We’re all looking for it. The Department of the Treasury was supposed to provide it for us. Congress was informed that the Troubled Asset Relief Program (aka the $700 billion bailout bill) would launch it. And now we are informed about something that we all knew but were misdirected by the Administration for the better part of a year by carefully denying its existence: the recession – the one we’ve been in since December 2007. With unemployment for November rising even faster than projected (6.7% from 6.3% in October) – 533,000 jobs lost according to the Department of Labor (the biggest job loss in 34 years!) – bleak is an understatement.
The uptick of sales on the post-Thanksgiving “black Friday” showed us what a boost, however momentary, in consumer confidence was capable of doing. Despite a momentary rise, the subsequent markets told us that we are a long, long way from bottom (the place where “up” is really possible) – some economists suggesting that we might not find that sacred ground until as late as 2010. Fortunately, with the new Administration treating the failed economy like a war – placing the deficit reduction at a lower rung on the priority ladder (but we will pay, trust me, for years, perhaps even decades, for this deficit) – I think 2009 (somewhere around the middle) is more likely. And I expect the “bottom” to become a familiar experience once we get there… for much longer than people suspect.
The problem with the current lack of direction is that it extends and deepens this grave financial crisis. Fundamental, grassroots, solutions have not been significantly addressed. The local credit markets are still frozen. Retail sales, except for “black Friday,” have fallen well below expectations. Consumer confidence is clunking bottom.
Foreclosures are rising. Even Federal Reserve Chairman, Ben Bernanke (speaking on December 4) noted: “The public policy case for reducing preventable foreclosures does not rely solely on the desire to help people who are in trouble… More needs to be done.”According to figures released On December 5, close to 10% of American homeowners were in foreclosure or over a month behind in their payment (and that’s at the beginning of October).
Even when you take the subprime mortgage mix out of the mix and look at the solid borrowing based, traditional 30-year fixed-rate loan homeowner, delinquencies on those loans rose to 3.35 percent of the total in September from 3.07 percent at the end of June. The housing currently proposals being reviewed by the Department of the Treasury seem to be focused on providing subsidized rates (as low as 4.5%), based on federally-issued securities, for new home sales, but this does nothing other than create a market for the rising foreclosures.
Consumer solutions remain largely ignored – many of the “grassroots” programs seem only to target consumers in default and leave those capable of paying in the lurch. The Treasury, despite rhetoric to the contrary, remains focused on institutional solutions, even as the Congressional appetite for more “bailouts” is clearly on the wane. Despite promises to the contrary, solidifying balance sheets remains a priority over sending cash down through the system to local banks. Interbank lending, the fuel of business growth and operational necessity (banks sharing risks by pooling loan funds), remains a seemingly distant memory. Treasury’s entire institutional focus seems to have failed rather dismally. Even when Treasury finally got down to the local bank level, feeding capital to the smaller banks after the government let the consumers slide into a dark place where lending does not follow, it was too little, too late.
Banks and other financial institutions are laying off in droves. Credit card limits are contracting. Manufacturers are cutting back, and retail remains in shambles. We are watching the possible restructuring of the automotive sector of America and the probability that CitiGroup, one of America’s largest financial institutions, will either be broken up with various operating businesses segmented and merged with other institutions or perhaps a large mega-merger with a larger existing financial group. Fear remains the principal motivator in both the financial and consumer markets.
Is there some group out there that is monitoring the overall effectiveness of the Administration’s policies in handling this situation? There is now. Congress recently appointed a special panel to monitor the federal bailout, chaired by Elizabeth Warren (a Harvard law professor). Ms. Warren observed, in an interview reported in the New York Times on December 2, 2008, that Treasury seemed to be lurching from tactic to tactic without any clear or articulated strategy on how each move fits into the overall plan (or even if there is an overall plan).
The Times: “You can’t just say, ‘Credit isn’t moving through the system,’ ” she said in her first public comments since being named to the panel. “You have to ask why.” If the answer is that banks do not have money to lend, it would make sense to push capital into their hands, as the Treasury has been doing over the last two months, she continued. But if the answer is that their potential borrowers are getting less creditworthy with each passing day, “pouring money into banks isn’t going to fix that problem,” she said.
Bipartisan disappointment reigns supreme. On December 4, you could see the “bailout fatigue” in the frustrated faces of Senators listening to the groveling CEOs of the U.S. automakers – who drove from Detroit to Washington in hybrid cars, cut their pay to $1 a year, proposed union cuts and killing off entire brands of cars and later even accepted the appointment of an oversight board to administer emergency funding – to beg $34 billion (well more than they asked for on their last visit). The big three began to prepare “pre-packed” reorganizations under bankruptcy law, hoping to preserve consumer warrantees, as Congress mulled their fate.
Many advocated letting remaining companies fall without federal intervention. Republicans have long since distanced themselves from this Presidency, and Democrats have to be worried that with control passing into their hands, the American people expect a quick solution. As long as we think like Republicans and Democrats, as long as we think this is a quick fix and as long as we let idiots vacillate with irreconcilable policy shifts, disappointment will remain the only steady hand at the tiller.
With that brief glimmer of what consumer confidence can do in the bleakest of times – the black Friday lift – it seems that much more important that Americans have a sense that there is leadership, someone, some policy, to follow. Leadership and steady, consistent and clear direction will lift this country. Pushing up from the bottom seems a whole lot more important right now than tugging aimlessly from the top. Without solid, financially viable “people,” nothing can possibly “fix” the system. The score? Administration: 0; People: -10. We need to focus on jobs and home values. Now. Now. Now. It may be too late if the government waits much more.
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