Amid the bewildering complexities of the global financial crisis, one simple fact stands out: the little we have left needs to go a lot further. Fear not! We'll show you how to endure the forthcoming recession with a bit of grit, some nous and the wise advice of our post-war forebears. And you never know, you might have a laugh or two along the way... To begin our special issue, a celebration of the true heroine of austerity Britain: the housewife
We are living on the cusp of unprecedented times – or unprecedented for the past half-century, anyway. Of course there has been the odd painful blip, such as the oil shock of the mid-1970s or the quite sharp recessions of the early- 1980s and early-1990s, but broadly speaking the pattern has been one of growing prosperity and an ever-rising standard of living. Now, in a mood of palpable apprehension, we face something perhaps entirely different. But there are lessons we can learn – the lessons of austerity Britain.
"No sooner did we awake from the six years' nightmare of war and feel free to enjoy life once more, than the means to do so immediately became even scantier than they had been during the war," lamented Anthony Heap, a local government officer living near St Pancras, London, in his diary at the end of 1945. "Housing, food, clothing, fuel, beer, tobacco – all the ordinary comforts of life that we'd taken for granted before the war, and naturally expected to become more plentiful again when it ended, became instead more and more scarce and difficult to come by." Little did he, or anyone else, imagine the hard, stony road that lay ahead. It would be another nine years before rationing was finally ended in 1954, nine long years of attritional discomfort and privation.
Rationing and shortages affected almost every area of everyday life. Coal, petrol, cars, clothes, footwear, furniture, bedding, toys – all were hard to come by, being either strictly rationed or near unobtainable. "The greatest disaster is the inability to buy a handkerchief if one has sallied forth without one," bitterly complained one middle-class housewife to the research organisation Mass Observation; another objected that the fuel shortage "entails poor lighting on railways, in waiting rooms etc, with consequent eye strain and depression". But for most people, there was during these bleak years one supreme, overriding obsession: food.
Rose Uttin, a Wembley housewife, listed in December 1947 the miserable state of play in a diary kept for for Mass Observation: "Our rations now are 1oz bacon per week – 3lbs potatoes – 2ozs butter – 3ozs marge – 1oz cooking fat – 2ozs cheese & 1s meat – 1lb jam or marmalade per month – lb bread per day." And, she added forlornly: "My dinner today 2 sausages which tasted like wet bread with sage added – mashed potato – tomato – 1 cube cheese & 1 slice bread & butter. The only consolation no air raids to worry us." Some four years later, with the Tories returned to power after defeating Clement Attlee's Labour government, the ' new prime minister asked his Minister of Food to show him an individual's rations. "Not a bad meal, not a bad meal," Winston Churchill said when the exhibit was produced. "But these," nervously explained the minister, "are not rations for a meal or for a day. They are for a week."
Not surprisingly, the nation grumbled. "Oh, for a little extra butter!" wailed Vere Hodgson in west London in her 1949 diary, just after it had been announced that the meat ration was to go down again. "Then I should not mind the meat. I want half a pound of butter a week for myself alone... For 10 years we have been on this miserable butter ration, and I am fed up. I NEVER enjoy my lunch..."
The housewives, responsible every day for putting food on the family table, were on the front line, among them Judy Haines of Chingford. "This shopping!" she exclaimed in her diary in 1946 after a wonderful set-piece account of the sheer time-consuming tensions and frustrations involved in trying to procure a rabbit from her local butcher. "All housewives are fed up to the eyebrows with it."
It was not a situation that brought out the best in everybody. "Considering the rationing of the people she certainly looked well fed," rather unkindly reflected Mary King, a retired teacher in Birmingham, after the visit of the Queen (the future Queen Mother) to that city in November 1945, while the following summer, when Mass Observation asked people in Chelsea and Battersea whether they would be willing to give up some of their food for those starving in Europe, the reply of one working-class woman – "I wouldn't go short on half a loaf to benefit Germany" – was all too typical.
Even so, what I found striking – and reassuring – as I went through the diaries and other contemporary records was the extent to which people, above all women, simply got on with things, often through the application of much resourcefulness. "The ration this week, of chops, contained some suet," noted Haines soon after VE Day. "Good! Chopped it and wrapped it in flour for future suet pudding." Or take the equally indomitable Marian Raynham in Surbiton on a Wednesday in July 1947: "Had a good & very varied day. Went to grocers after breakfast, then on way home in next door, then made macaroni cheese & did peas & had & cleared lunch, then rest, then made 5lbs raspberry jam, got tea & did some housework, listened to radio & darned... In bed about midnight."
For many, whether they liked to admit it or not, part of the coping involved a covert use of the black market. Here there was a fascinating change of attitude as the dreary years went by. At first, as a legacy of the war, the general sense of a shared national purpose, involving equality of sacrifice, meant it was demonised, along with the spivs who ran it, even if sometimes there was no alternative but to use it. But by the late-1940s, as the peacetime rationing and shortages continued interminably and that sense of shared purpose waned, so the spiv became an increasingly acceptable figure – epitomised by the rising variety and radio star, Arthur English, "The Prince of the Wide Boys", with his white suit, huge shoulder pads and flowery kipper tie. "Sharpen up there," ran his catchphrase, "the quick stuff's coming," and a weary nation at last found something funny in austerity.
Two fundamental, timeless lessons emerge from the whole experience. First, that most people will broadly accept straitened times if they are genuinely convinced of their necessity and that there is no alternative. Second, that social cohesiveness during such an unwelcome turn of events will rest to a large degree on the extent to which the pain is administered on an equitable, transparent basis. Even so, should the economic downturn prove severe, it is still likely to be a psychic shock for anyone under, say, the age of 40, for whom the austerity years are not even a folk memory. The process will be a huge challenge to the legitimacy of our democratic political system, though not inconceivably may do wonders to strengthen and reaffirm that rather frayed legitimacy.
Personally, I have one modest hope. Snoek (pronounced "snook") was a vaguely mackerel-type South African fish imported in huge quantities in 1947-1948 by the Ministry of Food and given a huge publicity campaign, including a recipe for a concoction to go with salad immortally called snoek piquante. So disgustingly dry and tasteless did almost everyone find it, however, that millions of tins were left unsold, eventually used as pet food. Should snoek make a comeback, I would welcome the chance to try it – once, anyway.
Monday, 6 July 2009
Jim Kunster: People Getting Desperate as America Plunges Into Black Hole
The dark tunnel that the US economy has entered began to look more and more like a black hole last week, sucking in lives, fortunes, and prospects behind a Potemkin facade of orderly retreat put up by anyone in authority with a story to tell or an interest to protect - Fed chairman Bernanke, CNBC, The New York Times, the Bank of America, etc. Events are now moving ahead of anything that personalities can do to control them. The "housing bubble" implosion is broadly misunderstood. It's not just the collapse of a market for a particular kind of commodity, it's the end of the suburban pattern itself, the way of life it represents, and the entire economy connected with it. It's the crack up of the system that America has invested most of its wealth in since 1950. It's perhaps most tragic that the mis-investments only accelerated as the system reached its end, but it seems to be nature's way that waves crest just before they break.
This wave is breaking into a sea-wall of disbelief. Nobody gets it. The psychological investment in what we think of as American reality is too great. The mainstream media doesn't get it, and they can't report it coherently. None of the candidates for president has begun to articulate an understanding of what we face: the suburban living arrangement is an experiment that has entered failure mode.
I maintain that all the "players" -- from the bankers to the politicians to the editors to the ordinary citizens -- will continue to not get it as the disarray accelerates and families and communities are blown apart by economic loss. Instead of beginning the tough process of making new arrangements for everyday life, we'll take up a campaign to sustain the unsustainable old way of life at all costs.
A reader sent me a passle of recent clippings last week from the Atlanta Journal-Constitution. It contained one story after another about the perceived need to build more highways in order to maintain "economic growth" (and incidentally about the "foolishness" of public transit). I understood that to mean the need to keep the suburban development system going, since that has been the real main source of the Sunbelt's prosperity the past 60-odd years. They cannot imagine an economy that is based on anything besides new subdivisions, freeway extensions, new car sales, and Nascar spectacles. The Sunbelt, therefore, will be ground-zero for all the disappointment emanating from this cultural disaster, and probably also ground-zero for the political mischief that will ensue from lost fortunes and crushed hopes.
From time-to-time, I feel it's necessary to remind readers what we can actually do in the face of this long emergency. Voters and candidates in the primary season have been hollering about "change" but I'm afraid the dirty secret of this campaign is that the American public doesn't want to change its behavior at all. What it really wants is someone to promise them they can keep on doing what they're used to doing: buying more stuff they can't afford, eating more shitty food that will kill them, and driving more miles than circumstances will allow.
Here's what we better start doing.
Stop all highway-building altogether. Instead, direct public money into repairing railroad rights-of-way. Put together public-private partnerships for running passenger rail between American cities and towns in between. If Amtrak is unacceptable, get rid of it and set up a new management system. At the same time, begin planning comprehensive regional light-rail and streetcar operations.
End subsidies to agribusiness and instead direct dollar support to small-scale farmers, using the existing regional networks of organic farming associations to target the aid. (This includes ending subsidies for the ethanol program.)
Begin planning and construction of waterfront and harbor facilities for commerce: piers, warehouses, ship-and-boatyards, and accommodations for sailors. This is especially important along the Ohio-Mississippi system and the Great Lakes.
In cities and towns, change regulations that mandate the accommodation of cars. Direct all new development to the finest grain, scaled to walkability. This essentially means making the individual building lot the basic increment of redevelopment, not multi-acre "projects." Get rid of any parking requirements for property development. Institute "locational taxation" based on proximity to the center of town and not on the size, character, or putative value of the building itself. Put in effect a ban on buildings in excess of seven stories. Begin planning for district or neighborhood heating installations and solar, wind, and hydro-electric generation wherever possible on a small-scale network basis.
We'd better begin a public debate about whether it is feasible or desirable to construct any new nuclear power plants. If there are good reasons to go forward with nuclear, and a consensus about the risks and benefits, we need to establish it quickly. There may be no other way to keep the lights on in America after 2020.
