What is wrong with the US economy? Part 2

[edward]

Square one was when there weren't any houses. We are not headed there.

When that was square one a person could build his own home. I think I was referring to the point where the federal government became involved in home loans.

 

[quadraphonics]

The Fed routinely adjusts the percentage minimum in order to add or subtract liquidity.

Which is to say, to adjust the level of risk banks are allowed to run. But such considerations are extremely premature when the Federal government is busy dumping billions into said banks just to keep them solvent, and the banks have no appetite for more risk. You could lower liquidity requirements all you wanted, and it wouldn't have any effect, as any bank that actually loaned out more money (for houses, no less) would immediately see its stock price tank. Moreover, why would anyone want to borrow money to buy a house in the first place, if they believed that prices were going to drop by another 25%? You might as well just burn your down payment for warmth.

Not that I'd mind getting a deal on my first house, but let's be realistic: 25% is huge, and would bankrupt millions of families who bought homes in the last few years. Not a recipe for any kind of swift, painless recovery.

 

[Jimmy Snyder]

Not a recipe for any kind of swift, painless recovery.

I offer no recipe for swift, painless recovery. Go to Congress for that. They sell kool-aid by the barrel.

 

[Astronuc]

When I bought a house 18 years ago, I put down 10%. I since passed the 20% mark (so not PMI), I've enlarged the house, and pretty much have replaced everything but the original frame.

If I was starting out today, I probably couldn't live in the area where I live now, because the housing prices have appreciated much faster than inflation and salaries. Many kids in our area are looking elsewhere to live because the area is expensive.

In the last 6 months, I've been getting bombarded by offers for commercial real estate at bargain prices, and that has surged in the last month. This area has recently seen a surge in small businesses closing, and more than the usual number of houses on the market, and they remain on the market a lot longer.

 

[mheslep]

Raines worked for Obama campaign per the WP. I hear the campaign denies this now. Whatever.

In the four years since he stepped down as Fannie Mae's chief executive under the shadow of a $6.3 billion accounting scandal, Franklin D. Raines has been quietly constructing a new life for himself. He has shaved eight points off his golf handicap, taken a corner office in Steve Case's D.C. conglomeration of finance, entertainment and health-care companies and more recently, taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters...

.
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071502827.html

 

[Astronuc]

From the WP article

Raines settled charges brought by the Office of Federal Housing Enterprise Oversight by agreeing this spring to pay $2 million and forfeiting $22.7 million in stock and other benefits. And though none of it will come out of his pocket -- the payment was covered by insurance -- he has not emerged unscathed. He and his wife of more than 25 years, Wendy, are separated. Their house, a 1910 colonial in Northwest Washington, is for sale. An old friend, former Time Warner chairman Richard Parsons, describes him as being "in strong recovery mode."
. . . .
In October 2003, even as Raines was invited to the Bush White House to receive a leadership award on behalf of Fannie Mae, investigators were about to look into the company's accounting books. A year later, Congress held a hearing on accounting irregularities at the company. By the end of 2004, Raines was forced out by the board, accused by regulators of overseeing accounting manipulations to bolster his compensation.

It reamins to be seen how recently the Obama campaign was talking to Raines. On the other hand, he has a cloud hanging over him. I'm pretty sure I read that OFHEO was concerned about Fannie Mae well before Oct, 2003 - perhaps as early as Feb 2002.

 

[lisab]

Raines worked for Obama campaign per the WP. I hear the campaign denies this now. Whatever.
.
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071502827.html

Taking phone calls from the campaign <> working for the campaign. I bet (and actually, I hope) that both campaigns seek a wide range of opinions on important issues.

 

[turbo]

By the end of 2004, Raines was forced out by the board, accused by regulators of overseeing accounting manipulations to bolster his compensation.

This is a huge problem that needs to be addressed with regulations. The people running large companies are often rewarded for good short-term performance, and if they can cook the books or manipulate policies to make the profit/value of the company look good, they can get leveraged goodies, like stock options priced at very favorable rates, so that if they can increase the value of the stock temporarily (and they can, in most cases), they can cash in the options and do VERY well, at the expense of regular share-holders, mutual funds, etc. I don't know how to address this problem effectively, though I think it is quite fortuitous for Cheney that he refused to divest himself of Halliburton stock and options, and somehow Halliburton and subsidiaries managed to get many billions of dollars in no-bid contracts to support a war that we didn't need to fight... Our financial system seems designed to allow the powerful to divert public money into private pockets.

