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For Whom The Economy Turns

By Linda Anselmi on August 13, 2009 at 8:45 AM in Current Affairs

The “U.S economy turning a corner” is the latest hopeful trumpeting from news reports and media outlets. George Soros proclaims that “the economy has actually bottomed”. And the most recent Wall Street Journal survey of top economists found that 57% believe the “recession is already over,” while another 23% believe that the economy will turn in the next month or two.

Well, before everyone starts setting out the wine and roses for a celebratory feast, shouldn’t we know for whom exactly the economy is turning and in which direction?

Main Street is dealing with rising unemployment, rising home foreclosures, and rising bankruptcies. Federal and State governments are battling rising deficits and plummeting tax revenues. Consumer confidence is down, retail sales are down, manufacturing sectors are down. Even the banks we bailed out with TARP funds are still awash in those lovely toxic assets, the very things that started this recession ball rolling, and leaving them unbalanced. As Elizabeth Warren, chair of the Congressional Oversight Panel for TARP funds, explains:

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“No one has a good handle how much is out there,” Warren said. “Here we are 10 months into this crisis…and we can’t tell you what the dollar value is.”

Estimates are that “somewhere between $600 billion and $1.5 trillion in toxic assets (is) spread across the balance sheets of the small and the large banks,” Warren said, adding: “That’s a lot.”

Ms Warren and the COP also point to the ticking time bomb of defaults on commercial real estate loans waiting to explode in 2010-2011 and hit smaller banks.

smaller U.S. banks faced billions of dollars in losses from delinquent commercial property loans and were far less able to raise capital and absorb losses than their larger counterparts.

An analysis done by the panel showed that under a scenario 20 percent worse than assumptions used in the Federal Reserve’s stress tests, about 719 banks with assets between $600 million and $100 billion would need to raise some $21 billion in new capital to offset loan losses.

“Treasury must be prepared to turn its attention to small banks in crafting solutions to the growing problem of troubled whole loans,” the panel said, adding that it should consider using similar stress tests — along with pledges for additional capital — on smaller institutions.

Which does not leave Treasury is the best of positions to launch its PPIP.

Treasury prepares to launch a significantly scaled-down version of its toxic asset program, a series of public-private investment funds to purchase toxic mortgage securities with $30 billion in government subsidies.

… accounting forbearance that allowed banks to avoid recognizing losses on these assets combined with large institutions’ ability to raise capital after regulator “stress tests” in May reduced investor angst over toxic assets.

And if your wondering how bad it is getting for banks, here is the number of bank closing by month over the last 12 month period. Notice the jump to 24 in July which makes 72 closings so far for 2009.

Month / Number of Bank Failures
Jul 2008 – 3
Aug 2008 – 3
Sep 2008 – 4
Oct 2008 – 4
Nov 2008 – 5
Dec 2008 – 3
Jan 2009 – 6
Feb 2009 – 10
Mar 2009 – 5
Apr 2009 – 8
May 2009 – 7
Jun 2009 – 9
Jul 2009 – 24

Not exactly convincing signs of a recovering economy.

I haven’t a clue as to how those economists formulated their rosy predictions. But I’m betting the big bonus bank executives at Goldman Sachs, Morgan Stanley and JPMorgan Chase were weighing heavily on the scales.

  • HARP

    DRUDGE:

    RASMUSSEN POLL: Obama Approval Rating Falls to New Low: 47 %… Developing…

  • Diana L. C.

    Ms. Warren’s comments about whether there really was a need back in Sept. to save the world, so to speak, as we knew it were the most interesting to me. I have always wondered what might have happened if they hadn’t pumped all that, in my min, manufactured money into the market. I still wonder.

    I would like one of NQ’s very financially astute writers to do a more detailed explanation of what might have occurred and how it would have affected Main Street.

    • jbjd

      I have always admired Professor Warren but I could not believe she was so forthcoming in this interview. She called the (fall 2008) bailout the “don’t ask; don’t tell” bailout. ‘We didn’t ask the banks to spend the money in a particular way and they didn’t tell us how they spent it.’

