Paul Krugman states the obvious in today's New York Times:

Wages are falling all across America.

Some of the wage cuts, like the givebacks by Chrysler workers, are the price of federal aid. Others, like the tentative agreement on a salary cut here at The Times, are the result of discussions between employers and their union employees. Still others reflect the brute fact of a weak labor market: workers don’t dare protest when their wages are cut, because they don’t think they can find other jobs.

Whatever the specifics, however, falling wages are a symptom of a sick economy.

Krugman, like the classically trained economist that he is, then proceeds to explain the consequences: declining wages when combined with preexisting debt will result in economic stagnation for the indefinite future. And, of course, he advocates the expected interventionist Keynesian solutions: more stimulus, more decisive action on the banks, more job creation.

Poor Paul. No one sent him the memo from Summers and Geithner to Obama wherein they explained that the relentless process of global asset destruction is so extreme that the prospect of any recognizable economic recovery is slight. Similarly, financial institutions are already aware that they will no longer be promiscuously extending credit as they did during the bubble, and, hence, they will never again make such outsized profits in this manner.

In other words, no one has let Krugman in on the dirty secret that the pie has been permanently shrunk as a consequence of the bursting of the bubble, and that finance capital has planned accordingly. The imposition of austerity upon American workers is now express policy within the worlds of government and finance. Policymakers have already considered Krugman's Keynesianism and rejected it. Other measures like relief for distressed homeowners in bankruptcy court and the Employee Free Choice Act have no future as they would divert resources away from a distressed financial sector intent upon using the crisis to intensify control over the global economy.

If only Krugman had more friends specializing in political economy. As I explained back in July 2007, the roadmap is easy to follow:

. . . but what about the people who are losing their homes? What is going to happen to them? The answer is, as we all know, it is going to be brutal. Many of them are going to be pushed into the rental market for the rest of their lives, and many are going to have to leave the locations where they currently reside because even the cost of rent is going to be too much for them. So, we are looking at the prospect of two migrations, one from houses to rentals, and the other from expensive parts of the country to less expensive ones. Furthermore, quite a number of communities built for home owners will rapidly become rental ones. Some may even resemble ghost towns, as it becomes impossible to fill all of the homes with residents.

Left academics would say that the socioeconomic life of the US will subtlely display more and more features of sub proletarization, as more and more people in the lower middle class and even the middle class find themselves forced to migrate internally within the country (an economically generated group of internally displaced people?) and live under conditions of financial insecurity. Analogizing them to global migrants is a stretch, demeaning their struggle for survival, and, yet, many Americans face a future of insecurity in all aspects of their lives.

Unfortunately, as usual, I was too optimistic. As described by Krugman, the victims of this economic downturn will not be limited to those who lost their homes. Everyone who works for a wage is going to be asked to subsidize the preservation of a global neoliberal financial system through an even more ruthless expropriation of labor. Paul Volcker, an Obama advisor, alluded to it in December. I still encounter liberal friends who tell me that a social movement is about to erupt any day now that will force Obama to shed his neoliberal garb in order to don more fashionable FDR clothes. Hope springs eternal until the money runs out, I guess.

Labels: Bailout of Finance Capitalists, Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

The Senate votes down, by a 51-45 vote against, a measure that would have allowed bankruptcy judges to only permit creditors holding residential mortgages to recover the current value of the property as a secured debt. The remainder would have been downgraded to unsecured status. For those of you unfamiliar with the procedure of the bankruptcy court, secured creditors get paid ahead of unsecured ones, and, if there is no money left for the unsecureds after the secured get paid . . . yes, they get nothing.

The consequences of this defeat are significant. In the big, macroeconomic picture, it eliminates an incentive for financial institutions to write off losses on mortgages issued during the bubble, and replace them with new ones based upon current market values, thus keeping more people in their homes, out of bankruptcy court, and capable of contributing to a stabilization of demand. Instead, many of the people currently underwater in their homes will be sub-proletarianized. Furthermore, it permits these institutions to persist in attempts in bankruptcy court to collect the entirety of the amount due on the mortgage as secured, to the detriment of other unsecured creditors, who will have to wait for payment, if there is any, until the note holders capitulate to reality. As a result, the credit crunch will remain with us longer than necessary.

But, wait, you say, perhaps it is a good thing. Won't this push us towards a more collective response to the global recession? Doesn't keeping people in their homes merely perpetuate the privatization of social life? Do we really want people to regain their access to credit, and, thus, continue to perpetuate a capitalist system of production, distribution and consumption? Well, no. But the notion that we persuade people that a collective, non-hierarchical alternative is superior by throwing them out on the street and tearing up their credit cards doesn't strike me as plausible. Many socialists and anarchists have historically sought to build support for their vision of society by assisting people in their day to day struggles, and that is an apt strategy here. And, there is always the peril that desperate people will embrace right wing extremism instead of left radicalism.

Meanwhile, one has to wonder why other sectors of the economy outside finance weren't actively lobbying for the passage of this bill. Measures that redirect funds from finance capitalists to the manufacture of goods and the provision of services, as this measure would have indirectly done, would most definitely be in their interest. But they have been immobilized in the face of the power displayed by Wall Street as financial institutions dictate policy for their exclusive benefit. As Michael Hudson said last November: A kleptocratic class has taken over the economy to replace industrial capitalism. Hence, the US is now a country defined by those who aspire to be a Suharto, not a Ford, Edison, Gates or Jobs.

Labels: American Empire, Anarchism, Bailout of Finance Capitalists, Credit Crunch, Global Recession, Housing Bubble, Neoliberalism, Sub-Proletarianization of America

As some of you have already noticed, I am posting links to articles that I consider to be especially informative about the global economic crisis to supplement my periodic posts on the subject. This one, by Mike Whitney, is a must read, an excellent analysis of a catastrophically failed governmental response, and the dire consequences that will inevitably ensue. Attentive readers of the last paragraph will recognize that Whitney undoubtedly read the naked capitalism post that I linked here on Tuesday.

In the past, I have tried to keep the number of these sorts of posts to a minimum, because I believe that I should provide an original perspective to readers of this blog, something beyond just referring people elsewhere. After all, portals do that. But the issues associated with this economic collapse are so important, so integral to our lives, and so poorly presented in the commercial media, that I consider it essential that we familiarize ourselves with the invaluable work of people like Whitney, Michael Hudson, Calculated Risk and Mr. Mortgage, among others. Of course, you can visit the sites where they post their work as I do, and I strongly recommend it. Hudson and Whitney can be frequently encountered at Counterpunch. Calculated Risk also has links to numerous other sources of information about the crisis.

