What is wrong with the US economy? Part 2

[mheslep]

My wife and I have a joint MM account that is insured to $200K because both our names are on the account. My understanding is that the new cap would increase the insurance to $500K.

Yes could be, I should have been more specific:
http://www.fdic.gov/consumers/consumer/information/fdiciorn.html

FDIC-Insured

* Checking Accounts (including money market deposit accounts)


* Savings Accounts (including passbook accounts)


* Certificates of Deposit

Not FDIC-Insured

* Investments in mutual funds (stock, bond or money market mutual funds), whether purchased from a bank, brokerage or dealer


* Annuities (underwritten by insurance companies, but sold at some banks)


* Stocks, bonds, Treasury securities or other investment products, whether purchased through a bank or a broker/dealer

 

[turbo]

Of course they do, but investment bank assets are not FDIC insured, the point of my post.

These banks are holding companies that can offer a wide range of services, including retirement accounts, money markets, simple savings, etc. Many of these products qualify for FDIC insurance protection and I have made certain that mine do. You would have to go back to before the deregulation that preceded the S&L bailout (remember the Keating 5?) to get to a point in which there were strict demarcations between the types of accounts that the FDIC would ensure.

 

[Ivan Seeking]

I think there was a concern that people with more than $100,000 in a single bank would withdraw the excess and deposit in another bank. This could potentially cause some otherwise sound banks to fail.

Single factor analysts who said that the DOW lost $778 on Monday because the House rejected the bailout, need to explain to me why the DOW lost $157 today.

What would have happened if they hadn't passed it?

Ali Vishi was reporting from the floor and indicated that the "short money" was already starting to move. Either way, no one claims that this will fix the economy overnight. The goal was to free the credit markets, which will take time. But you can always keep hoping that it won't work.

 

[mgb_phys]

What would have happened if they hadn't passed it?

Is this like the troop surge - if it doesn't work you just need a bigger one?

 

[Art]

None of our media talking heads or political spinners had considered it either, edward, judging from the lack of discussion on this point. Economics is too arcane to make good ratings on news programs, and most people would be bored to tears to hear how throwing money at investment banks WILL NOT translate to job creation, so I hoped to inject a positive spin on what I consider to be a raid on our treasury. Ireland's banks have recently adopted a similar policy (higher insurance deposit caps), forcing the EU to consider following suit.

Only 6 of Ireland's financial institutions have had their deposits guaranteed and that was because one of them who remains anonymous was on the brink of collapse. Presumably the other 5 are there simply to disguise which one had problems.

Far from following suit, the EU are investigating Ireland's action under the unfair competition rules and may well declare it illegal.

 

[mgb_phys]

Far from following suit, the EU are investigating Ireland's action under the unfair competition rules and may well declare it illegal.

There is a difference though in guaranteing individual's savings in a high street bank so as not to cause a run and writing a blank cheque to investment intiutions to cover their losses.

Ironically most mortgages in the UK+Ireland used to be from Building Societies, owned by their customers which were limited to using their own deposits for the majority of their loans. In the 90s they all converted into banks as this was the only way for these quaint old institutions to survive in the modern world of international finance!

 

[Jimmy Snyder]

What would have happened if they hadn't passed it?

Who knows? This is a question for the single factor analysts.

But you can always keep hoping that it won't work.

No need to hope, this is a bandaid on a headache. The root cause is the sour housing market. Nothing will get fixed until the root cause is fixed.

 

[Art]

There is a difference though in guaranteing individual's savings in a high street bank so as not to cause a run and writing a blank cheque to investment intiutions to cover their losses.

I'm not sure what your point is. To clarify, the Irish gov't have underwritten individual's savings (totalling 400 billion Euro); they have not guaranteed to cover any losses suffered by financial institutions in their own investments.

The competition problem arises because there are fears that citizens of other countries, Britain in particular, will take advantage of this offer and switch their accounts from their domestic bank to one of the 6 Irish banks most of which have branches in Britain.

 

[Ivan Seeking]

https://www.physicsforums.com/showthread.php?p=1899832#post1899832

 

[mgb_phys]

I'm not sure what your point is. To clarify, the Irish gov't have underwritten individual's savings ...not any losses suffered by financial institutions in their own investments.

I was agreeing with you that this was a reasonable thing to do and not comparable with the Wall St bailout.

Not sure how reasonable the EU objection is - most countries guarantee savings account to varying degrees. Ironic though that they would be complaining that Ireland is being unfair by offering more reliable and robust financial instutuions than other EU countries - this hasn't been historically true!