  • carol haka

    What “they” mean is “they” need the American citizens to start flooding “their” markets again with the cash out of our pockets and from under the mattress because they can’t keep just circulating and playing “amongst themselves”. “Ponzi schemes” need a fresh influx of someone else’s cash to keep them going.

    CAROL HAKA :evil:

    And by the way, if you haven’t read Sarah’s articulate response to Bambi’s condescending remarks on Tuesday, you can find it at Atlas Shrugs.

    For those that have recently drunk the kool-aid and started the “Sarah’s an idiot and we are all Astroturfing, Republican Racists” – I say “Kiss my f*cking Democratic, non-Racist, intelligent ASS”!

    I love Sarah Palin. If she were in charge, she would have stopped spending and started this country down the path of Fiscal Responsibility. This is suppose to be a Capitalist Nation – if you don’t like it, “get out” – yeah I said it, “leave and take your idiot idiotology with you!”

    CAROL HAKA :evil:

  • HC123

    The papers have been shilling so hard for this administration I simply do not believe them anymore.

    It reminds me of the “good old days” in East Germany where the last place you looked for accurate reporting on *anything* was the news media.

    I hear unemployment just unexpectedly spiked and consumer spending is down yet again. Banks are failing. Homes in my neighborhood are not sellign at all. The government is issuing so many bonds they have to pass new laws to do it. How dumb do they think I am to believe George Soros that its all good?

    There is no way to spin that into good news as far as I am concerned.

  • FrenchNail

    A Lie is a lie, no matter how many people say it.

    The reality on the street is so different, the Washington bubble cannot be the excuse anymore.

    If I were a big shot Economist or Trader (wink-wink Larry) I would spend a lot of my “teachable moments” talking about How Real Estate is the forcasting tool of the Economy. Real Estate is THE foundation of the Economy. People do not strive to get rich to accumulate trading papers, they get up in the morning to feed themselves (1) and to put a roof over their head (2). If they have to abandon or downscale their real estate ownership, pretty much else is off the table too.

    Right now the Real Estate market is still falling big time accross the US. We have not see anything yet Folks. The ripples are just coming to the “stable” areas. Most of the existing home sales are distressed sales (foreclosures and short sales). That drives down the Comparables used in Appraisals, hence the overall prices. If with a magic wand the economy was recovered tomorrow, the demand would take a full year to absorb the excess inventory of houses right now on the market.

    And to add pain to injury, the mortgage rates are going to go up by the Winter (Freddy and Fannie losses are unsustainable and Bernake is pulling the plug…)which means that access to ownership is going to be even more difficult than it is right now (yes it can…).

    There is NO WAY the Real Estate market is going to stabilize for another 12 to 18 months. Add to that one or two years to absorb the excess inventory and you get 2012-2013 before we can see a regular market. That is not to say absolute improvements on prices (discounting inflation).

    So I beleive we are going to have not the end of the recession by the end of 2009, but a continuing of it until 2011 with some temporary signs of recovery followed by relapses for that duration.

    The reason is that none of the underlying factors which got us into that mess have been addressed. And until they do (no more band-aid strategy)the Main street will not recover, and the real estate market will drag the economy down.

  • carol haka

    Sarah and the “Death Panels”.

    I love it – she even references the sources.

    http://www.facebook.com/note.php?note_id=116471698434

    See Obama, Katie, and Charlie – Sarah can read and write and even spell.

    CAROL HAKA :evil:

  • jwrjr

    Message from Obama to the small banks – “You’re not “too big to fail”. F*ck you.”

    • Docelder

      The big banks can buy out the small banks with that 0% money that is being created out of thin air.

      • Tammy

        It’s not being created out of thin air.
        It’s being borrowed from the Chinese.
        They now OWN this country.

        • Docelder

          I used to worry about that as well. But, I think we are their bubble and they aren’t getting paid back anyway. So long as they ride this bubble, it buys the rest of us time to get ready for the greater depression when this whole bubble pops.