But, never fear, I will continue to post my own opinions, as I did yesterday.

Labels: Bailout of Finance Capitalists, Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

Back in early February, I expressed my concerns about the stimulus plan within the larger context of a bailout of the insolvent financial institutions, an ongoing bailout of historically unprecedented cost, and the perpetuation of militaristic policies that necessitate enormous military expenditures. At the conclusion of that post, I suggested a couple of alternatives to a stimulus proposal that, when considered along with the bailout and the Pentagon budget, I considered too costly and poorly targeted.

First, I advocated for the federalization of the unemployment insurance programs run by the states, with a much higher wage replacement rate of 60%, capped at $50,000 in benefits per year. Stimulus funds directed in such a manner would arrest the decline in consumption, reduce the number of foreclosures and preserve the jobs of people still employed. Current wage replacement rates are far too low to achieve these outcomes, based as they are on the belief that reasonable replacement rates discourage people from seeking work. Indeed, the rate of job loss is accelerating and , while the attempt to reduce foreclosures through loan modifications has been shockingly unsuccessful.

Second, it is time for the government to take action and utilize its regulatory control over the financial sector, a control utilized to date in the service of bailing out the institutions that created the housing bubble, to induce them to implement Mr. Mortgage's recommendation that upside down borrowers be granted principal reductions. He correctly observes that only in this way can the economy be resuscitated. As someone who exalts individual decisionmaking through the markets, he would probably consider this inappropriate governmental coercion, but, as a leftist, I am much more sanguine about it.

Why am I revisiting the subject after the stimulus plan has already been passed? Well, as recent unemployment and foreclosure data indicate, there is good reason to believe that the bailout and the stimulus plan have failed, intensifying the risk that of an even more intense and socially disruptive collapse of the global economy. Just because they got it wrong the first time, and continue to get it wrong, doesn't mean that we should stop promoting better alternatives. Furthermore, if we give it some thought, there are other proposals worthy of consideration as well.

Ponder, for a moment, the demand killing consequences of the costs of a college education and the need to service student loans upon graduation. It is hard to buy much, or just make end's meet, when you are paying back student loans that can easily exceed over $100,000. Or, even worse, as is now being reported, the inability of people to attend college at all because they can't afford it. Why not just direct a lot of stimulus money towards grants for people to attend school, rather than dole out tax cuts? Didn't the government implement a program like that for veterans after World War II? Why not direct funds into the educational system itself, so that they can avoid reducing the number of applicants admitted?

Ponder also the emerging trend of people refusing to go to the doctor to receive periodic tests and preventive care:

Kimberly Ragucci, a graphic designer, has a high-deductible health plan that pays for expenses only after she has spent $5,000 in a year.

The 23-year-old mother, who lives in Long Beach, doesn't have dental or vision insurance. She takes her son for regular pediatric care, but barring a medical emergency, she said she didn't plan to seek healthcare for herself any time soon.

"I have astigmatism, and I need a new prescription," she said. "I haven't been to the eye doctor for more than two years. And ever since I got pregnant, my teeth have moved a lot. I know I need to see a dentist, but I can't afford it."

Surely, we could direct stimulus monies toward paying for such care?

I know, I know, we should have a single payer health care system, and such spending, as with the educational grant program, may have a marginal direct economic impact. But do they? As noted elsewhere in the article, dentists in Southern California are experiencing a 15% to 30% decline in business. Reduced enrollment by universities result in pressure upon employees to accept less pay and benefits, if not layoffs. As the cultural left recognized long ago, the provision of medical care and educational instruction are forms of production as well, as much a part of the capitalist processes of the expropriation of surplus value and primitive accumulation as the more commonly historically recognized forms of manufacture.

Labels: Bailout of Finance Capitalists, Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

On Monday, Treasury Secretary Timothy Geithner announced his plan, long anticipated, for addressing the trillions of dollars in toxic debt held by US financial institutions:

Administration officials outlined a three-part Public-Private Investment Program that offers private investors vast amounts of cheap, taxpayer-supported financing for every dollar they put up of their own money.

In essence, the Treasury and the Federal Reserve will be offering at least a tablespoon of financial sugar for every teaspoon of risk that investors agree to swallow.

“There is no doubt the government is taking a risk,” Mr. Geithner acknowledged at a briefing for reporters. “The question is how best to do it.”

Under one main component of the plan, the Federal Deposit Insurance Corporation would oversee a program in which banks offer bundles of whole mortgages for sale to investors. The F.D.I.C. would set up an auction for each bank portfolio, allowing a bank to sell the mortgages to the investor that offers the highest bid.

But the crucial incentive for investors — traditional fund managers, hedge funds, private equity funds, pension funds and possibly even banks — is that the government would lend as much as 85 percent of the purchase price for each portfolio of mortgages.

On top of that, the Treasury would invest one dollar of taxpayer money for every dollar of private equity capital to cover the remaining 15 percent of the portfolio’s purchase price.

The arrangement is similar to some of the distressed-asset sales arranged by the Resolution Trust Corporation, the federal agency that was responsible for cleaning up the savings-and-loan debacle of the early 1990s.

But the scale of the new program is much bigger.

In addition to the F.D.I.C.’s program, the Treasury would help finance a series of public-private investment funds to buy up unwanted mortgage-backed securities, or pools of mortgages that have been packaged into bonds with a credit rating.

Those two programs alone could buy $500 billion to $1 trillion worth of troubled assets, according to Mr. Geithner. The Treasury would kick in $75 billion to $100 billion from the Troubled Asset Relief Program as equity.

But the Treasury could pump almost $1 trillion more into the toxic-asset effort through a program called the Term Asset-Backed Securities Loan Facility, or TALF, a joint venture with the Federal Reserve.

Joseph Stiglitz was not impressed, and probably lost any future invitations to Obama administration economic policy forums with his scathing remarks:

The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday.

"The Geithner plan is very badly flawed," Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

U.S. Treasury Secretary Timothy Geithner's plan to wipe up to US$1 trillion in bad debt off banks' balance sheets, unveiled on Monday, offered "perverse incentives," Stiglitz said.

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

"Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

Even if the plan clears banks of massive toxic debt, worries about the economic outlook mean banks could still be unwilling to make fresh loans, while the prospect of a higher tax burden to pay for various government stimulus plans could further undermine U.S. consumers, he said.

But you really didn't need a Nobel Prize winning economist to tell you that, did you? And, of course, you must already know that the banks that went broke making these loans have already figured out how to game the system:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post.

Both Citi and BofA each have received $45 billion in federal rescue cash meant to help prop up the economy and jumpstart the housing market.