We need to prepare for the end of the global economic relations that have characterized the final blow-off of the cheap energy era. The world is about to become wider again as nations get desperate over energy resources. This desperation is certain to generate conflict. We'll have to make things in this country again, or we won't have the most rudimentary household products.
We'd better prepare psychologically to downscale all institutions, including government, schools and colleges, corporations, and hospitals. All the centralizing tendencies and gigantification of the past half-century will have to be reversed. Government will be starved for revenue and impotent at the higher scale. The centralized high schools all over the nation will prove to be our most frustrating mis-investment. We will probably have to replace them with some form of home-schooling that is allowed to aggregate into neighborhood units. A lot of colleges, public and private, will fail as higher ed ceases to be a "consumer" activity. Corporations scaled to operate globally are not going to make it. This includes probably all national chain "big box" operations. It will have to be replaced by small local and regional business. We'll have to reopen many of the small town hospitals that were shuttered in recent years, and open many new local clinic-style health-care operations as part of the greater reform of American medicine.
Take a time-out from legal immigration and get serious about enforcing the laws about illegal immigration. Stop lying to ourselves and stop using semantic ruses like calling illegal immigrants "undocumented."
Prepare psychologically for the destruction of a lot of fictitious "wealth" -- and allow instruments and institutions based on fictitious wealth to fail, instead of attempting to keep them propped up on credit life-support. Like any other thing in our national life, finance has to return to a scale that is consistent with our circumstances -- i.e., what reality will allow. That process is underway, anyway, whether the public is prepared for it or not. We will soon hear the sound of banks crashing all over the place. Get out of their way, if you can.
Prepare psychologically for a sociopolitical climate of anger, grievance, and resentment. A lot of individual citizens will find themselves short of resources in the years ahead. They will be very ticked off and seek to scapegoat and punish others. The United States is one of the few nations on earth that did not undergo a sociopolitical convulsion in the past hundred years. But despite what we tell ourselves about our specialness, we're not immune to the forces that have driven other societies to extremes. The rise of the Nazis, the Soviet terror, the "cultural revolution," the holocausts and genocides -- these are all things that can happen to any people driven to desperation.
This wave is breaking into a sea-wall of disbelief. Nobody gets it. The psychological investment in what we think of as American reality is too great. The mainstream media doesn't get it, and they can't report it coherently. None of the candidates for president has begun to articulate an understanding of what we face: the suburban living arrangement is an experiment that has entered failure mode.
I maintain that all the "players" -- from the bankers to the politicians to the editors to the ordinary citizens -- will continue to not get it as the disarray accelerates and families and communities are blown apart by economic loss. Instead of beginning the tough process of making new arrangements for everyday life, we'll take up a campaign to sustain the unsustainable old way of life at all costs.
A reader sent me a passle of recent clippings last week from the Atlanta Journal-Constitution. It contained one story after another about the perceived need to build more highways in order to maintain "economic growth" (and incidentally about the "foolishness" of public transit). I understood that to mean the need to keep the suburban development system going, since that has been the real main source of the Sunbelt's prosperity the past 60-odd years. They cannot imagine an economy that is based on anything besides new subdivisions, freeway extensions, new car sales, and Nascar spectacles. The Sunbelt, therefore, will be ground-zero for all the disappointment emanating from this cultural disaster, and probably also ground-zero for the political mischief that will ensue from lost fortunes and crushed hopes.
From time-to-time, I feel it's necessary to remind readers what we can actually do in the face of this long emergency. Voters and candidates in the primary season have been hollering about "change" but I'm afraid the dirty secret of this campaign is that the American public doesn't want to change its behavior at all. What it really wants is someone to promise them they can keep on doing what they're used to doing: buying more stuff they can't afford, eating more shitty food that will kill them, and driving more miles than circumstances will allow.
Here's what we better start doing.
Stop all highway-building altogether. Instead, direct public money into repairing railroad rights-of-way. Put together public-private partnerships for running passenger rail between American cities and towns in between. If Amtrak is unacceptable, get rid of it and set up a new management system. At the same time, begin planning comprehensive regional light-rail and streetcar operations.
End subsidies to agribusiness and instead direct dollar support to small-scale farmers, using the existing regional networks of organic farming associations to target the aid. (This includes ending subsidies for the ethanol program.)
Begin planning and construction of waterfront and harbor facilities for commerce: piers, warehouses, ship-and-boatyards, and accommodations for sailors. This is especially important along the Ohio-Mississippi system and the Great Lakes.
In cities and towns, change regulations that mandate the accommodation of cars. Direct all new development to the finest grain, scaled to walkability. This essentially means making the individual building lot the basic increment of redevelopment, not multi-acre "projects." Get rid of any parking requirements for property development. Institute "locational taxation" based on proximity to the center of town and not on the size, character, or putative value of the building itself. Put in effect a ban on buildings in excess of seven stories. Begin planning for district or neighborhood heating installations and solar, wind, and hydro-electric generation wherever possible on a small-scale network basis.
We'd better begin a public debate about whether it is feasible or desirable to construct any new nuclear power plants. If there are good reasons to go forward with nuclear, and a consensus about the risks and benefits, we need to establish it quickly. There may be no other way to keep the lights on in America after 2020.
We need to prepare for the end of the global economic relations that have characterized the final blow-off of the cheap energy era. The world is about to become wider again as nations get desperate over energy resources. This desperation is certain to generate conflict. We'll have to make things in this country again, or we won't have the most rudimentary household products.
We'd better prepare psychologically to downscale all institutions, including government, schools and colleges, corporations, and hospitals. All the centralizing tendencies and gigantification of the past half-century will have to be reversed. Government will be starved for revenue and impotent at the higher scale. The centralized high schools all over the nation will prove to be our most frustrating mis-investment. We will probably have to replace them with some form of home-schooling that is allowed to aggregate into neighborhood units. A lot of colleges, public and private, will fail as higher ed ceases to be a "consumer" activity. Corporations scaled to operate globally are not going to make it. This includes probably all national chain "big box" operations. It will have to be replaced by small local and regional business. We'll have to reopen many of the small town hospitals that were shuttered in recent years, and open many new local clinic-style health-care operations as part of the greater reform of American medicine.
Take a time-out from legal immigration and get serious about enforcing the laws about illegal immigration. Stop lying to ourselves and stop using semantic ruses like calling illegal immigrants "undocumented."
Prepare psychologically for the destruction of a lot of fictitious "wealth" -- and allow instruments and institutions based on fictitious wealth to fail, instead of attempting to keep them propped up on credit life-support. Like any other thing in our national life, finance has to return to a scale that is consistent with our circumstances -- i.e., what reality will allow. That process is underway, anyway, whether the public is prepared for it or not. We will soon hear the sound of banks crashing all over the place. Get out of their way, if you can.
Prepare psychologically for a sociopolitical climate of anger, grievance, and resentment. A lot of individual citizens will find themselves short of resources in the years ahead. They will be very ticked off and seek to scapegoat and punish others. The United States is one of the few nations on earth that did not undergo a sociopolitical convulsion in the past hundred years. But despite what we tell ourselves about our specialness, we're not immune to the forces that have driven other societies to extremes. The rise of the Nazis, the Soviet terror, the "cultural revolution," the holocausts and genocides -- these are all things that can happen to any people driven to desperation.
As Owner Struggles, Landmark Mall Languishes Recession, Delay Of Long-Planned Makeover Take Toll
This is what a dying mall looks like: Long stretches of vacant storefronts and blank walls. A department store with empty shelves preparing to shut down for good. A little boy running around the children's play area alone.
Landmark Mall in Alexandria is part of a growing list of ailing shopping centers across the country that have borne the brunt of the recession. Owner General Growth Properties unveiled ambitious plans five years ago to remake the 52-acre center into a suburban oasis of office buildings, homes and shops. But the process was dogged by delays, and now the financial crisis has delivered a triple whammy.
General Growth filed for bankruptcy protection this spring. The credit crunch has dried up the market for the $2 billion in capital required for the makeover. And consumers just aren't shopping, with the discretionary purchases that are the lifeblood of malls taking the biggest hit. Monthly sales at apparel stores have fallen an average of 6 percent compared with last year, while sales at department stores -- which typically anchor a mall -- have plummeted an average of 10 percent, according to the International Council of Shopping Centers, a trade group.
General Growth said it remains committed to overhauling Landmark Mall, and city officials are forging on with permits. But the timeline remains nebulous, and the aging shopping center waits in limbo.
"We are seeing some of these properties just sitting there where nothing is going to happen until there's capital back in the marketplace," said Michael P. Kercheval, chief executive of the ICSC.
The vision for Landmark involves tearing down the mall and replacing it with a 5 million-square-foot, mixed-use "lifestyle center" that mimics the feel of a town square, with shopping and restaurants next to offices and homes. There were 89 such projects under construction during the first quarter of the year, according to research firm CoStar Group, but only 18 traditional enclosed malls. Still, traditional malls dominate the landscape with more than 800 properties compared with about 300 lifestyle centers.
As the recession picked up steam, mall-based retailers got slammed. Shoppers slashed discretionary spending on clothing and entertainment at the specialty stores that line the walkways. The department stores that anchor malls suffered as consumers traded down to discounters. Retailers began shuttering stores -- or going out of business altogether.
Crabtree & Evelyn, which has 125 stores, filed for bankruptcy protection Wednesday. Whitehall Jewelers, Bombay Company and Sharper Image are just a handful of chains to liquidate their stores over the past two years, a total of 843 locations. Mall staples such as Ann Taylor, Talbots and Pacific Sunwear have collectively shuttered hundreds of stores. Other retailers are paring down expansion plans.
Strong malls such as Tysons Corner Center and the Fashion Centre at Pentagon City, where there are waiting lists for tenants to get in, were able to absorb the losses. But for mid-tier players such as Landmark, a store closing often ends in a dark, empty space.
Nationally, vacancy rates have risen from about 4 percent in 2006 to an average of 7.1 percent for regional malls, according to CoStar. Sales per square foot for non-anchor stores fell 11 percent in March, the most recent month for which statistics are available, according to the ICSC. General Growth does not disclose vacancy rates for specific properties. The City of Alexandria said vacancies at Landmark were "low" and estimated sales per square foot at $125 to $150, compared with the national average of $376, not including anchor tenants. Sales tax revenue from Landmark has plummeted to $1 million annually, down about 25 percent since it was first slated for redevelopment five years ago, the city said.