        • Chicago

          Actually, the Chinese haven’t been buying much of the debt that the Treasury is printing.

          the debt instruments are being bought by the Feds and in turn prints money off of it.

          that is simply monetizing debt or printing money out of thin air.

          The Chinese know full well that the dollar’s collapse is imminent and have hedge their bets buy buying massive amounts of comodities because everytime the dollar falls in value, comodities go up.

          The dollar index had actually fallen by over 11% which is directly proportional to the 12% of the stimulus money that’s been printed so far.

          now add to the mix that Tim “the Tax evader” Geithner is now asking Congress to increase the debt limit and you have the makings of a massive dollar collapse as soon as all of that debt is printed into dollars.

  • FrenchNail

    Spamy ate my comment…

  • Seattle Moss

    The Economy has reached a temporary bottom.
    In October as demand falls way off and the Chinese stop hoarding commodities you will see a collapse in those markets.
    The next shoe to fall is the commercial real estate market and we shall see a wholesale default and foreclosure of those types of properties.
    Watch for continued softening of the residential market as foreclosures are dumped on the market
    The credit market is also going to crash with the rising bankruptcies and defaults.
    The stock market will correct in November back down to around 6500 and there will be outright gloom as we experienced last year.
    The Christmas season will be a complete bust and Deflation will be back for the remainder of the year.

    When you have a collapse and 50 trillion in world value vanish you have consequences which are now only being realized.

    • Docelder

      Seattle, there will be a greater crisis in the near future than this one. But, it won’t be wasted now. I am looking for another election “surprise”. I no longer believe in coincidence and I won’t be surprised by these guys ever again.

    • oowawa

      You hit the main points, Seattle. Of course, there could always be a “black swan” event at any time to really accelerate the fall off the precipice. And as for Christmas? The Grinch is coming! The Grinch is coming!

      But no matter how bad things might get, I’ll still be putting up my tree with reverence and honoring the mystery of the season.

    • Peggy Sue

      You know it’s somewhat odd, Seattle. I told my kids last year to enjoy the Christmas we were having–the feast, the presents and festivities–because it might be the last of its kind for a very long time.

      Of course, they pooh-poohed the notion.

      This Christmas? We may all be on our knees. And, I guess, there’s something fitting in that, something we’d easily overlooked, even forgotten.

      • oowawa

        Eloquent.

  • oowawa

    Linda, thank you; this is an important article, and the Morning Joe interview with Elizabeth Warren is a jaw-dropper. I don’t know what her political affiliations are, but I’ll be effusive and say “I love that woman.” She tells the truth. Here is a companion piece to that interview (also embedded in this site) with Karl Denninger’s usual pitbull commentary:

    http://market-ticker.denninger.net/archives/1328-Heh-Lookie-Over-Here-Bloomberg.html

  • carol haka

    Please take my earlier comment out of the dark hole.

    Thanks.

  • Docelder

    George Soros proclaims that “the economy has actually bottomed

    I suppose he would know. So he will be right… for now. But, we didn’t take our full medicine this time and let the market work this out, we just put a band-aid patch on it made of borrowed money. We just made another bubble is all we have done here… a mega bubble. Call me cynical, but I can visualize this one popping right in time for the 2012 elections. So, we have maybe two years of strong growth followed by get out before the bubble pops to look forward to.

    • Tammy

      George Soros caused this economic fall.
      It will all come out, and I hope it comes out before the 2012 elections.
      Soros wants to own this country, and if people don’t open their eyes even faster than they are now,
      he will.

      Americans have 3 1/2 years to figure out that they are truly being screwed by this evil crew in Government.
      It’s not going to be pretty…

      • Docelder

        Yes, this crash was planned. But is had a purpose beyond the obvious purpose of looting. It also had political purpose. Using that model, I am thinking the next bubble will pop before the 2012 elections. But, that is a WAG only.

