And if we look at the details of the jobs report, it turns out that 17.9 percent of Americans are either unemployed or underemployed or flat out have stopped looking for work:

Source:  BLS

This wasn’t the only spin going on in the media.  Before the jobs report came out there was a preemptive flow of information trying to justify the job cuts by blaming it on the weather.  Yes, now instead of blaming the financial catastrophe on the actual perpetrators in Wall Street who systematically looted the American system and turned our economy into a giant casino that they leeched onto, we are now to believe people are losing their jobs because of the weather:

“(CNSnews) Ahead of Friday’s announcement, Goldman Sachs predicted that the storm might skew the job loss number by as much as 100,000 – a prediction that was embraced by officials in the Obama administration.

“The blizzards that affected much of the country during the last month are likely to distort the statistics,” Larry Summers, director of the White House’s National Economic Council, said in an interview with CNBC. “So it’s going to be very important … to look past whatever the next figures are to gauge the underlying trends.”

If the storm caused a skewing of job loss numbers I wonder how many job losses can be linked to Goldman Sachs and their casino style gambling in the derivatives markets and mortgage backed securities?  Then again, people should be happy that the unemployment rate remained steady at 9.7 percent even though more Americans are working part-time with no benefits and many others have simply fallen off the payrolls.  This is supposedly the new American dream for the middle class through the eyes of Wall Street who are selling capitalism but living in a world of corporate handout socialism.

There is a new show called Undercover Boss where a CEO goes undercover to work in the trenches with the proletariat.  As it turns out, the middle class is being worked to death and as we all know, the CEO can’t even do the job most workers do on a daily basis.  Even Henry Ford understood the interworking of the cars he was putting out.  In the end the CEO reveals his identity and gives a nice little handout to the worker and all is well in TV land.  The check is a token of what CEOs actually make.  This is the ultimate reflection of our trickle down economy where those at the top act like sociopaths and rulers of the universe but when it comes to doing the daily tasks of their company, they have no clue.  This is the de facto rule running on Wall Street.  In fact, CEO pay has grown outrageously over the past few decades as the middle class has gotten poorer:

Source:  American Progress

In reality, part-time employment has spread even to poor CEOs making 300 to 400 times the average American worker salary.  Poor CEOs and Wall Street executives need time off to enjoy their tax payer funded yachts and all expense hedonism trips to the Caribbean.  They would like to convince each other that the money they have is all through their will power and market prowess but in reality it is nothing more than being part of a corporatocracy and buying out the government with an army of lobbyist and insiders.  You have to be a self indulgent narcissist to take the economy to the brink of financial destruction in the case of many Wall Street firms and still reward yourself with outrageous bailouts.  The fact that average Americans are still not protesting in mass about this tells me that many actually believe what Wall Street is saying.  You see this when many would rather blame the working class for the ills of today than focus their energy where it really needs to go.

Wall Street loves this economic crisis.  They receive trillions in bailouts yet convince the public that what is occurring today is merely the “market” correcting itself.  So as most Americans have more and more troubles keeping up with their daily bills, companies are squeezing every little excess from those currently working.  Those that have jobs out of fear will work harder and probably demand less merit increases in the current economy.  After all, the head guy is only making 300 times what you make even though he can’t even understand the main function of the organization.  So what if the low level guy is selling toxic crap to some homeless person with no income and giving him access to a $500,000 loan.  These Wall Street tycoons are big picture thinkers and can’t be worried with the day to day operations of the proletariat unless it means turning it into a caricature for mass viewing and quick TIVO access.

You don’t think productivity actually increased?  Take a look at this:

Source:  BLS

This recession has been fantastic for productivity.  Just look at the above chart.  American workers have been doing their part during this recession.  After all, now you can hire a cadre of “contract” workers and not have to pay them one cent in healthcare support or even contribute to their pension.  Once the job is done you can kick them to the curb.  After all, this is capitalism so long as those at the top have managed to setup sweetheart deals and golden parachutes.  This is how the top 1 percent makes sure their hold on 40 percent of the nation’s wealth isn’t damaged.  And if you think financial institutions deserve this bailout money and their outrageous bonuses then companies like Circuit City or Mervyns would still be around today if that model applied across the board.  But this doesn’t apply to the general economy.  This applies to Wall Street and somehow the absurdity of it all still goes on.  The worst financial crisis since the Great Depression and not one solid reform has been enacted.  26 months of job losses and nothing.  Who is running the show?

The rise of the part-time work force is nothing new as we become more and more like Japan.  Japan bailed out their financial institutions after their failed stock market and real estate bubbles popped and today, their working class is made up of one-third part-time workers:

“(LA Times) In the world’s second-largest economy, the global financial crisis has forced part-time workers such as Kudo to face a harsh new reality.

Over the last few years, temporary employees have gone from being a rarity in Japan to accounting for one-third of the workforce of 67 million. They enjoy far fewer protections than full-time workers — placing their necks squarely on the layoff chopping block.

By March, the government predicts, 85,000 part-timers will fall prey to haken-giri, or temporary-worker cutbacks — a relatively small number compared with U.S. layoffs but high for a nation where job security has long been a staple.

On Wednesday, embattled Prime Minister Taro Aso made the plight of part-timers a major piece of a proposed stimulus package. Aso pledged to create 1.6 million jobs, partly by turning part-time jobs into full-time ones.”

Japan’s headline unemployment rate is 4.9 percent.  Just like our headline unemployment rate, the devil is really in the details.  If we continue on this path part-time work may be all that is left.

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One of the troubling findings in the report is the lax lending found in residential real estate was mirrored in the commercial real estate market:

In fact, the amount of interest only or partial-interest only loans was even bigger in CRE than in the residential market which in itself is a rather stunning accomplishment.  In 2007 at the height of the CRE bubble, nearly 90 percent of all loans were interest only or partial-interest only loans.  This number is astounding.  But what is even more disturbing is the recent ramping up of interest only loans.  In other words, banks are rolling over loans with the absolute minimum payment possible to keep borrowers above water.  Why does the bank want millions of square feet in empty office space?  They don’t so the shift here probably has something to do with that.  The commercial real estate market is in a giant form of financial purgatory.