Landmark is already full of small-time tenants. The blinking sign at Mr. Mini Mart wishes shoppers a happy Ramadan. Alliance Dance Institute is home to the Alexandria Ballet and teaches adult ballroom classes. There is a dollar store, a wig store and a tobacco shop. Anchor Lord & Taylor is preparing to go dark.
General Growth said that when redevelopment plans were unveiled five years ago, Landmark prepared by no longer offering the long-term leases favored by national tenants. That plan has backfired as the makeover got put on hold. Sears, Macy's, Ann Taylor Loft and Victoria's Secret are among only a handful of national chains that remain.
Ahkeibo Blake has worked as a barber at Touch Up Hair Gallery at the mall for over a year. He said his weekly pay has dropped from $1,700 when he started to about $600. He has noticed that the mall is less crowded, and his clients are stretching the time between their appointments -- and scaling back on services once they do come in.
But Blake said he doesn't blame them for not coming to the mall. He lives across the street, but he rarely shops at Landmark. Instead, he drives to Maryland for a shopping center with a Dave and Busters. During lunch, he leaves the mall and its meager food court for takeout elsewhere.
"It's a very good place, but they have the wrong businesses in here," he said.
Alexandria officials have not given up hope of turning Landmark into a shopping destination. It has a prime location just off Interstate 395, where more than 294,000 cars pass the mall every day, according to General Growth. The company reports that household income within the trade area is $104,259, compared with the national average of $50,233. Nearly 300,000 people work within a five-mile radius of the mall, and the upcoming military base realignment and closure program is expected to bring 6,400 new jobs to the area, according to the city.
The problems, however, are capital and competition. Landmark hasn't been renovated since 1990. Meanwhile, upscale developments in Clarendon, Pentagon City, behemoth Tysons Corner and General Growth's own upscale Tysons Galleria have siphoned away potential customers. Speculation abounded that General Growth might sell Landmark as part of its bankruptcy reorganization, but a company spokesman said that was unlikely.
"Landmark Mall occupies a valuable piece of property in a wonderful location. The potential for that property is tremendous," spokesman Jim Graham said. "Our restructuring and current market conditions both make it difficult to commit to a specific timetable, but we are hopeful that we can work with our retail partners and the City of Alexandria to make the reinvention of Landmark Mall a reality."
Last month, the City Council approved another phase in the plans to redevelop Landmark and the surrounding neighborhood. But Deputy City Manager Mark Jinks is also realistic. A plan summary presented to the council last month noted that the current economic environment could not support such massive redevelopment. Jinks said instead that the city is focused on clearing regulatory hurdles in hopes that it will be ready for a rebound in the capital markets -- and a turnaround at General Growth.
"We're hoping that it is a high priority," Jinks said of General Growth's commitment to Landmark. "Whether it is or not will depend on what kind of company emerges from the restructuring."
But the city seems to be hedging its bets. Jinks said his team has been in preliminary talks with other developers and investors, but declined to specify which ones. The city is determined to bring the site back to life, he said, with or without General Growth.
Landmark Mall in Alexandria is part of a growing list of ailing shopping centers across the country that have borne the brunt of the recession. Owner General Growth Properties unveiled ambitious plans five years ago to remake the 52-acre center into a suburban oasis of office buildings, homes and shops. But the process was dogged by delays, and now the financial crisis has delivered a triple whammy.
General Growth filed for bankruptcy protection this spring. The credit crunch has dried up the market for the $2 billion in capital required for the makeover. And consumers just aren't shopping, with the discretionary purchases that are the lifeblood of malls taking the biggest hit. Monthly sales at apparel stores have fallen an average of 6 percent compared with last year, while sales at department stores -- which typically anchor a mall -- have plummeted an average of 10 percent, according to the International Council of Shopping Centers, a trade group.
General Growth said it remains committed to overhauling Landmark Mall, and city officials are forging on with permits. But the timeline remains nebulous, and the aging shopping center waits in limbo.
"We are seeing some of these properties just sitting there where nothing is going to happen until there's capital back in the marketplace," said Michael P. Kercheval, chief executive of the ICSC.
The vision for Landmark involves tearing down the mall and replacing it with a 5 million-square-foot, mixed-use "lifestyle center" that mimics the feel of a town square, with shopping and restaurants next to offices and homes. There were 89 such projects under construction during the first quarter of the year, according to research firm CoStar Group, but only 18 traditional enclosed malls. Still, traditional malls dominate the landscape with more than 800 properties compared with about 300 lifestyle centers.
As the recession picked up steam, mall-based retailers got slammed. Shoppers slashed discretionary spending on clothing and entertainment at the specialty stores that line the walkways. The department stores that anchor malls suffered as consumers traded down to discounters. Retailers began shuttering stores -- or going out of business altogether.
Crabtree & Evelyn, which has 125 stores, filed for bankruptcy protection Wednesday. Whitehall Jewelers, Bombay Company and Sharper Image are just a handful of chains to liquidate their stores over the past two years, a total of 843 locations. Mall staples such as Ann Taylor, Talbots and Pacific Sunwear have collectively shuttered hundreds of stores. Other retailers are paring down expansion plans.
Strong malls such as Tysons Corner Center and the Fashion Centre at Pentagon City, where there are waiting lists for tenants to get in, were able to absorb the losses. But for mid-tier players such as Landmark, a store closing often ends in a dark, empty space.
Nationally, vacancy rates have risen from about 4 percent in 2006 to an average of 7.1 percent for regional malls, according to CoStar. Sales per square foot for non-anchor stores fell 11 percent in March, the most recent month for which statistics are available, according to the ICSC. General Growth does not disclose vacancy rates for specific properties. The City of Alexandria said vacancies at Landmark were "low" and estimated sales per square foot at $125 to $150, compared with the national average of $376, not including anchor tenants. Sales tax revenue from Landmark has plummeted to $1 million annually, down about 25 percent since it was first slated for redevelopment five years ago, the city said.
Landmark is already full of small-time tenants. The blinking sign at Mr. Mini Mart wishes shoppers a happy Ramadan. Alliance Dance Institute is home to the Alexandria Ballet and teaches adult ballroom classes. There is a dollar store, a wig store and a tobacco shop. Anchor Lord & Taylor is preparing to go dark.
General Growth said that when redevelopment plans were unveiled five years ago, Landmark prepared by no longer offering the long-term leases favored by national tenants. That plan has backfired as the makeover got put on hold. Sears, Macy's, Ann Taylor Loft and Victoria's Secret are among only a handful of national chains that remain.
Ahkeibo Blake has worked as a barber at Touch Up Hair Gallery at the mall for over a year. He said his weekly pay has dropped from $1,700 when he started to about $600. He has noticed that the mall is less crowded, and his clients are stretching the time between their appointments -- and scaling back on services once they do come in.
But Blake said he doesn't blame them for not coming to the mall. He lives across the street, but he rarely shops at Landmark. Instead, he drives to Maryland for a shopping center with a Dave and Busters. During lunch, he leaves the mall and its meager food court for takeout elsewhere.
"It's a very good place, but they have the wrong businesses in here," he said.
Alexandria officials have not given up hope of turning Landmark into a shopping destination. It has a prime location just off Interstate 395, where more than 294,000 cars pass the mall every day, according to General Growth. The company reports that household income within the trade area is $104,259, compared with the national average of $50,233. Nearly 300,000 people work within a five-mile radius of the mall, and the upcoming military base realignment and closure program is expected to bring 6,400 new jobs to the area, according to the city.
The problems, however, are capital and competition. Landmark hasn't been renovated since 1990. Meanwhile, upscale developments in Clarendon, Pentagon City, behemoth Tysons Corner and General Growth's own upscale Tysons Galleria have siphoned away potential customers. Speculation abounded that General Growth might sell Landmark as part of its bankruptcy reorganization, but a company spokesman said that was unlikely.
"Landmark Mall occupies a valuable piece of property in a wonderful location. The potential for that property is tremendous," spokesman Jim Graham said. "Our restructuring and current market conditions both make it difficult to commit to a specific timetable, but we are hopeful that we can work with our retail partners and the City of Alexandria to make the reinvention of Landmark Mall a reality."
Last month, the City Council approved another phase in the plans to redevelop Landmark and the surrounding neighborhood. But Deputy City Manager Mark Jinks is also realistic. A plan summary presented to the council last month noted that the current economic environment could not support such massive redevelopment. Jinks said instead that the city is focused on clearing regulatory hurdles in hopes that it will be ready for a rebound in the capital markets -- and a turnaround at General Growth.
"We're hoping that it is a high priority," Jinks said of General Growth's commitment to Landmark. "Whether it is or not will depend on what kind of company emerges from the restructuring."
But the city seems to be hedging its bets. Jinks said his team has been in preliminary talks with other developers and investors, but declined to specify which ones. The city is determined to bring the site back to life, he said, with or without General Growth.
Another wave of foreclosures is poised to strike
Mortgage defaults have surged to record levels amid rising unemployment and falling home prices. Lenders are expected to move quickly to clear up backlogs as moratoriums on foreclosures expire.
Reporting from Washington -- Just as the nation's housing market has begun showing signs of stabilizing, another wave of foreclosures is poised to strike, possibly as early as this summer, inflicting new punishment on families, communities and the still-troubled national economy.
Amid rising unemployment and falling home prices, mortgage defaults have surged to record levels this year. Until recently, many banks have put off launching foreclosure action on the troubled properties, in part because they had signed up for the Obama administration's home-stability plan, which required them to consider the alternative of modifying loans to make it easier for borrowers to make payments.
Just how big the foreclosure wave will be is unclear. But loan defaults are up sharply. And with many government and banks' self-imposed foreclosure moratoriums expiring, the biggest lenders indicate that they are likely to move more aggressively to clear up a backlog of troubled mortgages.
Nationally, home sales have been steadying, thanks largely to an abundance of cheap foreclosed properties, government incentives and record low mortgage rates. Housing construction starts have flattened out, helping to bring supply into balance with demand. The rate of housing price declines has slowed as well, even turning up in some communities.
But rising foreclosures will depress home values, pushing more homeowners underwater. Mark Zandi of Moody's Economy.com estimates that 15.4 million homeowners -- or about 1 in 5 of those with first mortgages -- owe more on their homes than they are worth.
