The Economics and Politics of Ignorance: 4 Reasons Why Wall Street, Politicians, and the Mainstream Media Don’t Care About the American Middle Class.
Congratulations! We are now the future proud owners of $700 $810 billion in the most toxic, putrid, rancid, and horrific mortgages that humankind has ever encountered. On Friday as the Congress went through their Broadway-like charade of actually debating and acting like they care about middle America, the bill which was just rejected on Monday was passed even though the 451 page new Senate bill was essentially the 110 page bill that was rejected just earlier in the week.  The market at one point was up 300+ points with only a few hours before closing. Where did the DOW end the day after we sold out America to Wall Street? Down 157 points. Why? Because after this anti-climatic Wall Street bailout the American people now need to confront the reality that their politicians, Wall Street, and mainstream media don’t give a damn about them. Why? I’ll give you 4 reasons.
Point #1 – Employment
First, if you were actually paying attention to some of the market fundamentals employment is still horrific. The data came out Friday morning but most people were glued to the bailout bill passage. September saw 159,000 jobs evaporate, the worst month in over 5 years and our 9th consecutive month of job losses:
*Source: BLS
In fact, not one single job has been created in 2008! We have lost a total of 760,000 jobs this year and given that we need about 150,000 jobs created each month simply to keep pace with our demographics, this is not a good trend. I was surprised in both the Presidential and Vice Presidential debates that no moderator even brought up this fact regarding employment. We have lost 760,000 jobs this year and the only question on the economy is about the $810 billion Wall Street handout?  I have provided an extensive overview of the 451 page bill and if you spend the time to read it yourself, you will end up with a few questions at the end including, “how in the world does this help out the average American?” It doesn’t and the job picture is reflecting this and will continue to reflect this even after this Lotto jackpot was just won by Wall Street. In a way, maybe it is a blessing that it got passed. Why? Because after a few months Main Street is going to realize (if they don’t already) the politicians, pundits, and Wall Street all lied about this deal. It is not going to help. And what does help mean? They haven’t even specified how they are going to value nuclear waste mortgages yet we’ve just given them a blank check. Get ready for this next line, “we need MORE money or else!”
The unemployment rate is still sky high:
According to this chart, the unemployment rate is 6.1% which is unchanged from last month. How can that be when we just lost 159,000 jobs last month? In a nutshell, the data is cooked. If we look deeper into the report we find out that the true unemployment rate is 11%:
6.1% unemployment is not that bad in the scheme of things if that were a reflective measure of the overall situation. However, if you feel that things are actually worse your perception is correct because they are. The current unemployment rate of 11% is more of an accurate reflection because it is defined as:
“Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.”
And what is a marginally attached worker?
“Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.”
So basically if you are working the night shift at a fast food joint trying to make ends meet but want to work full-time somewhere else, for the mainstream number you are considered “employed.” If you tried looking for work for months and have found nothing and gave up, you are now not factored into the mainstream number. It is a joke. The media doesn’t dive into this deal and frankly journalism is a flat out joke in our mainstream culture. Did anyone do any investigative journalism into the bailout bill? Even the quote serious news stations like CNN, MSNBC, and Fox (yeah, this is the extent on the cable news shows) all kept reiterating the tired mantra of “if this bill doesn’t pass Wall Street will steal our 401(k) money.” What use is a 401(k) if you are unemployed and have no money to contribute?
Time to focus on the essentials of the economy. That means job creation for the rest of America. This bill is a desperate attempt to keep jobs like those lost via Lehman Brothers and Bear Stearns and create new jobs in this same arena. Are you an Ivy League crony capitalist? If not, you probably aren’t going to see any help from this bill. Think about it for two minutes. How is the government purchasing a mortgage secured by a Real Home of Genius going to help you? It isn’t! Forget all this talk about the credit markets. People will lend you money! As I discussed in a previous article, if we can lend money to third world nations for business seed money how is it that we are not going to have money for folks here? So you won’t be able to get a zero down mortgage for a McMansion or have the ability to lease a Mercedes. So freaking what. That is the reason we ended up here in the first place isn’t it?
