SmartRemarks

Collapsing industries are hardly an unusual thing this year. Real estate, banking, airlines, automobiles, music and more are all in dire straits. One of the most consequential ones, however, with ripple effects that will last far beyond the pain of this current economic downturn, is the death spiral of the newspaper business.

For some years now, even when economic times were better,a common question in public discourse was “will print journalism be able to survive the challenge of the internet?” 2008 was the year the answer became a painfully clear “no,” and the question shifted to “how long before print journalism gives up the ghost?” Indeed, one of the biggest news stories of the year was, ironically, the death spiral of the industry responsible for coving big news stories.

Read the rest of this entry »

Tags: blogging, economy, Humanities Festival, internet, journalism, media, newspapers

In crisis lies creative potential.

If there’s any silver lining in the cascade of crises facing the country (and the world) right now, it’s in how they lay the groundwork (pardon the mixed metaphor) for the incoming Obama administration to pursue policy solutions that would otherwise have been impossible. There are good, serious ideas out there in the larger political discourse, some of which have been around for quite a while, yet which as of four years ago, or two years ago, or even six months ago, would have been dismissed by the commissars of conventional wisdom as “too radical,” or “not viable,” or outside the political “mainstream.”

I’ve stepped back a bit from my usual preoccupation with political details in recent days, perhaps out of exhaustion as much as anything else. In a sense, though, that makes it easier to avoid getting caught up in speculation about the News Of The Day and take a look at the big picture.

And one thing that’s clear from that perspective is that “change” is more than just a campaign slogan at this point—it’s an inevitability. The only question is how we choose to direct it.

Read the rest of this entry »

Tags: climate, Congress, economy, energy, environment, George W. Bush, Obama, Pelosi

All year long, throughout an interminable political campaign season, the debate kept popping up:  “are we in a recession?” Defenders of the Bush regime insisted “no”; critics looked at the economy outside their windows and said “yes, of course”; waffling purveyors of conventional wisdom pointed to arbitrary standards about consecutive quarters of GDP shrinkage.

Well, today it was made official—at least as official as any such thing can be. I’m not quite sure when or why everyone decided to defer to the National Bureau of Economic Research as the official arbiter of these things, but certainly everyone in the conventional media treated this like it was Breaking News, and damn sure the stock market reacted as if it was. Nothing has actually changed, but the announcement matters because everyone says it matters. (Thus demonstrating yet again the very sort of manic-depressive groupthink that created this mess in the first place.)

So, we’ve been in a recession for a year now. That means it’s already one of the longest ones on the books, and there’s reportedly “no end in sight.”

Everyone who’s seriously surprised by this, please raise your hands…

New question for debate: is it a depression? And who gets to make that official declaration? Because apparently all the disappearing jobs, multiplying foreclosures, collapsing industries, frozen credit markets, evaporating retirements, and so forth just aren’t quite enough to make it that serious yet…

Tags: economy, financial crisis

So, who will Barack Obama appoint to the cabinet and other key positions in his incoming administration?

To stipulate something up front: nobody really knows. When Obama and his transition team are ready to make announcements, they’ll announce them. All we can do at this point is speculate.

So, let’s speculate!

Read the rest of this entry »

Tags: cabinet, diplomacy, economy, Obama

As my last couple of posts should demonstrate, I can’t write about all politics all the time. I wouldn’t want to. But this is a political season, and there’s no doubt that the topic is on the front burner. We can all understand the reasons why.

We are seven days away from a momentous change in this country. One week from today, all the waiting and the suspense and the anticipation will be over, and Barack Obama will be elected president.

Read the rest of this entry »

Tags: economy, Election 2008, George W. Bush, McCain, Obama, polling, voting

In case I haven’t mentioned it before, I love Apple products. I’ve been using Macs for over 20 years, I write this blog on one, and I’m consistently excited at the way the company weds practical usability to technical innovation and gorgeous design.

So it was with some pleasure that I saw yesterday’s story on Fortune (CNN? Money? Whatever, some part of that media conglomerate) that Apple finally explained in painstaking detail just exactly why and how Wall Street has been undervaluing the company. Read the rest of this entry »

Tags: Apple, computers, economy, iPhone, Mac

As I write this, the U.S. stock market has plunged downward for seven straight days. Just two days after dropping below 10,000 for the first time in four years, the Dow dropped below 9,000 for the first time in five years. That’s a 39% slide from its historic high of 14,000, set only a year ago… and there’s no clear bottom in sight.

Meanwhile, the bailout plan passed by Congress is so far failing to have any calming effect whatsoever, as the solvency crisis spreads around the world. Paulson is now talking about immediate capital injections, as I wrote earlier that most economists had been advising all along, and commentators are grateful that Congress (quietly) slipped authorization for that into the bill.