        • tzada

          I so agree with you. Back before the election I saw it coming and said so over at the Chicago ummm AOL Political Machine. O friends, the oil suppliers and companys manipulate the oil prices. O friend Penny from Chicago started the housing crisis mess. With predatory lending. O was hand in hand with ACORN from Chicago. Forced CITI bank, or appeared to force CITI into bad loans. Fanny and Freddie right to the Democrats door…… Well we all know the story.

      • Chicago

        yup, and since he’s been shorting the dollar for the past couple of years, he’ll make billions on the impending dollar collapse as well.

        the other thing he’s doing, he’s (actually his hedge fund) bought stake in some coal companies. now why do you think he’d do that if he’s puppet in the White House is pushing for cap and trade? because when this country has nothing else to burn since Oil price will be back to the mid hundreds again (maybe even $200) due to the dollar collapse (when the dollar’s value goes down, oil price goes up since it is quoted in dollars) the country will be more dependent on oil and the “green revolution” will have an incentive to finally build Coal Liquifaction refinaries that will push the price of coal up.

        guess who else went long on oil just this week? none other that T. Boone Pickens himself – the wind energy “activist.” Pickens have shelved his wind farm plans for now and invested massively on oil stating that oil could be at $85 by next year.

    • trixta

      We just made another bubble is all we have done here… a mega bubble.

      This about sums it up!

  • Seattle Moss

    http://finance.yahoo.com/tech-ticker/article/298981/Inflation-Not-a-Problem-%22Deflationary-Depression%22-in-Our-Future-Prechter-Says?tickers=patrick.net

    The long term future looks like Hyper Inflation especially if we break the camels back with Trillions more spent later this year on Health care nad a second stimulus

    For the short term look for deflation which will cause wages to be depressed and margins and profits to be lost.

    • Docelder

      Seattle, I just am wondering if traditional market wisdom is worth anything anymore. Because if these things can be manipulated, then might we get a better prediction if we can project what the end goal will be? To me that one is easy… more power.

  • Craig Della Penna

    The only reason this looks bad is because everyone is stuck with the wrong perspective. We keep insisting on viewing things through the lens of what’s good for America… wrong!

    If you look at this from the perspective of the banksters it all becomes easily understandable as the next step in the process: having created an artificial crisis last year to install their chosen sock puppet, they proceeded to consolidate the banking industry starting with the ‘big boys’, Lehman Bros, Bear Stearns, Washington Mutual, etc. Now, in logical progression, they’re sweeping up the bit players and the great thing about it is they don’t have to do anything really, just sit back and let the ‘free market’ do the work for them.

    See? It’s all very simple when you know the rules…

    • oowawa

      Thanks for the cheerful perspective, Craig. It makes me want to get out my Goldman Sachs pom-poms and do a few spontaneous and unrehearsed cheers:

      Green Shoots! Green Shoots!
      Rah Rah Rah!
      Better than expected!
      Rah Rah Rah!
      Go stocks! Go stocks!
      Rah Rah Rah!
      High frequency trading!
      Zippety Zip Zip!
      Rah Rah Rah!
      Where we goin?
      Upwards! Upwards! Up! Up! Up!
      How far we goin?
      Way far, Way far! Up! Up! Up!
      Way up! Way up! Waaaayyy up!
      Upwards! Upwards! Up! Up! Up!
      Rah Rah Rah!
      Gold-man, Goooooold-Man!
      Let me hear it!
      Goldman Sachs!
      Yaaayyyyy!

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  • tzada

    Todays Drudge Report

    Retail sales dip unexpectedly, jobless claims rise
    Unexpected drop in July retail sales, rise in new jobless claims point to strained recovery

    Retail sales unexpectedly dip 0.1 percent in July
    Retail sales post unexpected 0.1 percent decline in July, raising new worries about consumers

    ..Foreclosures rise 7 percent in July from June

    US Federal deficit higher in July, $1.27T this year; Record spending…

    http://www.drudgereport.com/

    You don’t have to be a rocket scientist to understand what is happening. What about TARP. No accountability. They are covering for each other and they are hell bent on destruction of this country. Prove me wrong…..I wish someone could.