Also, consumer confidence is already exceedingly low, and another jolt to the housing market could further crimp spending, which has been pummeled by the deep recession and persistent weakness in the job market. The latest unemployment rate, for June, rose to 9.5%, and many analysts predict that it will keep rising until the middle of next year.
The rapid pace of layoffs is of particular concern. Employers shed nearly a half-million jobs in June. Homeowners who are out of work have little chance of having their mortgages modified. That puts many homeowners on a collision course with banks that are preparing to take a more aggressive stance.
"Absolutely," Chase Bank spokesman Tom Kelly said when asked about an impending surge in foreclosures. Since April 6, Chase has approved modifying 138,000 loans under Obama's program. But an undisclosed number of other Chase borrowers didn't meet modification eligibility, and many of those homeowners face possible foreclosure.
Separate from that group, Kelly said, Chase is proceeding to deal with an additional 80,000 borrowers in default whose foreclosure process had been voluntarily halted by the lender starting late last year.
Bank of America, the nation's largest servicer of home mortgages, also did not release the volume of likely foreclosures. The bank said it had extended offers to modify loans to more than 45,000 borrowers under the Obama plan. Bank of America spokesman Dan Frahm said the company was projecting a "slow increase" in the number of monthly foreclosures, potentially reaching 30% above previous normal levels.
Much will depend on how quickly lenders can push the process along. It generally takes three months to a year from the time a borrower receives a notice of default to a foreclosure sale, in which case the lender usually takes title to the property.
Government and company reports show that the number of completed foreclosures nationwide slowed sharply late last year and into early this year, largely because of various moratoriums in effect during much of the first quarter.
But anecdotal reports indicate that foreclosure sales have started to climb again in the second quarter. And the pipeline is clearly getting fuller.
In the first quarter, some 1.8 million homeowners nationwide fell behind on their loans by 60 to 90 days, a 15% increase from the prior quarter, according to Moody's Economy.com. The research firm said that loan defaults rose sharply as well, to 844,000 in the first three months of this year.
California accounts for an outsized share of mortgage loan defaults. A stunning 135,431 homeowners in the state were hit with notices of default in the first quarter, an increase of 11% from the earlier peak in the second quarter of 2008, according to real estate information service MDA DataQuick. Foreclosure sales in the state have been moderating after averaging a high of 26,500 a month last summer.
In some communities such as Stockton, Calif., where the real estate market has been among the hardest hit in the nation with home prices plunging 60% in the last two years, many people are expecting a large increase in foreclosures.
Sales of foreclosed houses soared last year as investors and first-time home buyers swarmed over what were considered bargain houses. This year it's been unusually quiet, says Jerry Abbott, a broker and co-owner of Grupe Real Estate in Stockton. That doesn't make sense, he said, because he sees many houses in foreclosure in the city.
But just recently, said the 37-year real estate veteran, there's been a surge of requests for so-called broker price opinions, or appraisals that lenders often ask brokers to provide just before they put a foreclosed property on the market.
"I think it's going to be a very big wave," he said. "Just like what we saw through 2008."
The effect on prices won't be as severe, Abbott said, because values already have plunged and there's hearty demand for such properties.
Still, he said, "It will keep prices low. . . . It'll just slow the recovery down in general."
Michael Chee, 43, of Burbank is among those worried about what a rise in foreclosures could mean for his home.
Chee was laid off from a healthcare consulting firm in March. With jobless benefits, he figures he will be able to hold on until he finds a new job. His three-bedroom house, though down 20% to 30% in value, isn't underwater -- for the present.
"We're OK right now," he said, noting that his brother's home in Montebello is in foreclosure. "But going forward, who knows? The way things are going. . . ."
The Obama administration is racing to avert as many foreclosures as possible. So far, more than 240,000 distressed borrowers have been approved on a trial basis under the Home Affordable Modification Program, in which their loans are being reworked so monthly payments are targeted at 31% of their gross income, said Seth Wheeler, a senior advisor to Treasury Secretary Timothy F. Geithner.
Wheeler said the program's goal was to prevent as many as 4 million borrowers from losing their houses over the next 3 1/2 years. And in August, Treasury officials hope to bolster those efforts with guidelines that could encourage banks to allow more borrowers to sell their properties in a short sale, in which the lender averts a foreclosure by accepting less than the balance of the mortgage.
"We're very unlikely to implement another moratorium," Wheeler said. But he noted that Treasury would closely monitor how many foreclosed homes were dumped onto the market, suggesting that officials could take other steps to prevent a flood of lender-owned properties.
Few people would venture a guess on the magnitude of foreclosure increases. Part of that will be driven by the job market and the financial condition of so-called prime borrowers and homeowners holding adjustable-rate mortgages, both of which are showing more stress.
Even as defaults among subprime borrowers have trended lower this year, newly initiated foreclosures involving prime mortgage loans saw a significant increase in the first quarter, jumping 21.5% from the fourth quarter, according to a government report of loan data from national banks and federally regulated thrifts.
Reporting from Washington -- Just as the nation's housing market has begun showing signs of stabilizing, another wave of foreclosures is poised to strike, possibly as early as this summer, inflicting new punishment on families, communities and the still-troubled national economy.
Amid rising unemployment and falling home prices, mortgage defaults have surged to record levels this year. Until recently, many banks have put off launching foreclosure action on the troubled properties, in part because they had signed up for the Obama administration's home-stability plan, which required them to consider the alternative of modifying loans to make it easier for borrowers to make payments.
Just how big the foreclosure wave will be is unclear. But loan defaults are up sharply. And with many government and banks' self-imposed foreclosure moratoriums expiring, the biggest lenders indicate that they are likely to move more aggressively to clear up a backlog of troubled mortgages.
Nationally, home sales have been steadying, thanks largely to an abundance of cheap foreclosed properties, government incentives and record low mortgage rates. Housing construction starts have flattened out, helping to bring supply into balance with demand. The rate of housing price declines has slowed as well, even turning up in some communities.
But rising foreclosures will depress home values, pushing more homeowners underwater. Mark Zandi of Moody's Economy.com estimates that 15.4 million homeowners -- or about 1 in 5 of those with first mortgages -- owe more on their homes than they are worth.
Also, consumer confidence is already exceedingly low, and another jolt to the housing market could further crimp spending, which has been pummeled by the deep recession and persistent weakness in the job market. The latest unemployment rate, for June, rose to 9.5%, and many analysts predict that it will keep rising until the middle of next year.
The rapid pace of layoffs is of particular concern. Employers shed nearly a half-million jobs in June. Homeowners who are out of work have little chance of having their mortgages modified. That puts many homeowners on a collision course with banks that are preparing to take a more aggressive stance.
"Absolutely," Chase Bank spokesman Tom Kelly said when asked about an impending surge in foreclosures. Since April 6, Chase has approved modifying 138,000 loans under Obama's program. But an undisclosed number of other Chase borrowers didn't meet modification eligibility, and many of those homeowners face possible foreclosure.
Separate from that group, Kelly said, Chase is proceeding to deal with an additional 80,000 borrowers in default whose foreclosure process had been voluntarily halted by the lender starting late last year.
Bank of America, the nation's largest servicer of home mortgages, also did not release the volume of likely foreclosures. The bank said it had extended offers to modify loans to more than 45,000 borrowers under the Obama plan. Bank of America spokesman Dan Frahm said the company was projecting a "slow increase" in the number of monthly foreclosures, potentially reaching 30% above previous normal levels.
Much will depend on how quickly lenders can push the process along. It generally takes three months to a year from the time a borrower receives a notice of default to a foreclosure sale, in which case the lender usually takes title to the property.
Government and company reports show that the number of completed foreclosures nationwide slowed sharply late last year and into early this year, largely because of various moratoriums in effect during much of the first quarter.
But anecdotal reports indicate that foreclosure sales have started to climb again in the second quarter. And the pipeline is clearly getting fuller.
In the first quarter, some 1.8 million homeowners nationwide fell behind on their loans by 60 to 90 days, a 15% increase from the prior quarter, according to Moody's Economy.com. The research firm said that loan defaults rose sharply as well, to 844,000 in the first three months of this year.
California accounts for an outsized share of mortgage loan defaults. A stunning 135,431 homeowners in the state were hit with notices of default in the first quarter, an increase of 11% from the earlier peak in the second quarter of 2008, according to real estate information service MDA DataQuick. Foreclosure sales in the state have been moderating after averaging a high of 26,500 a month last summer.
In some communities such as Stockton, Calif., where the real estate market has been among the hardest hit in the nation with home prices plunging 60% in the last two years, many people are expecting a large increase in foreclosures.
Sales of foreclosed houses soared last year as investors and first-time home buyers swarmed over what were considered bargain houses. This year it's been unusually quiet, says Jerry Abbott, a broker and co-owner of Grupe Real Estate in Stockton. That doesn't make sense, he said, because he sees many houses in foreclosure in the city.
But just recently, said the 37-year real estate veteran, there's been a surge of requests for so-called broker price opinions, or appraisals that lenders often ask brokers to provide just before they put a foreclosed property on the market.
"I think it's going to be a very big wave," he said. "Just like what we saw through 2008."
The effect on prices won't be as severe, Abbott said, because values already have plunged and there's hearty demand for such properties.
Still, he said, "It will keep prices low. . . . It'll just slow the recovery down in general."
Michael Chee, 43, of Burbank is among those worried about what a rise in foreclosures could mean for his home.
Chee was laid off from a healthcare consulting firm in March. With jobless benefits, he figures he will be able to hold on until he finds a new job. His three-bedroom house, though down 20% to 30% in value, isn't underwater -- for the present.
"We're OK right now," he said, noting that his brother's home in Montebello is in foreclosure. "But going forward, who knows? The way things are going. . . ."
The Obama administration is racing to avert as many foreclosures as possible. So far, more than 240,000 distressed borrowers have been approved on a trial basis under the Home Affordable Modification Program, in which their loans are being reworked so monthly payments are targeted at 31% of their gross income, said Seth Wheeler, a senior advisor to Treasury Secretary Timothy F. Geithner.
