In an eerie echo of President Herbert Hoover in 1930, during a Presidential campaign against Roosevelt, following the stock market crash and collapse of numerous smaller banks, Paulson recently appeared on national TV to declare “our banking system is a safe and sound one.” He added that the list of “troubled” banks “is a very manageable situation.” In fact what he did not say was that the US bank deposit insurance fund, the Federal Deposit Insurance Corporation (FDIC) has a list of problem banks that numbers 90. Not included on that list are banks such as Citigroup, until recently the largest bank in the world.
The statement is hardly reassuring. The California savings bank, IndyMac Bank which was declared insolvent a month ago was not on the FDIC list a week before it collapsed. The reality is the crisis created by “securitizing” millions of home mortgages into new financial instruments and selling the packages to pension funds and investors is unfolding like a snowball rolling down the Swiss Alps.
Indication of the lack of control is the statement just weeks ago by Paulson that “financial institutions must be allowed to fail.” That was two weeks before Paulson went to Congress to ask for “Congressional authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac.” As I noted in my recent piece, Financial Tsunami: The Next Big Wave is Breaking: Fannie Mae Freddie Mac and US Mortgage Debt , those two private companies insured some $6 trillion worth of home mortgages, half the entire US mortgage debt. Paulson defended the request by calling Freddie Mac and Fannie Mae “the only functioning part of the home loan market.”
That comes back to the statement about a “sound banking system”. Can we have a sound banking system where the only functioning part is literally insolvent—its debts greater than its assets?
As we say in the banking biz, YIKES. Isn’t it amazing how no one in the corporate media is talking about how serious this situation is? Guess they don’t want a run on the banks on top of everything else. You know, high gas prices, high food prices, lack of jobs, adjustable rate mortgages coming due, retail store chains closing all over America…
What? You haven’t heard about these closings? Well, here’s a partial list from the same article. By the way, 70% of the U.S. GDP is now based on consumer spending.
Ann Taylor closing 117 stores nationwide.
Eddie Bauer to close more stores after closing 27 stores in the first quarter.
Cache, a women’s retailer is closing 20 to 23 stores this year.
Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide
Talbots, J. Jill closing stores. Talbots will close all 78 of its kids and men’s stores plus another 22 underperforming stores. The 22 stores will be a mix of Talbots women’s and J. Jill.
Gap Inc. closing 85 stores
Foot Locker to close 140 stores
Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.
Levitz – the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.
Zales, Piercing Pagoda plans to close 82 stores by July 31 followed by closing another 23 underperforming stores.
Disney Store owner has the right to close 98 stores.
Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world’s largest home improvement store chain has ever closed a flagship store.
Macy’s – 9 stores closed
Movie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery
and Hollywood Video stores in addition to the 520 locations the video rental
chain closed last fall as part of bankruptcy.
Pacific Sunwear – 153 Demo stores closing
Pep Boys – 33 stores of auto parts supplier closing
Sprint Nextel – 125 retail locations to close with 4,000 employees following 5,000 layoffs last year.
J. C. Penney, Lowe’s and Office Depot are all scaling back
Ethan Allen Interiors: plans to close 12 of 300 stores to cut costs.
Wilsons the Leather Experts – closing 158 stores
Bombay Company: to close all 384 U.S.-based Bombay Company stores.
KB Toys closing 356 stores around the United States as part of its bankruptcy reorganization.
Dillard’s Inc. will close another six stores this year.
One would think that both presumptive presidential nominees would be talking about how we can resolve these matters. Well, at least one would expect Senator Obama to do so, since Democrats have a natural advantage on that issue.
One would be wrong about that.
In a sobering aside, readers should not expect any serious economic remedies for the crisis from a President Barack Obama. Obama’s National Campaign Finance Chairman is Chicago real estate billionaire, Penny Pritzker, who is heir to among other things the Hyatt Hotels. It was Pritzker together with Merrill Lynch ten years ago who first developed the model for securitizing “sub-prime” real estate, the trigger for the current Financial Tsunami crisis.
So, Obama is getting his financial advice from the person who helped create this disaster in the first place.
Meanwhile, Hillary Clinton’s shadow is growing. Yesterday, she penned a remarkable Op-Ed in the Wall Street Journal, which made clear to the Republicans that she understands their policy of Disaster Capitalism all too well – and that she will dedicate the rest of her political career to fighting it.
Who would you trust with the economy the most – John McCain, Barack Obama, or Hillary Clinton?
I’d like to see some polling on THAT issue.