The lax lending standards that came into the CRE market also show that during the boom due diligence was an afterthought on most loans.  Keep in mind many of these deals were multi-million dollar deals and in some cases, billions of dollars were at hand.  This wasn’t a $90,000 subprime loan, which is bad in itself with weak underwriting, but here you had millions being thrown around as if somehow banks forgot the actual value of a dollar.  The standards in CRE deteriorated rather quickly:

As more and more money bounced around the system lending standards became more and more generous.  Of course this led to the massive expansion in CRE space even when demand did not warrant it but has now led us to this current precipice where the market is flooded with too much inventory.  As is the case in most bubbles prices have corrected heavily in the CRE market:

CRE values across the board are down by 40 percent from their peak values, a steeper decline than even the residential housing market.  Yet banks holding onto these loans have been spared the stock market drubbing many banks took in 2008 and early 2009.  The loans are equally as bad so why then is the market responding so favorably to what seems to be disastrous data?  In March of 2009 it seemed the entire financial system was going to implode and finding a bid on any asset at one point seemed to be an act of futility.  Now this might have been extreme given how quickly we were approaching zero.  But today, the opposite is the case.  Many are overvaluing the actual damage that is going to hit the system in the next few years courtesy of the CRE market.  This is an enormous market where most of the loans are held by already weak banks:

The large amount of this debt is held in commercial banks.  These are the same commercial banks that are backed by the insolvent FDIC fund.  The FDIC now lists over 700 banks as “troubled” but it is very likely that when this crisis is over (which can be years away) we will have at least 1,000 bank failures.  Most of these banks now have CRE loans that are not being serviced or are being serviced at lower levels that don’t even cover principal and interest.  To paraphrase, if you owe the bank $1 on credit card debt that is your problem, but if you owe the bank $10 million in CRE debt it is the bank’s problem.  Many banks are in a position where they are now realizing that the borrower is calling the bluff of the bank.  You want your CRE back?  Go ahead and take it!  So banks would rather let the borrower hold onto the CRE even if it is bleeding on a monthly basis instead of forcing actual write-downs on their books.

And what is troubling is that many so-called conservative investment funds ate up this toxic waste:

So you might be thinking, “I don’t own any CRE so why should I care?”  You might not own any of this CRE debt but your pension might.  Now when things get this systemic, it is bound to roil the system just like subprime was the fuse that lit off the economic crisis.  Today, no one thinks that subprime was the cause of this entire crisis but was merely the most obvious first domino to fall.  CRE is equally as toxic but it seems that the market has chosen to ignore the problems inherent in the system.  Eventually the system will have to realize what is going on either through a market correction or by funneling more bailout funds to inefficient components of the economy.

The market is probably mispricing the actual problems in the system because it assumes that the bailouts of the banking industry will protect the problems with this mess.  Yet someone will be paying for this.  Wall Street is simply assuming it will be the middle class yet again.  Take a look at the concentration of CRE debt with the too big to fail:

At the core of this problem was the shifting of debt to the global markets by securitization.  To repeat an often misused quote, real estate is local.  So how can an investor in Norway really have a good sense of CRE in Houston Texas?  They don’t and clearly this is the same inefficient spreading of risk (and gambling) that led us into this crisis:

For 40 years securitizing debt was only a Wall Street trader pipe dream.  Suddenly in 2000, this was the way to make mounds of money on what used to be boring real estate debt.  CRE was only another asset class that was once relatively stable and suddenly became another slot machine in the Wall Street casino.  It is no mistake that over the past decade the middle class in America have lost ground seeing wages stagnant while a smaller portion of our economy goes to those in the government sanctioned casino knows as Wall Street.

Expect bigger problems to hit in the CRE market.  From the report:

“(COP) Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present “underwater” – that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties.”

In other words, get ready for more bailouts or dollar devaluation.

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I think most Americans have noticed new methods of austerity all around them.  For example, I’m sure many of you have seen the Wal-Mart ad that talks about taking lunch to work.  They even break down the numbers to show you how much your budget will save by doing this.  Contrast that ad with this one below talking about taking a home equity loan while having a couple in a speed boat cruising in the background:

Source:  YouTube uploaded on June, 2007

When you contrast the two messages, one of easy money and endless excess and the new ads talking about brown bagging your lunch to work, we realize that average Americans are finding it much harder to saddle on more debt.  Some might try to recall the last decade as a wonderful time but the economic data shows otherwise.  Much of the spending and consumerism was built around easy access to debt.  People weren’t buying new automobiles with cash, they were financing it with 5 or even 7 year loans.  Want a new surround sound system but are low on cash?  No problem, just take on an extra credit card and charge it up.  Now, the ads highlight a very different economic climate.

I stopped by a local dollar store to pick up some items for the house and noticed that first, the parking lot was full.  A few years ago the parking lot was two-thirds empty.  This trend has been going on for about two years since the recession hit.  After entering the store I noticed that people for the most part were buying groceries.  Now this area is one that I wouldn’t consider poor but more along the lines of middle class.  Yet this is the new reality for the middle class.  There is no sharper contrast than seeing a women load her leased Mercedes full of dollar store groceries.  Austerity doesn’t happen overnight.

On Monday we received news that some of the most egregious practices from credit card companies will need to change now that legislation is in effect.  Yet credit card companies have already adapted by hiking up rates, charging annual fees on good customers, and other methods of front loading earning before the law came into effect.  So Americans who have relied so heavily on credit cards will now have to be extremely cautious when using these items of consumption.  Even the tried rule of paying off your balance every month may not save you from the annual fee that some companies are now imposing.

Casinos Lose Money for Second Time in History

In another clear example of changing habits of the American middle class, Casinos in Nevada lost money last year for only the second time in history:

“(Las Vegas Sun) CARSON CITY – For only the second time, Nevada casinos posted a loss – but this time it was the biggest.

The state Gaming Control Board today released its “Gaming Abstract” for fiscal year 2009, which ended June 30, showing a net loss of $6.7 billion among the 260 major casinos in Nevada.

Clubs along the Las Vegas Strip, which makes up 53 percent of the gambling revenue in Nevada, registered a $4.1 billion loss. The only bright spot, from a financial standpoint, was that people drank more. Sales of booze rose by 2.5 percent while revenue tied to casinos, rooms and food dropped. But 36 percent were recorded as “comp” drinks.

“It was a horrendous year,” said Bill Bible, president of the Nevada Resort Association, which represents several casinos on the Strip. He said many of the casinos had three and four waves of layoffs to cut cost during this national recession.”

I find it really telling that the only “bright spot” was that people drank more booze.  Self medication for the realities of the new economy.  Gambling whether it is in Las Vegas or through lottery tickets is a form of escapism.  I think many people in places like Las Vegas go to strike it big.  The irony of how the city has morphed is a large part of their revenues now come from other sources outside of gaming.  These include boutique stores and high end restaurants.  I was in Vegas only a few months ago and strolled down some of the shops and the higher end stores were very empty.  A few years back, these places were bustling with people.  It is a microcosm of the new austerity in our country.  Contrast the $100 t-shirts versus the Wal-Mart ad highlighting the benefits of taking your lunch to work at the cost of a few dollars per day.  Things are shifting out of a practical necessity.

