Humpty Dumpty Sat On a Wall.
Humpty Dumpty Had a Great Fall.
All the King's Horses and All The King's Men
Couldn't Put Humpty Together Again.
November 5, 2007: But they are trying, aren't they? After the markets went ballistic last summer in the wake of the disclosure of the Subprime "infection/contagion," bankers have been trying to fix this Humpty Dumpty and restore confidence.
Haven't they ever?
First there was jaw-boning and tsk-tsking as the captains of finance capital and big bankers finally woke up and warned of the danger, blaming everyone but themselves. Then, the pundits started lecturing, calling for higher standards of transparency, when it was too late.
Finally, the bailouts began.
The Federal Reserve Bank stepped up to the plate and swung a mighty bat by "injecting" billions to calm the volatility. Soon other central bankers, at their behest, were in the game too with hundreds of billions of their own from Europe, Japan, Australia, and even China.
The result: Not much. Panic percolated. More lending companies "imploded." (The total is now 179.) It seemed certain that over two million families faced foreclosure and inflation was beginning to raise its ugly head. The dollar was dropping and real well-paying new jobs were not on the horizon.
The next panacea was interest rate cuts. Surely that would do it. With much fanfare and a push from the press, from Jim Cramer ranting on CNBC to more sober heads wagging approval in the mainstream media, first the bank lending rate was cut and then the interest rate. The cut was 50 basis points, twice what was expected.
Wall Street was ecstatic at first. The market partied and stocks rallied. The next day, when the hangovers wore off, it dove again.
The subprime menace was still there in the morning. Soon, the banks were forced to review their unbalanced sheets, and, one by one, reported billions in write-downs. Billions! What was clear is that the greed had got them too—they were all all complicit.
And in fact, as CNN reports, there is more to come from their binge and purge behavior.
As one blogger summed up: "The 'Fat Lady' Has Not Sung Yet."
First estimate I have seen about losses in Q4 from CNN.Money:
"Banks are likely to mark down another $10 billion of mortgage assets in the fourth quarter, according to one analyst's estimates. Merrill Lynch and Citigroup are expected to be hit the hardest."
His conclusion: "The pain from the subprime wipeout isn't likely to abate anytime soon."
Bear in mind, the banks created these problems by lowering their standards and working in collusion with the alchemists at the ratings agencies that turned their junk into gold.
Then, Treasury Secretary Paulson had a revelation: create a private Superfund with $200 Billion. In the end, three big banks could only come up with $75B, but many experts derided it as just PR that cannot cure the crisis. Oops!
Knowing this, what did the Fed do? Cut interest rates again last week supposedly for the last time. And again, there was a one-day rally followed by a major drop.
Nothing changed. In a Detroit paper, Gail MarksJarvis compared the Fed's action to a "teaspoon of tonic," explaining:
"The incubation period for economic remedies and problems is often six to 12 months, and the economy could be sickened by more than tumbling home prices and the potential that house-poor consumers might not spend much."
Bill Fleckenstein of MSNBC went apoplectic calling the cut an "act of desperation," comparing it to "using an applause meter to run the central bank." He asked:
"Why in the hell was the central bank easing the federal funds rate with (1) the dollar at a new low, (2) oil at $90, (3) gold at $800, (4) virtually every commodity on the planet going wild and (5), despite government statistics to the contrary, inflation raging?"
Ah yes, statistics. Some new jobs figures were trotted out suggesting a 166,000 new job uptick. Sounded good? Nonfarm payroll employment was said to have risen by 166,000 in October, and the unemployment rate was unchanged at 4.7 percent. Huh… employment rises but unemployment doesn't go down?
But a blog called Predicto dissected the numbers, disclosing that the Bureau of Labor Statistics was estimating, not reporting:
"Now, just how much of it was created by the CES Birth-Death Model, which statistically supposes jobs created? Try 103,000 for October. A true skeptic would say 166 thousand new jobs, backing out 103 thousand CES Birth/Death Model estimated, leaves a real gain of 63-thousand, but any port in a storm, right? And the 'engineers flipping burgers' report, Table A-12, category U-6 stayed steady at 8.4%. Predictably."
Real analysis and understanding on this crucial issue is missing, like the 50 Million "Missing Americans" profiled by Bill Moyers who described a vast class of Americans who are suffering in our economy but are rarely in the news.
Author Katherine Newman explains:
"The missing class are families that are above the poverty line, but well below the middle class. So they earn about $20,000 to $40,000 a year for a family of four. The federal poverty line is $20,000. They have multiple jobs. Both as individuals and in their households. They often have to press their children into the labor market and pool that money so that their households can maintain themselves above the poverty line…"
Many of these "missing" were the people targeted by the predatory lenders.
So far, in the markets and for millions, there's no way out. Manipulated information and illusion drives policy at home as in Iraq. We won't see what we think it is not in our interest to see, and we can't report what we don't see.
And the circle of denial is closed.
News Dissector Danny Schechter directed the film In Debt We Trust ( Indebtwetrust.com ) and has written Squeezed, a new book on the market madness. Comments to dissector@mediachannel.org.