In addition, with the steep price tag of $810 billion you would think that the bill would have some initiative for job creation given the title is “Economic Stabilization” but it doesn’t. And some people still have the gall to say the government needs to stay out of the market! Bwahahaha! They are opposed to the government creating jobs yet they are quick to off load $810 billion to buy toxic mortgages? And you wonder why populism is surging upwards.
Point #2 – Credit Markets Still Tight
In a simplified form, credit should be given to those who at least have some track record of being able to pay back the loan or capacity to pay back a note. For a decade, we have been using credit without verifying even the slightest of standards. Now, banks actually have to verify your income, employment [if you have a job], and you may have to come up with a down payment. This is how things were done for half a century and we never had such a pathetic and greed induced housing bubble!
A good indication of credit stress is the TED spread.
*Source:Â Bloomberg
The TED spread is calculated as the difference between the 3-month T-Bill interest rate and the 3-month LIBOR. To a certain extent this is an excellent indicator of perceived credit risk in the overall economy. Why? For one Treasury bills are seen by most as a risk-free investments and the LIBOR examines the credit risk of lending to commercial banks. When the spread increases as it has been doing and the chart above highlights this clearly, it is a sign that inter-bank loans are perceived to be riskier and this is when we hear talk about counterparty risk. Obviously in any market based economy the higher the risk, the higher the interest rate. Hence the higher current LIBOR rate with the lower 3-month T-Bill rate have exploded the TED spread over the past few months.
You know the irony here? The TED spread actually shot up on Friday even after the ridiculous bailout package to a record high of 387 basis points. Even on Monday September 29 when the market lost 777 points the TED spread hit a high of 350 basis points. To put where we are at in perspective in 1987 when the market suffered the largest percentage drop ever the TED spread slightly went over 300 basis points.
What is this telling us? People don’t even trust banks. They are fleeing to U.S. Treasury bills even though the 3-month bill is paying a yield of 0.30 which is practically nothing. You have to see all of this as being interconnected. This may be a simplified equation but this is how things are playing out:
(a)Â Banks need qualified people to lend to
(b)Â Qualified people come from a healthy employment base
(c)Â Our employment base is unhealthy
(d)Â Hence, even with the bill passing and freeing up money to lend, unless the money flows back to improving the fundamentals of the economy, you will encounter the problem of having money to lend with a small group of qualified borrowers.
(e)Â The money will flow back to Wall Street and lenders
(g)Â Thus we are screwed unless radical action is taken
That is why the market on Friday sunk lower because it got a credit heroin injection high before taking two seconds to think about the overall employment situation not only of the United States but that of the world. Decoupling is a myth and that is why you do not read articles from pundits about this subject anymore. As the Heroes tagline goes save the cheerleader, save the world. People want to save the credit, save the Ponzi scheme.
Point #3 – Housing Still Sucks
At the genesis of this entire mess is the housing market. I know it is easy to forget the real issues with the talking heads and 24/7 media stream screaming their heads off like wild and hungry hyenas, but housing still has some fundamental problems.
First, foreclosures are still running at a record pace:
So far this year we have had over 2 million foreclosure filings (the data above still needs 4 more months for the year from September to December). We are on pace to breaking the record last year of 2.2 million foreclosure filings. In fact, we are on pace for a 3 million+ foreclosure filing year.
Calculated Risk had an interesting chart on the Case-Shiller numbers for many cities:
*Source:Â Calculated Risk
This chart should be telling. As you can see California, the Southwest in general, and Florida lead the charge. But you will also find Detroit, Washington, and Minneapolis seeing tankage reminiscent of the Titanic . Basically the entire country is seeing home prices decline.
The California Association of Realtors, not exactly the beacon of unbiased research regarding housing announced that the median price of a California home has fallen a whopping 41% in one year. This is not a correction but a crash. Anyone trying to say real estate is correcting or adjusting is in another dimension and needs to setup an appointment with Dr. Freud to get that delusion examined. We are in a free falling market because that is what happens when bubbles burst. Trying to implement a $810 billion crutch for the bubble is not going to work except help those who perpetrated this decade long scheme.