And this isn’t simply a function of discretionary spending like trips and gambling.  Even in more practical aspects of daily life this is changing and evolving.

Fast-food Breakfast Slumps with Fewer Workers

You know things are tough when even low cost fast food is taking a hit:

“(WaPo) The nation’s high unemployment rate has thrown millions of people out of work, scared shoppers away from stores and threatened the economic recovery. Now it’s taking a bite out of breakfast.

Breakfast sales had grown at a ravenous pace during the boom years as busy workers scarfed down sausage biscuits on the way to the office, fueling a $57 billion business and accounting for as much as a quarter of sales at some fast-food chains. Chains opened earlier and expanded their morning menus to accommodate the traffic as lunch and dinner sales flatlined.

But as the jobless rate hit 26-year highs fewer people headed to work, and even those who did worried about their spending. So they poured bowls of cereal at home or simply slept in, putting breakfast on the back burner.

“Typically, if you’re unemployed, you’re not getting up at six and not going through the drive-thru,” said Jeffrey Bernstein, an analyst at Barclays Capital. “There is a direct correlation between unemployment and breakfast sales.”

It is hard to even comprehend that breakfast sales accounted for $57 billion in revenue.  However, with more people out of work many are skipping breakfast or eating at home.  On my early morning drives I will always see cars pulling up to McDonalds or Starbucks for that early morning purchase.  The lines seemed a lot shorter and looking at the data it is part of the new frugality that Americans are having to deal with:

Source:  Washington Post

And this recession is shaping how people view their future and what they expect out of it:

“(New York Times) See that,” she said, spotting a man dressed as the Statue of Liberty. Standing on a sidewalk, he waved at passing cars with a sign advertising a tax preparation business. “That will be me next week. Do you think this guy ever thought he’d be doing this?”

And yet, she would gladly do this. She would do nearly anything.

“There are no bad jobs now,” she says. “Any job is a good job.”

That person dressed up as the Statue of Liberty is a very common vision especially with tax season here.  2010 is a very different world from 2007.  I wonder what lady liberty would think about how we are spending our tax dollars in bailing out banks while average Americans are forced to tighten their belts?

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The first important thing to understand is that yes, the income of middle class families has gone up since the 1950s but a large part of this was the rise of the two income households with women entering the workforce:

The above chart is disturbing in many ways because it bucks the nearly 50 year long-term trend of employment.  Now, even with two income households many with rising job losses are finding they now have to make it with one income while inflation has eroded their buying power over the decades.  In this recession 3 out of 4 job losses have been men.  If you have any doubt regarding the insidious nature of inflation I put together a chart looking at various costs over the last few decades:

Part of this is due to the Federal Reserve and U.S. Treasury trashing the U.S. dollar over the decades.  For example, in 1950 it took the median household income (which was largely a one income household) about 2 times the annual household income to purchase the median priced home.  In 2008, it took the median household income (now largely a two income household) four times annual earnings to purchase the median priced home.  In fact, the two income household has hidden a large part of how much the middle class has fallen behind in this country.  Now with this recession, the deep cracks are now being exposed in the system.

Income inequality has also risen in this country and a large part of it is due to the financial sector.  1 percent of our population control 42 percent of all financial wealth.  In fact, in the last decade the only segment of our population that has seen any sizeable gains in true wealth is the top 1 percent.  Every other category has seen a loss of housing net worth, wage stagnation, and higher costs for daily items that consume a larger part of their budget.  Just take a look at the chart below showing this change:

Source:  CNN

The above is looking at a one income household in 1973 versus the two income household in the 2000s.  It is interesting to note that in the 1970s Nixon took the dollar into a purely fiat system and since that time, the dollar has lost much of its actual value.  This would be expected.  The Federal Reserve with its banking lieutenants has been able to put our country so deep into debt that realistically we are in a position of never paying back all our outstanding obligations.  The only way out is via inflation and with a fiat system that is the path we are heading down.  This is important because when you look at the charts above prices rise for various reasons and inflation is a hidden tax.  No need for higher taxes to bailout the banking sector when you can just destroy the purchasing power of middle class Americans by monetizing enormous amounts of debt as we have done.

That is why in the next decade, Americans are now working for someone else beyond their immediate household.  A large chunk of their money is now going to the banking sector.  This can be in absurd payments to credit card companies, loss of purchasing power because of the Fed, or other hidden methods of taxing the public.  We are really at a crossroads for the middle class.  If we dissect the data further we realize that even though things cost more, much of it has been financed through debt:

Ironically the family in the early 1970s had more discretionary income than the family in the early 2000s even with a dual income.  Yet if you look around, it isn’t immediately apparent because of the massive debt bubble financed by the banking sector.  Sure people bought bigger homes and newer cars but all this was under a phony veneer of success and was financed with debt.  All of it was built around a mountain of debt.  Yet here is where the big divide hits.  Middle class families are now losing their homes through foreclosure.  Many are having their cars repossessed because they can’t make their payments.  Bankruptcy filings are soaring because people cannot service their debt.  So middle class Americans are paying the price with the rules that are setup.  Yet banks are not.  They are sucking the American taxpayer for all their horrible bets and are not dealing with the ramifications of their actions.  In other words, the bill is going to the middle class as the middle class is dealing with their own bad decisions.  This is part of the system built around the corporatacracy model of government.  Losses are socialized while gains are privatized.

And don’t kid yourself, this entire game was financed on debt:

And the small group of banks at the top now control a large portion of all FDIC backed assets in our country:

Source:  FDIC, Bank Financial Statements

Forget about the Republican or Democrat parties, we are being governed by the financial sector of this economy.  It is amazing how hard it is to get sensible legislation even after this great calamity.  To prove this point, in California an insurance company announced they are hiking healthcare premiums by 30 percent in the midst of this recession even though they pulled in billions in profits.  The government will sit back and let the middle class get fleeced because they are part of the problem.  They speak a good game but are bought by the industry.  Prove us wrong if this isn’t the case.  Enough talk, time for action.  From now on we need to focus on who is delivering results.  If you can, take you money out of the big banks and put them in local regional banks.  Let your local representatives know that their number one priority should be focusing on protecting our struggling middle class.  Time to get some real reform or we really risk losing our middle class.

