Well, don’t feel alone. As United Technologies announced today that 11,600 jobs will be eliminated in 2009, these future unemployed will join the 12.5 million Americans who are currently unemployed as of the end of February 2009. Year to date figures shows 1.3 million jobs eliminated which is an average of 22,135 jobs lost every day.
In the midst of the economic decline, it appears that there is much debate about the causes of the recession and the government remedies to arrest job loss, foreclosures and restore confidence in our financial sector which is widely believed to be the epic center of the crisis.
Jim Puzzanghera of the LA Times wrote on March 9, 2009:
Some experts say what these ventures have done is make an AIG or a Citigroup that’s “too interconnected to fail.” And it’s not just the size that would matter. AIG’s interconnectedness with other companies, markets and economies is so huge and convoluted that it’s almost impossible to foresee what all the consequences of collapse would be.
The prime example of this problem is about $500 billion in unregulated credit default swaps held by AIG. Those complex financial instruments are essentially insurance policies taken out on mortgage-backed securities and other assets. The swaps were designed to pay out money to buyers who got caught in exactly the type of financial crisis taking place right now.
In essence, AIG was committed to insuring hundreds of billions, if not trillions, of dollars in investments. When the housing market crashed and the economy nose-dived, those investments tanked as well. And AIG was liable for the losses — a liability so large that it is now overwhelming the rest of the company, including the still-profitable parts.
What’s worse, because credit default swaps were unregulated and the layers of transactions so arcane that they are difficult to understand clearly, the true cost is essentially impossible to measure with certainty. Once the dominoes began to fall, no one knew where the process would end.
“People don’t know the exposure, so as a result there’s a huge premium on fear and the unknown,” said Kent Smetters, associate professor of insurance and risk management at the University of Pennsylvania’s Wharton School.
However, Ralph Vartabedian of the LA Times wrote on March 10, 2009:
But critics contend that what was originally proposed as an overwhelming gesture of government resolve to get banks on their feet now seems like an intravenous drip, barely sustaining the giant institutions that account for the majority of U.S. bank assets. As time goes on, the problems appear again to be deepening.
“Some of these banks are walking dead and should be closed,” said Sen. Richard C. Shelby of Alabama, a 20-year veteran of the Senate Banking Committee and its senior Republican. “We are propping up financial institutions that are insolvent and have already failed. The government has made a political decision to keep them going at the taxpayers’ expense.”
At the other end of the political spectrum, the AFL-CIO Executive Council voted unanimously last week to urge President Obama to nationalize problem banks as a way to stimulate and stabilize the financial system.
“Every day we delay is another day workers in this country feel the pain of a stagnant economy,” said Richard L. Trumka, secretary-treasurer of the labor organization, a powerful influence on the Democratic-controlled White House and Congress.
Despite, P. Parameswaran wrote of US Federal Reserve Chairman as saying,
“In the near term, governments around the world must continue to take forceful and, when appropriate, coordinated actions to restore financial market functioning and the flow of credit,” he told the Council on Foreign Relations, a think tank, in Washington.
Speaking ahead of a weekend meeting of the Group of 20 finance ministers and central bank chiefs in London, Bernanke said while fighting the current crisis, policymakers should embrace reforms to the financial architecture that could help prevent a similar turmoil from developing in the future.
“We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components,” he said.
“In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim.”
Martin Crutsinger, AP Economics Writer reported today:
Treasury Secretary Timothy Geithner says that within the next couple of weeks the administration will unveil its plan for dealing with the toxic assets that lie at the heart of the current financial crisis.
Geithner says that the plan the administration has put together will provide low-cost government financing to private investors who are willing to purchase the bad assets that are currently clogging banks’ balance sheets.
It is clear that our despite the expectation of the US Government to always have the answers or solutions to the problems of society, it is abundantly clear that they don’t. As painful as it maybe to experience first hand the fumbling of government, it appears that finally that the government leaders who are charged with turning the economy around are beginning to focus in on the issues and causes which is good news. The first step to solving any problem is first identifying the problems and causes.
The Dow Jones Industrial Average rallied 380 points today as Citibank reported positive operating profits the first two months of this year. Perhaps, we’re beginning to see a glimmer of light in this dark and winding tunnel.