The current "bail-out" plan being pushed so feverishly by Bernanke and Paulson smells. It looks like a last-ditch attempt to create a huge windfall for speculators while there is a compliant/complicit administration in power. The inclusion of language making Paulson's actions off-limits for judicial or administrative review is a huge red flag.

 

[Astronuc]

CAPITOL REPORT
Bernanke rides to rescue of Paulson plan
Clear that plan may take more time to pass, but avoids derailing

Various senators are skeptical and/or concerned about Paulson's plan. I don't blame them, and I have to wonder if they even understand it or the current turmoil in the markets.

. . .
A key point of the critics was that under the plan Treasury must pay more than the market value for the mortgage assets.

But Bernanke explained that the mortgage securities have two prices - a "fire-sale price" if the mortgage asset was sold quickly today and a "hold-to-maturity" price if the mortgages were held to maturity.

Banks have been paralyzed by this fire-sale price because their precious capital would evaporate overnight.

The key to the plan, Bernanke said, was that if Treasury was able to buy the mortgages, it will be able to hold them to maturity. As a result, the fire-sale price could be avoided.
This would remove uncertainty, return liquidity, and credit markets should be able to unfreeze, Bernanke said.

"This is not an expenditure of $700 billion. This is a purchase of assets. If auctions are done properly...the American taxpayer will get a good value for his or her money and as the economy recovers, most, all, or perhaps more than all, of the value will be recovered over time," Bernanke said.

I'm still curious about the punitive measures involved, or at least some assurance that the people who are responsible for the current crisis are held accountable, and not rewarded for their irresponsible/reckless actions.

Rescue plan hits speed bump in Senate
http://www.marketwatch.com/News/Story/Story.aspx?guid=e1f27722623140078f49f33f2493c076
Financial rescue plan greeted with skepticism


Here are some of todays headlines from Marketwatch (while Bernanke and Paulson were discussing the plan with the Senate):

• Bernanke: Paulson plan would set 'hold-to-maturity' price
• Bernanke: U.S. can buy assets near hold-to-maturity prices
• Bernanke against suspension of mark-to-market accounting
• Dodd: Constitution put at risk by Paulson mortgage plan
• Sen Dodd:Confidence in U.S. financial future has been shaken

• Paulson: Slicing $700 bln into tranches 'a grave mistake'
• Paulson: Focused on helping small as well as large banks
• Paulson opposes proposal to get equity in return for help
• U.S. also plans to buy assets from foreign banks: Paulson
• Bernanke says U.S. plan 'precondition' for economic recovery
• U.S. will get money back from bad assets it buys: Bernanke

Congress really needs to get serious about regulation. Regulation isn't inherently unfair - but bad regulations can be. Can we trust Congress to do it right?


And here is a commentary by PAUL B. FARRELL
Reaganomics $3.9 trillion debt outrages taxpayers
Mad as hell? Try the Zen Millionaire's 12-step 'antirage' meditation
http://www.marketwatch.com/News/Story/Story.aspx?guid=69d374526f1742dda3da334864e446b3

 

[Jimmy Snyder]

Socialism is when you have worker run means of production.

If that's what Socialism is, then Socialism is a form of insanity. What maniac would take a good engineer like me and set me to running the company I work for? What lunatic would ask my boss, a successful businessman, to listen to my opinion on how to run the show? What nut would ask my boss to sit with me and help me write programs? Is Socialism a cure for the division of labor? Would society benefit if I spent a part of my day drilling for oil? Does Socialism mean I need to learn the intricacies of interest rate swaps, or should I just trade by the seat of my pants?

 

[quadraphonics]

Is Socialism a cure for the division of labor?

"Socialism," as the term is being used here (i.e., in the sense of Marx) is intended to cure the division between labor and capital, and the associated division between labor and the bourgeoisie. It has nothing to do with the division of labor as such. Indeed, as it only applies to industrialized societies, which uniformly post-date the division of labor by thousands of years, you could say that it presumes a division of labor.

As far as trading goes, most countries that implemented "socialism" in this sense (as opposed to the more modern sense of Social Democracy a la Scandanavia) did not have financial markets or, for that matter, private property.

Of course, this kind of socialism (i.e., communism) has long been completely discredited as a nice idea that doesn't stand a chance of working in reality. Socialism, as the term is used today, refers to mixed economies with strong provisions for workers' rights and public welfare, as well as strongly progressive taxes to limit inequality. The so-called "means of production" are still largely in private hands, although certain sectors may be dominated, or even monopolized, by state entities.