In a nutshell, people are in a panic. Read the rest of this entry »

Tags: Chris Miller, economy, financial crisis, inflation, unemployment

So, Congress passed the bailout financial rescue bill on Friday. 58 House members changed sides, and it sailed through… although both support and opposition remained genuinely bipartisan.

Nobody, including the supporters, seems very happy about it. Even in the Senate, where the deal was forged and the bill passed on Wednesday, everyone seemed to insist that given a little time, the relevant committees could have crafted a far better proposal. Secretary Paulson’s approach benefited from well-chosen timing: as the first past the post when the crisis arose, it became the model around which all debate was focused.

But now that it’s law (in a revised version), we seem to be stuck in a perplexing and anticlimactic moment. We’re groping blindly through history, unable to return to the status quo ante, but equally unable to point to any desirable future. Thus the big question remains…

What next?

Read the rest of this entry »

Tags: bailout, economy, financial crisis, Paulson, Stiglitz

From Salon’s Andrew Leonard:

There could be no better testament to the historic ineptitude and failure of the Bush administration than that two-thirds of the members of the president’s own party rejected his administration’s plan to deal with the worst financial crisis since the Great Depression. …

One way to look at the “stabilization” of these institutions, wrote [Time's Justin] Fox, is as the culling of the weak from the herd.

More culling is to come. In the natural world, that wouldn’t be such a bad thing. The herd grows stronger as the weak die off and the strong breed. But the global financial system does not appear to be an exquisitely balanced ecology. It seems much more comparable to a house of cards where you take out one support pillar, and it all comes crashing down.

From Princeton economist Alan Krueger, writing in the New York Times:

…this financial crisis is likely to threaten middle- and upper-income jobs to a greater extent than has been the case in past recessions. …

Historically, most downturns have hit the least-skilled the hardest, as employers hold on to workers with unique skills who would be expensive to replace. This downturn, however, is likely to be more democratic than the norm because of the severity of the credit crunch. Research indicates that employers hire relatively more skilled workers when they invest in new plant and equipment, especially high-tech information and computing equipment (the so-called “capital-skill complementarity” hypothesis). If funds for investment are not available because of the financial crisis, however, companies will hire fewer skilled workers.

Consistent with this prediction, initial signs indicate that the employment shock has been felt more by college graduates than by those with a high school degree or less.

Some interesting thoughts from across the pond:

Will these [bailouts] and private-sector fixes work? No, because a) they are not system-wide fixes and b) they are based on the same flawed economic policies that spurred this crisis in the first place.

Some of these policies, attributable to Friedrich Hayek and Milton Friedman, are already discredited. Contempt for government is no longer acceptable. …

But there are other orthodox economic policies that remain intact and are as yet unchallenged by any political party. The most damaging is orthodox monetary policy. …

Flawed monetary policies are turning a crisis into a catastrophe. They must be challenged. Keynes’s cool, rational voice on monetary theory and monetary policy must once again be heeded. Central banks must once again take control over all rates – short and long, safe and risky.

But a system-wide fix would go further. It would challenge the orthodoxy that unemployment helps keep wages low and is a good thing; and that wage rises are always inflationary. It is this orthodoxy that has caused wages and other forms of compensation to fall as a share of GDP in all OECD countries over the past three decades. This fall in compensation has forced people to supplement incomes by borrowing more.

Creating jobs and raising incomes as a share of GDP is vital if we want people to repay debts, salvage banks and return to the high street.

And a book recommendation:

The Trillion Dollar Meltdown by Charles R. Morris

Now we all hold our breaths to see what happens next…

Tags: economy, financial crisis, unemployment

Another business day, another bank failure. (Excuse me: “stock-swap transaction.”) Yet Congress seems paralyzed, leaving the financial crisis unresolved.

This morning John McCain was bragging (prematurely) about how he’d brought House Republicans on board to pass a bailout package. This afternoon, of course, the bill failed to pass… and McCain promptly pointed his finger at Obama for failing to get the Democrats in line… even while saying, in the very same speech, “now is not the time to fix the blame.”

Nevertheless, scapegoating is what everyone in the beltway spent the afternoon doing… even though both the support and the opposition to this bill was genuinely bipartisan (roughly 33% of Republicans for it, 66% against; 60% of Dems for it, 40% against). Both sides worked diligently all weekend on a compromise bill, and genuinely thought they had reached one this morning. As MSNBC’s Chuck Todd reportedly observed, the real dividing line was not party at all, but fear of voters: the clearest pattern was that members with safe seats voted for the bill, while those facing serious challenges in November voted against it. (And the opposition may not succeed even in that narrow sense, at least for the GOP, as it inspires one of the party’s most loyal and “rock-ribbed” demographics to lose faith.)

