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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Great Recession
September 13, 2013 at 10:27 AM

Vote: Is the financial system fixed?

Five years ago this weekend, the giant investment bank Lehman Brothers collapsed, ushering in a financial crisis and economic contraction the likes of which hadn’t been seen since the Great Depression. Less than two weeks later, but before regulators decided to back every big financial institution, Seattle’s Washington Mutual was allowed to become the biggest bank failure in American history. Some would say it was pushed, but that’s another story.

Most of the causes of the catastrophe are well-known: Deregulation, “innovations” such as exotic derivatives, shadow banking, securitization of massive numbers of subprime loans, high executive compensation rewarding excessive risk-taking, too much leverage, regulators captured by the industry and a massive bubble enabled by the Federal Reserve. The costs went well beyond those to the financial system. A Federal Reserve Bank of Dallas report estimates that the Panic of 2008 and resulting downturn cost each household between $50,000 and $120,000. Unemployment remains high. Inequality is worse. Beyond the money, trust in institutions and the equal application of the rule of law has been shredded.

In its typical inviting way, Ezra Klein’s Wonkblog offers 13 charts showing what’s fixed and what isn’t five years later. On the Atlantic’s site, James Kwak argues that policymakers have learned little if nothing from the crash. So it’s time for your say:

Read on for some of the best business and economic stories of the week and the haiku…

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Comments | More in Banking, Federal Reserve, Great Recession | Topics: banking, Great Recession

June 14, 2013 at 10:23 AM

Vote: How did the recession change your behavior?

People who grew up during the Great Depression were forever scarred by the experience and it affected their financial behavior, or so they say. Members of my family who experienced that calamity were horrible with money, the antithesis of the risk-averse, hyper-saving Depression archetype. On the other hand, research does show a substantial cohort was influenced by the event. For example, a Stanford paper indicates it had a “substantial” effect. After the crash of 1929, it was decades before many average investors trusted the stock market again. This time, the market came back quicker and returns on fixed income investments have been horrible. No wonder a Vanguard study showed 401(k) participation returned to pre-recession levels by 2010.

How has your behavior changed — or not. You can make multiple answers. If I left something out or you want to explain further, please use the comments field.

Read on for some of the best stories of the week you might have missed and the haiku.

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Comments | More in Great Recession, Great reset, Investing

June 11, 2013 at 10:22 AM

Household wealth still far from recovery

Four years after the official end of the recession, the average American household has recovered only 62.8 percent of the wealth it lost in the crash. The findings come from a new report by William Emmons and Bryan Noeth at the Federal Reserve Bank of St. Louis. That’s in real dollars. All household net wealth has rebounded 114.3 percent from the trough to a record high, but it doesn’t account for inflation or increased population. Adjusted for these factors, the number is well below where it stood in 2006. And the recovery is highly uneven, mostly benefiting the better off with the stock-market boom and saving the big banks.

According to the Fed’s Survey of Consumer Finances, household finances were “severely” affected by the downturn. Median household wealth dropped 39 percent. Among those worst hurt were the young, those with less than a college education, minorities and those carrying heavy debt. With wages largely stagnant, wealth was increasingly dependent on housing, which was in a bubble. In a separate essay by Emmons and Ray Boshara, the importance of household balance sheets to the larger economy is explained. This element was largely discounted by many macroeconomists before the collapse.

It has come as somewhat of a surprise, therefore, that many economists now are calling the Great Recession of 2007-09 a “balance-sheet recession” and that balance-sheet failures of the type described above are seen as important contributors to the downturn and weak recovery.

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Comments | More in Consumer spending, Debt, Demographics, Great Recession, Housing, Inequality, Jobs/Unemployment

March 22, 2013 at 10:31 AM

Vote: Is the economy getting better for you

The stock market is up and housing sales are recovering. Unemployment remains stubbornly high and mandatory government cutbacks will be kicking in with the sequestration. Job openings increased slightly in January, but there are 3.3 job seekers for every position. The Seattle area is booming; the rest of Washington, not so much. Today’s poll asks how you are faring personally compared with six months ago:

Read on for the best links of the week and the haiku:

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Comments | More in Amazon.com, Global economy, Gold and precious metals, Google, Great Recession, H1-B skilled foreign worker visas, Income/living standards, Jobs/Unemployment, Nordstrom, Outlook

September 11, 2012 at 9:58 AM

Can we learn from Hoover’s legacy?

A reader, no doubt trying to play “gotcha,” sent me an email, subject line: “Dr. Paul Krugman.” The reader writes, ” ‘The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover…’ Dr. Paul Krugman, New York Times, 11-10-2008.” End of email.