Wheeler said the program's goal was to prevent as many as 4 million borrowers from losing their houses over the next 3 1/2 years. And in August, Treasury officials hope to bolster those efforts with guidelines that could encourage banks to allow more borrowers to sell their properties in a short sale, in which the lender averts a foreclosure by accepting less than the balance of the mortgage.
"We're very unlikely to implement another moratorium," Wheeler said. But he noted that Treasury would closely monitor how many foreclosed homes were dumped onto the market, suggesting that officials could take other steps to prevent a flood of lender-owned properties.
Few people would venture a guess on the magnitude of foreclosure increases. Part of that will be driven by the job market and the financial condition of so-called prime borrowers and homeowners holding adjustable-rate mortgages, both of which are showing more stress.
Even as defaults among subprime borrowers have trended lower this year, newly initiated foreclosures involving prime mortgage loans saw a significant increase in the first quarter, jumping 21.5% from the fourth quarter, according to a government report of loan data from national banks and federally regulated thrifts.
California Dreamers
It was a magnificent run. From the end of the Second World War to the mid-1960s, California consolidated its position as an economic and technological colossus and emerged as the country’s dominant political, social, and cultural trendsetter. Thanks to wartime and Cold War defense spending, a flourishing consumer economy, and a seemingly ever-expanding tax base, the state was at the forefront of the single greatest rise in prosperity in American history. In 1959, wages paid in Los Angeles’s working-class and solidly middle-class San Fernando Valley alone were higher than the total wages of 18 states. This affluence ushered in an era of exhilarating if headlong growth and free spending. The state’s public schools—the new, modernist elementary schools with their flat roofs, gleaming clerestory windows, and outdoor lockers; the grand comprehensive high schools (Sacramento, Lowell in San Francisco, and Hollywood and Fairfax in Los Angeles)—were the envy of the nation. Berkeley, the flagship campus in the UC system, emerged as the best university in the country, probably the world. It was a sweet, vivacious time: California’s children, swarming on all those new playgrounds, seemed healthier, happier, taller, and—thanks to that brilliantly clean sunshine—were blonder and more tan than kids in the rest of the country. For better and mostly for worse, it’s a time irretrievably lost.
These years are the subject of the eighth volume of Kevin Starr’s monumental chronicle of California, collectively titled Americans and the California Dream. Starr is a lumper, not a splitter, and in this 500-plus-page history of 14 years, he lovingly and exhaustively chronicles such topics as the byzantine political, fund-raising, and public-relations effort to build Los Angeles’s Music Center (and in the process illuminates the central place choral music occupied in Los Angeles’s Protestant culture, as well as the tension—once intense, now faint but unmistakable—between the Jewish Westside and the ever-declining WASP establishment of downtown, Hancock Park, and Pasadena); the evolution of the surfing, rock-climbing, and hot-rod subcultures; Zen Buddhism’s pervasive influence on California art and design; the California Water Plan of 1957 (the template for the 700-mile network of reservoirs, pumping stations, canals, pipes, and aqueducts that carries almost 2 billion gallons of water daily from Northern California to the south and remains the largest water project in world history); and, in deadly detail, the career of Dave Brubeck.
But neither this installment nor the series as a whole succumbs to muddle, because Starr consistently returns to his leitmotif: the California dream. By this he means something quite specific—and prosaic. California, as he’s argued in earlier volumes, promised “the highest possible life for the middle classes.” It wasn’t a paradise for world-beaters; rather, it offered “a better place for ordinary people.” That place always meant “an improved and more affordable domestic life”: a small but stylish and airy house marked by a fluidity of indoor and outdoor space, such as the ubiquitous California bungalow (“the closest thing to a democratic art that has ever been produced,” as the architectural historians David Gebhard and Robert Winter have written) and a lush backyard—the stage, that is, for “family life in a sunny climate.” It also meant some public goods: decent roads, plentiful facilities for outdoor recreation, and the libraries and schools that helped produce the Los Angeles “common man” who, as that jaundiced easterner James M. Cain described him in 1933, “addresses you in easy grammar, completes his sentences, shows familiarity with good manners, and in addition gives you a pleasant smile.”
Until the Second World War, California had proffered this Good Life only to people already in the middle class—the small proprietors, farmers, and professionals, largely transplanted midwesterners, who defined the long-underindustrialized state culturally and politically. But the war and the decades-long boom that followed extended the California dream to a previously unimaginable number of Americans of modest means. Here Starr records how that dream possessed the national imagination (and thereby helped define middle-class aspirations and an ideal of domestic life that survives to this day) and how the Golden State—fleetingly, as it turns out—accommodated Americans’ “conviction that California was the best place in the nation to seek and attain a better life.”
In the brief era Starr examines, the world rushed in to grab that life: the state’s population nearly doubled between 1950 and 1970. This dolce vita was, as Starr makes clear, a democratic one: the ranch houses with their sliding glass doors and orange trees in the backyard might have been more sprawling in La Cañada and Orinda than they were in the working-class suburbs of Lakewood and Hayward, but family and social life in nearly all of them centered on the patio, the barbecue, and the swimming pool. The beaches were publicly owned and hence available to all—as were such glorious parks as Yosemite, Chico’s Bidwell, the East Bay’s Tilden, and San Diego’s Balboa. Golf and tennis, year-round California pursuits, had once been limited to the upper class, but thanks to proliferating publicly supported courses and courts (thousands of public tennis courts had already been built in L.A. in the 1930s), they became fully middle-class. This shared outdoor-oriented, informal, California way of life democratized—some would say homogenized—a society made up of people of varying attainments and income levels. These people were overwhelmingly white and native-born, and their common culture revolved around nurturing and (publicily) educating their children. Until the 1980s, a California preppy was all but oxymoronic. True, the comprehensive high schools had commercial, vocational, and college-prep tracks (good grades in the last guaranteed admission to Berkeley or UCLA—times have definitely changed). But, as Starr concludes from his survey of yearbooks and other school records, “there remained a common experience, especially in athletics, and a mutual respect among young people heading in different directions.”
To a Californian today, much of what Starr chronicles is unrecognizable. (Astonishing fact: Ricky Nelson and the character he played in that quintessential idealization of suburbia, The Adventures of Ozzie and Harriet, attended Hollywood High, a school that is now 75 percent Hispanic and that The New York Times accurately described in 2003 as “a typically overcrowded, vandalism-prone urban campus.”) Granted, a version of the California Good Life can still be had—by those Starr calls the “fiercely competitive.” That’s just the heartbreak: most of us are merely ordinary. For nearly a century, California offered ordinary people better lives than they could lead perhaps anywhere else in the world. Today, reflecting our intensely stratified, increasingly mobile society, California affords the Good Life only to the most gifted and ambitious, regardless of their background. That’s a deeply undemocratic betrayal of California’s dream—and of the promise of American life. As R. H. Tawney wrote, “Opportunities to rise, which can, of their very nature, be seized only by the few,” cannot “substitute for a general diffusion of the means of civilization, which are needed by all men whether they rise or not.”
These years are the subject of the eighth volume of Kevin Starr’s monumental chronicle of California, collectively titled Americans and the California Dream. Starr is a lumper, not a splitter, and in this 500-plus-page history of 14 years, he lovingly and exhaustively chronicles such topics as the byzantine political, fund-raising, and public-relations effort to build Los Angeles’s Music Center (and in the process illuminates the central place choral music occupied in Los Angeles’s Protestant culture, as well as the tension—once intense, now faint but unmistakable—between the Jewish Westside and the ever-declining WASP establishment of downtown, Hancock Park, and Pasadena); the evolution of the surfing, rock-climbing, and hot-rod subcultures; Zen Buddhism’s pervasive influence on California art and design; the California Water Plan of 1957 (the template for the 700-mile network of reservoirs, pumping stations, canals, pipes, and aqueducts that carries almost 2 billion gallons of water daily from Northern California to the south and remains the largest water project in world history); and, in deadly detail, the career of Dave Brubeck.
But neither this installment nor the series as a whole succumbs to muddle, because Starr consistently returns to his leitmotif: the California dream. By this he means something quite specific—and prosaic. California, as he’s argued in earlier volumes, promised “the highest possible life for the middle classes.” It wasn’t a paradise for world-beaters; rather, it offered “a better place for ordinary people.” That place always meant “an improved and more affordable domestic life”: a small but stylish and airy house marked by a fluidity of indoor and outdoor space, such as the ubiquitous California bungalow (“the closest thing to a democratic art that has ever been produced,” as the architectural historians David Gebhard and Robert Winter have written) and a lush backyard—the stage, that is, for “family life in a sunny climate.” It also meant some public goods: decent roads, plentiful facilities for outdoor recreation, and the libraries and schools that helped produce the Los Angeles “common man” who, as that jaundiced easterner James M. Cain described him in 1933, “addresses you in easy grammar, completes his sentences, shows familiarity with good manners, and in addition gives you a pleasant smile.”
Until the Second World War, California had proffered this Good Life only to people already in the middle class—the small proprietors, farmers, and professionals, largely transplanted midwesterners, who defined the long-underindustrialized state culturally and politically. But the war and the decades-long boom that followed extended the California dream to a previously unimaginable number of Americans of modest means. Here Starr records how that dream possessed the national imagination (and thereby helped define middle-class aspirations and an ideal of domestic life that survives to this day) and how the Golden State—fleetingly, as it turns out—accommodated Americans’ “conviction that California was the best place in the nation to seek and attain a better life.”
In the brief era Starr examines, the world rushed in to grab that life: the state’s population nearly doubled between 1950 and 1970. This dolce vita was, as Starr makes clear, a democratic one: the ranch houses with their sliding glass doors and orange trees in the backyard might have been more sprawling in La Cañada and Orinda than they were in the working-class suburbs of Lakewood and Hayward, but family and social life in nearly all of them centered on the patio, the barbecue, and the swimming pool. The beaches were publicly owned and hence available to all—as were such glorious parks as Yosemite, Chico’s Bidwell, the East Bay’s Tilden, and San Diego’s Balboa. Golf and tennis, year-round California pursuits, had once been limited to the upper class, but thanks to proliferating publicly supported courses and courts (thousands of public tennis courts had already been built in L.A. in the 1930s), they became fully middle-class. This shared outdoor-oriented, informal, California way of life democratized—some would say homogenized—a society made up of people of varying attainments and income levels. These people were overwhelmingly white and native-born, and their common culture revolved around nurturing and (publicily) educating their children. Until the 1980s, a California preppy was all but oxymoronic. True, the comprehensive high schools had commercial, vocational, and college-prep tracks (good grades in the last guaranteed admission to Berkeley or UCLA—times have definitely changed). But, as Starr concludes from his survey of yearbooks and other school records, “there remained a common experience, especially in athletics, and a mutual respect among young people heading in different directions.”
