Fatally Shocked United States of America?

I've been in agreement with Naomi Klein's thesis since I read her book The Shock Doctrine two years ago. She understands well that as far as the bankster bailout goes “the poorest and most vulnerable people in the country are being asked to bail out the most wealthy.”

“It really does fit the thesis of The Shock Doctrine,” she said, referring to her book in which she exposes how governments and powerful corporations use disasters and upheavals to gain even more power. “Here we have just this transfer, this massive transfer of public wealth into private hands,” Klein explained, “and that’s continuing and it’s much, much larger, just on a much larger scale than any of the investments we’re seeing through the stimulus or the budget.” Almost $12 trillion is being spent to bail out the financial sector compared to only about $1 trillion being spent on economic stimulus. “My real concern is — has been my concern from day one — is that the crisis on Wall Street, created by deregulated capitalism, is not actually being solved,” continued Klein. “It’s being moved. A private sector crisis is being turned into a public sector crisis.” “They are already cutting corners,” she told Maddow. “Now Aids funding in Africa is being cut by $6.6 billion. So who is paying for this? This is where the unfairness of it becomes very clear.”

And as Paul Krugman has aptly noted about the ability of the much-touted bank stress tests to actually rate how well the bailout is working (some editing and emphasis marks were added - Ed):

Even before the results were announced, Tim Geithner, the Treasury secretary, told us they would be “reassuring.” But whether you actually should feel reassured depends on who you are: a banker, or someone trying to make a living in another profession. I won’t weigh in on the debate over the quality of the stress tests themselves, except to repeat what many observers have noted: the regulators didn’t have the resources to make a really careful assessment of the banks’ assets, and in any case they allowed the banks to bargain over what the results would say. A rigorous audit it wasn’t. But focusing on the process can distract from the larger picture. What we’re really seeing here is a decision on the part of President Obama and his officials to muddle through the financial crisis, hoping that the banks can earn their way back to health. It’s a strategy that might work. After all, right now the banks are lending at high interest rates, while paying virtually no interest on their (government-insured) deposits. Given enough time, the banks could be flush again. But it’s important to see the strategy for what it is and to understand the risks. Remember, it was the markets, not the government, that in effect declared the banks undercapitalized. And while market indicators of distrust in banks, like the interest rates on bank bonds and the prices of bank credit-default swaps (CDS), have fallen somewhat in recent weeks, they’re still at levels that would have been considered inconceivable before the crisis. As a result, the odds are that the financial system won’t function normally until the crucial players get much stronger financially than they are now. Yet the Obama administration has decided not to do anything dramatic to recapitalize the banks. Can the economy recover even with weak banks? Maybe. Banks won’t be expanding credit any time soon, but government-backed lenders have stepped in to fill the gap. The Federal Reserve has expanded its credit by $1.2 trillion over the past year; Fannie Mae and Freddie Mac have become the principal sources of mortgage finance. So maybe we can let the economy fix the banks instead of the other way around. But there are many things that could go wrong. It’s not at all clear that credit from the Fed, Fannie and Freddie can fully substitute for a healthy banking system. If it can’t, the muddle-through strategy will turn out to be a recipe for a prolonged, Japanese-style era of high unemployment and weak growth. Actually, a multiyear period of economic weakness looks likely in any case. The economy may no longer be plunging, but it’s very hard to see where a real recovery will come from. And if the economy does stay depressed for a long time, banks will be in much bigger trouble than the stress tests — which looked only two years ahead — are able to capture. Finally, given the possibility of bigger losses in the future, the government’s evident unwillingness either to own banks or let them fail creates a heads-they-win-tails-we-lose situation. If all goes well, the bankers will win big. If the current strategy fails, taxpayers will be forced to pay for another bailout. But what worries me most about the way policy is going isn’t any of these things. It’s my sense that the prospects for fundamental financial reform are fading. Does anyone remember the case of H. Rodgin Cohen, a prominent New York lawyer whom The Times has described as a “Wall Street éminence grise”? He briefly made the news in March when he reportedly withdrew his name after being considered a top pick for deputy Treasury secretary. Well, earlier this week, Mr. Cohen told an audience that the future of Wall Street won’t be very different from its recent past, declaring, “I am far from convinced there was something inherently wrong with the system.” Hey, that little thing about causing the worst global slump since the Great Depression? Never mind. Those are frightening words. They suggest that while the Federal Reserve and the Obama administration continue to insist that they’re committed to tighter financial regulation and greater oversight, Wall Street insiders are taking the mildness of bank policy so far as a sign that they’ll soon be able to go back to playing the same games as before. So as I said, while bankers may find the results of the stress tests “reassuring,” the rest of us should be very, very afraid.