Point #4 – Education and Anti-Intellectualism
This is one trend that really concerns me. For whatever reason there seems to be a cohort of people that think intellectualism is a waste of time. Ironically, many of the people pushing this agenda are educated at some of the most prestigious universities in our country. Its as if they want to see some renewed form of the Dark Ages when it comes to education. They mock scientific research on energy independence, they cling to outdated models of trickle down economics, and are proud that we are squandering money in Quixotic missions.
As we struggle with our own economic budget we are blowing through inordinate amounts of money around the world. This bailout plan over the weekend had a vast majority of people who were against it. After Monday’s fall and the subsequent punditry the numbers shifted to a slight majority opposing it. Why? Because people respond to fear mongering and when some do not understand complex situations they tend to gravitate to dogmatic views. Remember these:
“Real estate always goes up!”
“They’re not making any more land.”
“Real estate is the number one investment of all time.”
“No new taxes!”
Of course all of these fail to capture the complexity of the current situation. If you ask most people if they would like to see their kids go to college, the overwhelming majority say yes. 1 out of 4 Americans has a bachelors degree or higher. I understand that not everyone can go to college for a variety of reason but mocking intelligence? Mocking someone because god forbid their explanation is longer than 30-seconds? This is why we have a country that has a negative savings rate and many thought going into massive amounts of debt (including this additional $810 billion in debt) is the solution to our problems.
As a country we should always value intelligence and most importantly the truth. Even if the truth is hard to swallow at least it gives us the brutal reality to confront. Americans for the most part are not afraid to confront tough problems so long as they have solid and intelligent leadership. Otherwise, we will end up in this same place again. I’ve gotten many e-mails from people saying that our politicians didn’t hear us. Frustration, anger, and now resignation. “Why didn’t they hear us? This is useless. I feel apathetic toward government” were some of the responses. Here’s the thing folks. They DID hear us. That is why they voted it down on Monday. But today their vote simply shows that they don’t CARE about you. As I watched some of the floor talks I kept hearing, “this bill is horrible. It is a bailout. Doesn’t make sense. But I’m going to hold my nose and vote for it.” Say what? Bowing down to Paulson and Bernanke? The same two who only a few month ago were saying the economy was fine and things were contained? It isn’t like the fund is going to be overseen by Buffet, Volcker, Krugman, and Roubini. This is going to have oversight from Paulson, Cox, and Bernanke. Might as well include Jim Cramer and Ben Stein.
Time to get real. We really do need change and not only in Washington. The mainstream media, politicians, and especially Wall Street do not care about you. Give this bill a few months and you’ll find out why.
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24 Responses to “The Economics and Politics of Ignorance: 4 Reasons Why Wall Street, Politicians, and the Mainstream Media Don’t Care About the American Middle Class.”
They don’t care about us because we don’t own the media (a few large corporations do). And the media will gladly push pro-bailout propaganda and pretend the Dow is some sort of Delphic oracle when it went down after the first bill failed. And even if we take to the streets to protest this bailout, you can be sure the media will Not report our protests.
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They don’t care about us because we don’t run the banking system and can’t threaten credit crunches. But the banking system only exists like it does today because of government …. yea well …
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They don’t care about us because we’re not even entirely where they get the money to RUN THE GOVERNMENT from. Oh, I know it feels like they tax us to death and they do indeed butcher some of our incomes with a heavy tax burden, but they are also financing part of the government with debt bought by foreign countries.
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They don’t care about us because we can’t offer them plush jobs when their done with politics (or before they get into politics!)
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They don’t care about us because they can just run twiddle dee and twiddle dum all the time who have the same positions on 75% of the issues, and make us choose one of them (oh I have a definite preference in this contest but even so ….)
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They don’t care about us because it’s not where they get their campaign contributions. And tell me who would have to pass a campaign finance law, ah the same politicians that we accuse of being corrupted by bribes …. how could that work?