To a Californian today, much of what Starr chronicles is unrecognizable. (Astonishing fact: Ricky Nelson and the character he played in that quintessential idealization of suburbia, The Adventures of Ozzie and Harriet, attended Hollywood High, a school that is now 75 percent Hispanic and that The New York Times accurately described in 2003 as “a typically overcrowded, vandalism-prone urban campus.”) Granted, a version of the California Good Life can still be had—by those Starr calls the “fiercely competitive.” That’s just the heartbreak: most of us are merely ordinary. For nearly a century, California offered ordinary people better lives than they could lead perhaps anywhere else in the world. Today, reflecting our intensely stratified, increasingly mobile society, California affords the Good Life only to the most gifted and ambitious, regardless of their background. That’s a deeply undemocratic betrayal of California’s dream—and of the promise of American life. As R. H. Tawney wrote, “Opportunities to rise, which can, of their very nature, be seized only by the few,” cannot “substitute for a general diffusion of the means of civilization, which are needed by all men whether they rise or not.”
How California's Fiscal Woes Began: A Crisis 30 Years in the Making
With California a day away from issuing IOUs instead of paying its bills, Gov. Schwarzenegger and the legislature remain at odds over how to close a now $26.3 billion deficit. Schwarzenegger on Thursday ordered a third unpaid furlough day for 235,000 state employees. With its $1.7 trillion economy sputtering and 11.5% unemployment surging, California's difficulty in balancing its budget could affect the national recovery.
But the Golden State's budget problems are hardly new. The seeds of them were planted more than 30 years ago.
They begin with the 1978 property tax revolt and the victory of Proposition 13. As California experienced a dramatic escalation in home values, property tax assessments skyrocketed. Especially vulnerable were seniors on fixed incomes. When then Gov. Jerry Brown and the legislature dithered, conservative activists led by Howard Jarvis put a seductively simple sounding proposition on the ballot. Under Proposition 13, the annual real estate tax on a parcel of property would be limited to 1% of its assessed value and this assessed value would only increase by a maximum of 2% per year, until a change in ownership. Voters responded and Proposition 13 scored a dramatic victory with 65% of the vote. Property tax rates dropped an average of 57%.
While homeowners celebrated, city, county and school district officials sat in stunned disbelief. There were predictions of drastic cuts to education and social services. But the ax did not fall as Sacramento, flush with a multibillion-dollar surplus, bailed out local governments and the schools. But the state rescue was accompanied by a loss of local control. As a result of Proposition 13, school districts, county governments and cities were forced to compete with state priorities for a slice of the state budget.
"In the first years after Proposition 13 passed, the state was able to get by because it had a surplus," says David Menefee-Libey, a political scientist at Pomona College. "But because the state is now responsible for funding local government and school districts the demands on state resources became too great. The second strategy followed by [Governors Gray] Davis and [Arnold] Schwarzenegger has been to finesse the fiscal crisis by using budget gimmicks and by borrowing to bridge the yearly budget shortfall. Now both options are exhausted."
Proposition 13 has proved to be a two-sided sword. "One side was to protect the people from the government suddenly and wildly raising property taxes," says Bob Hertzberg, a former Assembly Speaker and co- chair of California Forward, a bipartisan reform group. "That was done. But we didn't resolve how to pay for the services that people want. So we have created this crazy government structure in Sacramento held together by duct tape and bailing wire. It's not coherent and needs to be changed."
Proposition 13 further altered California politics by requiring a two-thirds majority for tax increases either at the state or local level. This requirement along with a constitutional provision requiring a two-thirds majority to pass a budget — the result of a proposition passed in 1933 — means it is far more difficult to raise taxes or pass a budget in California than in other states. For more than 30 years California has been living with a system of minority rule in which 34% of the legislature or a local community can stonewall the majority. Facing this post-Proposition 13 system, California's various interest groups have increasingly used the ballot box to protect themselves — but by so doing have mandated budgetary havoc.
For example, pre-Proposition 13, California public schools were among the finest in the nation. After Proposition 13, education spending per pupil dropped to 48th in the nation. The state's educators and parents then rallied behind Proposition 98, which by a complex formula apportions roughly 40% of the state budget to K-14 education. In the past three decades, other special interests have authored — and voters have passed — numerous ballot measures dictating that millions in state funds go to various pet causes. Many of these measures, including a preschool initiative sponsored by Schwarzenegger in 2002, mandate a program but fail to provide a source of funding. Each proposal alone might have merit, but collectively these ballot measures have locked most of California's budget in place. "Gradually, the voters' piecemeal decisions have bound the legislature in a straightjacket," says Thad Kousser, a professor of political science at UC San Diego.
Similar to the Red vs. Blue state clash in the nation as a whole, there are two Californias. Historically, there was the liberal north versus the conservative south. Since the days of Governors Pat Brown and Ronald Reagan, the clash has been between older, predominately Anglo voters, living in the suburbs and rural counties and largely voting Republican, and younger voters, more likely to be Asian or Latino or black or Middle Eastern, who are more prevalent in California's urban centers and hip suburbs and who predominantly support Democrats. As the state's population has become diverse and Anglo voters have seen their own children grow up and leave the public schools, there has been a backlash of the first against the second, as seen in conservative ballot measures such as Proposition 13 (property taxes), Proposition 187 (illegal immigration) and Proposition 8 (gay marriage). Conservative Anglos, a minority of the state's population as a whole, are vocal and continue to exert power beyond their census numbers because they vote in relatively higher percentages, and because GOP votes are required to pass a budget or enact new taxes under the state's unusual two- thirds majority requirements.
But the Golden State's budget problems are hardly new. The seeds of them were planted more than 30 years ago.
They begin with the 1978 property tax revolt and the victory of Proposition 13. As California experienced a dramatic escalation in home values, property tax assessments skyrocketed. Especially vulnerable were seniors on fixed incomes. When then Gov. Jerry Brown and the legislature dithered, conservative activists led by Howard Jarvis put a seductively simple sounding proposition on the ballot. Under Proposition 13, the annual real estate tax on a parcel of property would be limited to 1% of its assessed value and this assessed value would only increase by a maximum of 2% per year, until a change in ownership. Voters responded and Proposition 13 scored a dramatic victory with 65% of the vote. Property tax rates dropped an average of 57%.
While homeowners celebrated, city, county and school district officials sat in stunned disbelief. There were predictions of drastic cuts to education and social services. But the ax did not fall as Sacramento, flush with a multibillion-dollar surplus, bailed out local governments and the schools. But the state rescue was accompanied by a loss of local control. As a result of Proposition 13, school districts, county governments and cities were forced to compete with state priorities for a slice of the state budget.
"In the first years after Proposition 13 passed, the state was able to get by because it had a surplus," says David Menefee-Libey, a political scientist at Pomona College. "But because the state is now responsible for funding local government and school districts the demands on state resources became too great. The second strategy followed by [Governors Gray] Davis and [Arnold] Schwarzenegger has been to finesse the fiscal crisis by using budget gimmicks and by borrowing to bridge the yearly budget shortfall. Now both options are exhausted."
Proposition 13 has proved to be a two-sided sword. "One side was to protect the people from the government suddenly and wildly raising property taxes," says Bob Hertzberg, a former Assembly Speaker and co- chair of California Forward, a bipartisan reform group. "That was done. But we didn't resolve how to pay for the services that people want. So we have created this crazy government structure in Sacramento held together by duct tape and bailing wire. It's not coherent and needs to be changed."
Proposition 13 further altered California politics by requiring a two-thirds majority for tax increases either at the state or local level. This requirement along with a constitutional provision requiring a two-thirds majority to pass a budget — the result of a proposition passed in 1933 — means it is far more difficult to raise taxes or pass a budget in California than in other states. For more than 30 years California has been living with a system of minority rule in which 34% of the legislature or a local community can stonewall the majority. Facing this post-Proposition 13 system, California's various interest groups have increasingly used the ballot box to protect themselves — but by so doing have mandated budgetary havoc.
For example, pre-Proposition 13, California public schools were among the finest in the nation. After Proposition 13, education spending per pupil dropped to 48th in the nation. The state's educators and parents then rallied behind Proposition 98, which by a complex formula apportions roughly 40% of the state budget to K-14 education. In the past three decades, other special interests have authored — and voters have passed — numerous ballot measures dictating that millions in state funds go to various pet causes. Many of these measures, including a preschool initiative sponsored by Schwarzenegger in 2002, mandate a program but fail to provide a source of funding. Each proposal alone might have merit, but collectively these ballot measures have locked most of California's budget in place. "Gradually, the voters' piecemeal decisions have bound the legislature in a straightjacket," says Thad Kousser, a professor of political science at UC San Diego.
Similar to the Red vs. Blue state clash in the nation as a whole, there are two Californias. Historically, there was the liberal north versus the conservative south. Since the days of Governors Pat Brown and Ronald Reagan, the clash has been between older, predominately Anglo voters, living in the suburbs and rural counties and largely voting Republican, and younger voters, more likely to be Asian or Latino or black or Middle Eastern, who are more prevalent in California's urban centers and hip suburbs and who predominantly support Democrats. As the state's population has become diverse and Anglo voters have seen their own children grow up and leave the public schools, there has been a backlash of the first against the second, as seen in conservative ballot measures such as Proposition 13 (property taxes), Proposition 187 (illegal immigration) and Proposition 8 (gay marriage). Conservative Anglos, a minority of the state's population as a whole, are vocal and continue to exert power beyond their census numbers because they vote in relatively higher percentages, and because GOP votes are required to pass a budget or enact new taxes under the state's unusual two- thirds majority requirements.
State rolls out $3.36 billion in IOUs today
California plans to begin issuing billions of dollars in IOUs today to scores of creditors, including private businesses and county governments.
