Mission Shrink –
|June 28, 2009||Posted by Staff under Progress Report, The Progress Report|
Mission Shrink –
From Saving Wall Street in Order to Save Main Street to Just Saving Wall Street
The stock market and the overall market economy are headed in opposite directions. This 2009 is from the Huffington Post, June 18.
by Arianna Huffington
Remember how, back when taxpayers were being asked to fork over hundreds of billions of dollars to bail out Wall Street, we were told it was essential to saving Main Street? Well, in just a few months, we’ve gone from saving the banks in order to save the economy to just saving the banks.
Parsing through Obamas 85-page plan, it’s not clear how his reforms will ensure that our financial system works for the economy as a whole.
“The Obama plan,” writes Joe Nocera in the New York Times, “is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself.” For Obama’s plan to have any lasting value, says Nocera, “he is going to have to make some bankers mad.”
The financiers claim it has too much regulation, dampening their incentives. And the banking lobby is making a concerted push to kneecap the proposed Consumer Financial Protection Agency. But, all in all, there is little there to make bankers mad.
Not too many on Wall Street are unhappy with the massive loophole the new plan leaves by calling for plain vanilla derivatives to be traded on an exchange but allowing customized derivatives — which were at the heart of the financial meltdown — to remain largely unregulated.
The larger problem continues to be the administration’s habit of conflating the health of Wall Street with that of the real economy. The Dow may be up 30% since March, but the numbers check the numbers for Main Street:
- * Unemployment is at a 26-year high; over 9 million people are getting some form of unemployment compensation.
* Credit card default rates hit a record high in May. Bank of America’s default rate hit 12.5% — up from 10.4% in April. Citigroup wrote off over 1-out-of-10 of its credit card loans last month. American Express did the same. If the numbers stay around these levels, credit card issuers stand to lose over $70 billion this year. And a number of the biggest banks are reporting default rates higher than the “worst-case scenario” numbers from the Treasury’s recent stress tests.
* In May, foreclosures dipped 6% from April — but the 321,480 homes lost was still the third-highest total on record. Nationwide, one out of every 398 homes received a foreclosure note.
* And lending — the increase of which was supposedly the primary reason for the bank bailout — is also down. The top 21 recipients of bailout money contracted their lending to consumers and merchants in May by 7% from April — with nearly 75% of the banks reporting a decline in loan originations.
Despite this gloomy picture of the real economy, the administration prefers to focus on the rising sense of consumer confidence — even though this confidence hasn’t translated to greater consumer spending.
So the economic bubble continues to be deflated, but the rhetorical bubble is being pumped with plenty of hot air. Maybe we could use one of the green shoots the administration is marveling at to pop it. To respond rationally to the recession, politician-speak needs to be more honest.
Washington Post survey shows faith misplaced?
Are voters’ expectations high enough?
Did the big speculators who lost recoup by scaring the public …
What are your views? Share your opinions with The Progress Report!