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The banking industry and Wall Street is corroding the actual engine of our economy.  GDP is growing but when you pull back the data, much of the profit comes from the banking sector and debt payments.  Take for example the recent jobs report.  A revision was made to the January jobs report last week that added over 1,200,000 more Americans who have lost their job in the last year.  And this was somehow good news!  The unemployment rate which comes from a separate survey dropped to 9.7 percent because a large number of people dropped off the employment radar.  This is what goes for good news.  Also, we have the troubling amount of commercial real estate loans with a value of $3.5 trillion now defaulting at record levels.  Much of these loans are with too big to fail banks.  To be blunt, it is now our problem.  Let us go through the big risk transfers in this recession starting with jobs.

Risk One – Jobs

The above chart is one of the more important charts in measuring the actual unemployment problem.  Average Americans are struggling to find work and those that do have jobs are finding it harder to maintain their wages.  The unemployment rate is highly inaccurate in the short-term because of how it computes its rate.  Think of last month were the unemployment rate dropped from 10 percent to 9.7 percent yet a revision on another survey showed an additional loss of 1.2 million jobs over the past year.  This is straight out of 1984 economics.  And the problem with this risk transfer is that we’ve been discounting headline job losses for over a year:

Instead of having one month with 700,000+ job cuts, the new revised data tells us we had 4 months at this rate!  Even with the December data, instead of 85,000 jobs being lost we lost 150,000 jobs.  Take a look at the above chart and you’ll see how much we were underrating the actual employment situation of Americans.  This went on for over a year and here you have Wall Street betting stocks up on data that wasn’t even accurate.  Who needs jobs when you have the taxpayer funding your casino that doesn’t even rely on accurate data?  All you need to do is issue a revision a year later and say, “sorry, we just happened to find 1.2 million more actual jobs that were lost during this recession.”

Risk Two – Banking

The banking sector by far has pushed the biggest risk onto the taxpayer.  Wall Street and their new corporatacracy have created a system where gains are privatized and losses are socialized.  It is the worst system possible for the American public.  Have you noticed that since the massive bailouts, almost no kind of bad news phases the market?  We have headlines that show commercial real estate showing losses of trillions in value and the stock market keeps going up.  Foreclosures are occurring in the millions and people are losing their homes (foreclosures do cost banks money) but somehow banks keep turning profits.  From where?  They certainly aren’t lending the money to consumers:

And banks are certainly not making mortgages with their own money.  So where is the profit coming from?  Simple.  Any risk or loss has now been pushed to the taxpayer.  Why do you think banks are fine with people not paying their mortgage for months?  Because they can still claim the asset at a peak value thanks to the suspension of mark to market and then make the bulk of their profits betting on the absurd stock market rally from March of 2009 that has shown no connection to reality based fundamentals.  Here is the breakdown of the bailouts:

You would think that over $14 trillion in bailouts would create at least one net job but it hasn’t because much of the money has gone to transferring the wealth to Wall Street and the corporatacracy and shifting the risk to average Americans.  Is that the deal we were looking for?

Risk Three – Housing

Yet at the core of this crisis, is the real estate market.  Banks are now simply lending mortgages backed by the government serving as middlemen in the transaction:

The above chart should tell you everything you need to know about the current housing market.  Banks have no faith in the average American.  They are more than happy to lend out mortgages that are backed by the government (aka the taxpayers) and would rather hold onto their precious reserves to deal with the real problems in the market or make additional bets on Wall Street.  That wasn’t really the initial deal since they pleaded for funds to keep lending going but have now decided it is more profitable to gamble against the American public with their own money.  Take for example Goldman Sachs that created and bet against the same mortgage backed securities that it was pushing to clients.  When things went kaboom, it simply decided to get the American government to bail it out.  In other words, the market was trying to flush them out of the system because of their horrible structure yet their corporatacracy connections allowed them to survive and now thrive with the taxpayer as their funder.

Take a careful look at the chart above.  Since 1988 we have never seen this much government backed loans in the housing market.  Banks are not lending from their own money because they know what is going on:

Banks have held on tight to their excess (bailout) reserves.  Even with a 0.25 interest rate they have more incentive to hold onto this money then lend it out to the public.  The Federal Reserve can easily increase lending from member banks.  All it would need to do is drop the interest rate or even better, charge banks a fee (heck, banks charge a fee for everything to average Americans) and banks would start lending some of that money.  Yet referring back to risk #1 above, Americans are dealing with an economy with very few jobs and low hiring.  So who are they going to lend to?

It should be abundantly clear that risk has been shifted to the average American with no upside or even change on how we do business.  We are way beyond incremental change at this point.  So what can we do?  Break up the too big to fail banks.  Enough with the government backing every mortgage being pumped out.  How about we get better measures of employment?  These would be a few things that would mitigate the risk now placed on the shoulders of an already struggling middle class America.

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But even when we look at the balance sheet of the government, things are still not improving:

Source:  U.S. Treasury

Take a look at the amount of revenue (taxes) the government brought in for the month of December.  $218 billion was taken in.  But look at data from December of 2008.  The government at the peak of the crisis brought in $237 billion.  So this December was even worse than the one ending 2008.  How is this a sign of recovery?  You would assume that receipts would be going up if things were in fact getting better.  All we see is the spending side of the equation going up and the only sector in the economy turning a solid profit is the banking sector that is now running a new form of corporatocracy.  It would be one thing if we were adding jobs each and every month but even the massive amounts of bailouts have yet to yield any visible help for average Americans.

In the past few decades Americans have seen more and more of their income being eaten up by the housing sector of the economy:

This latest decade saw a much larger share of income going to housing than any in the past.  Unlike stocks, every American needs to live somewhere and will need to either pay a mortgage if they own or pay rent.  The banking sector found a method of siphoning off wealth from the biggest asset Americans hold.  We have seen this occur slowly over the decades:

1950

Median household income:        $3,319

Median home price:                       $7,354

Home price / income = Percent of 221

1960

Median household income:        $5,620

Median home price:                       $11,900

Home price / income = 211 percent

Running those numbers today, we find that nationwide the cost of a home eats up more and more income:

Median Household income:       $52,029

Median U.S. home price:             $172,600

Home price / income = 331 percent

The above data is pulled from years of Census data but shows clearly that housing has eaten more and more into the income of average Americans.  In a purely fiat money system, banks can create money out of thin air.  The Federal Reserve has done this through the monetization of debt.  Now think about this, if a participating member bank borrows say $1 million from the Fed it can then turn around and lend the money out through loans up to $9 million courtesy of fractional reserve banking.  With current interest rates, if it borrows from the Fed at near zero even a 5 percent return on bread and butter mortgages would yield $450,000 a year for doing absolutely nothing but being a middleman.  And some banks have gone ahead and issued credit cards with 79.9 percent rates.  When Bear Stearns and Lehman Brothers failed their leverage was even higher at 20 and even 30 to 1.  The other investment banks are near those levels even today yet with full government support.

