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OpEdNews Op Eds    H3'ed 9/12/08

Year Two of the New Depression

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Message Michael Fox

Anyone who doubts that we are a year into a Depression, remember, these things do not hit you like a punch in the face; rather, they are more like an untreated boil that slowly festers until body parts have to be amputated from infection.  Good morning to you, too, and welcome back to my column after my summer off.


In October 1929, the stock Market crashed, yet there wasn’t a run on the banks until 1933.  In March 1933, the day after assuming the Presidency, Franklin D. Roosevelt declared a bank holiday to stop the bleeding and institute regulations – which were fast tracked and passed within months.  That legislation included the establishment of the FDIC.


Last year, in this column, I identified the start of the New Depression as November 7, 2007.  That was the day that China announced they’d be unloading about $400 billion in US currency they were holding in the form of treasury notes.  It was a check in the global economic chess game, and the checkmate came from bad playing on the part of the United States.  


Without the Chinese largesse, Treasury Secretary Paulson and Fed Chairman Bernanke – aided by both congress and Bush, went right ahead and started fixing every problem by printing more money.  Between stimulus packages, bank bailouts and, most recently (and most egregiously) the underwriting of Fannie Mae and Freddie Mac, nearly $7 trillion has been added to the existing $10 trillion of national debt.  Your dollar is worthless, and the banks that are holding the entrails of your assets are insolvent.  Example:


That same day, Washington Mutual, the largest Savings Bank in the United States, had charges filed against it for selling fraudulent securities to Fannie Mae and Freddie Mac (though the complicity of those institutions is unpardonable as well).  Several months later, it was revealed that Kerry Killinger, CEO of Washington Mutual was eligible for up to $365 million  in compensation – as his company lost $9 billion during the previous year. I called for his immediate dismissal at that time.  As recently as July 31, Bloomberg reported that Killinger stated that Washington Mutual would be losing $19 billion – and yet, he was still in that Chair!  This week, fully SIX MONTHS LATER, he has been let go, with negotiations over his estimated $35 million in parting gifts (!) still being discussed, while the stock value of Washington Mutual is 1/20th of what it was 9 months ago.  That bank is toast.  But as the FDIC has already covered 12 bank failures this year, it is in no position to cover what would be the largest bank failure yet.  Last month, a last-ditch attempt to unload the mess on someone else (a large Japanese bank) failed when the Japanese determined it was not worth buying.  And still, no perp walk for Mr. Killinger (rhymes with Dillinger).


As we finish the first year of this Depression, the takeover last weekend of Fannie and Freddie was constructed to lay the administration of the decision in the lap of the next President.  It’s outrageous fiscal irresponsibility to proceed with so monumental a change (kind of like entering a war) without planning; to set a nation on such a demolition course and, like Scarlett O’Hara, determine to think about the details tomorrow (though at least Scarlett would have committed to making her own procrastinated decisions).  The logistics of this monumental decision are up in the air, and the management decisions are being left to the next President and his Treasury Secretary.


Also on the next President’s platter as we enter year two will be heavy industry.  And that begins in Detroit.

Detroit is seeking a government giveaway for themselves.  And while the bailouts of banks has been utterly wrong, General Motors and Ford still offer the best place to make a start rebuilding a middle class (Chrysler has been taken private, and therefore has no claim).   If they want $50 billion to re-tool and create jobs, let them have it (at this point, unfortunately, it is a drop in the bucket, but it is a drop that can actually be recycled).  But there must be strict terms. (By the way, to any free-marketers who are still out there and shouting “corporate welfare,” just shut up already!  There’s been more corporate welfare doled out to save your squandered, pilfered banks and investment houses in the last 12 months than in the history of mankind).


So, Detroit, you want the money, these are the terms:


CAFÉ standards of 35mpg effective with the 2012 model year – even if it means simply dumping any gas guzzlers from the line, that’s the mark. 


United States plants: the bailout can only pay itself forward if the jobs are kept in the United States – not Canada, Australia, or Mexico.  You can’t assemble a thousand foreign made parts into a finished car in Detroit and call it American. From body stamping and engine tooling to leather tanning, carpet manufacturing, and sound systems, all parts can and must be American made.


Unions: It is plain as day that GM created its Saturn division as a long-term plan to kill off the UAW one division at a time.  Saturn was created to replace Oldsmobile.  It took 15 years to segue the public from one name to another, but Saturn – originally a separate economy-car company, was established as non-union.  Today, it simply holds Oldsmobile’s former position between Pontiac and Buick in the pecking order, but with non-union plants.  This sort of massive deception must be stopped.  Skilled workers must have the right to unionize. 


Management salary caps: Management can no longer continue to draw multi-million dollar salaries while the companies are losing money, firing workers, and making irresponsible decisions.  They will now have to answer to congressional regulators – not boards of directors – to make sure that they are in compliance. 


Buy-American financing stimulus: By merging auto finance giants like GMAC with subprime mortgage lenders (Ditech), the auto finance companies have killed themselves.  A portion of the government funding must be set aside to offer zero-interest financing to encourage buyers to buy domestically produced cars.


Only by using the funds in these ways can the Auto industry nurse itself – and the middle class workers back to health.  This, unlike the loot stolen by the banking industry, may actually be money that makes money, bringing back jobs and keeping a lot of dollars from being exported (they are, right now, our single biggest export, and worthless at that).

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Michael Fox is a writer and economist based in Los Angeles. He has been a corporate controller, professor, and small business entrepreneur. After a life-altering accident, he spent five years learning more about medicine and the healthcare (more...)
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