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April 4, 2008
A steady fade in the job market has renewed concern for recession -- as usual, perversely good news for mortgages, again crossing below 6%.
Payrolls in March contracted by 80,000 jobs, and prior-months’ revisions clipped another 54,000. New claims for unemployment insurance spiked by 38,000 to 407,000, the worst week since Katrina. The purchasing managers’ surveys showed general business activity neither shrinking nor growing in March, and on a par with February.
The economic decline is slow, but clear. The optimists (found now only on stock-touting CNBC and Fox) have switched from a “no problem” forecast to a short and shallow downturn, and worst-is-over in credit losses. Maybe so, but I continue to believe that a government effort to re-capitalize the financial system will be necessary.
The Crunch chokes on: Oppenheimer says that global debt underwriting has fallen 55% since July (a $2 trillion strangle). In the 1st quarter, global bond and stock underwriting combined fell 45%, issuance of mortgage-backed securities by 82%, and non-rated “junk” bonds by 88%. For those who still buy the Wall Street line that this is all about housing, note that new issuance of state and local student-loan securities, a $330 billion market, in the 1st quarter fell all the way. Zero.
For public-policy junkies, great theater this week. Genuine American heroes appeared before Congress to be flayed.
Since Crunch onset in August it has been hard to evaluate our economic leadership. Perfesser Bernanke has taken action from the beginning, but late, inadequate, and appeared to be detached. That judgment may have been fair through January, but has been mistaken since then. My apologies: his speech this week (must read, short: www.federalreserve.gov), his opening of the Fed’s floodgates in new and essentially infinite amount, his distance from Secretary Paulson in testimony, his refusal this time to guide Congress on fiscal giveaway (“That is your purview...”), his blunt warning of recession, and extraordinary leadership in snuffing the Bear Stearns panic -- together easily the most courageous performance by a Fed Chair since Volcker in ‘79. Given the lack of public support by the Administration, maybe best-ever.
Timothy Geithner, NY Fed Prez, same deal. Christopher Cox, Security and Exchange Commission Chair, took heat even from Fed colleagues, but he is trapped in an ineffective regulatory structure (one definition of Hell: great responsibility without authority) and showed another form of courage: no illusions, no excuses.
Senators Menendez (D, NJ), Bunning (R, KY), and others, joined by Rep. Ron Paul, the American Ahmadinejad of finance, variously raked, hectored, and needled the heroes for failure to protect the American taxpayer. Of course, they had done exactly that. The heroes’ bitterness at the critique -- the lack of gratitude, the willful misunderstanding, the deceitful and cynical grandstanding -- was thinly disguised. A lesser man than Perfesser Bernanke might have left Congress thinking, “The next time I’ve got 24 hours to stop a meltdown, maybe I should just let it happen. When the markets shut down, visit Congress to ask what I am allowed to do.”
The absence of Mr. Paulson (on “previously scheduled” junket to China) was disgraceful, and makes plain who is in pursuit of imaginary market solutions and who is aware of danger and prepared to act. Before his departure, he announced a new plan of market regulation which transparently fails the only test: sufficient power to prevent a replay of this credit disaster. The Street being the Street, a fox guarding the henhouse would be okay; Mr. Paulson is a hen guarding the henhouse.
In a time like this it is the duty of the Chief Executive to explain to the people, to relieve national economic confusion and fear, to mediate collective sacrifice among both parties, and to protect the likes of Bernanke and Geithner, securing adequate authority for them to do their jobs. The President’s failure to fly top cover for these men, instead to give priority to another annoying descent upon European allies... unspeakable.
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