Economic Crisis Subsumes T.J. Maxx. . . Or Does It?

Economic analysts studying the economic meltdown have so far been unable to determine whether or not the economic has hit T.J. Maxx or not:

Financial analysts, observing more than 100 locations nationwide, cited large quantities of off-brand and wildly scattered merchandise as evidence that T.J. Maxx has either been devastated by the economic downturn, or is carrying on as usual in spite of it.


Why a Financial Bubble is Worse Than Usual; Why We Need to Reform Lending

When the Dot Com Bubble was still considered a safe investment, not a bubble, it manifested itself in the production of a few physical things: more computers, more cables, more stores and more employees to handle all those things. When the bubble burst, materials to produce things dried up, investment dried up, companies when under and people lost their jobs. All very painful, but all very common in a well-capitalized and robust economy, especially one on the brink of technological breakthrough.

When this financial bubble started, it began in the housing industry. But the bubble does not concern itself with the building of houses as you might think, though new homes were of course inevitable. Rather this bubble concerned itself with the creation of mortgages, which is literally creating something from nothing. Yes, economists will tell you that there is sound theory behind all of it – and perhaps they’re even right – but at the end of a day, banks borrow from other banks so they can lend you money they don’t have to buy a house you can’t afford.

Then those loans of no-money get rolled into superfunds which pay their investors dividends based on interest earnings on the money lent but never owned. Investors buy shares of superfunds made up of fake money at a profit, thus still more banks are making more money off of fake loans of no-money for people who can’t afford to pay cash for houses.

And what happens when there are not enough good-credit customers to continue creating new fake loans of money you don’t have? Well, you start dipping into the bad-credit customers, of course. And once you’re there, you’ve already forfeited any claim to a moral or ethical business justification for what you’re doing. Now, you’re just slumming.

And we’re all supposed to be pissed at Bernie Madoff? Seriously?

But the elephant in the room that no media outlet wants to touch, no Congressman is going to raise and I doubt very much if even Barack Obama’s going to have the balls to handle – after all, his Veep is in bed with his credit card buddies in Connecticut – is that we need to drastically overhaul any regulations we have on lending and even install some new ones. No, it won’t get us past our current crisis. The damage is done and we need to deal with that separately. But we got here in part because of lending laws that were repealed under the Clinton Administration and they need to be put back in place.

There needs to be penalties for a company who lends to a borrower without full disclosure and without proper documentation – some banks were giving out loans without even bothering to fill out credit checks. Banks aught to be required to provide full details of any mortgage including credit checks and negotiation. There needs to be a minimum and maximum interest rate set by the bank on any loan or mortgage and it needs to be advertised right along with the current deal. Penalties for late payment on loans aught to be loss of credit, not an increase in interest rates on the loan, which benefits the bank and leads to predatory lending. If interest rate penalties are imposed, they aught to be imposed on a temporary basis, not in perpetuity.

We also need to encourage a “Credit Economics” class in high schools across America. We would be less susceptible to the scams and machinations of creditors if more of us knew what we were dealing with.

But will such measures be introduced in the next few years? Perhaps, but probably not until such time as the recession we’re in gets bad enough for people to start demanding answers.


If You Touch it More Than Once, It’s a Stimulus Package

With all the bad news out there right now – Lebanese militants opening a second front in Israel, economic doom and gloom in New York, near-zero interest liquidity trap on the horizon – it’s always nice to know some asshole can find a way to have a good time. In this case, that asshole is the asshole for all seasons, Larry Flint. I love that dude.

I’m sure if I worked with Flint and had to see him every day, I’d hate him. But you’ve got to give some credit to a guy who has the balls to send a letter to the very same Congress that tried to shut him down a few decades ago, demanding that they financially support his entire industry. Yes, it seems that he and the Girls Gone Wild mogul, Joe Francis, have sent a letter to Washington to petition Congress for $5bn in bailout money.

Actually, I’d be curious to find out what the effect of the economic downturn actually is for the porn industry. The normal rule of thumb with all things entertainment is that when the economy sags, movie ticket, CD, video purchases and the like actually go up. The theory is that, since no one’s buying the big ticket items, they have more free cash to enjoy a movie. You would expect that the same would hold true for porn.