So why bring this up?  In the United States debt is treated as money.  In fact, without debt we wouldn’t have money.  I think this is lost on many.  When someone goes to a bank and takes out a mortgage with virtually no money down, all of a sudden a liability and asset of a few hundred thousand is created out of financial alchemy.  So when this housing bubble burst trillions of dollars evaporated from the system but it was nothing more than erasing previous debt that really had no actual backing.

So if the Fed can create money out of thin air through their banking web why is the economy still faltering?  In boom and bust cycles we see a love and revulsion towards debt.  Banks can be willing to lend out money but you can’t force average Americans to borrow.  This past decade we saw the absolute disregard for prudent debt lending and now, many Americans are averse to taking out loans.  In fact, now that banks are actually checking and verifying incomes it turns out that many middle class Americans really don’t qualify for additional debt.

This brings us to our next chart looking at household debt:

Even after the stock market recovery, it is estimated that average Americans have seen their household net worth decline by $11 trillion since the peak of this bubble.  Yet take a look at the chart above.  Household debt still remains near the peak.  And keep in mind that real estate was the biggest item of net worth for Americans and this has fallen by roughly $6 trillion.  Yet the loans remain the same.  And that is largely a reason for the flood of foreclosures and bankruptcies.  While banks still have mortgages valued at peak levels the actual market value is much less.  The U.S. Treasury and Federal Reserve made a troubling bet during the early days of the crisis that things would correct quickly.  Actually, I tend to believe that the Fed knew all along that when push came to shove, the entire banking sector would be bailed out by the U.S. taxpayer since the Fed is simply the lender of first and last resort for member banks.

So this leaves Americans contenting with debt amounts that no longer reflect the value of their underlying asset.  Yet the banking sector is now fully supported by the taxpayer.  So with the current system in place, if banks do fail taxpayers are on the hook.  The Fed has setup the perfect trap for middle class Americans.  If average Americans decide to walk away from their underwater mortgages then the bill will be paid by taxpayers.  After all, we are already told that the too big to fail by definition won’t fail.  And the other option is to continue paying a mortgage on a home that is no longer worth its value.  Many Americans simply cannot afford to do this.  Do you notice how in no scenario the banks lose?  This is another characteristic of the corporatocracy.  And the FDIC which insures bank deposits is essentially insolvent:

And the FDIC backs $13 trillion in total assets with a fund that is insolvent!  Now that is maximum leverage.

Over the past decade as the financial sector gained more and more power many Americans saw more and more money go to their housing payment.  The housing bubble was merely the end product of the banking sector through Wall Street flooding the system with debt.  If we live in a world where only one house is on the block and you have $1,000 and I have $1,000 and we both want the house the maximum we can pay for the home is $1,000 given our resources.  But enter a bank that is willing to create debt of $10,000 in the form of a mortgage and say we are obsessed with the house; it is very likely we would be willing to pay $11,000 for the home.  Is the home really worth $10,000 more?  Of course not.  But our $1,000 just got a lot less valuable.  And this is the crux of a fiat money system.  The government can force it as legal tender but if the value continues to erode people will begin questioning the system.  It is only valuable to the point that people have faith in it.  And right now many Americans are losing faith in the system.

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If you are wondering why those on Wall Street have a hop to their step, it is because the stock market wealth is concentrated in the hands of very few:

The top 1 percent control 42 percent of financial wealth in the United States.  Now think about that fact.  Let us assume you have saved diligently for a few years into your 401k.  Before the crisis hit, you had amassed $100,000 (much higher than the median amount for Americans but we’ll just use this to highlight our point).  At the low, that $100,000 was probably down to $50,000 even being diversified.  With the major run up, the amount might now be back to $75,000 to $80,000.  Has the life of the average American really changed?  This money is actually retirement funds and this amount is not going to make a big difference in the way people live on a day to day basis.  Yet those in the top 1 percent with the current shift have seen billions go their way and this does make a big difference since many draw off capital gains on a yearly basis.

The 401k structure is problematic in many ways.  It is a method to lure in money from people to give them a taste of the Wall Street money machine.  Most of these funds are designed for retirement.  And with massive baby boomers retiring in the next few years, billions of dollars in funds will be sold into the market (which ironically will add pressure on prices because of demographic shifts).  This will push prices down right when people will start drawing from their nest egg.  The notion that you can garner 7 percent each year into infinity is a fallacy that has been exposed in this market crash.

We have been getting richer as a nation overall.  This is true.  But why is it so hard for average Americans to now get by with two incomes when one income seemed adequate 40 years ago?  The income gains have largely gone to the top 1 percent from 1979 to 2005:

Source:  Wikipedia

The above gains are inflation adjusted over three decades.  While income did increase across categories this distribution was not even.  It was largely shifted to the top of the pile.  Now it would be one thing if the top was being run by companies that actually provided jobs for a large part of America.  But it isn’t.  You have CEOs of Manhattan banks that are trading derivatives on toxic mortgages and betting up oil futures all so they can skim the system for money.  How has that added value to our country?  It hasn’t.  All it has done is transformed part of our economy into one subsidized taxpayer casino at the expense of the working middle class.

If you want to visualize this class division, it would roughly break down like this:

But even here, the top 1 percent isn’t even reflected.  Even working families with say a nurse and an engineer can bring in $100,000 to $150,000 a year.  But with things like the AMT even this tranche is feeling the burden.  The big transfer of wealth is going to the top 1 percent:

“(Wikipedia) As of 2005 there are approximately 146,000 (0.1%) households with incomes exceeding $1,500,000, while the top 0.01% or 11,000 households had incomes exceeding $5,500,000. The 400 highest tax payers in the nation had gross annual household incomes exceeding $87,000,000. Household incomes for this group have risen more dramatically than for any other. As a result the gap between those who make less than one and half million dollars annually (99.9% of households) and those who make more (0.1%) has been steadily increasing, prompting The New York Times to proclaim that the “Richest Are Leaving Even the Rich Far Behind.” Indeed the income disparities within the top 1.5% are quite drastic. While households in the top 1.5% of households had incomes exceeding $250,000, 443% above the national median, their incomes were still 2200% lower than those of the top .01% of households. One can therefore conclude that almost any household, even those with incomes of $250,000 annually are poor when compared to the top .1%, who in turn are poor compared to the top 0.000267%, the top 400 taxpaying households.”

