The Associated Press reported November 6 that the U.S. unemployment rate had topped 10 percent and was likely to go even higher. This is the first time that the jobless rate has exceeded 10 percent since 1983, when Ronald Reagan was President.
The story says, “Nearly 16 million people can’t find jobs even though the worst recession since the Great Depression has apparently ended. The Labor Department said Friday that the economy shed a net total of 190,000 jobs in October, less than the downwardly revised 219,000 lost in September. August job losses were also revised lower, to 154,000 from 201,000.”
So the bleeding continues, it’s just not as bad as it has been. Unemployment tends to be a lagging indicator in a recovery, but this has got to be politically difficult for President Obama and Democrats. The continued rise in unemployment raises serious questions about the effect of the stimulus package and overall sentiment concerning the ability of Democrats to manage the economy.
The AP continues: “Counting those who have settled for part-time jobs or stopped looking for work, the unemployment rate would be 17.5 percent, the highest on records dating from 1994. The jobless rate rose to 10.2 percent from 9.8 percent in September. The jump reflects a sharp increase in the tally of unemployed Americans, which rose to 15.7 million from 15.1 million. That was much larger than the net loss of jobs, which is based on a survey of businesses. Economists say it could climb as high as 10.5 percent next year because employers remain reluctant to hire.”
Another interesting statistic: nearly 36 percent of those unemployed have been without a job for six months or longer. That number is particularly painful. Jobs were lost last month in the manufacturing industry (61,000 jobs), the construction industry (62,000 jobs), the retail, financial, and leisure and hospitality industries. Professional and business services companies added jobs during the reporting period. The number of temporary jobs also increased last month.
The chief economist at Mesirow Financial, Diane Swonk, is cited as saying that small businesses, who are key to job creation, are still facing credit issues and don’t have the cash to bring on new workers.
http://finance.yahoo.com/news/Jobless-rate-tops-10-pct-for-apf-563122944.html?x=0&.v=8
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Comments: 24
If you can put your preconceived notions aside, you'll see that presidents of both parties and congresses of both parties are to blame, and that the roots of the current crisis go all the way back to the 1970s (and the deregulation of the financial sector started by Carter):
"While opinions vary on how long the current crisis in our housing and financial markets will last, its principal causes are clear. Exceptionally low interest rates, high levels of available capital, and the advent of mortgage securitization combined to spur overinvestment in housing—and underinvestment in the sort of due diligence that once typified lending. But as with most events of such magnitude, a long chain of subsidiary causes also played a part. The once-obscure Community Reinvestment Act, passed during the Carter administration, has recently—in part because of my reporting—become a bogeyman for Republicans, some of whom have proposed its repeal. Liberal Democrats have defended it as unrelated to the meltdown. The truth lies somewhere in between. While it’s a long way from the late-seventies world of the original Act to the twenty-first century’s housing crisis, the CRA’s role was important."
"At the time of the CRA’s passage, the world of banking was, as Monty Python would put it, something completely different. Banking was largely a local industry; indeed, interstate branch banking wasn’t legal yet. Mortgage lending, moreover, was largely the province of just one sector of the banking industry—the so-called “thrift” or savings and loan institutions, which had a long-standing deal with government. They would pay relatively low rates of interest to their many small depositors in exchange for charging relatively low interest rates for home loans. The limited earnings spread strongly discouraged risk and, combined with the lack of bank competition, undoubtedly limited many neighborhoods’ access to credit. This came to be known as “redlining,” which led many advocates for the poor to conclude that only a legislative mandate could guarantee that those of modest means, living in struggling urban areas, had access to credit."
"Until the Clinton years, CRA compliance wasn’t a difficult matter for banks, which could get an A for effort simply by advertising loan availability in certain newspapers. Then the Clinton Treasury Department changed matters in 1995, requiring banks that wanted “outstanding” CRA ratings to demonstrate statistically that they were lending in poor neighborhoods and to lower-income households. But this new era of strict enforcement came about in response to conditions that no longer existed. The bank deregulation of the 1980s—initiated not by Republicans, but by the Carter administration’s federal Depository Institutions Deregulation and Monetary Control Act—paved the way for sharp competition among mortgage lenders."
