The Story of the Economic Collapse From Main Street

Posted on Categories Labor & Employment Law

Sinking_ship The following news stories from the Associated Press this past Friday confirm that that Wall Street financial meltdown is also being felt throughout the country on Main Street.

From the Associated Press on September 19th:

Florida’s unemployment rate rose to 6.5 percent in August. According to the state labor department that’s the highest the state has seen in more than 13 years. The number is up from 6.2 percent in July, and up from 4.2 percent since August 2007. The state’s total number of jobs lost in the past year rose to 99,100. According to federal numbers, that’s the largest loss in the nation for the third month running. 606,000 residents are currently without work in the state. In Miami-Dade County, the unemployment rate is 5.5 percent, up from 3.8 a year ago, according to the U.S. Bureau of Labor Statistics.

Adjusted numbers are not available for other Florida counties, but Broward’s unadjusted number is 6.1 percent, up from 3.9 a year ago. Monroe County is at 4.8 percent, and was at only 3 percent in August 2007. Florida’s unemployment numbers are being pushed by job losses in the construction industry and related fields. The current national rate is 6.1 percent. Only Rhode Island saw a larger unemployment spike in the past year.

Again from the Associated Press on September 19th:

Ohio’s unemployment rate rose again last month, to 7.4 percent, and the state is one of many seeing the worst joblessness in years. Michigan has reported an 8.9 percent unemployment rate for August, and unemployment hit 8.5 percent in Rhode Island, the highest in 15 years.

The loss of manufacturing jobs has pulled Ohio’s rate to a 16-year high. The last time the state had 7.4 percent unemployed was in October 1992. The Ohio jobless figure tops the national rate of 6.1 percent. The state Department of Job and Family Services says 445,000 Ohio workers were out of work in August. That’s nowhere close to the record of 715,200 who were unemployed in December of 1982.

Finally, one last one from the Associated Press on the 19th again:

A record number of Rhode Island workers are searching for a job in as the seasonally adjusted unemployment rate has risen rose to 8.5%. The August showing is its worst in 15 years and more than 2 percentage points above the national rate. Michigan’s unemployment rate was 8.9% in August. The number of people looking for work in Rhode Island grew by 4,300 since July to a record-breaking total of 48,800 last month. The state unemployment rate stood at 5.1% during the same period last year. Rhode Island shed an estimated 1,200 jobs from July to August, marking the eighth-straight month of jobs losses.

Given these astounding unemployment figures, it is imperative that any bailout of Wall Street also consider how to turn around the economic carnage being felt in many states around the country.

A bailout only focused on the financial markets neglects responding to the devastating consequences unleashed by eight years of deregulatory strategy and again establishes the need for common sense regulation of all aspects of the American economy.

Cross posted at Workplace Prof Blog.

10 thoughts on “The Story of the Economic Collapse From Main Street”

  1. The deregulation of the financial markets started by Phil Gramm in 1999.

    Here’s the best write-up I’ve seen from The Politico (http://www.politico.com/news/stories/0308/9246.html):

    “The general co-chairman of John McCain’s presidential campaign [in March of this year], former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today’s economic turmoil.

    “A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed,” the Illinois senator running for president said in a New York economic speech. “But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.”

    Gramm’s role in the swift and dramatic recent restructuring of the nation’s investment houses and practices didn’t stop there.

    A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS’s new investment banking arm.

    Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006.

    During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.

    For his work, Gramm and two other lobbyists collected $750,000 in fees from UBS’s American subsidiary. In the past year, UBS has written down more than $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.”

  2. I cannot comment on the new “bailout” plan just yet.

    However, the AIG plan would make Tony Soprano proud. We the People are taking a significant equity interest in the company and extending a liquidity facility at 850 basis points over LIBOR.

    While we are feeling charitable, I say we demand a pound of flesh as well.

  3. Paul:

    My question was not rhetorical and I thought that you might say that. I should point out, I suppose, that these restrictons of Glass-Steagall were repealed in 1999 (actually nine years ago) and the bill that President Clinton ultimately signed (as opposed to the original Senate and House versions) had heavy bipartisan support (including Senator Biden). But these are trifles.

    But what I am more interested in is the argument that Gramm-Leach-Bliley Act had some significant role in what we see today other than an argument that it is deregulation (although parts of it actually increased regulation) and deregulation is bad. I suppose that some institutions that hold bad paper would not have been able to hold it, but diversification normally minimizes risk and the GLBA did not, as I understand it, have anything to do with securitization of mortgages, leverage ratios, lending standards, disclosure requirements, or accounting practices. It didn’t create or unleash Freddie and Fannie. It didn’t create the subprime market or mandate the Fed’s easy money policy. A more fully developed argument can be found here.