The move will not affect many individuals who receive government assistance. Low-income people, the elderly and the disabled will receive their regular checks on schedule. Schools, state workers, Medi-Cal providers, pension funds and In-Home Supportive Services are all protected by law from receiving an IOU in lieu of a real check.
But thousands of vendors who provide goods and services to the state will be given IOUs instead of cash. From a company that sells french fries for prisoners to a firm that pumps out latrines in state parks, many businesses are trying to save cash and hoping their banks will accept the IOUs.
Meanwhile, the University of California has not yet decided whether it will front the money for educational Cal Grants, another program that will get IOUs.
State Controller John Chiang expects to disburse $3.36 billion in IOUs and $10.9 billion in regular payments this month.
After officials decide this morning how much interest they'll pay on the IOUs and when they can be redeemed, the controller's printing presses will churn out the first batch of IOUs for 28,742 state tax refunds totaling $53.3 million, said Garin Casaleggio, a spokesman for the controller.
The IOUs probably won't be cashed by the state for 90 days - and then only if the treasury has the money to cover them.
Business impact
Bank of America said it will accept IOUs from existing customers until July 10, with no dollar limits. Wells Fargo and Bank of the West have not yet decided whether to accept them. About 19 California credit unions will accept the IOUs, including Chabot in Dublin, Contra Costa in Martinez, SRI in Menlo Park, Provident in Redwood City, San Francisco in San Francisco and Kaiperm Diablo in Walnut Creek.
Many companies said they will simply tighten their belt and wait to redeem their IOUs.
Ken Jackson, owner of Vallejo's Ktek Products and Systems, sells office supplies, computer accessories and janitorial supplies to the state.
"The key is to have cash flow to weather the storm," he said. "My cash flow is about 60 days out. If it goes beyond that, I'm in trouble."
American Transit Supply in Hayward does about three quarters of its business with the state, providing air filters, oil filters and hydraulic filters for state vehicles such as CHP cars and fire service trucks.
"We figure we've got about $50,000 to $70,000 in accounts receivable with California," said Brian Beery, vice president. His firm has stockpiled cash to make it through and will temporarily transfer its 10 employees to a sister firm.
Thompson's PortaSeptic Services in Fort Bragg, a self-described "mom and pop shop," expects to receive IOUs for pumping out septic tanks in Mendocino County state parks, said owner Melissa Berman.
"It would be a hardship," she said. "We can handle it but we will have to scramble to cover all of our standard expenses. But a couple of months (of IOUs) would not put us in jeopardy."
At French Fry Xpress in Milpitas, owner Art McCoy said he expects to get IOUs for his french fry deliveries to state prisons.
"It's just two of us, my son and myself, so we don't have any payroll," he said. "We'll just have to wait until the budget is settled."
Other costs
Some of the IOUs' impact will not trickle down to Californians because of backfilling from the federal government, counties and colleges.
For instance, cash assistance for aged, blind and disabled people will be paid in full by the federal Social Security Administration during July and August. As part of a February agreement, counties already plan to cover CalWorks temporary assistance in July and August.
The controller will issue IOUs to the California Student Aid Commission, which administers Cal Grants, the state-funded financial aid that helps about 143,000 students attend college. Grants top out at $7,788 for a state college and $9,708 for a private one.
"If I'm not able to get it, I might have to take a leave of absence from school to work and pay for tuition," said UC Santa Cruz senior Tommy Le, who works two jobs on campus and helps support his family. "Our state is divesting from students. It's heartbreaking."
In the past when state budgets have been late, UC and CSU have advanced the grant money to students, interest-free.
UC spokesman Ricardo Vazquez said the university has not yet decided whether it will do so this year. CSU students "will definitely be covered," said spokeswoman Claudia Keith.
Bay Bridge project OK
Some state contractors have their own revenue sources.
Bart Ney, Caltrans spokesman for the Bay Bridge project, said that financing for the bridge will go through because it comes mainly from tolls, the result of AB144, approved in 2005.
"It's good for us," Ney said. "We get to keep going."
One firm said it chose not to do business with companies that rely on state payments. San Mateo's Bay View Funding provides short-term financing for companies. One client was a temporary staffing agency that works for the state, which used Bay View to meet its weekly payroll.
"We were uncomfortable with the state and their ability to put a budget in place so we decided to exit any relationships involving California," said Andrew Aquino, senior vice president. "We told our client to find a new source."
The move will not affect many individuals who receive government assistance. Low-income people, the elderly and the disabled will receive their regular checks on schedule. Schools, state workers, Medi-Cal providers, pension funds and In-Home Supportive Services are all protected by law from receiving an IOU in lieu of a real check.
But thousands of vendors who provide goods and services to the state will be given IOUs instead of cash. From a company that sells french fries for prisoners to a firm that pumps out latrines in state parks, many businesses are trying to save cash and hoping their banks will accept the IOUs.
Meanwhile, the University of California has not yet decided whether it will front the money for educational Cal Grants, another program that will get IOUs.
State Controller John Chiang expects to disburse $3.36 billion in IOUs and $10.9 billion in regular payments this month.
After officials decide this morning how much interest they'll pay on the IOUs and when they can be redeemed, the controller's printing presses will churn out the first batch of IOUs for 28,742 state tax refunds totaling $53.3 million, said Garin Casaleggio, a spokesman for the controller.
The IOUs probably won't be cashed by the state for 90 days - and then only if the treasury has the money to cover them.
Business impact
Bank of America said it will accept IOUs from existing customers until July 10, with no dollar limits. Wells Fargo and Bank of the West have not yet decided whether to accept them. About 19 California credit unions will accept the IOUs, including Chabot in Dublin, Contra Costa in Martinez, SRI in Menlo Park, Provident in Redwood City, San Francisco in San Francisco and Kaiperm Diablo in Walnut Creek.
Many companies said they will simply tighten their belt and wait to redeem their IOUs.
Ken Jackson, owner of Vallejo's Ktek Products and Systems, sells office supplies, computer accessories and janitorial supplies to the state.
"The key is to have cash flow to weather the storm," he said. "My cash flow is about 60 days out. If it goes beyond that, I'm in trouble."
American Transit Supply in Hayward does about three quarters of its business with the state, providing air filters, oil filters and hydraulic filters for state vehicles such as CHP cars and fire service trucks.
"We figure we've got about $50,000 to $70,000 in accounts receivable with California," said Brian Beery, vice president. His firm has stockpiled cash to make it through and will temporarily transfer its 10 employees to a sister firm.
Thompson's PortaSeptic Services in Fort Bragg, a self-described "mom and pop shop," expects to receive IOUs for pumping out septic tanks in Mendocino County state parks, said owner Melissa Berman.
"It would be a hardship," she said. "We can handle it but we will have to scramble to cover all of our standard expenses. But a couple of months (of IOUs) would not put us in jeopardy."
At French Fry Xpress in Milpitas, owner Art McCoy said he expects to get IOUs for his french fry deliveries to state prisons.
"It's just two of us, my son and myself, so we don't have any payroll," he said. "We'll just have to wait until the budget is settled."
Other costs
Some of the IOUs' impact will not trickle down to Californians because of backfilling from the federal government, counties and colleges.
For instance, cash assistance for aged, blind and disabled people will be paid in full by the federal Social Security Administration during July and August. As part of a February agreement, counties already plan to cover CalWorks temporary assistance in July and August.
The controller will issue IOUs to the California Student Aid Commission, which administers Cal Grants, the state-funded financial aid that helps about 143,000 students attend college. Grants top out at $7,788 for a state college and $9,708 for a private one.
"If I'm not able to get it, I might have to take a leave of absence from school to work and pay for tuition," said UC Santa Cruz senior Tommy Le, who works two jobs on campus and helps support his family. "Our state is divesting from students. It's heartbreaking."
In the past when state budgets have been late, UC and CSU have advanced the grant money to students, interest-free.
UC spokesman Ricardo Vazquez said the university has not yet decided whether it will do so this year. CSU students "will definitely be covered," said spokeswoman Claudia Keith.
Bay Bridge project OK
Some state contractors have their own revenue sources.
Bart Ney, Caltrans spokesman for the Bay Bridge project, said that financing for the bridge will go through because it comes mainly from tolls, the result of AB144, approved in 2005.
"It's good for us," Ney said. "We get to keep going."
One firm said it chose not to do business with companies that rely on state payments. San Mateo's Bay View Funding provides short-term financing for companies. One client was a temporary staffing agency that works for the state, which used Bay View to meet its weekly payroll.
"We were uncomfortable with the state and their ability to put a budget in place so we decided to exit any relationships involving California," said Andrew Aquino, senior vice president. "We told our client to find a new source."
Jobs Data Bode Ill for the Future
The employment report is often said to be a lagging indicator, but some elements look toward the future and those signals aren’t encouraging.
The length of the average workweek offers clues to when companies may begin hiring. Even if the rate of decline in jobs is moderating a bit from lows hit earlier this year, the addition of new workers seems to be a way off. Before companies hire, they generally push for new workers to work more hours first. But his month, the average workweek dropped to just 33 hours, a historic low.
“The bottom line for the economy: despite signs in other areas that the recession is leveling out – most importantly, production — the labor market indicators in themselves are not yet signaling a turning point,” Harvard economist Jeff Frankel said in a blog post. Though he’s speaking for himself here, Frankel is a member of the National Bureau of Economic Research panel that demarcates the end of a recession.
Even as the recession looks like it will be around for at least a little longer, the gap the eventual recovery will have to fill gets bigger and bigger. The total number of nonfarm workers dropped to the lowest level since 2004. That means that in just 18 months this recession eliminated nearly three and a half years of job gains. That’s a lot of ground for a recovery that’s expected to be tepid at best.
Weighing on the recovery is the American consumer’s newfound thrift. Consumer spending has helped buoy past recoveries, but a lack of credit, falling home prices and a weak job market appears to have finally knocked consumers to the mat. Making matters worse will likely be falling take-home pay. Wages were flat in June and with so many people out of work, employers won’t have much pressure to drive them up soon.
A technical recovery is still likely this year, but the pain will be around for some time to come.
The length of the average workweek offers clues to when companies may begin hiring. Even if the rate of decline in jobs is moderating a bit from lows hit earlier this year, the addition of new workers seems to be a way off. Before companies hire, they generally push for new workers to work more hours first. But his month, the average workweek dropped to just 33 hours, a historic low.