 

[edward]

Does anyone have a dollar number on foreign investments that will be bailed out??

 

[mgb_phys]

Does anyone have a dollar number on foreign investments that will be bailed out??

Hopefully 100%, bailing out foreign ionvestment props up your currency, bailing out internal investment causes inflation - isn't economicas a wonderfull 'science' ?

 

[Astronuc]

Does anyone have a dollar number on foreign investments that will be bailed out??

They'll likely borrow money from sovereign funds (welll really anyone who buys T-bills and treasury notes) to bailout the banks which have lots of investment from the same sovereign funds.

I can't wait to see what this year's (FY2009) deficit is going to be.

Anyway - here's the BBC's story - House backs $700bn bail-out plan
http://news.bbc.co.uk/2/hi/business/7651060.stm

How will the rescue work?
http://news.bbc.co.uk/2/hi/business/7652003.stm


http://marketplace.publicradio.org/display/web/2008/10/03/pm_story_of_the_week/

Someone pointed out that now Paulson had to put together a team of financial analysts to sort through the bad debt/mortagages to be bought. Where will Paulson find this team, the number of which might rival a Fortune 100 company. Well - from the very financial institutions that are being rescued? A potential conflict? You bet.

http://marketplace.publicradio.org/display/web/2008/10/03/cdo/

Kai Ryssdal: The thing about this credit crisis is that it reaches out and touches you, sometimes without you even knowing. For instance, I don't think many of you ever went out and actually bought yourself a collateralized debt obligation. But chances are your bank did. And your retirement money's probably tied up in 'em through mutual funds. Yet here we are a year and a half into this crisis, and it seems people don't understand what CDOs are. Much less how they work. So for today's explainer, we turn to one of Marketplace's most brilliant economic minds.

And what if the markets aren't satisfied?

One can leave a comment - "Post a Comment: Please be civil, brief and relevant."

 

[Ivan Seeking]

Does anyone have a dollar number on foreign investments that will be bailed out??

First of all, I think this is still discretionary, but I keep hearing hundreds of billions. A quick check yielded the same.

Rep. Brad Sherman (D-California)...Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it, and the bill has been carefully written to make sure that can happen," he said on Larry Kudlow's CNBC show Tuesday.

http://www.marketwatch.com/news/sto...x?guid={A6967E51-FC1A-4BFC-BB93-E57327D873F6}

 

[Astronuc]

Credit markets to Washington: Bailout isn't enough
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/03/AR2008100301463.html

NEW YORK -- The credit markets finally got a bailout bill, but the stranglehold hasn't let up _ a troubling sign that lenders and investors believe the package will only be a baby step in the long road to economic recovery.

The credit markets, where companies go to get cash loans, have seized up since the bankruptcy of Lehman Brothers Holdings Inc. and in anticipation of the $700 billion plan initially voted down by the House. The House passed a revised version of it Friday following the Senate's approval earlier this week, but anxiety about its effectiveness kept demand for Treasury bills high and nearly nonexistent for other types of debt.

Overall, market participants have begun regarding the rescue plan as a medicine for what's ailing the financial system, but not a cure-all.

"At best, we can hope that it stems some of the more intense risk from the credit crisis. It prevents things from spiraling out of hand here," said JPMorgan Chase economist Michael Feroli.

Some are worried, though, that the plan will not work at all.

"Nobody knows how it's going to succeed," said Howard Simons, strategist with Bianco Research in Chicago. "It seems the American public had better sense than Wall Street and Washington _ the American public said, don't throw good money after bad."

The Treasury will buy banks' risky mortgage-backed assets in an effort to alleviate investors' worries about the institutions' solvency and free them up to do more lending. Even if those efforts succeed, the effects will be far from instantaneous, and borrowing could remain very expensive for some time. With the economy in such a weak state, lending to consumers and businesses will still appear risky until certain factors _ particularly employment and the housing market _ improve.

The Labor Department said employers cut payrolls by 159,000 in September, the largest loss in more than five years, while unemployment remained at 6.1 percent.

Layoffs are likely to keep piling up if it remains tough to find credit. Spectrum Yarns Inc., a North Carolina textile company, said it closed two plants and laid off 200 workers this week because it got turned down by a North Carolina bank, a New York finance company, and several private lenders.