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They don’t care about us because we’re not in their social circle and the upper class is. That is the reality they socialize with daily.
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They don’t care about us because some of them aren’t even up for reelection and they figure it will all be forgotten by the time they are. And of those that are up for reelection many aren’t even in competitive districts. The voter would have to make voting on this one issue even more important than party to throw these people out, which I dearly wish they would, but it doesn’t seem likely …
And if you vote (yes including if you vote for 3rd parties or a write in) and if you write your congress people, and if you protest anyway, well …. thank you anyway, for trying to stop this beast.
Rent the movie Idiocracy, it pretty much shows where point 4 leads us. …
and unsurprisingly we’re already there.
Well, at least it starts out with just a $250 blank check. We’ll see what happens in 3 months with a new administration. Check out the map here:
http://www.electoral-vote.com/
It is a sad and sobering commentary on our government. Thank god, we should have a new administration before long. One last rape before they leave, how fitting. The real storres are Foreclosures and Price Declines in Housing. We need to flush out all this s**t before we can get back on track.
As hard as it is to see California prices drop like a rock, it is best. The quicker the better in my view. No gimmick is going to “save” us. Foreclosures are now beginning to creep into affluent areas on the Westside of Los Angeles. One of the epicenters of the Real Estate Boom. Much to homeowners denial, the writing is on the wall. 136 homes in some form of foreclosure in Santa Monica. But I thought it was immune?
http://www.westsideremeltdown.blogspot.com
Spot on, as usual!
“Don’t worry, be happy was a number one jam. Damn, if I say it, you can slap me right here.” – Chuck D
The Kondratieff (K) Wave winter will take care of all these concerns. It is time for America to adjust to reality and it ain’t going to be pretty.
Grassroot efforts are what is required to turn this ship around. Apathy and intellectual vacancy will no longer be an option… The late Great George Carlin said it best… http://www.youtube.com/watch?v=kJ4SSvVbhLw&feature=related
The anti-intellectualism is really quite disturbing. How did we get to the point where brief soundbites or slogans are considered wise while well thought out statements or responses to issues are reviled? I hope this is a tippong point. Following slogans and soundbites has brought us disaster and I think more and more people are realizing it. The next month will be a real test as we are about to see a blitz of anti-intellectualism and sound-bite campaigning like never before as McCain-Palin try for a hail-mary. I think we will be able to measure progress in our country by how we respond. If the race tightens or swings the other way then we must abandon all hope. If people can look at the current mess and the people who got us here and still respond to more Rove-style politics our decline may become irreversible. If, as I suspect, it only increases the Obama lead we will know there is a true opportunity to take back our country. Not that it will be automatic. Obama and the dems will still need us to hold their feet to the fire and keep them accountable. This is a nation-defining moment. Come on America, I know you can do it!
I wrote to Coble here in NC and his office sent me back a dated, irrelevant form reply letter. I was busy working overtime and gave up trying to get to a link to mail E. Dole. Doc, you’ve had the perscription for the several years I’ve been reading, but these guys just want to drink the koolaid while Reverend Jim Jones Paulson keeps telling us how we just need a little more liquidity. Yet the talking heads still keep the 8-track going about the 10% stock gain over the long term…They didn’t tell us this soft landing was the Titanic settling on the ocean floor.
I can’t wait till Planet of the Alt-Apes comes out on BluRay…the first two trillion here will probably be a 10% down. Maybe we can take out a second and get a waterfront villa on Lake Chad and moon-walk out before the Chineese and Arabs foreclose on the whole mess.
Forget buying stock, buy ammunition. The writing is on the wall.
Comrade Dr. Housing Bubble,
~
Outstanding work! Of course they don’t care about us (i.e. the commonwealth): that’s why they call the babyboomers the “me generation”.
~
1.20.2009 End of an error!
George W. Bush’s parting gift to America.
He leaves us with a recession as well as a financial meltdown.
