Thursday, November 19, 2009


The stock market is doing great, especially the financials. GDP was up last quarter. The recession is over — right?

Technically. Maybe.

The stock market is doing well because corporate earnings are up — but not because of increased sales, because of decreased costs. When you fire half your workers and force those who remain to work twice as hard, costs are way down, and suddenly you're profitable again. With the Fed holding interest rates at rock bottom levels (should you happen to be a large corporation and not an individual consumer), it is much cheaper to replace labor with new capital.

So far, though, all we've seen is the supply side. The demand side doesn't look nearly so rosy.

Henry Ford is remembered for his decision to pay his workers well enough so that they could afford to buy his company's cars. Somewhere along the line, that idea was forgotten. As unemployment continues to rise and wages continue to be depressed, demand for everything but luxury goods has to decline. The Wall Street execs may continue to buy their $15 million condos and $18 thousand wristwatches, but who's going to be buying the Fords?

In the meanwhile, regulatory reform looks like it's going nowhere. Flush with taxpayer subsidized profits, the banks have successfully lobbied the teeth out of proposed legislation that still might not pass. It looks pretty certain that derivatives will remain largely unregulated, and that capital requirements won't be increased enough to significantly reduce risk. Chris Dodd's plan to consolidate regulation into a single agency (that is not the Fed) is dead in the water, because no Congressional committee supervising the current assortment of agencies will be willing to give up its power. I suspect a good deal of his populist stand is an attempt to get us to kind of forget about the extra-favorable treatment he got from Countrywide Finance.

As for Obama, Emmanuel, and company — I don't think they're too anxious to give up the vast contributions coming in from those generous folks at Goldman-Sachs and the like. Don't look for leadership from the White House.

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