 

[Jimmy Snyder]

The so-called "means of production" are still largely in private hands, although certain sectors may be dominated, or even monopolized, by state entities.

If you follow the links back to msg #124 you will see that it was precisely in this sense that I spoke of Socialism, 'here' as I call it. orbitalPower proposed that crazy definition 'here' as you call it.

 

[quadraphonics]

Well, I'm not sure I'll sign up for your bail-out=socialism assertion, but reading the ensuing posts does make it pretty clear that OrbitalPower is indeed using Marxist terminology (not to mention ideology). Which is pretty dated, and not just in the definition of socialism.

 

[Jimmy Snyder]

Well, I'm not sure I'll sign up for your bail-out=socialism assertion, but reading the ensuing posts does make it pretty clear that OrbitalPower is indeed using Marxist terminology (not to mention ideology).

You mean that according to Marx, the problems at Fanny Mae and Freddy Mac and Bear Stearns could have been avoided if top management had asked the janitor what course to take on derivatives and pork belly futures? Then Marx was certifiable.

 

[Astronuc]

Folks need to be careful with terms and definitions. Here's a reasonably good definition of socialism.

Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the means of production and distribution of goods, and the creation of an egalitarian society.

http://en.wikipedia.org/wiki/Socialism

Clearly there are elements of socialism in the US politico-economic system, but of course, the system is far from egalitarian.

In the sense that the US government is using public monies (Treasury) to shore up private entities (distressed financial institutions), isn't this an example of the 'state' administering the means of production, in this case raising for or injecting capital into a troubled economy (through the distressed financial institutions), and distributing risk to the public?

Fascism doesn't seem to fit well -

a political philosophy, movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition

I think what we have seen is a classic example of corruption (which undermines any human system be it government, economy, . . . ): failure to adhere to ethical principles and standards, lack of fiduciary responsibility, lack of oversight/regulation/enforcement, and in some cases just simple fraud. The questions are "why was this allowed to happen" and "how do we fix the problem and ensure it is not repeated in the future".

 

[Jimmy Snyder]

Folks need to be careful with terms and definitions.

I say that the current proposal for the government to buy up these bad loans is Socialism under the wiki definition you linked to. I hope that's careful enough.

But as to orbitalPower's definition, which I paraphrase as "Socialism is where the inmates run the asylum", I call it wrong and I swing away with reckless abandon. I also doubt quadraphonics' assertion that this definition is dated Marxist terminology and ideology. If it were, we would never have heard of Marx.

 

[kronon]

completely agree with Astronuc.

As to future prevention, I think the guiding principal should be to realize that bankers will behave like bankers, traders like traders and consumers like consumers.

And because of that, we need regulators to regulate.

Everyone in fact acted as they're supposed to act, to do what they were paid for, or what was in their best interest. EXCEPT the regulators.

 

[Astronuc]

Everyone in fact acted as they're supposed to act, to do what they were paid for, or what was in their best interest. EXCEPT the regulators.

Well I'm not sure is was only the regulators who were not doing their job. I've heard many reports of fraudulent mortgages, which involved over-valuation of income or property value (e.g. at Countrywide). I've heard of teams of mortgage agents processing mortgages without doing the appropriate verification of the information.

AFAIK, the FBI is investigating over 300 individuals with respect to questionable mortgages, and that does not include the investigation of accounting irregularities and fraud in the distressed financial institutions (e.g. Fannie Mae, Freddie Mac, Lehman, AIG, . . . .)


Ultimately it is a matter of personal integrity - without it human systems/societies are undermined.


Honesty is the best policy.

 

[kronon]

Just as an aside, I thought this might be an interesting point of view. Its how banks own market strategists seem to be interpreting the current situation. Rather worrying really.




Equity Strategy: Congressional Reluctance Surfaces

- News of stumbling blocks emerges. The $700 billion rescue plan proposed by the Treasury Secretary has run into bipartisan opposition as concerns step up on a variety of items from executive compensation restrictions to concentrated power issues and contingent equity participation. In essence, the sense of urgency seen last Thursday evening has ebbed in worrisome fashion.