Except that porn sites like and (I sense a theme) have made a huge volume of amateur porn freely available on the web, which is cutting into their bottom line, so to speak. And those pay-to-play-with-yourself websites still left out there are monthly fee-based, so I suspect customers seeing climbing credit card bills are taking the opportunity to cancel such accounts.

Oh, no! Does this mean the end of Dee Del-Mar?


A Question Worth Asking

As I watch news programs this week, it occurs to me that the pace and the urgency of the economic bailout discussion continues to spiral beyond the ability of most of us to process it. And I do begin to wonder whether anyone is really processing it at all. And I do begin to believe I’ve seen this all before.

In late 2001, as we all continued to panic over the attacks of September 11th, I began to get more and more suspicious of the Bush Administration and it’s intentions with all the power grabs and ostensibly military actions. Everything was moving too fast. That suspicion has continued to this day. I’d argue, of course, that those fears were justified.

But is this the way we’re going to expect to be governed from now on? Short-sighted politics preventing action on the most basic things for the majority of the time, followed by the next crisis where everything happens at once? I’m reminded of Winston Churchill’s description of war: long spans of absolute boredom punctuated by moments of sheer terror.

I don’t claim to have any better answers than those being presented on the national stage. But maybe we aught to consider the pace at which we’re moving as a problem in and of itself worth dealing with.


GM Closing Plants, What Does That Mean for Rochester?

With the temporary bridge loans for Detroit pushed off the table by Republicans in Southern states with Japanese automakers, our own home-grown – albeit derelict – automakers are taking steps to deal with their problems sans Washington’s help. Looks like if Republicans wanted to know what the world would look like The Day Detroit Stood Still, they’re about to find out in January:

Because GM has announced that it will be cutting production back hugely and closing 21 factories temporarily, possibly through January. They will be producing one third as many vehicles as normal, which would have been around 750,000.

Just for fun, how many companies in Rochester can you name that are directly affected by this announcement? Well, the first one that springs to my mind is Webster Tool and Die, only because I used to work there. WTD made a lot of equipment for GM as I recall, though I’m not sure how much they make these days. Gleason Works comes to mind. Delphi is here. And of course, that’s not to mention all the contract work other companies like Choice One or Harris Communications might have with GM.

So, who else? What other Rochester companies have direct ties to GM plants? Tool makers, communications companies, soft drink manufacturers? Comment below if you have answers. All entries are welcome!


Spend it While You Got it, I Guess

Reader MC sends me a couple of articles which should really be one article.

First, the Associated Press reports that AIG – the company that our government effectively bought out when it nearly went bankrupt a month ago – owes other financial firms 10 billion dollars from deals gone south.

Secondly, and seemingly in a parallel universe, AIG – the company that our government effectively bought out when it nearly went bankrupt a month ago – has offered 38 managers bonuses topping 4 million dollars.



The Bailout: A Crossroads

Does anyone else find it as strange as I do that, of all the harmonic convergences that could have happened right now, the two industries most directly in need of our bailout money happen to be the auto industry and the financial industry?

Think about it: history tells us that whenever a society chooses to leave the relatively slow process of wealth building through industry behind, it moves towards the financialization of it’s economy. That means making money through financial transactions like loans, mortgages and other debt, which is exactly what our banks have been doing for lo this past twelve to fifteen years or so. History also tells us that the inevitable result of financialization is a colossal crash of a type we may yet experience.

At this moment, we are confronted by two massive problems, both deeply embedded in our current economic situation, both with huge consequences for failure. We cannot choose to do nothing about either crisis, this much is clear. But equally clear – in this one moment, though it may well disappear a week from now – is the crossroads our nation is at. Do we choose to choose the hard work of building our nation’s wealth through a collective commitment to revitalizing the industries that make physical goods, or do we continue on with the relatively easy but frighteningly risky world of unthinkably high finance?

Not simply world history, but our own personal histories can attest to the fact that when high risk, high yield and low effort converge, the result is never very good for very long. I think that we know what the right answer is.