Krugman’s actual point was that Hoover’s tax increase was one of the drags on the economy inherited by Franklin Delano Roosevelt. And although the New Deal put millions to work and alleviated suffering, it never deployed enough stimulus needed to fill the demand hole left by the Great Depression. Krugman writes:

And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

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Comments | More in Great Recession, Great reset, Inequality, Infrastructure

August 10, 2012 at 10:15 AM

Goldman Sachs vs. the people

Edwin Edwards, the flauntingly corrupt former governor of Louisiana, once bragged that “the only way I can lose this election is if I’m caught in bed with either a dead girl or a live boy.” He won the election and even spoke to a convention of investigative reporters, many of whom had been documenting his misdeeds for years, that I attended in San Antonio in the mid-1980s. The feds eventually got him and sent him to the hoosegow.

Ol’ Edwin should have been a well-connected investment banker. Goldman Sachs, the “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” has been cleared of wrongdoing for its role in bringing on the greatest financial catastrophe since the Great Depression.

If President Obama thinks forcing the Securities and Exchange Commission to back off will improve his campaign funding, he’s as naive as a Goldman muppet. According to Bloomberg, Goldman, which gave lavishly to him in 2008, has reversed course along with the rest of Wall Street and is backing wealthy Republican Willard Milton “Mitt” Romney. So has GE, which Mr. Obama has bootlicked so obsessively.

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Comments | More in Banking, Goldman Sachs, Great Recession, Lindsay Lohan

July 10, 2012 at 10:20 AM

Black middle-class blues

Declining economic mobility in America has been an issue for so long that the Economist, hardly a commie mouthpiece, worried about the end of meritocracy here back in supposedly booming 2004. The Great Recession and its aftermath have done ever more damage. A Pew study found that while 84 percent of respondents claim higher family incomes than their parents did, Americans born “at the top and bottom of the income ladder are likely to stay there as adults. More than 40 percent of Americans raised in the bottom quintile of the family income ladder remain stuck there as adults, and 70 percent remain below the middle.”

Among the casualties is the black middle class and the ability to ascend into it, which was a significant achievement of the last three decades of the 20th century. The Pew report found that African Americans were most likely to fall out of the middle class across a generation and much more likely to be stuck at the bottom. Black unemployment is also extremely high. And, black families are more likely to lack inter-generational wealth, in part because of the institutionalized racism over much of American history (the notorious Tulsa race riot in 1921 involved a white mob burning down the segregated but self-made and affluent “Negro Wall Street” in the Greenwood district).

Black families were more likely to be steered into subprime mortgages, even if they had credit scores would have allowed them to get standard mortgages. And like Americans of all ethnic backgrounds, they often didn’t understand the loans and/or the loans involved outright fraud.

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Comments | More in Demographics, Great Recession, Income/living standards

June 8, 2012 at 10:00 AM

Vote: Fix the economy now

The economy is near stall speed, no matter what Ben Bernanke says. The Obama stimulus was too small to fill the demand hole left by the Great Recession. It was poorly aimed and now is running out, and the reality is that Obama has presided over one of the lowest-spending terms over the past 60 years. Government cutbacks are a further headwind to recovery (something Reagan didn’t face in 1982).

Unemployment remains high and growth is slowing. Most people think we’re still in a recession. Europe is in a recession and threatening to bring the world into a deep downturn. The GOP House and minority in the Senate will resist any measures to move the economy forward — at least until President Romney is sworn in. So welcome to the next few months.

What would you do to fix it?

The most important need now:

Read on for the best links of the week and the haiku:

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Comments | More in Campaign 2012, Debt, Deficit, Eurozone, Federal Reserve, Great Recession, Great reset, Income/living standards, Infrastructure, Jobs/Unemployment

June 1, 2012 at 10:00 AM

The economy on the edge

I read an economist comment that today’s report of only 69,000 net new jobs created in May is “what a jobless recovery looks like.” No, this is what an economy tipped on the edge of a new recession looks like.

China and India are slowing. Much of the eurozone is already in a recession and on the verge of a breakup and breakdown that will make Lehman Brothers look like a community bank failure. And the U.S. economy is rapidly decelerating. The job growth was half what’s needed just to keep up with the natural growth of the labor force, much less find new work for 12.7 million unemployed. Worse, all the new jobs came from part-time positions. With the decline in labor-force participation, the unemployment rate badly underestimates joblessness. Average hours and weekly wages fell. The share of people unemployed for longer than six months grew. (Here’s a quick briefing in charts).

In Europe, leadership is lacking; the big banks are in control and seem happy to take the continent down. The Federal Reserve has consigned itself to the sidelines. Unlike the Reagan administration, which expanded federal jobs amid the 1981 recession and after, the Obama White House has been cutting them. The demand hole mostly behind the jobs crisis was never adequately addressed. Yet no new stimulus will be forthcoming from a gridlocked, election-year D.C. Unless things get really scary. And they just might.

Read on for the best links of the week and the haiku:

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Comments | More in Debt, Deflation, Eurozone, Federal Reserve, Global economy, Great Recession, Jobs/Unemployment, Outlook

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