So we see where the money is really going.  Even if we break down a family in California earning $100,000 you can see what was once considered rich is no longer the case:

And for those out in high cost states they will realize that a $350,000 home does not buy you much even after the tremendous crash in housing values.  The cost of healthcare is rising and college costs are going up so with one child, they will want to set aside some money if they want to see their child have a decent college education when they are ready to go.  And keep in mind that making $100,000 puts you in the top 17 percent of households in the U.S.:

So in reality, we should look at household that brings in $65,000 per year to get a more accurate feel of what the middle class is going through:

So after taxes, this family is taking home $4,240 a month.  With rising taxes, higher food costs, healthcare rising, and wages stagnant you can see how the middle class is falling behind on a daily basis.  We can further breakdown the class distribution as follows:

We do have class in our system and the biggest misnomer that has been perpetrated is that somehow, our goals are aligned with those of the banking Wall Street elite.  How much longer do people need to realize that both political parties seem to serve one master and it has an address on Wall Street?  The debates and battles seem to amount to this charade because once it comes time for policy, nothing gets done.  Even Elizabeth Warren who is fighting for basic consumer rights is finding it even hard to get through because of banking lobbyist:

“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street — and the mortgage won’t even carry a disclosure of that fact to the homeowner.”

The battle has gotten intense.  Credit card companies have been doing criminal activities by jacking fees up and setting up traps for consumers before simple regulations come into effect.  Banks have pulled back on lending to average Americans while profits from stock speculation have soared.  They don’t call it speculation but label it as hedge funds, proprietary trading, or some other Orwellian language that hides the true nature of the system.

With the underemployment rate at over 17 percent and bankruptcies, foreclosures, and other financial distress rising for average Americans one small chunk of our population is benefitting on the backs of bailout funding.  This has been characterized as it “taking a plunder” to rip off the village:

So what you do is take from the public:

Source:  It Takes a Pillage

And give to the people that created this crisis:

I completely agree with Elizabeth Warren who is adamantly arguing that we are at a cross-road in terms of defending the middle class of this country.  Instead, Wall Street enjoys the fact that Americans are split down the middle on issues and fighting over petty things while trillions keep rolling into their coffers.  Time to wake up and see what is really happening to our nation.

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It is amazing that we even have to debate the issue of employment.  Our economy cannot function and provide the middle class a thriving environment without jobs.  This should be obvious yet the Wall Street crowd is feeling comfortable even though the public is still dealing with double-digit unemployment (we’ve lost jobs for 24 straight months and would have to go back to the Great Depression to find a similar streak).  In fact, the largest state economy in our nation that of California with an economy of over $1.8 trillion managed to average out an underemployment rate of 21.1 percent for all of 2009:

Source:  BLS

This chart is downright troubling.  Who would have thought that Michigan and California would lead the way in 2009 with underemployment rates over 21 percent?  Michigan has had issues for many years and their economy pulls in a GDP of $380 billion.  But California being the biggest economic state in our country with a GDP of $1.8 trillion should make you pause before you think we are somehow in recovery mode.  And from the looks of it, California with their historical housing bubble looks to have years of financial trouble to work through.  These issues are large and we haven’t even begun examining their state budget issues that are projected to come in at $21 billion.

Having a job is the cornerstone of our economy and also our vibrant middle class.  This has been the case for multiple decades and actually has been part of our identity since the disastrous years of the Great Depression.  Having a job is a pact with our country and Wall Street has taken this for granted in the last thirty years.  Slowly we moved from an economy that valued work to a casino like economy that funneled money into Wall Street and whatever demand came after the spending of the corporatocracy was given as crumbs to the public.

This notion of “jobless recovery” is such an oxymoron.  How can we have a recovery while losing 8 million jobs?  Just because bank bonuses are back to record breaking levels does not mean a recovery is in place.  Statistically we can massage the numbers however we like.  And what else would you expect?  We pumped $14 trillion in bailouts, backstops, and gifts to bankers so of course something was bound to happen.  Even a mountain can move with enough force.  Yet where are the jobs?

We should examine job gains after previous recessions to see the erosion of our middle class base:

Source:  NBER

The above chart marks the month ending of all recessions since 1945 and how long it took to have a net positive month in job gains.  For the most part, jobs were added fairly quickly and in many cases the month right after the official end of the recession.  But starting in 2001 we start noticing this shift to the jobless recovery era.  Now why did this occur?  Well for previous recessions the business cycle was easy to follow and track.  The economy pulled back and so did employment.  But once the economy got back on track demand followed and so did employment.   But since the banking oligarchs have taken over our economy, a gain in the economic indicators does not mean additional employment.  Since we now are largely importers we can buy cheap goods but have dismantled our goods producing base.   Ask yourself this, where did banks make their profits in 2009?  It definitely wasn’t because employment boomed.  Demand has been mute.  So where did it come from?  The profits came from gambling on exotic financial instruments all over the world with taxpayer money.  In other words, the recent stock market rally is artificial and no longer represents the economic reality for most Americans.

Another key indicator to look at is long-term unemployment:

It is amazing that the largest group of unemployed Americans falls under the long-term unemployed category.  Over 6,130,000 Americans fall in this group.  These are people that have been out of work for at least 27 weeks and will most likely, need to find a job in a different industry.  We’ve discussed this in previous posts that the groups that took the biggest hits in this recession are manufacturing and construction.  The financial industry has contracted as well but nothing compared to what other sectors have.  The above chart should be indicative of where we are.  This recession may be over in terms of GDP increasing but remove the bailouts and the stimulus and you get a deep economic mess.  Plus, we have yet to add any net jobs.  Think about this, we’ve added some $14 trillion in bailouts and backstops and we have yet to add a net job in the economy.  Is this really the reflection of a healthy economy?

The middle class since the 1970s has seen their savings dwindle, their work week increase while their pay lags, and the cost of necessities like housing and healthcare zoom past any income gains.  Even with two income households many Americans are simply trying to make ends meet.  Even those who are doing well, those making enough to be hit with the Alternative Minimum Tax (AMT) are feeling the pinch as well.  Because in reality, the last decade has been a gift to the top 1 percent of the nation.  Think about how taxes play out.  Many of these people live off capital gains that are taxed at 15 percent while even a physician working 70 hours a week will need to pay the top federal tax bracket of someone actually working.  In other words, our system values people who put their money into the casino as opposed to working.