But the banks' purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.

The secondary market represents a key cog in the mortgage market, and serves as a platform where mortgage originators can offload mortgages in bulk that have been converted into bonds.

Yields on such securities can be as high as 22 percent, one trader noted.

BofA said its purchases of secondary-mortgage paper are part of its plans to breathe life back into the moribund securitization market.

"Our purchases in [mortgage-backed securities] increase liquidity in the mortgage market allowing people to buy a home," said BofA spokesman Scott Silvestri.

A Citi spokesman declined to comment, though people familiar with the bank say it argues the same point.

Citi's and BofA's purchases highlight the challenges both banks face while operating under intense public scrutiny.

While some observers concur that the buying helps revive a frozen market, others argue the banks are gambling away taxpayer funds instead of lending.

Michael Hudson describes in this informative article why the government subsidy for this program induces banks to engage in the behaviour already attributed to Bank of America and Citigroup.

As for long term consequences, Mike Whitney nails it, connecting the toxic assets plan with Geithner's request for more regulatory powers that would enable him to seize non-bank financial companies, such as insurance companies, hedge funds and investment firms:

Prediction: If Geithner is granted these special powers by the braindead Congress, the country will undergo the greatest period of bank consolidation in its 230 year history. This is a blatant power grab by a shifty character who has risen to his present pay-grade by nosing his way up the political stepladder. Congress had better get its act together and put an end to this nonsense or the nation will continue its fast-paced metamorphosis into a feudal oligarchy run by the Bank Mafia and Wall Street racketeers.

Geithner, Summers and Bernanke aren't just allowing transnational financial institutions to game government assistance programs purportedly required to stabilize the economy, no, it is bigger than that. They are allowing them to game the entire American political system, with the intention of consolidating even more power within a small financial elite.

Labels: Bailout of Finance Capitalists, Credit Crunch, Neoliberalism, Sub-Proletarianization of America

The handwriting is on the wall in regard to decline of American economic power:

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

Hongbin is deliberately understating the situation. The problem is not the fact that the US Federal Reserve is printing money, but, rather, that the Fed is printing money in an attempt to preserve the global preeminance of US financial institutions that would otherwise be moribund, with the risk assumed by foreign holders of dollar denominated assets. If the Fed was printing money in support of a policy that would revive the US consumption of Chinese exports, the People's Bank of China would not be nearly as alarmed.

But the Fed is doing the opposite, as US banks cut back on the extension of credit and Americans pay down their debt and increase their rate of savings. As a consequence, the US is slowly, but surely, moving towards reduced consumption, if measured by expectations before the recession, and increased domestic manufacture of products at the expense of foreign countries dependent upon the US market. Hence, the lack of concern by the Obama administration and the Federal Reserve about the inevitable decline in the dollar that will result from the bailout and the stimulus plan. The policy is also alluring from a geopolitical standpoint, as a decline in China's manufacturing base would be perceived quite positively by the military-industrial complex, a way of perpetuating US global hegemony.

Accordingly, if accepted on its own terms, the internal logic of such a policy is quite compelling. There are, however, good reasons to speculate as to whether Americans will accept the sacrifice involved in such a painful transition, as noted here last fall. In effect, the US would be atttempting to preserve its financial and military dominance through a conscious policy of import substitution, a policy that would initially require a form of shock therapy that prices many imports out of the reach of most Americans. Generations of people accustomed to possessing the most advanced Japanese, Chinese and European products will be stunned to discover that they only the wealthy will still be able to purchase them. Increased social unrest is very likely as the effects of the policy become evident, although the prospect that such unrest, predominately populist in nature, will result in more equitable social policies appears slight.

Furthermore, the policy also assumes that China does nothing in response, clearly, a misguided belief, as this article demonstrates. China has substantial reserves, and can direct them towards the creation of domestic market to replace foreign ones like the US. One suspects that the leadership of the Chinese Communist Party anticipated this threat before the recession because Hu Jintao has been emphasizing the need for a more equitable distribution of income within China for several years. It has been common to dismiss these concerns as a mere rhetorical effort to address growing unrest, but, perhaps, there was something much more serious beneath the surface, a recognition that China had to become more economically independent of the US in order to avoid a preemptive US financial strike against it through devaluation of the dollar.

Projecting the future is a dangerous business, but the advantage here would appear to lie with China. Debtor nations rarely, if ever, succeed in reestablishing the dominance they possessed in their manufacturing and export heydeys. Of course, I shouldn't ignore the possibility that it will all end badly for all concerned. Even so, East and South Asia seems more favorably positioned to weather the storm. And, then, there are the workers themselves. How will they react to these tumultuous changes, changes that, in all instances, will result in even more rapacious forms of primitive accumulation within the societies in which they live? Or, to put it more simply, how will they react to more extreme expropriations of their wealth, expropriations required to facilitate future capitalist development? So far, with the exception of continental Europe, there are few, if any signs, of an emerging collective consciousness required to resist it.

Labels: Activism, American Empire, Bailout of Finance Capitalists, China, Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

[Family and work demands have prevented me from posting so far this week, but I hope to return with something new soon. In the meantime, you might find this post from last October of continuing interest.]

As I said the other day, I try to avoid substituting survivalism for political and social analysis. But that doesn't mean that we shouldn't consider the possibility of some dire outcomes as a result of the current financial crisis. Apparently, there is an old adage that financial market bears are too early and too optimistic. Unlike many, I knew that the housing bubble, and the subsidized credit that created it, couldn't be sustained. Even so, I failed to perceive the catastrophic consequences that would ensue when it burst.

For example, I didn't believe that home prices in Sacramento County, a housing bubble epicenter and my county of residence, would fall almost 50% from their peak in the summer of 2006. Nor did I realize that the worthlessness of subprime mortgage debt issued to purchase these homes here and elsewhere was the equivalent of an infectious disease that would contaminate the global financial system, paralyzing its ability to extend credit. I didn't anticipate that the deleveraging of this debt, and the derivatives associated with it, would spread exponentially, requiring the injection of hundreds of billions, if not trillions of dollars, in an attempt to arrest a deflationary spiral that would push the global economy into a protracted recession.

My anxieties were initially limited to a belief that we would experience a slow, grinding sub-proletarianization of America, as the lives of the lower middle class and many within the middle class are increasingly characterized by economic insecurity through foreclosures, job losses and the lack of access to credit. Collectively, this transformation will result in an alarming degradation of the quality of life within many American communities. More recently, I pondered whether the crisis was being manipulated for the purpose of consolidating the power of the dominant capital class. I am now, however, beginning to wonder if we are facing something much more serious.