He is flipping us all the bird as he trudges off the world stage, onto his ranch in Paraguay. Osama bin Laden must be peeing in his pants, laughing so hard, at the dufus who enabled America to be raped by his cronies and caused us to pay 10 billion a month into a black hole called Iraq.. This man is a success at being a magnificent failure. Thanks, George, for all you do…
This partisan argument needs to end – NOW. I’ve seen a lot of comments on various sites saying things like “thank goodness we’re getting rid of this administration” – as if that’s going to be any help whatsoever. The corruption runs deep in Washington. Burying your head in the sand and thinking that everything is going to be as fun as ice cream and puppies just because the other side might take power is sheer ridiculousness. I just watched video of 2004 hearings where Republican (yes, Republican) legislators tried to force greater oversight on Fannie and Freddie, only to be savagely berated by Democrats who said that Fannie & Freddie’s “nothing-down mortgage” programs were a stellar success, and they didn’t see anything wrong with the way Fannie and Freddie were doing business. The democrats then suggested that the republicans were being racist, since many of the loans in question were being made to low-income minorities. (Not a single one thought, ‘duh, maybe if they have a low income they won’t actually be able to afford that $500,000 house’). When will people learn that this whole thing is about power and corruption, not about Republican vs. Democrat. Don’t get me wrong, the republicans are equally to blame for this mess. But they didn’t do it alone.
P.S. If you don’t think your party’s representatives are bought, then look again. If you look to see where each candidate’s election funds came from, you’ll find that the financial sector contributed almost equally to McCain and Obama. It doesn’t matter to them WHO wins – they’ll make sure that both of them are in their pocket.
Thanks Doctor for another good post.
Remember though, it was the smart guys that got us into this mess.
Wasn’t Billy a Rohdes Scholor?
What about all those bright boys with PHD’s from the Ivy Leagues with their fancy derivative computer programs?
Reminds me of another bright boy from a bygone era that after 50,000+ dead admitted he was wrong about Vietnam.
Remember Germany? Yep, they even have camps in america ready to go and hosted by fema/dhs. Martial law is next and the amero to compliment the north american union joining us with canada and mexico. check out these sites while the net is still up. spp north american union haarp whatdoesitmean.com uaff.us fema camps usa rex 84 operation echelon operation blue beam uaff.us. good news, the global elite/illuminati only have 1330 days to waller in our stolen money. “I AM is on the way………………….pentecost 2012. All Glory to him. free book 2008 god’s final witness…………with love, Ann
I think those resorting to partisanship don’t realize how bad things really are in Washington. And if they did it would scare the beejezas out of them. First off, please do realize that Obama also voted for the bailout (as did McCain) and campaigned for it and got many Dems to change thier mind on it.
Also realize that we are this close to martial law: http://www.armytimes.com/news/2008/09/army_homeland_090708w/
Ok, ok, this is a HOUSING blog, and that’s not on topic, but …. we are this close to martial law .. And so I’ll speak up on it until the army knocks down the door of my rented place.
Of the two major party candidates I support Obama. I think Bush has been an absolute disaster for the country. And I sure don’t want McCain/Palin. So hey for someone deriding partisanship …
But on the other hand, I just don’t think an Obama victory is necessarily ENOUGH at this point. We’re too far gone not only on the road to economic disaster perhaps but also and worse: on the road to plutocratic and cruel dictatorship. Maybe we can hope Obama is more forgiving in imposing martial law ….. ;).
So much for that bailout. Didn’t even last one day! Wasn’t the purpose of that $810 billion blank check to stop the crash we are currently seeing? Of course people were scared by fear mongering except we have given a select few institutions a public garbage can where they can recycle their waste and get paid for it. Do you really need anymore proof than the market crashing today that the bailout bill is only going to help a select few? Say we voted the thing down on Friday, we’d be in the exact same spot. I’ve gotten many of your e-mails and appreciate them. I am as frustrated as many of you are. Time to vote many of these jokers out of office.