It could also get even harder for certain individuals to get home loans. Banks have gotten more stringent in their mortgage underwriting, and Wisconsin's affordable-housing agency recently suspended making loans for single-family homes because it was unable to sell tax-exempt mortgage revenue bonds and raise capital.
. . . .

As for foreign investments: Testimony from Scott G. Alvarez, General Counsel
Sovereign wealth funds ( http://www.federalreserve.gov/newsevents/testimony/alvarez20080305a.htm )
Before the Subcommittee on Domestic and International Monetary Policy, Trade, and Technology, and the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, Committee on Financial Services, U.S. House of Representatives
March 5, 2008

One of the reasons that sovereign wealth funds have attracted more attention in the past year is their size. The largest funds are very large. For example, Norway's sovereign wealth fund reports total assets of over $350 billion; China's fund and Singapore's two funds each manage assets of at least $100 billion. This places sovereign wealth funds among the largest investment funds worldwide. However, while the estimated two to three trillion dollars sovereign wealth funds manage exceeds the $1.4 trillion managed by hedge funds, it is far less than the over $50 trillion managed by insurance companies, pension funds, and other investment funds combined. Further, it is an even smaller fraction of global debt and equity securities, which exceed $100 trillion.

Statement to the U.S.-China Economic and Security Review Commission
Investments by Sovereign Wealth Funds in the United States
http://www.rhsmith.umd.edu/news/stories/2008/morici-soverign-testimony.aspx

The sovereign wealth funds dilemma
http://edition.cnn.com/2008/BUSINESS/03/07/sovereign.mme/index.html

The biggest funds are Abu Dhabi's ADIA ($875bn), Norway's Pension Fund ($380bn), Singapore's GIC ($330bn), and Saudi Arabia's various holdings which total $300bn. The China Investment Corporation is not far behind with $200bn in assets, and Russia's Stabilization Fund, which was set up in 2004, has $100bn, but is growing fast.

Warren Buffet likes them.

 

[mgb_phys]

Rep. Brad Sherman (D-California)...Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it, and the bill has been carefully written to make sure that can happen," he said on Larry Kudlow's CNBC show Tuesday.

And if they didn't , the US would have to invade Canada to get enough wood pulp to print all the dollar bills it would need to buy anything abroad ever again.

 

[edward]

They'll likely borrow money from sovereign funds (welll really anyone who buys T-bills and treasury notes) to bailout the banks which have lots of investment from the same sovereign funds.


Someone pointed out that now Paulson had to put together a team of financial analysts to sort through the bad debt/mortagages to be bought. Where will Paulson find this team, the number of which might rival a Fortune 100 company. Well - from the very financial institutions that are being rescued? A potential conflict? You bet.

I remember when The Resolution Trust Corp hired hundreds of former saving and loan upper echelon employees. People less than happy.

 

[WhoWee]

I certainly hope SOMEONE in Congress took the time between inserting wooden arrow mfg tax credits and other nonsense to specify portfolio acquisition criteria?

Otherwise, I'm afraid the concept of (reverse?) "cherry picking" could be applied to (OUR) government selection...no doubt the mortgage company analysts have studied the choices for a long, long time.

 

[Leah]

What is wrong with the US economy? We're losing jobs and our homes and trying to pay taxes and put gas in our cars and food on the table. We have no or little health insurance. If you get right down to it our economy is on the brink of disaster. It's the middle class that gets hurt the worst and pretty soon there will be no middle class. It'll be poor and rich.

 

[nuby]

Maybe the US had too many jobs and this is a correction.

 

[WhoWee]

Maybe the US had too many jobs and this is a correction.

Huh?

 

[aquitaine]

Sorry for the late responce, I've been busy with the new school year starting up. With all of these bailouts and all of this extra money flooding into the system, where is all of it coming from? The metaphorical printing press is running at full speed at this point, sounds like major inflation is not so far away, if it isn't here already.

Sure this might seem "unusually mild", but that's because we haven't seen the full effects of it yet. The bailouts will postpone, but not prevent the coming financial apocolypse because they do nothing to address the root problems and the rot in the system.

 

[Astronuc]

http://www.time.com/time/business/article/0,8599,1846450,00.html?imw=Y

Congress's initial rejection of the Bush Administration's $700 billion bailout plan calls to mind an unhappy precedent. Back in 1930, the Senate passed the Smoot-Hawley Tariff Act, which raised duties on some 20,000 imported goods. Historians define this as one of the critical steps that led to the Great Depression — a tipping point when the world realized that partisan self-interest had trumped global leadership on Capitol Hill.