Over the last 30 to 35 years, the expansion of the money supply through credit has been an essential feature of the neoliberal economic order constructed by Reagan, Thatcher, and, less commonly known, Deng Xiaoping. It is generally recognized that this expansion constituted a temporary substitute for stagnant wage growth during this period. Less emphasized is the extent to which it also facilitated the creation of a global system of finance, transport and telecommunications. Emerging markets, and the corporations within them, better known to us on the left as lesser developed countries, were now able to access capital through the issuance of debt, equity and the privatization of state controlled resources and services.

Transportation and communications systems were constructed out of this massive pool of capital as the architects exploited new technologies, such as the personal computer and fiberoptics. Two important things happened along the way. First, everything was fragmented, meaning any business enterprise, including those associated with the transportation and communications spine of the global economy, relied upon goods, services and skills that were dispersed, if not across the globe, then, at least regionally and continentally, as there was a merciless exploitation of the most efficient division of labor, which could now be accessed hundreds, and even thousands, of miles away.

Second, all of these enterprises relied upon business models that necessitated the use of significant sums of short, intermediate and long term debt, obtained directly from capital markets. Funding such activities through monies obtained through operations and state subsidy was out of the question, as the costs of this new infrastructure was too great, and, anyway, it was pretty much prohibited by the arbitrators of the global economic system, the IMF and the World Bank. Both the fragmentation of operations and their expansion through access to debt required reliable access to funds on capital markets at cheap rates. With the passage of time, it became an anomaly for any business enterprise to be able to conduct its day to day operations without perpetual recourse to short term credit.

Of course, the creation of this global system of finance, transportation and communication has not been a smooth one. It has proceeded in fits and starts. There has been much turbulence. After the euphoria of the fall of the wall, there was the 1995 peso crisis, the 1998 one involving a highly leveraged hedge fund, Long Term Capital Management, and, of course, the bursting of the NASDAQ bubble. Lesser ones afflicted individual countries and regions. But none of these crises, as serious as some of them were, threatened the ability of the enterprises to access the capital they needed to continue operations, or, perhaps, it can more accurately said that they did not do so to such a degree that they threatened to impair the functioning of the overall system. There were liquidations, consolidations, mergers and retrenchments, but the movement toward integration proceeded, with the inevitable jerkiness associated with neoliberal capitalism.

Now, it feels different, very different. Financial institutions are not doing business with one another, even for short periods of time. Lending to businesses, including the transnationals, is either drying up or becoming cost prohibitive, even if the duration of these loans is short. If this persists, the consequences could be very severe. Commerce can only sharply contract when its participants cannot access the funds they need to operate. If they are subjected to significantly increased costs for accessing it, they may be forced to reduce the scope of their activities, and passively permit the degradation of their equipment and services.

If we were living in the 1930s or the 1960s, Keynesian stimulus measures would probably suffice to overcome the problem. But we don't. Remember the two major consequences of credit expansion in the neoliberal era: fragmentation of goods, services and skills within the business enterprise and increased dependence upon access to credit markets to conduct operations. A prolonged period of lack of access to credit risks the unraveling of the global network. Communication and transport collapse. It becomes impossible to bring together, sometimes materially and sometimes virtually, the goods, services and skills necessary to manufacture an array of consumer products like cars, flat panel televisions, personal computers, and even furniture, clothes and other textiles. It becomes impossible to ship them to retailers, impossible to market them to the public.

Obviously, the more likely outcome is that credit is going to beome more costly as opposed to unavailable. Even so, we shouldn't be too reassured about the outcome. If credit becomes too expensive, under new, more rigorous standards, then there will still be a substantial reduction in the scope of service, creating the prospect that, in more and more places, global transport and communication will operate erratically, if at all, with similar outcomes as already described. Accordingly, while it would not lead to the systemic collapse provoked by a loss of access to credit, it could result in less reliability in the provision of consumer goods, somewhat reminiscent of the old USSR, but probably not as pronounced. It would also ignite the reversal of the neoliberal globalization process, as corporations would be forced, through application of a remorseless cost-benefit analysis, to decide whether more concentrated or atomized production platforms were more appropriate. In some instances, they would decide that shutting down production entirely was required.

If one has a particularly survivalist bent, one can imagine all kinds of deliciously nightmarish scenarios, with people around the world unable to purchase clothes and baby formula, much less computers and blackberries. Social order breaks down as people formerly used to effortlessly buying clothes and food from thousands of miles away can no longer reach others 150 miles away to obtain them. Farmers purchase automatic weapons to deter hungry urbanites and suburbanites intent upon seizing their organic blueberries. A flourishing black market in bicycle tires enriches a generation of anarchist bike repair geeks.

I wouldn't go so far as to say that such scenarios are impossible. But I still believe that they are not very likely. I do believe, however, that we are about to experience a serious decline in the quality of life, if one defines we as the middle and upper middle class of the developed world. The relaxed assurance that comes with knowing that the system works for us, and will continue to effortlessly convey consumer goods to us to fulfill our daily needs, whether real or perceived, is about to end. In other words, we are about to discover how the vast of majority of the world has lived under neoliberalism, and even the more benign aspects of it that we will experience are not going to be very pleasant.

Labels: Credit Crunch, From the Archives, Global Recession, Housing Bubble, Neoliberalism, YouTube

Not surprisingly, this New York Times article, written in the paper's time honored method of recourse to authority, ignores the more serious social implications of the economic restructuring that it describes. The reporters, Peter Goodman and Jack Healy, walk up to the edge of the water by recognizing that many of the jobs lost during this recession, particularly within manufacturing, finance and retail, are never going to return, but, fearful of getting their feet wet, they shrink away from the troubling consequences. Curiously, they also fail to recognize the extent to which job growth in recent years was driven by ancillary goods and services associated with the housing bubble. Here in Northern California, contractors are experiencing the economic equivalent of a nuclear winter. It is hard to imagine how all of them will survive, given that they are outside the system of unemployment compensation. For those of you interested in the serious, profound social dimensions of this recession evaded by Goodman and Healy, go here.

Labels: American Empire, Credit Crunch, Housing Bubble, Neoliberalism, Sacramento, Sub-Proletarianization of America

Absolutely amazing. Even Bush wouldn't have dared to do this:

Banking chiefs, who have come under sharp criticism for not making more loans even as they have accepted billions of taxpayer dollars to prop themselves up, say it is the markets, not the banks, that are squeezing American borrowers.