CREDIT DEFAULT SWAP, not the housing bubble is what is making an already big mess a huge nightmare. The reason the bail out was essential is that our world economy is on the verge on collapsing because of legalized gambling through the use of Credit Default Swap instruments. The house of cards is so unstable that the institutions cannot be allowed to fail without taking down the whole game, this is not properly understood by people when they say, let them fail. Believe me I would like to let all of these institution fails for having gambled and lost with our savings but we are way beyond this now.
We are talking about the basic survival of the system.
The item came up for the first time in the public eye with AIG. Apparently the real reason for the existing credit meltdown is not the housing bubble but the 45 trillion dollars of credit default swap exposure floating out there. The housing bubble was only the initial trigger for this house of cards. LOOK IT UP ON THE WEB, breath, get grounded and beware of fear. When it is all said and done, our ability to love others and ourselves, own our real power and
grow into wisdom it what really matters.
Who saw 60 Minutes on sunday, the top story was the credit default swap & it’s impacts wich aren’t completely known.
From the House Oversight and Government Reform Committee today, we have exhibit A on why they don’t care about us:
Waxman read excerpts from Lehman documents in which a recommendation that top management should forgo bonuses was apparently brushed aside. He also cited a Sept. 11 request to Lehman’s compensation board that three executives leaving the company be given $20 million in “special payments.”
“In other words, even as Mr. Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation,” Waxman said before Fuld appeared as a witness.
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Shocking, just shocking. While Rome was burning, executives were looting the company (i.e. shareholders). Now the looting, I mean bailout, plan is picking tax payer’s pockets. Wake up America!
1 day & it has been proven the bailout is a $810,000,000,000 SCAM! And everybody knows it, but the media passes it off like this solves the crysess. Anybody with a half a brain knows they’re being screwed for the 3rd time., reguardless if they fully comprehend what is happening.
Read some of the foregn newspapers on this topic, you’ll find it shocking how much cool-aid the US media has consumed on this subject & continues to drink. It’s almost as if they are all adicted to it.
Exibit A Jimm Kramor. What can I say about this nutcase that hasn’t been already been said. You can find his complete meltdown on Youtube,. After viewing this outburst you must ask yourself, how the hell could CNBC keep him on the air?
What you are witnessing there are the side effects of to much cool-aid consumption. The symptems resemble a psychotic high requiring hospitalisation & evaluation. Infact many Wall Streeters & pundents may require the same treatment to bring them down from there high. Already employees at some of the biggest furms have crashed, with many more to come. I cant calculate the number of perscriptions for Zoloft that are going to be required, but it’s going to be plenty.
Did anyone listen to Sen. DeMint. His statement about this bail out should have givien you just who is at fault . Guess what, it is the Federal Reserve that has nothing to do with Federal. It is a group of foreign banks who has a strangle hold on our economic. They are the ones who dictates who wins and who loses. Who gets money and who doesn’t. We need to get back to our own banks the American banks. We need to have nothing to do with foreign banks. Heads up people and start listnening and get ready for the big fall. Get your own house in order. Get bills paid and no wants spending. Start concerving.
Wikipedia states that credit default swaps were originally used as a form of insurance against bad debts. These instruments became a tool for financial speculation when the US Commodity Futures Modernization Act of 2000, signed by Bill Clinton, barred regulation of these trades. There is plenty of blame to go around on both sides of the aisle.
Another reason is Barney Frank Chairman of the US house representatives financial services committee who writes housing and banking laws had a relationship with Herb Moses an executive of Fannie Mae. Relationship was from 1991-1998. Frank blocked GOP lawmakers from imposing regulations on Fannie & Freddie.President Clinton tried to impose laws on the mortgage giants but was thwarted by Frank. Frank met Moses in 1987 the same year he became the first openly gay member of Congress.Moses helped develop many of Fannie’s affordable housing and home improvement lending programs. Of course such programs led to the mortgage meltdown and prompted last months Government takeover of Fannie & Freddie. Google it. the Government controlled media is pretty quiet about it except for Fox and Drudge. People should really be pis*#* about it. I am. I will be writing my senators.
peace-out
So, Cheryl, our old friend Barney is doing to the American public what Herb was doing to Barney… we’re just the next victim in the daisy chain… now I understand!
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