- Bailout fatigue and frustration seems to be obstructing the critical issue. The various attempts over the past few weeks by the authorities to support the GSEs, a large insurance company and to facilitate business combinations seemingly have left many Congressional members wondering how this all benefits average citizens even as tightening credit conditions are squeezing the corporate sector further threatening jobs and GDP. Financial markets must be understood to being inexorably linked to economic stability since businesses need a banking sector that will lend it money at reasonable cost to successfully invest in human, physical or working capital.

- Illiquid credit markets seem to need help as a "buyers strike" appears to be the key problem in pricing securities. Deleveraging hedge funds and falling prices have created a downward spiral in so-called toxic paper that, if continued unchecked, could further undermine capital markets, business funding availability and the US economy. Indeed, the negative consequences of self-reinforcing feedback are deeply disconcerting. In many respects, the current proposal provides a new longer term buyer in the market that could generate some positive leverage into the current vacuum.

- Global growth is slowing given credit issues too. While US business trends have been poor, especially in the housing industry, news of rapidly weakening trends abroad is leaving a wake of commodity price softness and declining industrial stocks, suggesting that the few remaining areas of strength look to be on the cusp of a major slowdown. Thus, the need to stimulate domestic activity seems to be even more necessary than may be fully appreciated. Failure to face up to this reality may lead to inconvenient truths in upcoming elections.

 

[Jimmy Snyder]

In essence, the sense of urgency seen last Thursday evening has ebbed in worrisome fashion.

Don't worry, the sense of urgency was phony baloney.

 

[OmCheeto]

hmmmmm... there's some funny numbers:

http://www.forbes.com/lists/2008/09...-lists-400list08-cx_mm_dg_0917richintro.html"
The assembled net worth of America's wealthiest rose by $30 billion--only 2%--to $1.57 trillion.

400 people are worth twice as much as the projected bailout.
How sad that they only netted an average of $75,000,000 a piece last year.

Bwah haha ha ... ha... ... ha....

 

[Astronuc]

Confidence in Goldman Sachs -

Berkshire's $5 bln shot, he bags a wad of warrants
Buffett gets $5 billion in preferred stock paying 10% and right to buy up to $5 billion common shares at $115 any time in next 5 years.

Berkshire to invest at least $5 billion in Goldman

Hey, if Warren Buffet and George Soros can do it, anyone can become a billionaire.

 

[Gokul43201]

Raines worked for Obama campaign per the WP. I hear the campaign denies this now. Whatever.
.
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071502827.html

The campaign ought to deny it if it's not true. Answering a couple of phone calls from someone on the campaign and talking about general economic issues is not the same as "working for the campaign". That's just a ridiculous conflation.

I, personally, think Raines is a scoundrel and would prefer that campaigns simply have no contact with him at all. But on the other hand, he was the White House budget director and thus, is probably very knowledgeable about economic issues at the national level. Besides, it's been over 4 years since Raines left Fannie.

Incidentally, the WP itself had an article that debunks the claim - extrapolated from the previous WP article - the Raines had any kind of "working" relationship with the Obama campaign.

But if you want to find more connections to Freddie/Fannie, here's a pretty direct one:

Freddie Mac continued checks to McCain campaign chief's firm.

Michael Isikoff
Newsweek Web Exclusive
Sep 23, 2008 | Updated: 7:39 p.m. ET Sep 23, 2008

Since 2006, the federally sponsored mortgage giant Freddie Mac has paid at least $345,000 to the lobbying and consulting firm of John McCain's campaign manager Rick Davis, according to two sources familiar with the arrangement.

Freddie Mac had previously paid an advocacy group run by Davis, called the Homeownership Alliance, $30,000 a month until the end of 2005, when that group was dissolved. That relationship was the subject of a New York Times story Monday, which drew angry denunciations from the McCain campaign.
...
But neither the Times story—nor the McCain campaign—revealed that Davis's lobbying firm, Davis Manafort, based in Washington, D.C., continued to receive $15,000 a month from Freddie Mac until last month—long after the Homeownership Alliance had been terminated.

http://www.newsweek.com/id/160561/output/print

 

[Jimmy Snyder]

Hey, if Warren Buffet and George Soros can do it, anyone can become a billionaire.

I'm working on my second billion. I gave up on the first.

 

[mheslep]

Well I'm not sure is was only the regulators who were not doing their job. I've heard many reports of fraudulent mortgages, which involved over-valuation of income or property value (e.g. at Countrywide). I've heard of teams of mortgage agents processing mortgages without doing the appropriate verification of the information.