But if the two industries appear as a dichotomy of high-yield, low-effort versus low-yield, high-effort paths to wealth, it should surprise no one that the answer to both questions is exactly that same dichotomy. The financial industry takes, moves, swaps, makes and otherwise manipulates money and when that industry is in trouble, the only thing required to fix it is. . . more money. Give them money to balance their books, throw a few new (or newly restored) regulations at the problem and you’re halfway home.

The auto industry makes machines, a task which requires first engineering, then retooling entire factories, then training workers on new equipment and then finally production. And even this understates the challenge. I have not, for example, factored in the warranty repair shops and dealerships which also need to go through radical restructuring if they’re to deal with new cars and new technology.

Tone-deaf PR problems like private jets and “hybrid” SUVs aside, one big reason to doubt the efficacy of Detroit’s plans is the simple fact that there’s no good reason to think that a $15bn bridge loan, a $25bn bailout or a $34bn Christmas present will actually solve the problem. In fact, you could drop the entire $700bn loan the financial industry got on Detroit and still not see one iota of change in the next three years. Remember: hard work and low yield.

Nothing less than a radical restructuring at the top of Detroit’s power houses will make any difference to our ailing economy. And even that will only do just so much good. As our nation prepares to have its first “Car Czar,” I think it’s clear that many in Washington have already decided that such a move is necessary in any event. We’ll soon be nationalizing the auto industry of this country, which I don’t particularly support but can’t see any good way around, at least in the near term.

I’ve argued in the past that one possible solution to the problem of innovation, at least, would be to allow smaller companies who are already engineering fuel efficient automobiles to share the industrial resources of the Big Three in exchange for sharing the profits as well. But again, innovation is only one small part of the puzzle and there are many more pieces to put in place before our automobile industry is a functioning industry again.


The Marker in Congress Has Been Thrown Down

Congress has told the White House it must find the funds to bail out Detroit out of the TARP money – that $700bn package reserved for the financial industry – or there may be no money forthcoming. Thus far, Hank Paulson at Treasury and the White House have resisted such calls.

And a fine time it is to suddenly think you’ve grown a set: the president is leaving office in a matter of days and it won’t be his problem any longer. Why should he give a shit? It’s not like he’s shown any level of interest in the economy up till now. Not exactly a powerful position from which to throw down an ultimatum. We’ll see what happens, but if I were Harry Reid, I’d start twisting arms in the Senate to get something which provides real oversight in the bailout package that is inevitably going to need to pass through Congress.


Back Online! Items of Interest This Morning

Whoa, did that suck! I switched hosts to a new VPS service, which rocks, but unfortunately found myself bested by Apache2 and the site went down for a few days. Sorry for the interruption! A big thanks to Rottenchester of The Fighting 29th, who was able to straighten out the mess with my configuration and get my back online. Thanks!

And in items of interest this morning, whilst I work on updating the news section:

As a sign of the times, the NYT is reporting that office space in Manhattan is rapidly emptying out ahead of the looming recession. I hope they cleared out the upper floors first. Those are some nice streets to have to wipe the Investor Class off of.

And here in Rochester, the Irondequoit Town Board will be meeting on plans to make the Medley Center – known on this site as the Diddly Center – even less useful than it was as a mall. Don’t miss the comments section on this one.

I find it sort of ironic that they want a movie theatre in the Medley Center when they already have one down on Culver where you can catch a movie, eat some popcorn and watch teenagers knife-fight in the parking lot. We really need another one of those in town? Seriously?


Countrywide: K-Mart Mortgages Regulated by Walmart Regulators

Via Dean Baker, as reported by the Washington Post:

When Countrywide Financial felt pressured by federal agencies charged with overseeing it, executives at the giant mortgage lender simply switched regulators in the spring of 2007.

The benefits were clear: Countrywide’s new regulator, the Office of Thrift Supervision, promised more flexible oversight of issues related to the bank’s mortgage lending. For OTS, which depends on fees paid by banks it regulates and competes with other regulators to land the largest financial firms, Countrywide was a lucrative catch.