It's fair to ask whether America's lawmakers could do it again. The bursting of the debt-fueled property bubble and the crippling losses suffered by banks, together with the political dithering of recent days, have set in motion a chain reaction that, in the worst-case scenario, could lead to something like a 21st century version of the Depression — even if a bailout package does eventually get approved.

The U.S. — not to mention Western Europe — is in the grip of a downward spiral that financial experts call deleveraging. Having accumulated debts beyond what's sustainable, households and financial institutions are being forced to reduce them. The pressure to do so results from a decline in the price of the assets they bought with the money they borrowed. It's a vicious feedback loop. When families and banks tip into bankruptcy, more assets get dumped on the market, driving prices down further and necessitating more deleveraging. This process now has so much momentum that even $700 billion in taxpayers' money may not suffice to stop it.

In the case of households, debt rose from about 50% of GDP in 1980 to a peak of 100% in 2006. In other words, households now owe as much as the entire U.S. economy can produce in a year. Much of the increase in debt was used to invest in real estate. The result was a bubble; at its peak, average U.S. house prices were rising at 20% a year. Then — as bubbles always do — it burst. The S&P Case-Shiller index of house prices in 20 cities has been falling since February 2007. And the decline is accelerating. In June prices were down 16% compared with a year earlier. In some cities — like Phoenix and Miami — they have fallen by as much as a third from their peaks. The U.S. real estate market hasn't faced anything like this since the Depression. And the pain is not over. Credit Suisse predicts that 13% of U.S. homeowners with mortgages could end up losing their homes.

 

[Astronuc]

Why did Paulson have to do the bailout/rescue?

The commerical paper market, which operates largely in the background of the economy, essentially froze. The most liquid part of the market stopped being liquid. That could mean payrolls and transactions between companies could stop.

The Reserve Money Market Fund (a money market mutual fund) had invested in Lehman Brothers, which went declared bankruptcy, which meant the secure money was essentially lost. Other fund managers panicked and stopped the flow of money.

From this American Life.
http://podcast.thisamericanlife.org/podcast/365.mp3

Lehman Collateral Damage: Reserve Money Market Fund Drops Below $1 NAV
http://www.nakedcapitalism.com/2008/09/lehman-collateral-damage-reserve-money.html

Readers probably know that money market funds seek to maintain a net asset value of $1 a share. The choice of words is precise. There is no guarantee to maintain the $1 value, but industry participants consider it to be so important to the reputation of money market funds that parent companies have upon occasion contributed funds to make up a shortfall,

So for the Reserve Primary Fund to "break the buck" is a big deal indeed. And not only that, the fund is large ($23 billion in assets, and that after two days of withdrawals trimmed its size considerably) and the fall in value is considerable by money fund standards (3%). And redemptions have been halted too, so the final tally could be worse.

From Bloomberg:

Reserve Primary Fund became the first money-market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.

The fund, whose assets plunged more than 60 percent to $23 billion in the past two days, said the Lehman losses forced the net value of its assets below $1 a share, known as breaking the buck. Reserve Primary, the oldest money fund in the nation, fell to 97 cents a share and redemptions were suspended for as long as seven days...The only other money-market fund to break the buck was the $82.2 million Community Bankers Mutual Fund in Denver, which liquidated in 1994 because of investments in interest-rate derivatives.

Then there are credit default swaps - develop by mathematicians and physicists.

Credit Default Swaps: The Next Crisis?
http://www.time.com/time/business/article/0,8599,1723152,00.html

People betting on the health of the economy, which of course went bad because of bad debt.

AIG went down because it had obligations of $400 billion in credit default swaps, but it didn't have $400 billion on hand. And AIG was not the only one.

The CDS market was not regulated and it was highly leveraged (actually over leveraged). Basically in the global market, more money was promised than there is money.

 

[Astronuc]

If the link to the mp3 cited above, try the following:

365: Another Frightening Show About the Economy
http://www.thislife.org/Radio_Episode.aspx?episode=365

Alex Blumberg and NPR's Adam Davidson—the two guys who reported our Giant Pool of Money episode—are back, in collaboration with the Planet Money podcast. They'll explain what happened this week, including what regulators could've done to prevent this financial crisis from happening in the first place. You can learn more about the daily ins and outs on the Planet Money blog.