    There may be an argument to be made, but, if it can be, I’ve not heard it articulated in a way that has reached this particular political junkie. In fact, with the possible exception-finally-of John McCain over the past few days, I haven’t heard either campaign say much about this mess that amounts to anything other than largely meaningless rhetoric. And even McCain hasn’t said a lot.

    Joe:

    That’s a part of this that is not getting much attention. Paulson apparently skinned AIG.

  4. Rick: I appreciate your partisan attachments, but are you actually suggesting that Republican policies of deregulation over the years have had little impact on the current economic crisis we find ourselves in?

    Color me incredulous, but please do explain in more detail how you and McCain account for the current debacle?

    Finally, meaningless rhetoric? Have you even paid attention to Obama’s proposals? Here is his six point plan: http://www.whudat.com/newsblurbs/more/barack-obamas-six-point-plan-to-fix-wall-streets-financial-mess-1680922082/

    Where are McCain’s proposals? A study commission?

  5. Paul

    I don’t think partisan attachments have much to do with this. That is, in fact, my point. It’s not clear to me that the arguments about its cause can be fit neatly into our ideological categories. You cite to GLBA, but, I ask again, just what did it have to do with this?

    I don’t presume to know precisely what caused this. On the one hand, you’ve got solid free market arguments for origins of the collapse. The Fed lowered rates to the point where these lenders were borrowing for essentially nothing and lending for a decent return. This, combined with implicit or explicit government guarantees, created moral hazard. Regulation – i.e., aggressive requirements that securities be frequently marked to market, may have exacerbated things.

    On the other hand, there was clearly a market failure. Lenders overleveraged and somehow originators were able to sell some awfully bad credit. Was there a failure to require transparency? Were accounting requirements lax? These may indeed require a regulatory response. Would the 2005 act to increase regulation of Fannie and Freddie that was supported by McCain and most Republicans and opposed by the Democrats (there’s an ideological twist for you) helped? I truly don’t know.

    I don’t see much in Obama’s plan that reflects a deep look at any of this. It is so vanilla that 1) a relatively free market conservative like me finds nothing to disagree with and 2) it seems to me that John McCain has pretty much called for the same thing. If this is the best we can do, a study commission (following a short term response) may not be a bad idea.

    Can we set a record for comments on the Faculty Blog?

  6. You are a good colleague. Thanks. Here are McCain’s six proposals according to this speech:

    [1]. First, to deal with the immediate crisis, I will lead in the creation of the Mortgage and Financial Institutions trust — the MFI … . This trust will work with the private sector and regulators to identify institutions that are weak and fix them before they become insolvent . . . .

    [2]. Second, I will propose and sign into law reforms to prevent financial firms from concealing their bad practices.

    [3]. Third, we need regulatory clarity . . . .

    [4]. Fourth, we must ensure that consumers and investors are protected . . . .

    [5]. Fifth, in cases where failing companies seek taxpayer bailouts, the Treasury Department will follow consistent policies in deciding whether to guarantee loans . . . .

    [6]. Finally, the Federal Reserve should get back to its core business of responsibly managing our money supply and inflation . . . .

    Anyone for vanilla? With the possible exception of the MFI Trust (#1), the other “proposals” really amount to platitudes and a recommitment to a free market strategy that has already not worked. Example: #2 on legislating against firms concealing bad practices – has he not heard of Sarbanes-Oxley 2002. Directing the Treasury (#5) and the Fed (#6) to follow their traditional roles? That’s reform?

    Finally, and this was really my initial point in this post, even the MFI proposal (#1) has a focus on companies and Wall Street – which is not surprising given that McCain has 83 Wall Street Lobbyists in his campaign staff. Where is the help for Main Street (and, no, the platitudes mentioned above don’t count)?

    Obama’s six point plan is not much of the same as what McCain offers. The focus is fundamentally different. It embraces regulation of the financial industry for the benefit of those out-of-work and out-of-house who have suffered most from the Bush-McCain financial debacle. Obama cares little about the Lehman Bros. executives who are still going to share a 2.5 billion dollar bonus pool even after leading their company into bankruptcy.

    No, McCain is more of the same and Obama is the change that we need.

  7. Because this thread seems to have some knowledgeable people from both sides of the spectrum, can I ask a neophyte question?

    I’ve been googling around and I see some conservative commentators, and others, still supporting “Free Market” ideals. One person in this thread has described his views in similar terms. How is it possible to cling to “Free Market” as an ideal, when deregulation got us into the current mess? Hasn’t this crisis shown that the Free Market ideal brings disaster?

    Your opinions are appreciated in enlightening this economics ignoranimus.

    Thanks,
    Mike

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