But OTS was not an effective regulator. This year, the government has seized three of the largest institutions regulated by OTS, including IndyMac Bancorp, Washington Mutual — the largest bank in U.S. history to go bust — and on Friday evening, Downey Savings and Loan Association. The total assets of the OTS thrifts to fail this year: $355.7 billion. Three others were forced to sell to avoid failure, including Countrywide.

Hmm. . I’m thinking this is a clue to the problem. Did you happen to notice that the regulatory agency is dependent on fees paid to it by the companies it regulates? In other words, companies that it regulates that don’t make money are of no value to them, because they can’t pay for the regulation. That’s a strong incentive to keep companies profitable in George Bush’s administration, I am thinking.

I’m all for companies paying their way: they have to pay to dispose of their waste, they have to pay to get ISO certification, I would probably be OK with them having to pay for their regulatory duties as well. Still, the monies paid them aught not to factor into their budget, but rather be rolled into the general funds of the government. Or given away to starving children in Africa. But tying a regulatory body to the fortunes of the regulated is as clear a conflict of interest as one could imagine.



Ah, the iconic if remarkably ugly automobile of Serbia has finally breathed it’s last. The Yugo is no longer.

I know everybody’s pissed at the automobile industry here in this country – and rightfully so – but can you imagine the thought of an entire make of American cars disappearing from the map?


Bailout du’Jour

I have not yet commented on the impending doom from Detroit and the efforts to bail them out.  It’s been the talk of the Sunday news programs, however, and since I’ve been using today to catch up on the blogging I’ve not been able to do during my busy week, now seems the time to comment.

I have to start out by saying that Meet the Press this morning was, as ever, an exercise in false equivalence.  The guests where Carl Levin of Michigan and Richard Shelby of Alabama.  A guy who is in the tank for automakers and a hard-line Conservative who wouldn’t agree to tax-payer funded water if his hair was on fire.  This is not a useful discussion, since neither man is in a position to compromise, but compromise is exactly what is needed in this case.

Because if ever there was an industry I would be in favour of letting crash and burn – hoping that we could finally then let more innovative minds and more cost-effective business models take the lead – it would be the auto industry.  Nowhere in American business is there a more completely ass-backwards group of companies. . .  and that’s saying quite a lot.  Still, its not an industry we can expect to let drop without having huge and probably unpredictable consequences on the rest of the economy.  There are simply too many people working in the industry and too many subcontracting companies tied to it to think we can let the automakers drown themselves.

What is required is that we yes, do bail out Detroit.  But we do so in a way that guarantees us a better chance of a viable auto industry in the future.  It’s not a simple question of letting them go or handing them a blank check.  Carl Levin said today that the auto industry might have had problems “ten or twenty years ago,” but that they’re making changes.  Bullshit.  They’ve made half-assed efforts at going hybrid – itself not a solution to our energy problems – only in the last two years.  And what have they produced?  Hybrid SUVs.  Hybrids which get a paltry 34 miles a gallon, compared to the 40-50 MPG of Asian counterparts.  This hardly represents a true effort at reform, particularly when there are plenty of minds working on the issue in garages and backyards whose ideas are not being listened to.

So, we need not a bailout package, but an investment plan in our auto industry which considers the future as a primary means of growth.  We should demand that Detroit automakers actually engage small private businnesses working on energy-smart cars and use their industrial might to produce those cars.  Similar things are commonplace in the record industry, where small indie labels like Interscope or Def Jam are distributed by Sony or Warner Brothers, but exclusivity has plagued the auto industry.  Yes, I’m aware that there are downsides for Interscope.  But the point is that Detroit has gone out of its way – Microsoft style – to crush competition in its infancy, and it is precisely those infant companies that are generating the ideas we need.

And of course, we need leadership.  Barack Obama has been trying to stay off the stage and work on his cabinet, since after all, he’s not yet the president.  But the problems we face currently are much beyond the ability – and let’s be honest, the desire – of our current White House resident for him to handle.  As hard as it undoubtably must be, Barack Obama is going to need to find a way to represent a leadership role – even if that leadership is only a Senate-bound leadership – to help steer the ship as best he can in the next few months so we can get things done in something approaching a rational way.