Posted by: Doug Henwood | February 24, 2009

Radio commentary, Febuary 21, 2009

[WBAI is still fundraising, so this ran on KPFA only.]

Earlier this week, we learned that builders started construction on just 466,000 housing units in January (at a seasonally adjusted annual rate), and just 347,000 single-family houses. These are both down by more than 50% over the year, and at record lows by a considerable margin. And the earlier records—earlier than the recent collapse, that is—we set in the mid-1970s and early 1980s, when the U.S. population was 25–30% lower than it is now. The single-family figure is down by more than 80% from its 2006 peak (which, by the way, was an all-time peak). This is by far the worst decline in the U.S. housing market since the 1930s (and, as some clever bibliometrician pointed out recently the phrase “the worst since the Great Depression” has proliferated like crazy in the media over the last four or five months). We don’t have good enough stats from the 1930s to do meaningful comparisons, but my guess is that we’re not at that dismal level yet, though who knows what coming months will bring?

The only bright spot in the report was that permits to build new housing, single and multi-unit, were down somewhat less than actual starts were, which is what usually happens as the market approaches a bottom. But they’re still at horrendously low rates. I doubt the housing market will take off anytime soon, but historically, the U.S. business cycle has been led by housing, in both recessions and recoveries. So my guess is that we can only start hoping for an end to this miserable recession—and I’m very sick of it and can’t wait for it to end, I don’t know about you—when housing starts to turn.

Another straw to grasp at: the Economic Cycle Research Institute’s weekly leading index, which forecasts changes in the economy’s direction three to six months out, is now falling at only a 16% annual rate, compared with 20% just two months ago! The best interpretation of this that I can come up with is that while things are still deteriorating, they’re no longer deteriorating at an accelerating rate. 

And then there’s the stimulus package, which should start kicking in pretty soon. For what it’s worth, the Congressional Budget Office estimates that without the stimpak, we’d lose 3.8 million jobs this year. With it, they estimate that we’ll lose somewhere between 1.5 and 3.0 million instead. Averaging their low and high estimates, which is probably the safe thing to do, we can estimate that it will save about 1.6 million jobs. The CBO also projects that things would have picked up in 2010 without the help of the stimulus (though we wouldn’t recover all the jobs lost until something like 2011). But with the stimpak we’ll gain almost a million more jobs next year than we would without it. Translating all those numbers into a simple sentence of English prose, you could say that while the job market is likely to stink through 2011, it will stink appreciably less because of th estimulus package. Let’s hope they’re right. 

And as I’m writing this, I just learned that GM’s market capitalization—the value of all its stock outstanding—just dipped below $1 billion. (Latest: here.) GM, once the mightiest corporation in the world, whose fate was held to be consubstantial with the USA’s, is now worth about 1/60th as much as McDonalds, and not quite twice as much as the makers of Celestial Seasonings teas.

And finally, what about all these scandals? As if Bernie Madoff wasn’t enough, now there’s Allen Stanford—or Sir Allen, if you prefer, though the knighthood comes from Antigua and not from the queen, god save her. Stanford’s a veteran of the shady side. A few years ago, he claimed to be descended from Leland Stanford, the robber baron who founded the eponymous university. Stanford, the university, sued Stanford, the money manager, claiming trademark infringement.

His latest bout with the law, though, is a lot more serious—it’s looking like another multibillion dollar Ponzi scheme. (Oh, and it also looks like he facilitated capital flight out of Venezuela, though that’s not a crime in the eyes of the U.S. authorities.) This time it was allegedly high-paying certificates of deposit—an investment vehicle that’s not supposed to pay high returns, of course. 

Before I launch into a rant about corruption and lax regulation, I want to ask a simple question: what are people thinking when they invest in something that’s too good to be true? CDs just don’t pay 15% returns. Hedge funds, like Bernie Madoff was supposed to be running, just don’t pay rock steady returns year after year. Sometimes it seems like people invest more energy in scrutinizing a dinner menu than they do in deciding where to park their money.