How else can we explain the cheerful smiles of Wall Street traders while the nationwide underemployment rate is up over 17 percent?  How else can we explain the giddiness of bankers counting their bonuses while home values are still in the dumps for most Americans?  The continuous chants of “jobs lag the stock market” are absolutely tiresome and in fact, wrong.  The current system is only waiting like a beggar hoping Wall Street creates enough demand so most Americans can get a piece of the action.  We already saw what this creates with the housing bubble.  You can enjoy the ride for a few years but you’ll be kicked out once the fun is over.  While the public gets kabuki theater programs like HAMP bankers get bailed out 100 cents on the dollar like Goldman Sachs did through the AIG gift exchange.  In other words, this bailout isn’t for you and it certainly isn’t about creating jobs.

There is this argument about global bubbles.  Gold bubbles, a China bubble, another stock market bubble.  But take China for example.  Even though they are spending enormous amounts of money they have pumped billions into infrastructure projects that are at least building up their economy and putting people to work.  Engineering analysts for the U.S. estimate that we have about $2 trillion in infrastructure upgrade projects that we have delayed or simply ignored.  Why not take some of that $14 trillion and put it to at least reinforcing that core of our economic structure?  I’m not talking about building strip malls and dumping more money into the commercial real estate pit.  How about reinforcing our highways, bridges, universities, and other key components that make our economy strong and envied around the world?  If we are going to spend at least spend in the right place.

Yet the irony of this is the Wall Street system still believes in a “free market” world yet they’ve never even lived in anything resembling a free market.  Their idea of financial innovation is setting up credit cards with 79.9 percent interest rates and creating mortgages that harm your financial health when you’re not looking.

People are focusing on places like Greece, no doubt a big problem but California has an economy that is 13 percent of U.S. GDP!  Michigan has a bigger GDP than Greece ($357 billion) yet so much attention is being given to this issue.  Our nation’s number one GDP state has an underemployment rate of 21 percent and is on the precipice of financial insolvency.  Not only California, but other states.  In fact, many have been borrowing for their unemployment insurance funds trying to keep those long-term unemployed from going into despair:

Source: Propublica

Four enormous GDP states in California, Texas, Florida, and New York have bankrupt unemployment insurance funds and are now borrowing from the federal government who is also broke (not broke enough to bailout Wall Street however).  How anyone can look at the above and claim we are in recovery is really beyond me.

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If we look at where the jobs losses are coming, we will see that manufacturing has taken another major hit in this contraction:

Every industry has seen significant job cuts.  It is interesting to look at the financial sector and see how well it has done in comparison to other sectors.  No wonder why Wall Street since March of 2009 has been on a historic rally.  Fascinating how in the last few days when mention of breaking up the too big to fail banks was brought about that we had our first major correction in nearly a year.  Could it be that the only way banks are making money in this current economy is by gambling in the stock market?  Absolutely.  In fact, most of their profits aren’t coming from making loans to average Americans but by trading and acting like pseudo-hedge funds except the banks are using taxpayer money as their safety net.  If you truly believe in capitalism then you understand that too big to fail should not even exist.  Creative destruction is part of a capitalistic system.  Right now banks are operating in a system that offers them different rules from typical Americans who are seeing their jobs disappear.  It is a two-tiered system.

It may also be the case that the system is learning to make do with part-time employment:

You rarely here that employment is a lagging indicator from reputable sources because of the cynical nature of this old economic mantra.  This line is as old as saying real estate prices never go down.  Sure, in previous recessions you would see the economy bounce right back up after a correction but this isn’t one of those typical recessions.  This is a generational correction and old rules of economics don’t play anymore.  Temporary help hiring has increased but the system isn’t hiring any full-time workers either on a net-basis.  In other words, we are still losing full-time jobs.  Businesses have learned to tweak their employment base to a much finer degree so the need for full-time workers with all additional benefits and compensation may not make financial sense.  In the end it is the average American that is thrown under the bus.

Our employment base has also shifted to a major focus on service orientation.  If we rewind to the 1940s and 1950s a large part of our economy revolved around manufacturing.  This isn’t to say that having a large manufacturing base is necessarily good or bad but a large part of Americans had a job that was stable and also provided an income that would make it easy to pursue the American dream.  What did this mean?  Being able to buy a home and support a family without going into massive debt that would put you at risk for bankruptcy and foreclosure down the road.  The rise of the two income household is a positive but it is also an economic necessity for many.  The typical American household brings in $52,000 per year.  Considering this is the median for a household, you can see how quickly losing one job can send a family into a financial tailspin.

And if we look at the top jobs in our country, we realize that we have replaced manufacturing with a near obsession with service oriented jobs:

Source:  BLS

I find it amazing that the two biggest occupations include retail salespersons and cashiers.  If you consider that a family might have one worker in each of these fields, they wouldn’t even come close to meeting the median annual household income of $52,000.  And go down the list.  The vast majority of the jobs above pay slightly above the federal poverty level if someone were to have a family.  It is no wonder that many households went into debt using toxic credit cards that change fees at the drop of a hat.  I find it amazing how quickly some people are to judge these people for financially mismanaging their budgets but at the same time, remain silent on the financial shenanigans of the banking sector that is largely responsible for this financial mess.  The cognitive dissonance is palatable but it is clear that the vast majority of Americans see this distinction and are lashing out at Wall Street and rightfully so.

And when we say Wall Street, we mean the financial sector.  Keep in mind that what I would view as core capitalistic companies like Google or Apple actually provide a service and added value products and these companies aren’t even asking for a government handout.  In fact, they are adding real wealth back into the economy instead of siphoning it off.  How many companies failed trying to be like Google or Apple?  Remember the search engine Alta Vista?  It once reigned supreme and is no longer here.  Companies come and go and that is part of our system.  The idea that banking is somehow immune to this is troubling.  And that is exactly what we did.  Well, not exactly “we” per se because the vast majority of American don’t support the bailouts but this is what was done by those representing us.  What we have now is a full functioning corporatocracy.  The recent Supreme Court ruling allowing corporations to contribute to candidates unlimited sums of money only cements this structure further.

If we look at the S&P 500 and compare it to companies back in the 1950s, approximately 50 companies still remain on the top 500 list.  Many have failed or dropped out or have simply been surpassed by companies that are fairly new (i.e., Google, Apple, Microsoft, etc).  This is the beauty of our system.  Ideally we wouldn’t favor one industry over another.  Yet our slow process into favoring the banking sector is disturbing because we are allowing the financial sector to govern our country.  And clearly we are seeing that what is best for Wall Street isn’t best for Main Street.  Even Henry Ford despised Wall Street and it should be clear to most Americans why.  Wall Street has its place but when it starts becoming a revolving door to D.C. and has Congress on speed-dial we have bigger issues.

