Month: April 2010

The Depression

~ susie ~ 8 Comments

Bob Herbert just keeps talking about the things no one else seems to notice:

The crippling nature of the joblessness that has moved through the society like a devastating virus has gotten neither the attention nor the response that it warrants. One of the more striking findings of the Pew study was that a college education has not been much of a defense against long-term unemployment.

“Twenty-one percent of unemployed workers with a bachelor’s degree have been without work for a year or longer,” the report found, “compared to 27 percent of unemployed high school graduates and 23 percent of unemployed high school dropouts.”

Whole segments of the U.S. population are being left behind, even as economists are touting modest improvements in some categories of economic data, like the creation of 162,000 jobs in March. Jobless workers who are 55 or older are having a brutal time of it. Thirty percent have been jobless for a year or more.

Blue-collar workers are suffering through a crisis characterized as a “depression” by the Center for Labor Market Studies at Northeastern University in Boston. Blue-collar job losses during the so-called Great Recession surpassed 5.5 million, and many of those jobs will never be seen again. This disastrous situation will not be corrected, as analysts at the center have noted, “by a modest recovery of the U.S. economy over the next few years.”

We need to pay less attention to the Tea Party yahoos and more attention to the very real suffering of individuals and families trapped in an employment crisis that is unprecedented in the post-Depression era. I’ve been in inner-city neighborhoods where residents will tell you that hardly anyone at all is working at a regular job.

Gum On The Shoe

~ susie ~ 5 Comments

So the unemployment benefits are gone, gone, gone. I send resumes out into a black hole and I even tell myself I understand why I don’t hear back from anyone. After all, I’m overqualified, yet under-qualified. Plus, I’m too old. And I have a skill set no one pays for anymore.

Just this morning, I called Sen. Casey’s office. The young careerist who answered the phone told me no, there were no additional tiers added to the unemployment legislation and as far as he knew, there wouldn’t be.

He talked about it as if he were describing gum on the bottom of his shoe. Ho hum, minor irritant, too bad but oh well! “Maybe the state will add its own state-funded extension,” he said cheerily. I suppressed the urge to tell him to pull his head out of his ass, and instead told him as a constituent, I hoped Senator Casey would do something to help people like me.

“Oh, sure, I’d be happy to pass that message along,” he chirped. And why not? He has a job.

Deficit Sense – or Sense Deficit?

~ susie

I suppose this is simply too complicated for a lot of people to understand, and that’s why we have so many nutty deficit hawks:

Evaluating deficit numbers isn’t as easy as up-is-good and down-is-bad. In a recession, the deficit is driven as much by the economy as by the government’s decisions. High unemployment means there’s less income to tax. Sagging demand means there’s less in the way of corporate profits to tax. And general economic misery means that programs such as Medicaid and unemployment insurance become much higher because more people need to use them. Deficits are often seen as the product of federal spending, but they’re just as much the result of changes in the broader economy. The government’s balance sheet is tied to, not separate from, the economy.

When the economy improves, the deficit outlook gets better even though the government hasn’t decided to cut spending or raise taxes. But as DeLong’s post suggests, even that’s not so simple: Textbook Keynesian economics suggests you want to run high deficits during recessions because you need to increase demand after individual and business dollars have fled the economy. But if you remove those deficits at the first sign of recovery, you could remove the very factors that are supporting the economy, which could in turn make the recession worse. So lower deficits during a recession could mean a worse economy, and higher deficits might be a sign that the government is willing to do what’s necessary to get the economy back on track.

The Casino Economy

~ susie ~ 1 Comment

Richard Trumka in the Wall St. Journal:

The Simmons Bedding Company, manufacturer of the famous Beautyrest mattresses, has finally been flipped one time too many. This story carries an important message for financial reform, now under consideration in the U.S. Senate.

Sold seven times in 20 years from one private investment firm to another, last fall the 133-year-old company filed for bankruptcy and laid off 1,000 workers. Simmons is a textbook example of a dangerous trend in which brand-name companies are turned into gambling chips by leveraged buyout (“private equity”) dealmakers. And it’s a prime example of why the Senate must directly challenge private equity’s wealth extraction business model in order to rein in the casino economy.

Private-equity funds are leveraged private pools of capital that benefit from extensive tax subsidies. They are unregulated and shrouded in secrecy, and they extract big profits while the companies, their employees and many of their investors lose. In the Simmons case, the leveraged buyout firm that brought the company to bankruptcy walked away with $77 million in profits on top of hundreds of millions of dollars in special dividends. The Wall Street investment banks that arranged the deals pulled down big money, too. Meanwhile, a thousand employees lost their livelihoods, the company’s bondholders lost more than $500 million, and a value-creating American company was in effect pawned for cash.

Simmons is hardly the exception. Linens ‘n Things, KB Toys and Mervyns are all brand-name companies that went bankrupt because they could not keep up with the debt burdens that resulted from leveraged buyouts. In fact, of the 163 nonfinancial companies that went bankrupt last year, nearly half were backed by leveraged buyout firms.

You can add the Philadelphia Daily News to that number.

Under current law, private investment vehicles—hedge funds, leveraged-buyout and venture-capital funds—function with virtually no oversight. Despite managing trillions of dollars and employing millions of Americans, they operate as a shadow financial system—in secret, free to take on outsized risks, and make huge bets with no outside supervision. Approximately $1 trillion in leveraged buyout loans were issued in 2006 and 2007, the height of the leveraged buyout bubble. In December 2008, the Boston Consulting Group predicted that almost half of companies owned by leveraged buyout firms are likely to default, resulting in massive job losses and further pressure on our fragile economy.

Reform is essential, and transparency would be a good start. The Securities and Exchange Commission must have full access to information about private investment funds and the authority to require them to provide disclosures to investors, prospective investors, trading partners and creditors.

Comprehensive regulation of the shadow financial system is equally necessary to prevent the buildup of systemic risk like that which brought our economy to the brink of financial ruin.

The House of Representatives took some positive steps toward regulating the private-equity industry late last year, but didn’t go far enough. Similarly, the Senate bill put forth by Banking Committee Chairman Chris Dodd falls far short on the regulation of private investment funds.

Meanwhile, more jobs are being lost and workers hurt. When their plans to squeeze employees to gain higher profits fail, private-equity firms often walk away.

In February, Connecticut-based private-equity firm Brynwood Partners shut down the 77-year-old Stella D’Oro bakery in Bronx, New York, after a labor ruling sided with workers protesting a massive pay cut. In the latest example, the private-equity firm that owns clothier Hugo Boss in suburban Cleveland tried to slash wages. When the workers resisted, the firm announced plans to move operations—including its 375 jobs—overseas.

It’s time to bring the shadow financial system into the light of day. It’s time for Congress to stand up to these firms that gamble with working people’s retirement money and insist that they provide the public with full disclosure and essential oversight.

Mr. Trumka is president of the 11.5 million member AFL-CIO.