Also - http://www.thislife.org/Radio_Episode.aspx?episode=355 (05.09.2008)

http://www.npr.org/blogs/money/


Ripple effect of credit crunch: 'everything's on hold'
http://www.mcclatchydc.com/homepage/story/53476.html

 

[Astronuc]

Hmmm - the ripple effect:

Europeans scramble to save failing banks
http://news.yahoo.com/s/ap/20081005/ap_on_re_eu/eu_europe_meltdown

STOCKHOLM, Sweden - Germany joined Ireland and Greece on Sunday in guaranteeing all private savings accounts, putting Europe's biggest economy at odds with calls for a unified European response to the global financial meltdown.

The decision came as governments across Europe scrambled to save failing banks, working largely on their own a day after leaders of the continent's four biggest economies called for tighter regulation and a coordinated response.

Chancellor Angela Merkel said that no citizen should fear for the safety of their investments, speaking to reporters as her government held crisis talks on the collapse of a ballyhooed euro35 billion (US$48.4 billion) bailout of Hypo Real Estate AG, the country's second- biggest property lender.

In Iceland — particularly hard-hit by the credit crunch — government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks.

Belgian Prime Minister Yves Leterme said he aims to find a new owner for troubled bank Fortis NV to restore confidence in the company before the opening of markets on Monday.

Leterme told two media outlets that government officials were going over a takeover bid for Fortis' Belgian operations. The bank's Dutch operations were nationalized amid fears they could go insolvent.

British treasury chief Alistair Darling said that he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country in weather the credit crunch.

So the global economy is teetering.

I wonder have far down the US equities markets will go tomorrow (Monday) and the rest of the week. I wonder if a black Monday will happen - like a 500 point drop in the Dow30 - or will some brave souls jump in a buy some bargains.

 

[OmCheeto]

I certainly hope SOMEONE in Congress took the time between inserting wooden arrow mfg tax credits and other nonsense to specify portfolio acquisition criteria?

Otherwise, I'm afraid the concept of (reverse?) "cherry picking" could be applied to (OUR) government selection...no doubt the mortgage company analysts have studied the choices for a long, long time.

Well, as an Oregnian, I was interested in the pork coming our way, so I did a bit of research on the "wooden arrow" tax credit. As a few of you may know, we are one of the few states without a sales tax. The wooden arrow tax is a federal excise tax, or for all practical purposes in this case, a federal sales tax.

Now I don't know about anyone else, but I have to agree with both of my senators. Taxing a stick, with some glued on feathers, and a suction cup on the end for $0.39 a piece? I'm surprised the company is still in business. This was a stupid tax, and should have never been there in the first place.

http://news.aol.com/political-machine/2008/10/02/the-wooden-arrow-bailout/
The Wooden Arrow Bailout
By David Knowles
Oct 2nd 2008 8:20AM

While Senators should be applauded for finally recognizing that America's financial system is on the brink, one can't help but wonder why in the world they included a provision to protect a company that makes children's toy arrows into the bailout bill. Did they think no one would notice the pork added to what is probably the most important bill of a lifetime? Amazing

(via Bloomberg):
Senators attached a provision repealing a 39-cent excise tax on wooden arrows designed for children to an historic $700 billion financial-markets rescue that passed tonight by a vote of 74-25. The provision, originally proposed by Oregon senators Ron Wyden [D] and Gordon Smith [R], will save manufacturers such as Rose City Archery in Myrtle Point, Oregon, about $200,000 a year.

I wouldn't be surprised if their annual profits weren't $20,000 a year with that stinking god awful tax.

I'd say this is one thing that is wrong with the economy.

Be a coward and not raise income taxes while sucking the life out of businesses, 39 cents at a time.

Actually, this excise tax strikes me as what was wrong with the Soviet economy, and perhaps is more pervasive in the American economy than I was aware. Get a bunch of people in a centralized location to decide what things should be worth and if they're not selling at that price then put a tax on it.

Argh! Where's the report button... I'm out of control!

 

[WhoWee]

Why did Paulson have to do the bailout/resuce?
Then there are credit default swaps - develop by mathematicians and physicists.

Credit Default Swaps: The Next Crisis?
http://www.time.com/time/business/article/0,8599,1723152,00.html

People betting on the health of the economy, which of course went bad because of bad debt.

AIG went down because it had obligations of $400 billion in credit default swaps, but it didn't have $400 billion on hand. And AIG was not the only one.

The CDS market was not regulated and it was highly leveraged (actually over leveraged). Basically in the global market, more money was promised than there is money.

