The Great Recession
The pundits have finally found a name for our pain.
No one wants to call our troubles a depression because that is such a frightening thought. And in fact it is too big a leap. After all, unemployment may be pushing 10 percent, but not nearly as bad as the 20-30-40 percent out of work during the Great Depression. The Dow Jones may be off some 50 percent, but values were down 80 percent back in 1930. And government has a better handle on the problem than President Herbert Hoover ever did.
Still, this recession is considered by most economists the worst since the Great Depression. And since the media is always looking for a simple, catchy phrase to make something so complicated seem so simple for the masses it panders to, we get what talk show pundits now are calling “The Great Recession”.
But make no mistake. We are living in very troubling times. Unemployment will continue to rise. Consumers will default on credit card debt. Commercial Real Estate will tank as businesses renege on their leases and owners unable to pay their banks will default. Corporations desperate to keep cash will suspend dividends. Pension plans that relied on stock values to cover its member’s retirement payments will be forced to lower expectations.
I could go on but you get the message. It will get far worse before it gets better, despite President Obama’s optimistic claims that bailouts and budgets will come to the rescue.
If you’re wondering how things could get so bad, I offer a bit of history from Tom Friedman, who wrote the following in the New York Times on March 4th.
“This problem is more complicated than anything you can imagine. We are coming off a 20-year credit binge. As a country, too many of us stopped making money by making “stuff” and started making money from money — consumers making money out of rising home prices and using the profits to buy flat-screen TVs from China on their credit cards, and bankers making money by creating complex securities and leverage so more and more consumers could get in on the credit game.”
Freidman goes on to explain that when this bubble burst, banks were left holding subprime mortgages now worth maybe 20 cents on the dollar because of widespread defaults. And banks that took on the most leverage are facing massive markdowns or defaults on auto loans, commercial real estate loans, credit card loans, corporate loans.
As Freidman explains, “most of the big banks have not marked down these loans yet because if they did, they would be insolvent. The subprime toxic securities will take billions to bail out; the loans could take trillions.”
It’s time for the media and the politicians to tell it straight to the American people. We are all to blame, and it will take all of us working together to get us back to prosperity. But it will not happen overnight, and will require mutual sacrifice. Not the self-interest so blatant when unions fight companies and politicians fight lobbyists for narrow advantage. All too often they act like scavengers circling the carcass of the U-S economy.
Unfortunately, there is no way to legislate against greed. If there were we might not be in this mess.
(Brian Banmiller is a national Business Correspondent for CBS News Radio, free lance writer and public speaker. The former television business news anchor in San Francisco can be reached at brian@banmilleronbusiness.com .)
