Corporate Welfare, continued

For the past 2 years I've been crying wolf on the real estate bubble in the US. It doesn't mean I was right (it's a pretty easy position to say "just wait, something bad is going to happen"), but the subprime market coupled with negative consumer savings showed some serious structural problems with the booming US economy. The house of cards built on this shaky foundation seems to be ready to tumble, and recession seems inevitable. There is hope that the recession may be a brief 8 month hiatus from growth, but there are some scary signs that it could be a long term affair (2 to 3 years).

Personally, I think that the deregulation of financial markets, as well as fed policy helped avoid a more important recession post 2001. The tech-bubble-burst coupled with decreased consumer spending (post-9/11) should have led to a longer, more significant recession in my opinion. The combination of defense spending (or homeland security spending if you prefer - same corporate profits) and the real estate boom helped avoid a more important recession at the time. But in hindsight, it appears that the US economy stepped back from a cliff in order to get a running start as it jumps off now.

The illegal war in Iraq has drained the nation's coffers, so it will be very difficult to fund public works projects that would have the triple benefit of
1) being necessary (how many bridges and levees need significant repairs)
2) strengthening the US economy long term (improved infrastructure adds to both quality of life and productivity gains)
3) creating jobs

The real estate bubble (fuelled in part by sub-prime markets and similar financial shenanigans - which were possible because of lack of oversight and deregulation) has weakened both the financial sector as a whole and the ability of the government to react - both because of real world financial constraints, as well as the current administration's ineptitude.

I will end this post as I ended my last – how much of the potentially huge bailout of the financial sector is going to be carried by the middle class? And here’s a couple of lines that struck a chord with me :

"Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries and how government should keep its hands off the private economy.
The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard. They have lost "confidence" in each other, you see, because none of these oh-so-wise captains of the universe have any idea what kinds of devalued securities sit in one another's portfolios.
So they have stopped investing. The biggest, most respected investment firms threaten to come crashing down. You can't have that. It's just fine to make it harder for the average Joe to file for bankruptcy, as did that wretched bankruptcy bill passed by Congress in 2005 at the request of the credit card industry. But the big guys are "too big to fail," because they could bring us all down with them."


http://www.washingtonpost.com/wp-dyn/content/article/2008/03/17/AR2008031702154.html

Peace to all

Jeffrey

PS – I created a bracket in the NCAA pool – can someone lend me the $10 cover charge to kick into the pool ?