The Obama administration hopes to jump-start this crucial machinery by effectively subsidizing the profits of big private investment firms in the bond markets. The Treasury Department and the Federal Reserve plan to spend as much as $1 trillion to provide low-cost loans and guarantees to hedge funds and private equity firms that buy securities backed by consumer and business loans.

The Fed is expected to start the first phase of the program, which will provide $200 billion in loans to investors, in early March.

Yes, you read that right, you don't need to go to the optometrist. Obama believes that global credit markets can be revived by shoveling as much as $1 trillion dollars to hedge funds and private equity firms to effectively subsidize their profits in bond transactions.

Under Bush, Paulson and Bernanke initiated the policy of trying to ignite a recovery by pouring trillions into the banks. As we all know, this policy has failed as the banks predictably hoarded the money, but the failure has not encouraged Obama to abandon it, but, rather, to expand it, by putting even more money directly in the hands of hedge fund and private equity fund managers. Instead of recognizing that the existing system of global finance and credit provision is irreparable, Obama continues to expend unlimited sums to recreate it, and he has already expressed his intention to consider cuts in Social Security and Medicare benefits to pay for it. Truly, he's a disciple of the Chicago School of Economics.

As for the intended recipients of these funds, they are among the most contemptible hypocrites in recent memory. How often have we seen these fund managers lecture us about the virtues of the market and the evils of government intervention as they enriched themselves? How often have we heard them assert that regulations protecting workers, consumers and the environment are horrible inefficiencies that must be relaxed, if not removed, with the most ideal system being one in which the market regulates itself. Now, they are running to get a spot near the front of the line so that they can start receiving their government money. And, did I forget to mention that these fund managers pay a much lower tax rate on their income that nearly all of us??

Labels: Bailout of Finance Capitalists, Barack Obama, Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

As related here by Yves Smith at naked capitalism, President Obama has decided to place Treasury Secretary Timothy Geithner and National Economic Council chair Lawrence Summers in charge of overseeing the extension of federal financial assistance to the automobile industry. Smith describes the pitfalls of doing so in his typically entertaining, enlightening style, but glosses over the obvious.

As with the bailout, Geithner and Summers will act to ensure that capital, that is, the investors, are favored over the proletariat, that is, the workers, thus serving to further depress demand and intensify deflation. They will continue to channel federal funds for the benefit of what Michael Hudson and others have described as FIRE, the finance, insurance and real estate sectors of the economy, to the detriment of tangible production and consumption. As Hudson explained last week over at Counterpunch in relation to Geither's skeletal plan to revive the banks:

The three-pronged Treasury program seems to be only Stage One of a two-stage “dream recovery plan” for Wall Street. Enough hints have trickled out for the past three months in Wall Street Journal op-eds to tip the hand for what may be in store. Watch for the magic phrase “equity kicker,” first heard in the S&L mortgage crisis of the 1980s. It refers to the banker’s share of capital gains, that is, asset price inflation in Bubble #2 that the Recovery Program hopes to sponsor.

The first question to ask about any Recovery Program is, “Recovery for whom?” The answer given on Tuesday is, “For the people who design the Program and their constituency” – in this case, the bank lobby. The second question is, “Just what is it they want to ‘recover’?” The answer is, the Bubble Economy. For the financial sector it was a golden age. Having enjoyed the Greenspan Bubble that made them so rich, its managers would love to create yet more wealth for themselves by indebting the “real” economy yet further while inflating prices all over again to make new capital gains.

The problem for today’s financial elites is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. No amount of new capital will induce banks to provide credit to real estate already over-mortgaged or to individuals and corporations already over-indebted. Moody’s and other leading professional observers have forecast property prices to keep on plunging for at least the next year, which is as far as the eye can see in today’s unstable conditions. So the smartest money is still waiting like vultures in the wings – waiting for government guarantees that toxic loans will pay off. Another no-risk private profit to be subsidized by public-sector losses.

Accordingly, one should perceive the selection of Geithner and Summers to oversee efforts to revive the automobile industry as part of a larger effort to revive the bubble economy of the last 15 years. What does this mean? Further subsidization of investors by the government and the workforce so as to create future speculative opportunities. Workplace protections will be eroded, if not eviscerated, while a program is developed, probably in association with the development of so-called green technologies for automobiles, to attract future investment.

In the unlikely event that Geithner and Summers succeed in their regressive effort to return to the bubblicious world of the Clinton and Bush presidencies, don't be surprised if one of the first bubbles of this brave new world emerges in spinoff companies associated with GM, Ford, and, if it survives, Chrysler. Companies free, of course, from the constraints of a unionized workforce. Eric Janszen of iTulip, has already generally anticipated such a development in relation to alternative energy, and the distressed automobile industry looks like a good laboratory for it.

As for the automobile workers themselves, they obviously had good reason to distrust Obama during the 2008 election, despite attempts to characterize their suspicion of him as racist. They are about to get royally screwed by a President from a political party that poses as their protector. Just in time to face the prospect of lower social security and Medicare benefits upon retirement.

Labels: Bailout of Finance Capitalists, Credit Crunch, Death of Detroit, Global Recession, Neoliberalism, Sub-Proletarianization of America

Many of you are probably familiar with Nouriel Roubini's analysis of the collapse of the global economy, and he has little new to say here in this CNBC interview this morning, except, perhaps, a subtle emphasis that time is running out to get things right. The revelation is the insistence of Nassim Taleb that a recovery is not possible without getting rid of the people in the government and the economy that created this crisis.

Taleb is also adamant that the culture of moral hazard whereby the government backstops the speculation of bankers and investors must end. Roubini comes off the bench to drive the point home when he notes that the economy will not recover until there are incentives for people to invest in real, tangible economic activity. Unfortunately, the probability of these things happening remains nil.

Hat tip to Calculated Risk.

Labels: Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

Even a pallid Keynesian like Krugman recognizes that the stimulus bill is a disaster:

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.

Even if the original Obama plan — around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts — had been enacted, it wouldn’t have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.

Is is too soon to suggest that the President Obama has already proven himself to be an abject failure? He celebrates a bipartisan compromise in the Senate that eviscerates his economic program, falling back upon the true and true method of declaring a victory where none exists in the hope that most people will be temporarily deceived. Or, maybe, he really does care more about everyone in the DC power elite getting along than he does about whether the rest of us have jobs.

Labels: Barack Obama, Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

Perhaps, it is a little too late to post on this subject. The House has already approved a version of President Obama's stimulus plan, and the Senate will act soon upon another one. There has been a great deal of comment by people from nearly all political persuasions, as well as upon blogs that focus on the economic turmoil that has engulfed the US and much of the world.