Ok, enough caveat emptor for now. Now I normally don’t get too worked up about corruption. I don’t like moralizing, and I prefer my critiques to be systemic rather than individualistic. It’s no accident, as the vulgar Marxists used to say, that among the biggest denouncers of corruption are hack apologists like Larry Kudlow; they love the Pig System, and think that high-profile malefactors should be punished for giving it a bad name. That’s not my style.

But…all this appears to be deeper than the word corruption alone suggest. It seems like the whole society has gone rotten. To some degree this is just the latest chapter in a long history of this sort of thing; this country was industrialized in the 19th century on watered stock and fraudulent bonds. Securities fraud is as American as apple pie and gun violence. And yes, this sort of thing is always exposed after a long bull market. During the speculative frenzy, critical faculties atrophy and fraudsters enjoy a target-rich environment. When the bust comes, all is revealed. Or, as Warren Buffett says, when the tide goes out, we learn who was swimming without trunks. 

Ok, yes, all true. But there’s also some way in which three decades of neoliberalism, which have brought with them an intensified worship of money, have damaged people to the core. Margaret Thatcher said early in her reign that she didn’t aim just to change economic policy—she aimed to change our souls. And she did.

Apparently the SEC has known that something was fishy with Stanford for years. The same with Madoff before him. Yet they did nothing. Was this corruption? Bribery? Self-censorship? Complacency? Probably all of them. But this is a society badly in need of a renovation. In bad moments, I fear we’re too far gone.



  1. Then there’s the drug cartel money laundering suspicion with Stanford too. (And Madoff?)

    What banks did all the money go into? it would have to be large ones, that’s for sure.

    Start speculating on this and you get to Conspiracy Land real quick.

    The hard left seems strangely asleep on all of this. I mean, what better organizing opportunity could there be?

  2. >>Apparently the SEC has known that something was fishy with Stanford for years. The same with Madoff before him. Yet they did nothing. Was this corruption? Bribery? Self-censorship? Complacency? Probably all of them. But this is a society badly in need of a renovation. In bad moments, I fear we’re too far gone.<<

    I wonder what you think during the good moments. It always looks like there is something fishy going on at Berkshire Hathaway or GE Capital too (such as reinsurance schemes so companies can cheap out on pensions while evading taxes and carry loads of bad debt).

    But so long as an entity makes money and pays off the equity holding interests, no one is going to open up the black box.

  3. Agree with your comments, including those on the ECRI leading index. I hadn’t realized the growth rate had bounced up that much, but as you say still quite weak. Hope it doesn’t test its lows again like the stock market.

  4. […] Doug Henwood Apparently the SEC has known that something was fishy with Stanford for years. The same with Madoff before him. Yet they did nothing. Was this corruption? Bribery? Self-censorship? Complacency? Probably all of them. But this is a society badly in need of a renovation. In bad moments, I fear we’re too far gone. […]

  5. Friggin’ awesome piece, Mr. Henwood!

  6. What’s really interesting, is that, as far as I can tell, the extraordinary, unprecedented rates of contraction in the economies of the G-8(?) aren’t really discussed in the way they should be. It’s usually only a columnist here or commentator there who mention it in passing in discussing the banks or housing markets.
    Maybe it’s an effort to avoid panicking people or something like that.
    About the gun violence and apple pie, I’m not in favor of regulation by the State.

    Ed Beaugard

  7. “To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man, who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in–-or more precisely not in–the country’s businesses and banks. This inventory–it should perhaps be called the bezzle–amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.


    “Just as the boom accelerated the rate of growth, so the crash enormously advanced the rate of discovery. Within a few days, something close to universal trust turned into something akin to universal suspicion.”

    — John Kenneth Galbraith, _The Great Crash 1929_

  8. I wish I could convey that much direct, eloquent and desperately correct anger. Thank you.

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