I know I am. NOTE: Here's some reporting on whether the infamous (now) off-the-record dinner at the White House caused Krugman (or Joseph Stiglitz) to pull in their horns a bit. Suzan ____________________

RECESSION, Year 8

I've said the U.S. has been in a deep recession since the dot.coms-bombed in 2000, and I think you could go ahead and say Depression by now as there's no sign we are going to emerge from it in the next several years (and yes, I know the "official" definition of one) and Ted Rall agrees with me. Yes, I know. It's really I who am agreeing with him as he's the famous funny guy (but not here!). (Emphasis marks are mine.) Carolyn Baker also chimes in this week giving us a link to Scott Thill's essay "Massive Economic Disaster Seems Possible - Will Survivalists Get the Last Laugh?" with the telling intro "I have never claimed to be a survivalist because I am interested in doing much more than merely living through collapse; however, Scott Thill's article nails the reality of the current economic milieu. We have entered not merely rough waters, but a daunting economic and environmental tsunami which is about to make the so-called 'wild and crazy doomer' look mainstream." ___________________________________________

RECESSION, YEAR 8 Ted Rall 07/24/2008 Bickering Over Terminology Delays Real Action SAN DIEGO - There's a debate in the media about the recession. On the right are those who say that the economy has never been better. Not so fast, says the official left: we've (just) started a recession. Phil Gramm, McCain's former economic advisor, leads the School of Sunny Optimism. "This is a mental recession," said Gramm. "We may have a recession, we haven't had one yet. We have sort of become a nation of whiners." Given his day job, you have to admire his attitude. UBS Investment Bank, which employs Gramm as its vice chairman, was recently forced to write off $38 billion in bad debts because of its exposure to the sub-prime mortgage meltdown. All its profits since 2004 have been wiped out. Economists are mildly pessimistic. In April, Fed chairman Ben Bernanke conceded that a recession was possible. Stuart Hoffman, chief economist at PNC Financial Services Group, believes that unemployment and other data for the first quarter of 2008 marks the official start of a recession. "It is now very clear that the fat lady has sung for the economic expansion. The country has slipped into a recession," he said, articulating the mainstream view that we're about to embark on a bumpy ride. Recession? We've been in one since 2000. Forget the experts. They think telling the grisly truth about the state of the U.S. economy could make things even worse--and they're probably right. But Americans know the truth. Every major indicator--jobs, wages and cost of living--has trended downward since the dot-com crash of 2000. Since then it has nearly impossible to sell a home, find a job, or get a raise. Rising inflation is tightening the squeeze. Whoever becomes president next year will inherit an economy beginning its ninth year in a downward spiral. The official inflation rate of two to three percent is a lie, and it has been for years. Presidents Reagan and Clinton ordered the Bureau of Labor Standards to change the way it calculates the Consumer Price Index. Previously they compared the prices of the same items from one year to the next. Now, in order to cheat senior citizens out of cost-of-living increases on their Social Security payments, the government uses a "substitutions" analysis. "The consumer price index assumes that if prices get too high, consumers will start buying cheaper products," reports The San Diego Union-Tribune. For instance, if steak gets too expensive, they will switch to ground beef." Steve Reed, an economist the Bureau of Labor Standards, freely admits the change makes inflation looks lower than it is. He also admits its motivation: "Even if the CPI was one percentage point higher, it could cost the government hundreds of millions of dollars." John Williams, an economic consultant who publishes the monthly newsletter "Shadow Government Statistics," calculates that " Shadow Government Statistics," calculates that "inflation is actually running at an annualized rate of 9.95 percent." Inflation has been rising since 2002. The U.S. economy must create 150,000 new jobs a month (1.8 million annually) just to keep up with population growth. Anything less represents a net jobs loss. The Clinton years saw the creation of 236,500 new jobs per month--a net increase of more than 8 million over eight years. As of 2007, the Bush era saw just 70,000 jobs per month--a net loss of more than 7 million. Bush brought us back to 1992, when his father lost over his own recession. Among those who still have jobs, they're not getting raises that keep up with Williams' inflation rate. Median household income, adjusted for the government's lowball inflation rate, is down since 2001. Even white-collar workers, traditionally insulated by advanced degrees, are getting slammed by the eight-year-long recession. "Wage stagnation, long the bane of blue-collar workers, is now hitting people with bachelor's degrees for the first time in 30 years," reported The Los Angeles Times in 2006. "Earnings for workers with four-year degrees fell 5.2 percent from 2000 to 2004 when adjusted for inflation, according to White House economists... [people with master's and other advanced degrees] have found that their inflation-adjusted wages were essentially flat between 2000 and 2004." There's no reason to believe that this trend has reversed. It takes two consecutive quarterly drops in the GDP, say economists, to make a recession official. But, like porn, Americans know a recession when they see one. And this one is eight years old. There are only two real questions. The first is whether Russian president Dmitri Medvedev is right. The U.S., he said recently, is in "essentially a depression." The second is whether John McCain, Barack Obama, or anyone else is willing to do something meaningful about it. (Ted Rall is the author of the book "Silk Road to Ruin: Is Central Asia the New Middle East?," an in-depth prose and graphic novel analysis of America's next big foreign policy challenge.)

Enjoy that cookout! Suzan ________________________________________