Thus the stock market suffered its biggest single-day point loss ever, making $1.2 trillion of value disappear in a puff of panic, and lots of lots of baby boomers watched their retirement portfolios get markedly smaller. Meanwhile the credit freeze continues to demonstrate that it’s real, not just hypothetical, as not only commercial paper sales but even routine auto loans, student loans, and corporate payrolls begin to fell the pinch. And it’s spreading beyond the U.S., too, to the U.K., Belgium, Germany and beyond. As the Guardian so elegantly put it, Panic Grips World’s Markets.

NYU economics professor Nouriel Roubini wrote, last February, about “The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster.” The entire piece is long but well worth reading (summary here). It’s interesting (in a morbid sense) to note that eleven of the steps he warned of have now come to pass, and the twelfth appears to be well under way. At the end of the day:

“A near global economic recession will ensue as the financial and credit losses and the credit crunch spread around the world. Panic, fire sales, cascading fall in asset prices will exacerbate the financial and real economic distress as a number of large and systemically important financial institutions go bankrupt. A 1987 style stock market crash could occur leading to further panic and severe financial and economic distress. Monetary and fiscal easing will not be able to prevent a systemic financial meltdown as credit and insolvency problems trump illiquidity problems. The lack of trust in counterparties – driven by the opacity and lack of transparency in financial markets, and uncertainty about the size of the losses and who is holding the toxic waste securities – will add to the impotence of monetary policy and lead to massive hoarding of liquidity that will exacerbates the liquidity and credit crunch.”

The bill rejected today was arguably better than nothing, and certainly better than Bush and Paulson’s original no-strings-attached proposal, but it was still far from perfect. The chief “compromise” forced on it by the House Republicans, even if not enough to satisfy them, hardly helped; the “insurance plan,” far from being a more “market-oriented” approach, would actually create a much more massive liability for the government with less profit potential for the taxpayers. Whether inspired by fear of voters or a long-held quasi-religious faith in The Market, too many legislators seem inclined to cut off America’s nose to spite its face.

So what now? We (read: our representatives) are left with only two choices. One: do nothing. Two: come up with something better.

Fortunately, there are arguably better solutions out there. Perhaps (major surge of optimism, anyone?) today’s events will inspire our legislators to take a look at some of them. Re-regulating the financial markets to require (and allow) a relatively orderly deleveraging, as I wrote a few days ago, would be one important step. Professor Roubini, he of the frighteningly accurate prognostications, discusses several other possibilities, emphasizing that:

“…purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization — via the use of public resources — can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks’ balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.”

Roubini points readers to a “10-Step Plan to Resolve the Financial Crisis” that he published last week. Prominent among these steps is a modern equivalent to the Home Owners Loan Corporation that was so crucial during the Great Depression—a means of securing the value of otherwise endangered mortgages without trying to re-inflate the housing bubble.

He also notes an IMF study (.pdf) showing that out of 42 banking crises around the world, the government managed to recapitalize markets in the vast majority of them without buying up bad assets. One of the most successful examples was Sweden’s handling of its 1992 crisis, which economist Brad DeLong discusses in some detail as an instructive example:

It might work like this. Congress:

• grants the Federal Reserve Board the power to take any financial firm whatsoever with liabilities and capital of more than $25 billion that is not well capitalized into conservatorship
• requires the Federal Reserve Board to liquidate any financial firm in its conservatorship when it judges that the firm is insolvent (paying off in full or not paying off in full the liabilities of the firm at its discretion), unless
• the Federal Reserve Board finds that preservation as a going concern is in the interest of the taxpayer, in which case Congress
• grants the Federal Reserve Board the power to transform equity stakes in the firm into junior preferred stock at par value and then transfer ownership and custody of the firm to the Treasury
• requires the Federal Reserve to terminate conservatorship if the firm becomes well-capitalized once again.

Perhaps the available options wouldn’t be so unpopular, and Congress wouldn’t be so afraid to own the legislation, if they’d made some effort to frame it as something other than a “bailout” from the start: say, a “stabilization plan.” Certainly, public opinion seems to shift dramatically depending on how the situation is described… underscoring that even after saturation media coverage, most people just honestly don’t understand what’s going on.

Public opinion aside, doing nothing is not a viable option. The system will not fix itself: if this crisis has demonstrated anything, it’s that unregulated capitalism will devour its own young before exercising voluntary restraint, however prudent. One can only hope that our legislators, of both parties, come to their senses long enough to do something that makes them worth voting for in five weeks, rather than letting the problems accelerate. Otherwise, as Ezra Klein writes, “It is further proof that we have a calcified political system incapable of responding to either long-term threats or short-term crises.” (Or, as Paul Krugman put it, “a banana republic with nukes.”) Any vicarious satisfaction “Main Street” may get from watching Wall Street crumble under those circumstances would be very cold comfort indeed.

(…Hmm. I notice that I haven’t written anything about comics or pop culture in over a week. Can’t imagine why that would be!…)

Tags: bailout, economy, financial crisis, McCain