“The bottom line for the economy: despite signs in other areas that the recession is leveling out – most importantly, production — the labor market indicators in themselves are not yet signaling a turning point,” Harvard economist Jeff Frankel said in a blog post. Though he’s speaking for himself here, Frankel is a member of the National Bureau of Economic Research panel that demarcates the end of a recession.
Even as the recession looks like it will be around for at least a little longer, the gap the eventual recovery will have to fill gets bigger and bigger. The total number of nonfarm workers dropped to the lowest level since 2004. That means that in just 18 months this recession eliminated nearly three and a half years of job gains. That’s a lot of ground for a recovery that’s expected to be tepid at best.
Weighing on the recovery is the American consumer’s newfound thrift. Consumer spending has helped buoy past recoveries, but a lack of credit, falling home prices and a weak job market appears to have finally knocked consumers to the mat. Making matters worse will likely be falling take-home pay. Wages were flat in June and with so many people out of work, employers won’t have much pressure to drive them up soon.
A technical recovery is still likely this year, but the pain will be around for some time to come.
Shotgun Marriages Raise Risk of New Bank Blowups: Mark Gilbert
July 2 (Bloomberg) -- If the aftermath of the credit crunch is a financial landscape featuring fewer banks, each even bigger than before because of government-engineered mergers and opportunistic takeovers of weaker brethren, then we should all be very afraid. That, though, is exactly where we are headed.
Finance chiefs are bleating at the prospect of being hamstrung by new rules designed to impose some health-and-safety strictures on their behavior. Governments should ignore their self-serving objections, even if imposing safeguards makes it harder for investment banking to create new profit-producing techniques and securities.
The siren song sung by finance is easy to summarize. Regulate us too strictly, the bankers say, and global growth will suffer because of our inability to innovate. Never mind that it was precisely that unfettered, self-non-regulating approach to the securities industry that brought the economy crashing down. The banking community, far from finding a way to make amends for its profligate behavior, wants to convince us that “business as usual” is the only way forward.
Some of the language being used is unbelievable. “Overly complex, opaquely priced products got banks into trouble,” Standard Chartered Plc Chief Executive Officer Peter Sands said this week. “Overly complex, opaque regulations simply cannot be the answer.”
Sleight of Mouth
Did you see what he did there? By starting with an assertive statement about the origins of the credit crunch, and then mirroring that with a negative statement about what regulation is aiming to achieve, Sands managed to trash the notion that his industry needs more oversight. Such hubris screams of lessons going unlearned.
The bigger the bank, the louder the protestations. HSBC Holdings Plc Chairman Stephen Green said this week it is a “fantasy” to believe that smaller, “narrow” banks will provide better financial stability. “Customers, both businesses and individuals, need a wide range of services,” said Green, who runs Europe’s largest bank. “To force them to go to different types of institution for different services, according to some resurrected Glass-Steagall model, would be totally unrealistic.”
Errr, no. What is totally unrealistic is to continue with the broken model that allows bankers to gamble with depositors’ funds in whatever derivatives casino they fancy, safe in the knowledge that the taxpayer stands ready to bail out their misadventures without sanction or punishment.
Broken Steering
Rules must not become too tight, JPMorgan Chase & Co. CEO Jamie Dimon wrote in an article published by the Wall Street Journal last week. Financial institutions must be able “to steer capital toward the most promising innovations,” said Dimon, whose bonus depends on steering as much capital as he can muster toward the most lucrative -- or riskiest -- adventures he can get away with.
The only body that seems to be making sense on the future shape of finance is the Bank for International Settlements, the Basel, Switzerland-based institution that acts as a kind of central bank for central banks. The BIS’s opinions carry particular weight because of its track record as a fairly vocal Cassandra during the credit boom.
“Banks must resume lending, but they must also adjust by becoming smaller, simpler and safer,” the BIS said in its annual report this week. “Government rescue packages implemented so far appear to be hindering rather than aiding this needed adjustment. By helping banks obtain debt financing and capital, rescue packages allow managers to avoid the hard choices needed.”
‘Big and Complex’
Because holes in the banking system are stuffed full of our money, courtesy of the largess of our elected representatives, banks are able to ignore the need to reduce their balance sheets and stop owning risky assets. Moreover, the BIS says arranging shotgun marriages among failing institutions is “creating financial institutions so big and complex that even their own management may not understand their risk exposures.”
That’s a scary scenario, made even more frightening by the inability of regulators to face up to their responsibilities in helping to curb the excesses that plunged the world into crisis.
“We must be realistic about what intelligent cooperation can achieve,” U.K. Financial Services Authority Chairman Adair Turner said this week. “I do sometimes worry that there is a bit of a disconnect between grand political statements at G-20 or other meetings and what we are going to achieve.”
There’s nothing grand or political about wanting a safe and secure banking industry. There’s no disconnect between politicians demanding higher standards and ordinary folk expecting their deposits to be looked after and their taxes used for better things than bolstering banks. And there’s nothing clever about the Harry Houdini-style escapology that the finance industry is attempting as governments try to rein in the profligacy of recent years.
Finance chiefs are bleating at the prospect of being hamstrung by new rules designed to impose some health-and-safety strictures on their behavior. Governments should ignore their self-serving objections, even if imposing safeguards makes it harder for investment banking to create new profit-producing techniques and securities.
The siren song sung by finance is easy to summarize. Regulate us too strictly, the bankers say, and global growth will suffer because of our inability to innovate. Never mind that it was precisely that unfettered, self-non-regulating approach to the securities industry that brought the economy crashing down. The banking community, far from finding a way to make amends for its profligate behavior, wants to convince us that “business as usual” is the only way forward.
Some of the language being used is unbelievable. “Overly complex, opaquely priced products got banks into trouble,” Standard Chartered Plc Chief Executive Officer Peter Sands said this week. “Overly complex, opaque regulations simply cannot be the answer.”
Sleight of Mouth
Did you see what he did there? By starting with an assertive statement about the origins of the credit crunch, and then mirroring that with a negative statement about what regulation is aiming to achieve, Sands managed to trash the notion that his industry needs more oversight. Such hubris screams of lessons going unlearned.
The bigger the bank, the louder the protestations. HSBC Holdings Plc Chairman Stephen Green said this week it is a “fantasy” to believe that smaller, “narrow” banks will provide better financial stability. “Customers, both businesses and individuals, need a wide range of services,” said Green, who runs Europe’s largest bank. “To force them to go to different types of institution for different services, according to some resurrected Glass-Steagall model, would be totally unrealistic.”
Errr, no. What is totally unrealistic is to continue with the broken model that allows bankers to gamble with depositors’ funds in whatever derivatives casino they fancy, safe in the knowledge that the taxpayer stands ready to bail out their misadventures without sanction or punishment.
Broken Steering
Rules must not become too tight, JPMorgan Chase & Co. CEO Jamie Dimon wrote in an article published by the Wall Street Journal last week. Financial institutions must be able “to steer capital toward the most promising innovations,” said Dimon, whose bonus depends on steering as much capital as he can muster toward the most lucrative -- or riskiest -- adventures he can get away with.
The only body that seems to be making sense on the future shape of finance is the Bank for International Settlements, the Basel, Switzerland-based institution that acts as a kind of central bank for central banks. The BIS’s opinions carry particular weight because of its track record as a fairly vocal Cassandra during the credit boom.
“Banks must resume lending, but they must also adjust by becoming smaller, simpler and safer,” the BIS said in its annual report this week. “Government rescue packages implemented so far appear to be hindering rather than aiding this needed adjustment. By helping banks obtain debt financing and capital, rescue packages allow managers to avoid the hard choices needed.”
‘Big and Complex’
Because holes in the banking system are stuffed full of our money, courtesy of the largess of our elected representatives, banks are able to ignore the need to reduce their balance sheets and stop owning risky assets. Moreover, the BIS says arranging shotgun marriages among failing institutions is “creating financial institutions so big and complex that even their own management may not understand their risk exposures.”
That’s a scary scenario, made even more frightening by the inability of regulators to face up to their responsibilities in helping to curb the excesses that plunged the world into crisis.
“We must be realistic about what intelligent cooperation can achieve,” U.K. Financial Services Authority Chairman Adair Turner said this week. “I do sometimes worry that there is a bit of a disconnect between grand political statements at G-20 or other meetings and what we are going to achieve.”
There’s nothing grand or political about wanting a safe and secure banking industry. There’s no disconnect between politicians demanding higher standards and ordinary folk expecting their deposits to be looked after and their taxes used for better things than bolstering banks. And there’s nothing clever about the Harry Houdini-style escapology that the finance industry is attempting as governments try to rein in the profligacy of recent years.
The Great American Bubble Machine
In Rolling Stone Issue 1082-83, Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs. The piece has generated controversy, with Goldman Sachs firing back that Taibbi's piece is "an hysterical compilation of conspiracy theories" and a spokesman adding, "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good." Taibbi shot back: "Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it." Here, now, are excerpts from Matt Taibbi's piece and video of Taibbi exploring the key issues.
From Matt Taibbi's "The Great American Bubble Machine" in Rolling Stone Issue 1082-83.
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.
Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.
They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.
The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.
It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.
Goldman's role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.
And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
The history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates. By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman.
But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.
Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliché that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline the committee to save the world. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.
After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.
It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.
Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank-holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.
Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.
The collective message of all of this — the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."
Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.
Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.
From Matt Taibbi's "The Great American Bubble Machine" in Rolling Stone Issue 1082-83.
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.
Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.
They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.
The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.
It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.
Goldman's role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.
And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
The history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates. By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman.
But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.
Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliché that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline the committee to save the world. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.
After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.
It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.
Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank-holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.
Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.
The collective message of all of this — the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."
Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.
Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.
Subscribe to:
Posts (Atom)
-
By Chris Nuttall in San Francisco Published: January 21 2009 23:24 | Last updated: January 22 2009 01:26 A consumer love affair with Apple ...
-
Downturn Severe Despite Some Stabilizing SLIDESHOW Previous Next Eddie McNeely, 40, looks over paperwork in a prepara...
-
In Rolling Stone Issue 1082-83, Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs. The piece has...
