    Fannie Mae was so honest and just.
    Her Board never spit, drank, nor cussed.
    So it seems to me odd
    That they’ve struck the word ‘God’.
    Now our dollars read “In HANK We Trust”!

  11. I think your position is entirely evident from your posting name ‘John Galt’.

    For everyone here, there is a frightening tendency to oversimplify the issue. ‘Over-regulation’ and ‘under-regulation’ are of course both bad, depending on whose dictionary we are using that day.

    But you’d best recognize that some regulation is needed. We just need to figure out how much and what type. We will never get it right, and it is an iterative process.