2009: The Year Wall Street Bounced Back and Main Street Got Shafted
by ilene - December 27th, 2009 6:36 pm
2009: The Year Wall Street Bounced Back and Main Street Got Shafted
Courtesy of Robert Reich, of Robert Reich’s Blog
In September 2008, as the worst of the financial crisis engulfed Wall Street, George W. Bush issued a warning: "This sucker could go down." Around the same time, as Congress hashed out a bailout bill, New Hampshire Sen. Judd Gregg, the leading Republican negotiator of the bill, warned that "if we do not do this, the trauma, the chaos and the disruption to everyday Americans’ lives will be overwhelming, and that’s a price we can’t afford to risk paying."
In less than a year, Wall Street was back. The five largest remaining banks are today larger, their executives and traders richer, their strategies of placing large bets with other people’s money no less bold than before the meltdown. The possibility of new regulations emanating from Congress has barely inhibited the Street’s exuberance.
But if Wall Street is back on top, the everyday lives of large numbers of Americans continue to be subject to overwhelming trauma, chaos and disruption.
It is commonplace among policymakers to fervently and sincerely believe that Wall Street’s financial health is not only a precondition for a prosperous real economy but that when the former thrives, the latter will necessarily follow. Few fictions of modern economic life are more assiduously defended than the central importance of the Street to the well-being of the rest of us, as has been proved in 2009.
Inhabitants of the real economy are dependent on the financial economy to borrow money. But their overwhelming reliance on Wall Street is a relatively recent phenomenon. Back when middle-class Americans earned enough to be able to save more of their incomes, they borrowed from one another, largely through local and regional banks. Small businesses also did.
It’s easy to understand economic policymakers being seduced by the great flows of wealth created among Wall Streeters, from whom they invariably seek advice. One of the basic assumptions of capitalism is that anyone paid huge sums of money must be very smart.
But if 2009 has proved anything, it’s that the bailout of Wall Street didn’t trickle down to Main Street. Mortgage delinquencies continue to rise. Small businesses can’t get credit. And people everywhere, it seems, are worried about losing their…
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YRCW: NO SUSTAINED ECONOMIC RECOVERY
by ilene - November 2nd, 2009 7:14 pm
YRCW: NO SUSTAINED ECONOMIC RECOVERY
YRC WorldWide is tanking over 50% on bankruptcy speculation. The large trucking company has been entangled in brutal labor renegotiation’s and is at the heart of the economic downturn with their highly economically sensitive transport based business.
On Friday the company reported a $158.7MM loss which was followed up by a debt exchange announcement this morning. Investors are growing increasingly concerned that the announcement could result in an eventual Chapter 11 filing. Although the company is having cost difficulties (primarily labor related) the weakness at the company is primarily economically related. On the conference call CEO Bill Zollars detailed the economic struggles which we continue to see across the entire real economy. His comments would be most unwelcome to anyone who has bought into the recent stock market surge which is now not only very expensive, but pricing in very optimistic economic and earnings growth in 2010:
“The operating environment remains very challenging as we continue to face a difficult economy that appears to have stabilized, but is not showing any signs of sustained positive momentum. We remain cautiously optimistic that the economy has bottomed out, but it remains too early to know for sure. We’re not anticipating any growth in the economy for the remainder of this year and at least for the first half of next year.”
I think it’s safe to say that the stimulus based recovery is almost entirely non-organic. Without further aid from the government and the Federal Reserve this liquidity driven market is likely staring at a very difficult road ahead, if not the dreaded double dip.
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How the Servant Became a Predator: Finance’s Five Fatal Flaws
by ilene - October 15th, 2009 12:36 pm
Here’s an excellent, must-read article by William K. Black. Special thanks to New Deal 2.0. - Ilene
How the Servant Became a Predator: Finance’s Five Fatal Flaws
By Bill Black, Courtesy of New Deal 2.0
Roosevelt Institute Braintruster William K. Black explains how the finance economy preys on the real economy instead of serving it. He shows how both have become dysfunctional and warns that we must not neglect the real economy — the source of our jobs, our incomes, and the creator of goods and services — as we focus on financial reform.
What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector’s current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.
1. The financial sector harms the real economy.
Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary — essentially a “middleman”. Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector’s parasitism.
Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator State, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation. The facts are alarming:
• Corporate stock repurchases…
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THE RECESSION IN RAIL TRAFFIC CONTINUES….
by ilene - October 8th, 2009 8:30 pm
THE RECESSION IN RAIL TRAFFIC CONTINUES….
Courtesy of The Pragmatic Capitalist
The recession in railroads continues unabated. This is likely the surest proof we have that Ben is simply reflating the bubble while the real economy continues to flounder. Carloadings were down 17.2% year over year and intermodal traffic declined 15.7%. On the positive side, it’s quite clear that rail traffic has stabilized and doesn’t continue to decline, however, the robust recovery that equities and other markets have priced in is completely non-existent in the rail data. The weakness was broad across all segments of the economy. The weakness was particularly apparent in metals and forest which could be a sign that the recent weakness in housing and lumber prices is a trend:
The AAR reports:
WASHINGTON, D.C., Oct. 8, 2009 — The Association of American Railroads today reported that for the week ended Oct. 3, 2009, rail traffic continues to reflect the down economy – originating 277,734 carloads, down 17.2 percent compared with the same week in 2008. All of the 19 carload freight commodity groups were down from the same week last year, with declines ranging from 2.7 percent for chemicals to 53.2 percent for metallic ores.
Intermodal traffic of 206,293 trailers or containers on U.S. railroads was down 15.7 percent from the same week last year. Container volume fell 10 percent and trailer volume dropped 37 percent.
Regionally, carloads were down 16.4 percent in the West and 18.3 percent in the East. For the first 39 weeks of 2009, U.S. railroads reported cumulative volume of 10,381,905 carloads, down 18.1 percent from 2008; 7,347,299 trailers or containers, down 16.8 percent, and total volume of an estimated 1.11 trillion ton-miles, down 17.3 percent. Total volume on U.S. railroads for the week ending October 3 was estimated at 29.7 billion ton-miles, off 16.6 percent from the same week last year.
Source: Railfax, AAR
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.