AFAIK, the FBI is investigating over 300 individuals with respect to questionable mortgages, and that does not include the investigation of accounting irregularities and fraud in the distressed financial institutions (e.g. Fannie Mae, Freddie Mac, Lehman, AIG, . . . .)

Ultimately it is a matter of personal integrity - without it human systems/societies are undermined.

Honesty is the best policy.

I agree with this post in the identification of aspects of the subprime story (regulators aside), but as an attempt at identifying fundamental causes I believe it completely misses the mark. There are always some people breaking the rules(Enron), and in a market economy there are periodically waves of people chasing unsound bubbles of economic activity (dot com). Those activities are usually collapsed by the market at much smaller scales than has been reached in this subprime case, even when completely unregulated (or mis-regulated). The glaring, fundamentally flawed difference in the subprime case is the government backed entities of Freddie and Fannie, without which this subprime crisis with all its bad agents, bad accounting, and foolish house flippers would never come anywhere close to its present scale. Everybody knew Fred/Fan had a $Trillion+ of subprime mortgages on the books, everybody knew the GSE's were continuing to do more of the same with the encouragement of much of Congress, that the regulators were specifically not given the power to cap the acquisition of even more mortgages.

Now, without those GSEs out there always promising to gobble up more lousy mortgages, there might have indeed been the odd Lehman or the like that might have gotten away with 30X leverage for awhile, but never to this scale, it never would have become systemic. No, instead we'd have something closer to an Enron sized scandal. With Enron, which built an analogous house of cards with energy trading, the short sellers finally looked at their model, called it BS, and hammered Enron into the ground. Instead of a $trillion subprime problem, we'd be arguing around the margins over a few $billion and some wiped out 401Ks. Imagine, instead of Fannie's fired CEO D. Mudd, that Enron's Ken Lay or AOL's Steve Case could had a relation w/ Congress where they could host the swearing in ceremony of an entire Congressional caucus and say things like "... come here today to reaffirm the friendship and partnership... So many of you have been good friends to Fannie Mae [Enron] and our mission. You've been friends through thick and thin. We have indeed come upon a difficult time for Fannie Mae [AOL]." - Mudd 2005. We would have had a similar bum's rush of people trying to do the same as Enron as everyone would know the govt. would not let the house of Enron fail.

I've gone on here because I think the GSEs and their coziness with Congress is being mis-characterized as just another plot twist of the subprime story. It is the story. Given recent commentary from Barney Frank, who contributes purposely to the confusion, it appears that his lot will set up the GSE's as before if allowed to. Blame Wall Street and inadequate regulation, do more regulation, claim again that the govt. has to act to provide affordable housing, and do uncapped GSEs AGAIN.

 

[mheslep]

The campaign ought to deny it if it's not true. Answering a couple of phone calls from someone on the campaign and talking about general economic issues is not the same as "working for the campaign". That's just a ridiculous conflation.

I, personally, think Raines is a scoundrel and would prefer that campaigns simply have no contact with him at all. But on the other hand, he was the White House budget director and thus, is probably very knowledgeable about economic issues at the national level. Besides, it's been over 4 years since Raines left Fannie.

Incidentally, the WP itself had an article that debunks the claim - extrapolated from the previous WP article - the Raines had any kind of "working" relationship with the Obama campaign.

Yes 'working' is the wrong word, my use and my mistake. That WP follow-up is fairly self-righteous in that it is debunking its own reporters article ala 'Shame on you for believing us'.

 

[nuby]

Bush is going to explain everything tonight. This ought to be annoying.
http://news.yahoo.com/s/ap/20080924/ap_on_bi_ge/financial_meltdown

How crazy is it that this jackass still has any credibility?

 

[Jimmy Snyder]

Hopes that the US was in a recession were dealt a setback yesterday when Ben Bernanke won points by pointedly pointing out the point that we are not at that point.

Federal Reserve Chairman Ben Bernanke told Congress on Tuesday that failure to act quickly could trigger deepening in the credit crisis that would lead to a recession, with rising unemployment and increased home foreclosures.

http://news.yahoo.com/s/ap/20080924/ap_on_bi_ge/financial_meltdown" . Get the point? Don't give up hope though, Ben may not get what he wants.

 

[Astronuc]

Analysis: Bailout blues may help define Bush term
http://news.yahoo.com/s/ap/20080924/ap_on_go_pr_wh/bush_bailout_blues

. . . . Just when the war in Iraq is going better, President Bush finds himself with a domestic crisis so vast it could redefine how he is remembered. To save a tanking economy, Bush is backing a bailout of historic proportions, brimming with federal intervention and taxpayer risk and a pile more debt.

