Going To Hell In A Local Rather Than An Express Handbasket
by dday
The unemployment figures for may show a loss of 345,000 jobs and a 9.4% unemployment rate. You can plot this on a graph and make it look preferable to the previous six months of extreme losses, and it is. But Felix Salmon notes:
Remember the stress tests? The baseline scenario had unemployment in 2009 at 8.4%, rising to 8.9% under the more adverse scenario. Well, we’re only up to May, and already it’s at 9.4%.
To be clear, the adverse scenario in the stress test was supposed to be the worst things could possibly get. If we’ve blown past that, the banks will face more losses and write-downs than suggested by the adverse scenario. More people out of work means more foreclosures, less consumer spending, higher deficits, etc. This is but one of the ways where the banksters are making themselves out to be healthier than they are.
The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.
The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of the mess, says economist Joseph Stiglitz of Columbia University in New York. The danger is that weak banks will remain reluctant to lend, hobbling President Barack Obama’s efforts to pull the economy out of recession.
Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.”
Remember, the banks haggled over the stress tests, and basically won that argument. They lobbied for mark-to-fantasy accounting rules, and got them. That’s because they still own the place.
The defeat of the bankruptcy proposal is a testament to the enduring influence of banks, even as the industry struggles financially and suffers from its role in the economic crisis.
It also shows that in the coming legislative battles that will shape the future of the economy, the financial industry — through a powerful and well-financed lobbying force — may have a far stronger hand to play than might seem evident.
Documents and interviews with lawmakers, lobbyists and administration officials show that the banks defeated the bankruptcy change — the industry picturesquely calls it the “cramdown” provision — by claiming that it would push up interest rates and slow the housing market’s recovery, even though academic studies have countered such claims.
The industry also steadfastly refused offers to negotiate over a weaker version. And it poured millions of dollars into lobbying: four of the industry’s top trade groups spent nearly as much on lobbying in the first three months of this year as they did in all of 2001.
But an industry strategy of dividing the Democrats had the most success.
Everything you need to know about the banksters’ power is contained in the header midway through the article: “Surprising Ease.”
As the article says, “Bankrupt homeowners do not have a political action committee or lobbyists.” But surely lawmakers have an instinct for self-preservation. Because what I’m reading here is that the banks are in as big or bigger trouble now than they were six months ago, and just as powerful in extracting explicit guarantees from Congress and the White House that they’ll be spared should they collapse. But as a result of that, we get a “recovery” that feels like a recession, a lost decade where we saunter along without economic growth. There will absolutely be a political price to pay for that. Obama and Democrats in Congress need an economic recovery. But covering for the banksters will delay one. There’s a difference between being owned in order to sustain your political career and being owned to destroy it.
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