Derivatives are a BIG concern...PLEASE READ what Warren Buffet said to his shareholders...

http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid={B9E54A5D-4796-4D0D-AC9E-D9124B59D436}

 

[Astronuc]

Derivatives are a BIG concern...PLEASE READ what Warren Buffet said to his shareholders...

http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid={B9E54A5D-4796-4D0D-AC9E-D9124B59D436}[/QUOTE] Yes - I posted about that in Part 1 thread of this topic.

The derivatives and CDS's are a destabilizing combination. As debt goes bad, companies default, the derivatives go bad, and the CDS's become worthless because there is insufficient funds to cover the all the positions. What was a potentially a very bad situation when Buffet made those comments has apparently become much worse, because so much debt went bad very quickly, and since the CDS's were done quietly with no oversight or regulation, nobody knows what companies are vulnerable - hence the panic - and from what I've heard their is a lot of panicking going around right now.

Basically, as I understand it, the entire global economy is over-leveraged, i.e. there is much more debt obligation than there are funds or collateral. And people have been warning the governments and markets for years.

 

[WhoWee]

One more example of the arrogance of a few resulting in real consequences for many.

 

[Astronuc]

A little humor on the bailout.

Daily Show - Bailout Bill - "The Senate is very proud to have done the work they're supposed to do all the time."

 

[WhoWee]

There WAS speculation as to whether or not they'd break for the Jewish holidays and deal with it later.

 

[Astronuc]

Credit crisis adds to pressures on auto dealers
http://news.yahoo.com/s/ap/20081005/ap_on_bi_ge/auto_dealers_credit

For auto dealers already suffering under the worst U.S. sales downturn in 15 years, the increasing cost of the credit they use to keep inventory in their showrooms means every Ford Focus and Jeep Grand Cherokee with a sale sticker in the window is chipping away at dealers' razor-thin profit margins every day and threatening to send more of them out of business.

Like the banks that have been collapsing under the weight of the credit crunch, auto dealers are highly leveraged, making them some of its first victims, said Sheldon Sandler, founder of Bel Air Partners, a New Jersey-based firm that helps car dealers find options when they want out of the business.

"Car dealers are like the canaries in the coal mine," he said. "The energy crisis had been affecting their revenue for a while. And now with the credit crisis, in some cases, banks are turning off their credit."

They sure charge enough for those cars, which drop about 40% as soon as you drive off the lot.

 

[Astronuc]

Goldman Sachs economists: GDP flat or falling for 4 quarters

and one GS economist sees 8% unemployment in 2009.


I have to imagine that tomorrow will be another down day on the stock markets.

Asian/Pacific markets are all down at the start of Monday.

 

[Astronuc]

NY Times Editorial on the Economy, October 5, 2008
http://www.nytimes.com/2008/10/05/opinion/05sun1.html
Meanwhile, in the Economy

After the Senate approved the $700 billion bank bailout, the majority leader, Harry Reid, tried to persuade his colleagues to address another economic calamity before they left town for the long election recess. He urged them to extend unemployment benefits for 800,000 jobless Americans.

In the face of Republican opposition, the measure failed. Benefits start expiring this week. So much for Main Street.

If it works as promised, the bailout will thaw the credit freeze and keep more banks from going under. But it is unlikely to save even more Americans from losing their jobs and homes.

The Labor Department reported on Friday that 159,000 jobs were lost in September. That is the biggest monthly drop in five years and the ninth straight month of job contraction. It brings total job losses for this year to 760,000.

Of the 9.5 million Americans now out of work, two million have been jobless for more than six months. Nearly 6.1 million people are working part time because they cannot find full-time work or because slack business conditions have led to fewer hours — and less pay.

Cutbacks in hours and pay are especially pernicious because for most of the Bush years, wage growth has lagged behind worker productivity and prices. As Americans have worked harder they have fallen further behind. The only good news — if you can call it that — was that credit was easy.

As a result, many Americans today have no savings and are deep in debt. That means they are even less prepared to take care of themselves and their families when they lose their jobs.

Conditions are only getting worse. Personal spending stagnated in August, the latest month with government data. Auto sales plunged in September. Factory orders are off. New home sales fell to a 17-year low in August, according to the Census Bureau. And home prices continued to fall sharply in July, for a decline of 16.3 percent over 12 months, according to the Standard & Poor’s/Case-Shiller index of prices in 20 major cities. There is no sign that prices have hit their bottom.

Exports, the one bright spot, are also set to fall, because many other nations took part in America’s financial follies and are now faltering as well.

. . . .

So much for strong fundamentals.