Bush did promise to sprint to the finish. No one expected Wall Street to line the track with hurdles.

Aggressive lending to people with spotty credit led to record foreclosures, which imperiled investment houses and froze credit, the lifeblood of the economy. The upshot for people trying to make sense of it all: plummeting stock values, rising unemployment, shrinking confidence.

It could be much worse. And it will be. That is, Bush says, unless Congress acts fast to approve a bailout plan worth a staggering $700 billion.

. . . .

Democratic leaders ask for a smaller bailout
http://news.yahoo.com/s/ap/20080924/ap_on_bi_ge/financial_meltdown

WASHINGTON - Democratic officials say leaders are asking the Bush administration to dramatically cut the size of the $700 billion bailout of the financial industry and then come back to Congress later if they need more.

Under the plan, which is still emerging, Congress would approve a fraction of what President Bush is asking for — perhaps $150 billion or $200 billion — to allow the government to begin rescuing tottering financial companies.

A $200 billion here, $700 billion there. Pretty soon it's going to add up to serious money.

 

[jal]

People borrowed money that they couldn't pay back ...
Solution ... let them borrow more money!

 

[OrbitalPower]

The solution is to grow the government, err the economy, but actually not the economy.

3wHEOtg1OkY[/youtube] I think Mc.../2008/POLITICS/09/24/campaign.wrap/index.html

 

[kronon]

I'd be interested to hear from you guys how Bush's speech was received by americans generally?

From afar, in my personal opinion, i think that despite massive factual errors it was a strong speech that should hopefully help restore some confidence. Couldnt help notice the contrast with other countries: in the US, problems tend to be dealt with rather quickly and decisively, but in the UK for instance barely a peep from Brown and the rest since it all started 15 months ago. Very disappointing.

What was slightly grating however was bushs statetment that the cause of the credit problem was "due to wealthy foreigners investing in our country because its a good place to invest"...seemingly he just can't resist a dig, even when its totally wrong. I was waiting in vein for him to say "Its because I told greenspan to shut up, spare me the details, and just keep pushing".

 

[OrbitalPower]

I personally thought the speech actually wasn't that bad. He obviously outlined his soultions, the bailout and so on, and let's hope that if implemented, they work.

But, he also said that we need to prevent, in the future, some of these finanancial institutions from becoming so big that when they fail it's nearly essential the government bails them out. He also called our economy not "free-enterprise," or "capitalism," but "democratic-capitalism," and in democratic-capitalism, there is room to address some of the inequities of the marketplace and to adjust rules and regulation to given scenarios.

His other opinions on what it will actually cost the government were also interesting and it remains to be seen what will actually happen, but yes, I thought it was somewhat of a confidence builder.

 

[Astronuc]

Economic Activity Is Slowing Across Many Areas, Fed Chairman Says
http://www.nytimes.com/2008/09/25/business/25econ.html

WASHINGTON — The chairman of the Federal Reserve, Ben S. Bernanke, described the nation’s economy on Wednesday as one that was barely limping along and could buckle if financial institutions did not get a $700 billion crutch from the government.

The $700 billion crutch is apparently necessary to keep the economy progressing, and that is in addition to the monies (~$200 billion) already put up for Fannie Mae and Freddie Mac (in addition to a guarantee for JP Morgan's takeover of Bear Stearns), in addition to the current Federal deficit (est. >$400 billion), and in addition to the supplemental spending (>$100 billion) for the military involvement in Iraq and Afghanistan.

$700 billion is about 4.9% of the $14.4 trillion annual GDP.

There is something fundamentally wrong with this situation.


These (before the current financial crisis) might be of interest -

http://www.thestreet.com/s/the-state-of-the-union--and-its-debt/markets/marketfeatures/10400586.html

http://articles.latimes.com/2008/feb/05/nation/na-budget5

Estimate on federal deficit for FY2008
http://www.csmonitor.com/2008/0423/p01s01-uspo.html

 

[Astronuc]

Hurricanes drive spike in jobless claims
Initial weekly claims hit their highest level in seven years as people in hurricane-hit states file.

To add to the injury, the businesses and homes of many of these people simply do not exist anymore. Galveston and towns on Bolivar Peninsula are either decimated or obliterated.

• Durable goods orders down 4.5% in August