But, even so, it is important for leftists to step back a moment and consider whether the stimulus plan is the appropriate response to the accelerating downturn. With the exception of Marxists and anarchists, there has been near unanimity, especially among liberals, that a Keynesian version of shock and awe in the hundreds of billions of dollars, if not a few trillion dollars, is necessary to arrest the deflationary, depressionary spiral.

Is this true, though? Some readers may recall my December citation of Financial Times reporter Martin Wolf for the proposition that the US, as a country already running enormous trade and budget deficits, is ill-suited under classical Keynesian doctrine to deficit spend the global economy into a recovery. Instead, the US is likely to spend itself into bankruptcy through a Keynesian stimulus program and an ongoing bailout of the banking system unless Americans are willing export more, import less and accept sharply reduced domestic budget deficits. Or, to put it more bluntly, the US is likely to go bankrupt unless Americans are willing to accept a lower level of consumption and a curtailment in public services.

I am very sympathetic to this view, so much so that I believe that we should have pursued another approach from the inception of this crisis. Hopefully, it is not too late to do so, and such an approach would have been centered around two principles: First, the US should, along with other countries, reorganize the global financial system through liquidation and consolidation. The G-7, along with China and India, would do so through the creation of a multinational authority empowered to immediately write down bad debt and liquidate insolvent institutions, so that the remaining ones can lend money to one another, and thereafter to the general public, without fear of the unknown. Recapitalization of banks would be financed through transaction fees placed upon the transfer of financial instruments in global markets. Nationalization would be a last resort, resulting in public ownership and the creation of governance structures consistent with such ownership.

Second, within the US, the federal government would deficit spend primarily for the purpose of providing a safety net for those facing severe hardship as a result of unemployment and the loss of the homes. Along these lines, unemployment insurance funds, now within the jurisdiction of individual states, and, in many instances, bordering on insolvency, would be completely federalized for a specified period of time, say two or three years. The federal government would then pour billions into these funds so as to guarantee a much more generous minimum benefit, say 60% of one's salary prior to discharge, with a maximum yearly benefit amount of around $50,000. Of course, these benefits would be untaxed at both the state and federal level.

Such a program would be matched by a loan modification program whereby the banks would be required to refinance the mortgages of people facing foreclosure at existing market rates for those properties. They are already begrudgingly moving in this direction, as they are going to have to eat the losses, anyway. After all, why foreclose on the mortgages when they can instead create a new stream of income by substituting new ones, especially as they are desperate for new transaction fees and revenues going forward.

The problem, as documented frequently in recent months by Mr. Mortgage, is that the terms of modifications currently offered by lenders are extremely adverse to borrowers, so much so that they are analogous to renting the properties, with the borrowers responsible for additional interest payments, property taxes and maintenance. As Mr. Mortgage correctly observes, the only way for the housing market, and, indeed, the US economy to recover, is for lenders to provide permanent principal balance reductions. Instead, the government is allowing lenders to create a new generation of debt that will expose its toxic character in a few years.

I am admittedly no economist, but I believe that the overall cost of these measures would have been much less than what has already been expended upon the banks through the Federal Reserve and the Treasury, and even less expensive than the current stimulus plan moving through Congress. Of course, there should be no tax cuts, but infrastructure improvements are worthy of consideration, as long as they are effectively targeted to employ large numbers of people to address known deficiencies, such as an improved transportation system, including mass transit and school construction. Employment through infrastructure programs would reduce the amount of funds required to federalize the unemployment insurance programs of the states and guarantee a reasonable benefit amount.

Overall, my approach is based upon the notion that wealthy speculators in the financial sector should be subjected to the brutalities of the market that they celebrated as it enriched them, if only, in some instances, for a brief period, while those of us who were involuntarily subjected to the consequences of the financial catastrophe that they created should receive extensive financial assistance to avoid losing our homes, our families, and, in extreme cases, our lives. Unfortunately, the incoming Obama administration, like the Bush one it replaced, is doing the opposite, devising new ways to channel government funds to bankrupt banks while avoiding the appearance of doing so. It is hard to see how this is going to arrest the free fall in the global and domestic economies.

Labels: American Empire, Bailout of Finance Capitalists, Barack Obama, Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

Remember this post from late December? Kevin Johnson, a young, black, Atlanta entrepreneur discovered that American Express had slashed his credit limit, despite a perfect payment history and high credit score. After quoting the Atlanta Constitution article, which didn't emphasize his race in the text, I observed:

Mr. Johnson, if you haven't already guessed is black, as you can clearly see from his photograph, which accompanies the story. He is also a successful executive, as explained in the article as well. One can only imagine how many African Americans less fortunate have already experienced reductions in credible regardless of their history of payment. Just as people of color were disproportionately victimized by the housing bubble, they are likewise going to be targeted to during the recession.

Well, now, it turns out the American Express is terminating this mysterious credit evaluation program:

In recent months, American Express has gone far beyond simply checking your credit score and making sure you pay on time. The company has been looking at home prices in your area, the type of mortgage lender you’re using and whether small-business card customers work in an industry under siege. It has also been looking at how you spend your money, searching for patterns or similarities to other customers who have trouble paying their bills.

In some instances, if it didn’t like what it was seeing, the company has cut customer credit lines. It laid out this logic in letters that infuriated many of the cardholders who received them. “Other customers who have used their card at establishments where you recently shopped,” one of those letters said, “have a poor repayment history with American Express.”

It sure sounded as if American Express had developed a blacklist of merchants patronized by troubled cardholders. But late this week, American Express told me that wasn’t the case. The company said it had also decided to stop using what it has called “spending patterns” as a criteria in its credit line reductions.

“The letters were wrong to imply we were looking at specific merchants,” said Susan Korchak, a company spokeswoman. The company uses hundreds of data points in making its decisions, she said, adding that the main factor in determining credit lines “has always been and still is the overall level of debt, relative to the card member’s financial resources.”

OK, American Express still has a lot of ways to engage in mischief here. Interestingly, though, it also turns out that Johnson played a prominent role in publicizing the program and embarrassing American Express:

Kevin D. Johnson, a 29-year-old Atlanta resident who runs a marketing and communications firm, received a letter from American Express last October saying that his credit limit was being lowered. One reason was that other customers who had used their cards at places where he had shopped were late in paying their bills.

The company couldn’t — or wouldn’t — tell him which charges had met with its disapproval. Frustrated, he told his story to the local newspaper and on “Good Morning America.” He also began documenting his experience on newcreditrules.com, where he posted the names of all the merchants he patronized, in the hope that other American Express customers would cross-check his list with theirs and solve the mystery.

