Our Awful Situation

Archive for the ‘Economic Depression’ Category

Terminator: Governor plans to slash state workers’ pay

Posted by Charlie Kilo on July 24th, 2008

The govinator hits California state workers pay. Expect to see states like Michigan and Florida follow suit:

Gov. Arnold Schwarzenegger plans next week to slash the pay of more than 200,000 state workers to the federal minimum of $6.55 per hour to help ease the state’s budget crisis, according to a draft executive order obtained by The Chronicle on Wednesday.

The governor also will order an end to overtime pay for all but critical services, a freeze on state hiring and the immediate layoff of nearly 22,000 temporary, seasonal and student workers

Quotes from the great depression

Posted by Charlie Kilo on July 22nd, 2008

And history repeats itself…

September 1929
“There is no cause to worry. The high tide of prosperity will continue.” — Andrew W. Mellon, Secretary of the Treasury.

October 14, 1929
“Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board.” — New York Times

December 5, 1929
“The Government’s business is in sound condition.” — Andrew W. Mellon, Secretary of the Treasury

December 28, 1929
“Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression.” — Associated Press dispatch.

January 13, 1930
“Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today.” - News item.

January 21, 1930
“Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction.” - News dispatch from Washington.

January 24, 1930
“Trade recovery now complete President told. Business survey conference reports industry has progressed by own power. No Stimulants Needed! Progress in all lines by the early spring forecast.” - New York Herald Tribune.

March 8, 1930
“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.” - Washington Dispatch.

May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity.” - President Hoover

June 29, 1930
“The worst is over without a doubt.” - James J. Davis, Secretary of Labor.

August 29, 1930
“American labor may now look to the future with confidence.” - James J. Davis, Secretary of Labor.

September 12, 1930
“We have hit bottom and are on the upswing.” - James J. Davis, Secretary of Labor.

October 16, 1930
“Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment.” - Charles M. Schwab.

October 20, 1930
“President Hoover today designated Robert W. Lamont, Secretary of Commerce, as chairman of the President’s special committee on unemployment.” - Washington dispatch.

October 21, 1930
“President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter.” - Washington Dispatch

November 1930
“I see no reason why 1931 should not be an extremely good year.” - Alfred P. Sloan, Jr., General Motors Co.

January 20, 1931
“The country is not in good condition.” - Calvin Coolidge.

June 9, 1931
“The depression has ended.” - Dr. Julius Klein, Assistant Secretary of Commerce.

Economist: “America May Default On Its Debt”

Posted by Charlie Kilo on July 22nd, 2008

The Economist:

Only six months ago, politicians were counting on Fannie Mae and Freddie Mac, the country’s mortgage giants, to bolster the housing market by buying more mortgages. Now the rescuers themselves have needed rescuing.

After a headlong plunge in the two firms’ share prices (see chart 1), Hank Paulson, the treasury secretary, felt obliged to make an emergency announcement on July 13th. He will seek Congress’s approval for extending the Treasury’s credit lines to the pair and even buying their shares if necessary. Separately, the Federal Reserve said Fannie and Freddie could get financing at its discount window, a privilege previously available only to banks.

The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press.

Jim Rogers: Fannie and Freddie … let it die!

Posted by Charlie Kilo on July 15th, 2008

Way to go Jim Rogers!

Confidence Ebbs for Bank Sector and Stocks Fall

Posted by Charlie Kilo on July 15th, 2008

The house of cards begins to fall:

Even as the Bush administration moved to rescue the nation’s two largest mortgage finance companies, confidence in the banking sector spiraled downward Monday.

In Southern California, lines snaked around branches of IndyMac Bancorp, the large lender that was seized by federal regulators on Friday, as customers hurried to withdraw their money. As the anxiety spread through the financial markets, two other big banks, one in Ohio and another in Washington State, were compelled to assert that they were sound.

Even as federal regulators issued assurances that depositors’ savings were safe, Wall Street analysts circulated lists of lenders that might be vulnerable. Shares of regional banks plunged in one of the sharpest declines since the 1980s.

The Week Ahead: Heavy Turbulence

Posted by Charlie Kilo on July 13th, 2008

I predict that the Dow will hit 10.5 this week. I think we’ll look back on this week as the final economic act. The end game. The tipping point:

Expect heavy turbulence in the week ahead.

Analysts say hurdles for the stock market in the coming week include continued uncertainty about financial sector—specifically mortgage giants Fannie Mae and Freddie Mac —as well as the unrelenting pressure of rising oil prices.

There is also a heavy calendar of economic data, corporate earnings reports, plus two days of testimony on the economy from Fed Chairman Ben Bernanke.

“The financials are going to have a tough go of it next week,” said Jefferies and Co. Chief Strategist Art Hogan. In addition to the swirl of speculation that has driven Fannie and Freddie shares lower and lower, major banks are reporting results and are expected to unveil more write downs.

The announcement late Friday of the second biggest U.S. bank failure ever also adds to the gloom. After the bell, regulators reported that they seized IndyMac Bank, an aggressive mortgage lender with $32 billion in assets.

Also worrying Wall Street is Lehman Brothers stock, which has been spiraling downward on credit worries. “A resolution (for Fannie and Freddie) would help. Whether it’s a government take out or a back stop committing access to capital,” said Hogan.

James Paulsen, chief investment strategist at Wells Capital Management said oil will be a concern for stocks in the coming week but Freddie and Fannie could be more worrisome. “The meltdown of Freddie and Fannie (stocks) will not reduce the ability of what they can do,” but the market remains fearful, he said.