"But banks, engaged in a frenzy of mergers and acquisitions, soon learned that outstanding CRA ratings were the coin of the realm for obtaining regulators’ permission for such deals. Further, nonprofit advocacy groups—including the now famous Acorn and the Neighborhood Assistance Corporation of America (NACA)—demanded, successfully, that banks seeking regulatory approvals commit large pools of mortgage money to them, effectively outsourcing the underwriting function to groups that viewed such loans as a matter of social justice rather than due diligence."
"Sizable pools of capital came to be allocated in an entirely new way. Bank examiners began using federal home-loan data—broken down by neighborhood, income, and race—to rate banks on their CRA performance, standing traditional lending on its head. In sharp contrast to the old regulatory emphasis on safety and soundness, regulators now judged banks not on how their loans performed, but on how many loans they made and to whom."
"...as early as 1999, the Federal Reserve Board found that only 29 percent of loans in bank lending programs established especially for CRA compliance purposes could be classified as profitable."
"Was there a high enough level of CRA-related lending to spark our current crisis? Not on its own, of course. The crucial link was the extension of CRA-type thinking and regulation to the secondary mortgage markets through the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which buy loans from banks in order to provide liquidity. Beginning in 1992, the Department of Housing and Urban Development pushed Fannie and Freddie to buy loans based on criteria other than creditworthiness. These “affordable housing goals and subgoals”—authorized, ironically, by the Federal Housing Enterprises Financial Safety and Soundness Act—became more demanding over time and, by 2005, required that Fannie and Freddie strive to buy 45 percent of all loans from those of low and moderate income, including 32 percent from people in central cities and other underserved areas and 22 percent from “very low income families or families living in low-income neighborhoods.”
"How were such goals to be met? Crucially, subprime loans didn’t only allow banks to meet their CRA lending requirements; sold to Fannie and Freddie, they could also help the two secondary mortgage giants meet their affordable-housing targets. Not all subprime loans, or even a majority of them, were made for CRA-related reasons—the combination of cheap money and imprudent borrowers clearly made for a tremendous bubble. But such loans, bundled into asset-backed securities, were purchased (according to a June 2007 HUD report) especially by Freddie Mac to help fulfill its affordable-housing goals. As recently as April of this year, Fannie actually boasted about “mortgage products and options,” which included “reduced requirements for down payment and closing costs, choices for borrowers with less than perfect credit and flexibility to provide loans to home buyers with no traditional credit history.” In 2005 alone, Fannie Mae purchased some 3.8 million loans that could help them achieve affordable-housing targets. Bruce Marks might as well have been in charge of federal housing policy."
"It’s important to note that Fannie and Freddie bought paper from all sorts of mortgage originators, not just from banks bound by the CRA. But the loans still counted toward Fannie’s and Freddie’s affordable-housing goals—and helped lead to their meltdowns."
"But the CRA advocates, including the New York Times, continue to claim that CRA-qualified loans made by regulated financial institutions performed well and shouldn’t be implicated in our current troubles. They point to the results of an evaluation of CRA loans by North Carolina’s Center for Community Capital, which found that such loans performed more poorly than conventional mortgages but better than subprime loans overall. What they don’t mention is that the study evaluated only 9,000 mortgages, a drop in the bucket compared to the $4.5 trillion in CRA-eligible loans that the pro-CRA National Community Reinvestment Coalition estimates have been made since passage of the Act. There has been no systematic study, by either the Government Accountability Office or the Federal Reserve, of the performance of loans cited by banks in their CRA filings. Many such loans weren’t even underwritten by the banks themselves, which often purchased CRA-eligible loans (advertised in such publications as American Banker) and then resold them. Again, the emphasis was on showing regulators that loans were being made—not how they were performing. How could such a system not lead to problem loans and high delinquency and foreclosure rates? Eight years ago, when the national average delinquency rate was 1.9 percent, Marks told me that the rate for his organizations’ loans was 8.2 percent."
"It seems clear that we have, as a matter of national policy, pushed too many households toward homeownership. Both political parties are guilty. Democrats were largely responsible for the Fannie and Freddie affordable-housing goals, but the Bush administration promoted the idea of letting holders of Section 8 rental-housing vouchers—very poor households—use their housing subsidy as a down payment on a mortgage."
http://www.city-journal.org/2008/eon1030hh.html
And then there's this from the New York Times in 1999 (you know, before Bush became President):
"In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders."