Good work, Kevin! But, as I said in my original post, I believe that there was more to it. I suspect that American Express performed an internal audit, and discovered that disproportionate numbers of people of color with good income and good credit histories were experiencing substantial reductions in their available credit. The public relations debacle regarding spending patterns, spending by card users at particular merchants, was just the tip of the iceberg, and potentially a red herring. It is very possible that American Express is still evaluating creditworthiness based upon spending patterns, but in a modified way, subjecting the outcomes to an analysis as to whether they are having a disproportionate racial impact. And, oh, did I forget to mention that Obama just got inaugurated?

Labels: African Americans, Credit Crunch, Global Recession, Neoliberalism, Racism

President Barack Obama, in his inaugural address:

What is required of us now is a new era of responsibility — a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task.

From Fannie Mae, formally known as the Federal National Mortgage Association, in a Securities and Exchange Commission filing today:

Based on preliminary unaudited information concerning its results for these periods, management currently expects that the Federal Housing Finance Agency, acting in its capacity as conservator of Fannie Mae (the "Conservator"), will submit a request to the U.S. Department of the Treasury ("Treasury") to draw funds on behalf of Fannie Mae under the $100 billion Senior Preferred Stock Purchase Agreement entered into between Treasury and the Conservator, acting on behalf of Fannie Mae, on September 7, 2008, and subsequently amended and restated on September 26, 2008 (the "Purchase Agreement"). Although management currently estimates that the amount of this initial draw will be approximately $11 billion to $16 billion, the actual amount of the draw may differ materially from this estimate because Fannie Mae is still working through the process of preparing and finalizing its financial statements for the fourth quarter of 2008 and the year ended December 31, 2008.

Furthermore, as noted by CalculatedRisk: This follows the SEC filing from Freddie Mac outlining the request of up to $35 billion from the Treasury. For the uninitiated, Fannie and Freddie are government sponsored entities that have historically stabilized the housing market by agreeing to purchase mortgages and securitize them in the form of bonds. Note that they are government sponsored, not government owned, meaning that they are private entities in which private investors have made substantial profits over the years.

Both Fannie and Freddie continue to have unfettered access to the Federal treasury despite dubious histories that I described last September:

Meanwhile, there is the impolite question of fraud at the two institutions. Federal regulators decided to take action to seize them after encountering serious accounting irregularities. According to Gretchen Morgenson and Charles Duhigg of the New York Times, the government decided that the seizure of Fannie and Freddie was unavoidable because Freddie, and to a lesser extent, Fannie, had overstated their capital base, creating a more serious risk of default than either had acknowledged. Furthermore, Fannie and Freddie already had a history of manipulating earnings through questionable accounting practices, such as here and here and here and here. To date, I haven't heard any reports of a criminal investigation.

Another 46 to 51 billion dollars for Fannie and Freddie, and still no word about any investigation. I recall shuddering when I heard that Obama had emphasized responsibility in his inaugural address. In my experience, the degree of responsibility required by American politicians goes up as income goes down.

Or, perhaps more accurately in this context, as income goes up, responsibility evaporates. In the rarified world of Fannie and Freddie executives, nothing is demanded of them in return for billions in Federal assistance. Meanwhile, for the rest of us, there is the prospect of entitlement reform, more crudely known as cuts in Social Security and Medicare.

Hat tip to CalculatedRisk.

Labels: American Empire, Barack Obama, Credit Crunch, Global Recession, Housing Bubble, Neoliberalism, Sub-Proletarianization of America

The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. As offshoring moved jobs, incomes, and GDP out of the country, debt expanded to take the place of the missing income. When the offshored goods and services were brought back to be sold to Americans, the trade deficit rose, adding another level of financing for an economy that consumes more than it produces.

Isn't it rather curious that a right wing economist like Paul Craig Roberts agrees with a leftist academic like Robin Blackburn, at least on this foundational question?

Labels: American Empire, Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

With the recessionary hurricane making landfall, latch key kids are becoming more visible and more numerous:

In the Prince George's County community of Riverdale Park, town officials have noted a distressing sign of the national economic downturn: more children left home alone to fend for themselves by working parents too strapped to afford child care.

The problem was discovered by code enforcement officers who inspect apartments in the town of 7,000. They used to come across such cases once every couple of years. Then, six months ago, they found one child left alone, followed by another and another.

In one instance, a kindergarten-age girl was found hiding in a closet, apparently because she was scared, code enforcement officers said. In another, children aged 10 or 12 were missing school to watch their younger siblings.

Riverdale's experience comes amid an increasing economic strain in child care across the Washington region. In an area known for day-care waiting lists, many operators report a rise in vacancies as parents withdraw their children or cut back on hours because they can no longer afford the cost.

The phenomenon is not universal, but it has struck in many middle- and working-class areas as lost jobs, reduced work schedules and foreclosed homes affect families with few reserves. Many have confronted tough choices about the care of their children.

"I've never seen anything like this before," said Phyllis Waters, president of the Professional Child Care Provider Network of Prince George's County. "You're seeing people just dropping out. . . . They're taking them out of day care and putting them into homes with grandmothers and neighbors and whoever else."

Just as with the occupation of Iraq, where I have attempted to resist the depersonalization of Iraqi death, I believe that it is also important to recognize the individual traumatic consequences of this recesssion. While bankers line up at the Treasury window for billions in TARP funds, people are starving and parents find themselves forced to abandon their children.

Hat tip to Prometheus 6.

Labels: Credit Crunch, Global Recession, Neoliberalism, Poverty, Sub-Proletarianization of America

Altair provides an essential summation for why it is nearly impossible for the US economy, and, indeed, the global one, from escaping a deflationary spiral. But when will it stop? And what will the world look like when it does? Very different from the one in which we live today, but that's not very helpful, is it? Responses to Altair, responses that can be found in the comments section to this post over at Calculated Risk, are well worth reading for an engaged, enlightened debate about the nature of the problem, and whether it will invariably be deflationary or inflationary.

Labels: Credit Crunch, Global Recession, Neoliberalism, Sub-Proletarianization of America

From today's Atlanta Constitution:

Kevin D. Johnson returned from a dreamy Jamaican honeymoon in October eager to check out wedding photos and help his new wife open stacks of beautifully wrapped wedding gifts.

Before getting distracted by the fun stuff, the 29-year-old entrepreneur opened the mail. Johnson’s mood soured when he got to a letter from American Express, saying it had slashed the credit limit on his account.

Kevin Johnson, 29, sits in his Peachtree Street office. After returning from his honeymoon, American Express informed him it was lowering his credit limit.