    • oowawa

      And still, in the face of all of the dire news, some magical force is moving the stock market inexorably upwards–

      Push it up,
      Push it up,
      Waaaayyyyy up!

      • carol haka

        I heard the other day that “we” are paying a high interest rate for the “cash on hand” to the banks so that they don’t need to lend and it pads the assets for the Balance Sheet.

        Send them all to jail!!!!!!!!!

        CAROL HAKA :evil:

      • Chicago

        that magical force is called Goldman Sachs and their magical trading software.

        Goldman pushed the market’s higher up starting in July with help from their trading software. all market traders know that summer is a time where investors take a brake from market participation. many investors actually were shorting the market in June due to this and it was expected for the market to decline by end of june….enter Goldman. the markets rallied more and forced short positions to cover, further fueling the “rally.” now that summer is almost over, the inevitable market correction is rearing its head. while it wasn’t all bad for the market to go up during the summer, the problem is that the rally was a mini-bubble.

        the market is due for a correction again which should’ve happened this summer but Goldman’s actions delayed the inevitable stock market correction the same way the government’s forclosure moratorium delayed the inevitable housing market bottom. tampering with markets is never a good idea since it merely delays natural cycles of markets and makes the eventual landing much harder to endure as a result.

        now that retail sales have “unexpectedly” declined (why that would be an unexpect result while millions of people are still unemployed is beyond me) to the chagrin of “greenshoots” advocates, the market correction can finally occur even if the resulting correction would be deeper than it would’ve if it was allowed to correct during the summertime.

        markets have cycles that culminates in a peak and trough pattern, delaying the troughs and prolonging the peaks simply aggrevates the inevitable declines and makes its effects much worse for the consumer while the peaks are only profitable for those who can afford to invest large sums of money.

        watch the cash for clunkers program and wait for the inevitable effects of it which is a downturn in carmakers sales for the longer term. the recession slowed down consumer demand for cars and that was a healthy and expected reaction. now that the government temporarily and unwisely inflated car sales people who were planning on purchasing cars in the next two to three years bought this summer. what would be the result in the next two to three years – it’ll be a continuation of sluggish car sales and thus a continuation of unprofitability for carmakers and a prolonged unemployment scenario for the car industry.

        all of this government intervention (car industry, housing, real estate, etc.) and Goldman Sach’s intervention in the stock market are in essence stretching the market cycles and prolonging the trough. let the market find their bottoms without intervention and we will be able to get out of this deep recession, keep meddling with it and we will repeat the stagflation economy of the 1970. right now, much damaged has been done, and the only “cure” that this administration can muster is to ask for Congress to increase the debt limit again which would excacerbate the economic problems much more.

        the only people profiting from all the interventions being done right nore are the super rich like Buffett, Soros, etc. the rest of us will wallow in economic stagnation.

  • tzada

    Who’s poor in America, according to ObamaCare?

    Obama proposes to subsidize more than half of all families in the US. Who will end up paying for these subsidies? Obviously, Obama wants to argue that only the wealthiest earners in the US will pay the bill, but they don’t make enough money to do so — even if the government confiscated all of their earnings.
    The ratio itself shows the ludicrous construct of ObamaCare subsidies. If ObamaCare actually controlled costs better than the present system, why would the government have to subsidize families that by any measure are earning a significant income, a level more than 60% greater than the median? And who will argue that families earning $88,000 cannot afford to find health insurance without a federal subsidy?
    The real reason for that figure is simple. Peter Brown notes that 80% of the population would qualify for subsidies at that income level cutoff. It’s a vote-buying scheme, a way to mollify political rage by giving 80% of people the sense that they’ll get something for nothing. By the time the bill actually comes due, it will be far too late for the anger and opposition to effectively stop ObamaCare.

    http://hotair.com/archives/2009/08/12/whos-poor-in-america-according-to-obamacare/

  • tzada

    and the hits just keep on coming….