"The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans."
"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits."
"In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans."
And here comes the warning in 1999, when Clinton was President:
"In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's."
http://bastisays.info/2009/03/1999-nyt-warns-of-mortgage-mess/
(Basti is a reprint service; the article was from the NYT).
And then there's the administration of George W. Bush in 2003 warning the Congress about this mess (remember when Democrats in the Senate would not sign on for reform, and Republicans, without a 60-seat majority, were unable to push the issue?):
"WASHINGTON (CBS.MW) - The notion that the U.S. government would bail out Fannie Mae and Freddie Mac if they ran into financial trouble 'creates a source of systemic risk for our financial system,' a top White House economic adviser warned Thursday."
"Fannie Mae and Freddie Mac, government-sponsored enterprises created by Congress to help fund home mortgages, enjoy special privileges, such as lines of credit with the Treasury Department. Those special privileges 'feed market perceptions that GSE debt has the backing of the U.S. government,' said Gregory Mankiw, chairman of the administration's Council of Economic Advisers. 'This notion is inaccurate.'
"Fannie Mae spokesman Chuck Greener disagreed with the administration's assertions about the implicit government guarantee."
"Mankiw said that a small misstep in the risk management programs at Fannie Mae and Freddie Mac could have repercussions for other financial institutions."
"Due to the enormous size of the mortgage-backed securities market, any problems at Fannie Mae and Freddie Mac would have a ripple effect, Mankiw said. 'This risk is a systemic issue also because the debt obligations of the housing GSEs are widely held by other financial institutions,' he said."
http://www.marketwatch.com/News/Story/Story.aspx?
guid=%7B74DABC67-B059-465E-AF68-6DB22EB961CD%7D
And of course, Barney Frank saying everything was just fine at Fannie and Freddie:
Hearing from September 2003 on an administration proposal to alter the regulation of GSEs like Fannie Mae and Freddie Mac:
"I [ Barney Frank] want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis."
"I do not think at this point there is a problem with a threat to the Treasury."
"The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see."
"I think we see entities that are fundamentally sound financially and withstand some of the disastrous scenarios. And even if there were a problem, the Federal Government doesn't bail them out."
Barney Frank, ladies and gentlemen, telling us in 2003 that Fannie and Freddie were fundamentally sound.
http://www.taxfoundation.org/blog/show/23617.html
"If you can put your preconceived notions aside, you'll see that presidents of both parties and congresses of both parties are to blame, and that the roots of the current crisis go all the way back to the 1970s (and the deregulation of the financial sector started by Carter):"
Both parties have been doing their best to create jobs (each year, every year), many types of programs, from all over the map. Are we to believe that one of them worked, but that State is keeping it a secret?
What all this says, is that from January to October, we had a 6.8% climb over Bushes two terms of 5.6%.
Whenevwer a right wing politician has an idea that might help, the left politicians have to degrade it so it will not work. If the left wing politicians have an idea that might work, their fellow left wing politicians have to degrade it so it will not work. ether way it is the Right's fault...
I will agree in that the truth of the matter is, both sides seldom come up with ideas that might work, so all in all it is both sides that are at fault.
When the Right have power, they give a large amount of their control to the left, and when the left has power, they hog it for themselves. Then blame the right that things did not work...
If our Politicians would actually work for us, instead of these power games, and blame games, then we might actually get some things done. But so far both sides refuse to work as a equal unit, so we have these power plays, and games that are destroying this country. And people want to follow the lead and blame the others... Lets address the issues for once, isn't that a novel idea?
Maybe if our politicians would do that, instead of what they are doing, and people ban together and make them do it, then maybe, just maybe we could turn this country around.
They are sending a clear message that they don't know what they are doing.
A recent report on the success of the Stimulus money reveals that over 600,000 jobs have been created or saved nationwide at a cost of only $250,000 per job.
I wonder if, when Nancy Pelosi was flying over America in that expensive jet, she gave any thought at all to the millions of unemployed people filing bankruptcy and having their homes foreclosed.
Well, DUH! Let's break the unions! Send the jobs where we can get cheap labor! And then let's blame Obama after we've been doing this for the past 8 years with the Republicans blessing. What a country of idiots we've become. Can't even buy made in the USA cuz nothing's made here anymore.
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with many thanks AC
Mark