Johnson was surprised, since he has a perfect payment history and a high credit score. And he was floored by one of the reasons American Express cited: It didn’t like where he shopped.

“Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express,” the letter said. Johnson complained to American Express by phone and letter.

“That doesn’t have anything to do with whether I’m a paying customer or not,” he said in an interview.

Johnson checked his charges to try to figure out what might have raised a red flag in the American Express data-mining model. He didn’t see anything but typical transactions, including purchases at Amazon, Ruby Tuesday, Wal-Mart, Starbucks and Federal Express.

“I understand the need for and the power of predictive analytics,” Johnson said, “But I think they have crossed the line.”

American Express declined to discuss Johnson’s account. But it confirmed that it examines spending patterns. It’s just one of many tactics that credit card companies are using to try to keep default rates from growing higher. Along with studying shopping habits, American Express considers which mortgage lender a customer uses and whether the customer owns a home in an area where housing prices are declining.

These factors are combined with a review of other details to decide whether to adjust a credit limit.

Mr. Johnson, if you haven't already guessed is black, as you can clearly see from his photograph, which accompanies the story. He is also a successful executive, as explained in the article as well. One can only imagine how many African Americans less fortunate have already experienced reductions in credible regardless of their history of payment. Just as people of color were disproportionately victimized by the housing bubble, they are likewise going to be targeted to during the recession.

Labels: African Americans, Credit Crunch, Global Recession, Neoliberalism, Racism

From the Food Bank for New York City:

The NYC Hunger Experience Report Series tracks annual trends in difficulty affording food among New York City residents. The Food Bank For New York City contracts with Marist College Institute for Public Opinion to conduct telephone interviews with a random and representative sample of city residents. Socio-demographic findings identify which populations throughout the five boroughs are having the greatest difficulty affording food throughout the year in order to inform policy solutions and address the problem of food poverty. This research includes six years of trend analysis from 2003 (the earliest year the poll was conducted) through 2008. Data for 2007 were collected in February 2008 and released in NYC Hunger Experience 2008.

This report, NYC Hunger Experience 2008 Update: Food Poverty Soars as Recession Hits Home, (reflecting 2008 data collected in November) was expedited in order to gain information on how the current recession is impacting New Yorker City residents.

Recent data have confirmed what New Yorkers have been experiencing for some time – the U.S. officially entered into a recession in December of 2007. Since then, 1.9 million jobs have been lost and the pace has only been accelerating over the past few months (average monthly job losses were more than 400,000 from September through November as compared to approximately 80,000 earlier in the year) pushing the unemployment rate up from 6.5 percent in October to 6.7 percent in November, the highest since 1993 and up two percentage points from a year ago. Job losses in November reached 533,000 (the largest monthly loss since the 1970s) and there are now 10.3 million people unemployed in the U.S. (up by more than 3 million since last year). In addition, under-employment levels (people who work part-time yet want a full-time position) rose to 12.5 percent in November (the highest on record since tracking began in 1994) an increase of 621,000 people since October and up by 2.8 million from last year. In total, there are 19.6 million people in the U.S. who are unemployed or under-employed — approximately one out of every eight people in the labor market. Economists expect unemployment to continue to rise and predict that it will increase to 9 percent or more in 2009.

Difficulty Affording Food: In the midst of job losses, rising costs and the credit crunch resulting from the economic crisis, the number of New Yorkers having difficulty affording food has spiked to approximately 4 million in 2008, almost doubled from approximately 2 million in 2003 (the earliest data available) and up from 3.1 million in 2007, a 26 percent increase. While hardship is not a new experience for millions of New Yorkers, as we have seen a steady increase in difficulty affording food since 2003, the rise within the last eight months (from February to November 2008) represents the highest increase in the history of the poll. It should be noted that as the November 2008 poll reflects difficulty affording food over the past year, the data capture findings since the start of the recession. Therefore, the dramatic rise in difficulty is likely an indicator of how New Yorkers feel about their financial situation in the midst of the crisis and rising costs (from 2003 to 2007, the cost of groceries in the New York metro area has increased by 15 percent and increased an additional 7 percent from January to October 2008).

Loss of Household Income: In addition, as residents’ financial situations deteriorate, more and more New Yorkers are using up their savings. Almost one out of four or 1.9 million New York City residents would not be able to afford food for themselves and their families immediately after losing their household income (up from 1.3 million in 2003 and from 1.6 million in 2007)and 3.7 million would not be able to afford food within three months of losing their household income (up from 3.3 million in 2003).

Concern About Needing Food Assistance: In this current climate of skyrocketing unemployment, a staggering 3.5 million people are concerned about the possibility of needing food assistance within the next year. More than 2 million of those concerned have never accessed assistance before and would be turning to a soup kitchen, food pantry or the Food Stamp Program (Supplemental Nutrition Assistance Program) for the first time. Already, 1.3million New York City residents rely on emergency food organizations, up 24 percent from 1 million in 2004. Soup kitchens and food pantries throughout the five boroughs are also facing rising costs and anecdotal reports show they lack food at a time when demand is increasing. Findings show that low and middle-income New Yorkers, households with children and seniors are among the most vulnerable. The percent of residents with difficulty affording food include:

73 percent of New Yorkers with household incomes of less than $25,000 per year, a 49 percent increase from 49 percent in 2003.

59 percent of New Yorkers with household incomes of $25,000 to $49,999 per year, almost tripled from 21 percent in 2003.

56 percent of New York City households with children, an increase of 75 percent from 32 percent in 2003.

47 percent of seniors ages 65 and older, more than doubled from 23 percent in 2003.

The poll findings are consistent with research by Columbia University showing that throughout the U.S, residents need at least 200 percent of the poverty level (approximately $34,000 for a family of three) to afford necessities and that in New York City, residents need an income of at least 250 percent of the federal poverty level (approximately $43,000 annually for a family of three) to meet basic needs.5 Estimates from the U.S. Census Bureau show that 3.1 million New York City residents (38 percent) live below 200 percent of poverty and 4.4 million (53 percent) live below 300 percent of poverty (approximately $51,000 for a family of three). The findings are also consistent with recent data showing that 56 percent of voters in New York City report that they are worse off financially than they were a year ago and 49 percent describe their finances as not good or poor, as released by Quinnipiac University in November 2008.

Meanwhile, in a more affluent part of town, things are a little different over at American International Group. Executives are, it seems, continuing to eat quite well.

Labels: Credit Crunch, Global Recession, Neoliberalism, Poverty, Sub-Proletarianization of America