44 states recorded increases in their unemployment rates last month.  And what is even more troubling is the length of time people are remaining unemployed:

Nearly 6 million Americans have been unemployed for over 27 weeks, the highest number we have ever seen on a percentage basis.  But on the other side of the coin, we have seen part-time employment for economic reasons spike to over 9 million during this recession.  This group is made up of people looking for full-time work but only being able to find part-time employment.  Add these two together and you start getting a sense of where our economy is heading if things don’t change.  Japan during their lost decade(s) followed a similar path to the one we are going down.  They bailed out their banking sector allowing zombie banks to remain and slowly over a grueling generation, one-third of their population was classified as part-time workers.  Japan also had major fiscal programs but nothing has helped.  Just look at the Nikkei average over this time:

The Nikkei is down 71 percent over 20+years.  So the banks are still there in spirit but what about the overall economy?  Japan has been lagging over the past two decades and bailing out the banks had a lot to do with this.  It is no coincidence that their part-time employment sector makes up one-third of their employment base.

And tying this all together including with the commercial real estate bust, we see that demand for commercial space is absolutely at the bottom:

Source:  Atlanta Fed

And why would you expect this number to be anything else?  Banks needed more and more demand even if the market didn’t demand it so they could keep on expanding and making further and further bad bets.  What did they care?  Ultimately they were bailed out by the taxpayers and government.  Yet we are now seeing deep anger in our country because nothing infuriates a society more than having a large unemployed population especially when aid was given to the banking sector that actually created this employment disaster in the first place.  Apparently Americans are still hungry for change.

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Now banks have shifted gears and are playing on the average American’s need for credit access in a troubled economy.  The American consumer is the clutch of this economy and it is burned out.  Banks are now saying that they need to be prudent because that is what led them into this mess in the first place.  Correct.  But that was not the pretense for the bailouts.  Now that they have trillions in taxpayer money they have now found some sort of financial religion:

Credit card debt is contracting at its fastest pace since the Great Depression.  In fact, over $17 billion in consumer credit was yanked from the market last month.  And you don’t need to know the hard data coming out of the Federal Reserve to know this.  Just look at your weekly mail:

Source:  Paul Kedrosky

And of the offers, good luck finding any of those 0 percent offers for 12 months with no fees.  Now offers that you get in the mail come with onerous terms, multiple pitfalls, and annual rates that would make your local payday lender look like a generous Midwest banker.  Credit card companies are now putting the vice grip on the heads of good paying customers since many of their other “subprime” borrowers are defaulting in mass.  Keep in mind these are the borrowers they so heavily recruited during the bubble.  After all, we are talking about an industry that gave a cat a $4,000 credit card offer.

During the boom, I would get 3 to 4 offers per day regarding credit cards.  Now, it is more like 3 to 4 in a month and the offers are horrible.  And the above chart shows that volume has fallen in tandem with the stock market.  But unlike the recent stock market rise, credit card offers are still being yanked from average Americans:

“(Synovate) A significant proportion of credit card accounts are being closed, either by issuers or by the consumers themselves due to the change in terms proposed by issuers,” said Anuj Shahani, Director of Competitive Tracking Services for Synovate’s Financial Services Group.

“This was inconsequential initially as issuers were mainly cutting lines on inactive accounts or for transactors, people who pay their balance in full each month. Recently, we are seeing many issuers reduce credit lines on active accounts or for revolvers, people who do carry a balance each month. This can put many households in a risky situation,” he added.

For example, if a household with $25,000 in credit lines across all their cards has one of their $10,000 limit cards cancelled, the credit limit for the household is reduced to $15,000. If they were to revolve on one card with $5,000 as an outstanding balance, their utilization ratio (ratio of outstanding balance to available credit limit) increases from 20% to 33%.

“A utilization ratio above 30% is considered risky by the industry and this makes the household a credit risk in the eyes of most issuers, potentially triggering further reductions in their existing credit limits, making matters even worse,” said Shahani.”

I can tell you from personal experience that this happened to me.  One of my credit cards had an excellent fixed rate (something that seemed permanent during the boom times) at 4.99%.  Clearly this was a fantastic deal and for years, I kept this card for random purchases.  The limit on this card was $5,000 and I rarely put over $1,000 on it.  Well all of a sudden once the banks received their bailout money, I get a message saying they are raising their rate to 19.99% because of “adverse changes in the economy” and they needed to be more careful.  Very quickly I picked up the phone and called up the number to say I object to the new terms.

Well after being transferred halfway around the world, I thought all was done.  A week later I get a letter telling me my account is closed because of my objection to the new terms.  So much for that “permanent” 4.99 percent rate.  And you would think that banks have no money to lend right?

Banks are holding over $2 trillion in excess reserves.  This is taxpayer money funded through the Federal Reserve and U.S. Treasury.  What this actually tells us is that banks are gearing up for more internal problems like the $3.5 trillion implosion of the commercial real estate market or rising defaults.  Currently banks have made massive profits by gambling with taxpayer money in the stock markets.  The spigot to the consumer is nowhere to be found.

The troubling issue as well is that by closing accounts down debt ratios shoot up and impact credit scores.  So by closing down an account, a prudent move on the surface, may actually hurt your overall credit score.  And FICO scores carry a lot of weight and unjustifiably so.

But surely those that are getting credit card offers are being given generous terms since banks have been saved by taxpayers:

“Many new card offers now carry an annual fee (30% of the offers in Q3 2009 carried an annual fee versus 28% in Q2 2009). A recent Consumer Confidence Survey conducted by Synovate reported that 15% of consumers said they’d cancel all their credit cards if charged an annual fee and 38% said they’d keep only one card or cancel the ones they don’t use. Another 24% of consumers would look for a card with a lower fee and the rest would take no action.

“Whenever you have a situation where less than a quarter, at best, of customers feel secure, and the rest are either in the process of cancelling their cards or intend to find a new one, it’s reasonable to conclude that the credit card situation remains dire,” Shahani added.”

Not at all.  Banks can borrow from the Fed at zero and lend out money at ridiculous rates.  Massive margin gains.  How else are banks making record profits while unemployment is near the peak and average American are seeing their salaries being slashed?

If you add up the numbers, banks are creating a new debt serfdom for Americans.  They are foreclosing on homes at a record pace and pulling back credit even though they explicitly stated that the bailouts were to help the housing industry and keep credit alive.  The only housing loans they are making are government backed loans (i.e., Fannie Mae and Freddie Mac conforming)!  They won’t even dare put their own money (your money) at risk anymore if they don’t have a government guarantee.  With credit cards, it is their money and here they are yanking it all back.  This is the plight of our current economy.

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