    The ‘Ivan the Terrible’ of Obama’s Czars
    How this guy got a job in government is beyond comprehension – unless you live in the United States under Barack Obama as president.

    Meet Obama’s “Green Czar” Van Jones – former radical communist by his own admission, now a born again capitalist – at least when it comes to remaking the business world into an environmentally friendly sector.

    World News Daily has the background on his past:

    Jones, formerly a self-described “rowdy black nationalist,” boasted in a 2005 interview with the left-leaning East Bay Express that his environmental activism was a means to fight for racial and class “justice.”

    http://www.americanthinker.com/blog/2009/08/the_ivan_the_terrible_of_obama.html

    • Docelder

      environmental activism was a means to fight for racial and class “justice.”

      I think inherent in that statement is that environmental activism in that particular context would have nothing to do with the environment. But the stimulus bill had nothing to do with jobs and so health reform probably has little to do with health care. I am sure we could go through the czars one by one and find much similarity.

  • Peggy Sue

    We’re witnessing the Big Lie played to the hilt with the rosy predictions, the “recession is over,” the distorted unemployment picture, the effects of the Stim bill and things are leveling out. The powers that be are trying to entice people [those still employed] to spend their money. Only the average consumer is tapped out, scrambling to pay-off outstanding debt or put something under the mattress before the shit really hits the fan.

    Consumer spending is 70% of the economy. The banks are using faux accounting practices to pretend they’re solvent. The Fed is printing money at record speed. People are not only losing jobs, they’re falling off the unemployment records, given up, taken part time jobs [if they can find them].

    The whole bloody thing is a scam. Commerical real estate is going to crater, the worst of the ARMs reset in September and will haunt us for the next two years, pension funds are tanking, retail sales are way off and regional malls are looking like ghost towns. Import/exports are off, as are earnings, etc., etc., etc.

    The numbers are bad, bad, bad. Except on the Exchange, which is a rigged game that wants more people to play with so they can sucker investors for their remaining nickels and dimes.

    And what do we get? Happy talk.

    This is the Big Lie aided by the airtime wizards, who failed to alert people [small investors] of what was coming into shore over a year ago.

    They lied then. They’re lying now. This economic bell is made of tin. It tolls not for thee.

    Good article, Linda.

  • tzada

    We welcome our new taxes under Obamacare

    This Washington Times editorial better not be widely quoted. The reason is, it’s a great big secret that no one is supposed to tattle – the Obamacare bill contains massive tax increases:

    The bill does contain new taxes — plenty of them. Pages 167 and 168 impose an income tax of 2.5 percent on any individual who chooses not to buy government-approved health insurance. Pages 149-150 impose a tax of between 2 percent and 8 percent on the payrolls of all companies whose payrolls exceed $250,000. Pages 197 and 198 outline income tax surcharges to be imposed on individuals with incomes over $350,000, rising to a highest surcharge of 5.4 percent.

    Meanwhile, as the bill specifically acknowledges imposing a tax without counting it as a tax, it also imposes all sorts of requirements that act as indirect taxes under names such as “mandates” and “requirements.” Page 146 requires employers to provide insurance even for part-time workers. Page 280 begins to outline a penalty for hospitals that are adjudged to have “excess readmissions.” Federal bureaucrats, of course, will determine which patient readmissions are reasonable and which are excessive. The bureaucrats will do this by following the simple rules for such determinations laid out on pages 281 and 282 … and 283 … and 284, 285, 286, and … oh, forget it; we got lost.

    There’s more – much more – laid out in impossible to understand legalese.

    http://www.americanthinker.com/blog/2009/08/we_welcome_our_new_taxes_under.html

    • Balls

      Top 2% pay… so what they did very good under push the income disparity accelerated. They can pay more….

      Those who do not buy health insurance should pay, what happens if they have to go to the emergency room, why should I pay for them with my tax dollars. You have to buy insurance to drive a car.

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