The Dow lost 1.7 percent, falling to 11,100 in the past week. For the first time in two years, it dipped below the key 11,000 level. The Nasdaq lost just 0.3 percent for the week and the S&P was down 1.9 percent, finishing at 1239. The financial sector declined 6.3 percent for the week, followed by consumer discretionary with a 4 percent loss. The winner was the S&P healthcare sector, up 1.3 percent.

“We’ll have a plethora of economic data but none of it will take away from the earnings data,” said Hogan.

Hogan said most earnings will be routine, like those from General Electric Friday which was in line with expectations. Yet, “I think we could get some upside surprises because we’ve priced in worst case scenario in a lot of areas,” he said.

Second biggest bank failure…ever

Posted by Charlie Kilo on July 11th, 2008

IndyMac Seized by U.S. Regulators Amid Cash Crunch. Who’s next? Wachovia? WAMU?

IndyMac Bancorp Inc. became the second-biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the California mortgage lender short on cash.

In the eye of an economic storm

Posted by Charlie Kilo on July 11th, 2008

This “Hurricane” analogy makes good sense:

This hurricane season will be quite different than seasons past. While most start with tracking tropical depressions that gain momentum and eventually develop into hurricanes graded on the Saffir-Simpson Scale, this season will be about subprime loan losses developing into a gale-force financial wind that may well destroy everything in it’s path.

Like all hurricanes, this one will have three components: The front wall, the eye and the back wall.

The subprime mortgage mess was the front wall of the hurricane currently rocking our financial system. Once-great investment banks, like Bears Stearn, were destroyed overnight. America’s largest home lender, Countrywide, was sold to Bank of America to avoid bankruptcy. Now the subprime mess may take down a commercial lender like Citigroup or B of A.

This is just the beginning of the devastation to come from this hurricane season.

Personal bankruptcy up 30% nationally

Posted by Charlie Kilo on July 10th, 2008

Its just the beginning:

Utah may have escaped much of the pain from the nationwide economic downturn so far, but thousands of the state’s residents have not been as lucky.
    The U.S. Bankruptcy Court for Utah reported Wednesday that 4,216 Utahns and businesses in the state filed for bankruptcy protection during the first half of this year, a 42 percent increase over the first six months of 2007.
    “Our [bankruptcy] numbers continue to increase,” U.S. Bankruptcy Court for Utah clerk David Sime said, adding the number of petitions filed with the court appears to be on a steady upward trend.
    Nationally, U.S. consumer bankruptcy filings increased 30 percent during the first six months of 2008, compared with the same period a year ago, according to the American Bankruptcy Institute, a Virginia-based organization that provides research and analysis of issues related to insolvencies.
    “The overall trend of rising bankruptcies reflects the growing financial strain felt by U.S. households burdened by high debt, rising mortgage costs and falling home values,” said Sam Gerdano, the ABI’s executive director.
    Bankruptcy filings nationwide plummeted in 2005 after Congress adopted reform legislation intended to make it more difficult for consumers to avoid paying their debts. Since that initial plunge, however, bankruptcy filings in Utah and the other states have increased significantly.

Retail bankruptcies across the US

Posted by Charlie Kilo on July 7th, 2008

In his latest newsletter, The World Affairs Breif, Joel Skousen outlines the following retail closures and bankruptcies across the US:

1. Ann Taylor is closing 117 stores.

2. Eddie Bauer to close more stores after having already closed 27 shops in the first quarter.

3. Cache, the women’s retailer announced that it is closing 20 to 23 stores this year.

4. Lane Bryant, Fashion Bug, and Catherines are closing 150 stores nationwide.

5. J. Talbots announced earlier that it is shuttering all 78 of its kids and men’s stores. Now the company says it will close another 22 under-performing stores.

6. Gap Inc. is closing 85 stores - In addition to its namesake chain, Gap also owns Old Navy and Banana Republic.

7. Foot Locker will close 140 stores -

8. Wickes, a 37-year-old retailer, filed for bankruptcy protection last month, and is closing all stores.

9. Levitz, the furniture retailer, is going out of business.

10. The owner of Zales and Piercing Pagoda said it plans to close 82 stores by July 31.

11. Disney Store’s new owner has reserved the right to close 98 stores.

12. Home Depot. Nearly 7+ months after its chief executive said there were no plans to cut the number of its core retail stores, The Home Depot announced Thursday that it is shuttering 15 of them. It is the first time the world’s largest home improvement store chain has ever closed a flagship store [Atlanta] for performance reasons.

13. CompUSA is closing 128 stores.

14. Macy’s - 9 stores -

15. Movie Gallery - 160 stores as part of a reorganization plan to exit bankruptcy

16. Pep Boys - 33 stores

17. Sprint Nextel - closing 125 retail locations. Amid the loss of 639,000 paying customers in the fourth quarter, Sprint will be cutting a total of 6.7% of its work force (following the 5,000 layoffs last year) and 8% of company-owned brick-and-mortar stores.

18. J. C. Penney, Lowe’s and Office Depot are scaling back

19. Ethan Allen Interiors announced plans to close 12 of 300+ stores in an effort to cut costs.

20. Wilsons the Leather Experts - 158 stores

21. Pacific Sunwear will close its 154 Demo stores

22. Sharper Image: The company recently filed for bankruptcy protection. 90 of its 184 stores are closing.

23. Bombay Company: The company unveiled plans to close all 384 U.S.-based Bombay Company stores.

24. KB Toys posted a list of 356 stores that it is closing around the United States as part of its bankruptcy

25. Dillard’s said it will continue to focus on closing under-performing stores, and reducing expenses.

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