[Pen-l] the Good Depression?

["Jim Devine" <jdevine03@xxxxxxxxx>]

[a slice of current business thinking... I mean emoting.]

America needs a 'Good Depression'
Seven reasons a 'good' depression beats a new Great Depression

By Paul B. Farrell, MarketWatch / Last update: 7:14 p.m. EDT Aug. 11, 2008

ARROYO GRANDE, Calif. (MarketWatch) -- Yes, a depression. Spelled:
D-e-p-r-e-s-s-i-o-n. Wake up America, recessions don't work any more.
Why?

Get serious folks. We had a 30-month recession not long ago. Eight
years later the market's still barely at its 2000 peak, a loser.
Worse, we're back in a new recession. But Washington politicians are
keeping it a secret, feeding us doctored feel-good statistics as
legendary political historian Kevin Phillips wrote in [his
highly-flawed] "Numbers Racket: Why the Economy is Worse Than We
Know."

So we blindly refuse to bite the bullet and stop our out-of-control
spiral into collapse. America needs a big wake-up call ... and it's
coming soon, whether you like it or not!

Last November we posted "17 reasons America needs a recession." Today
it's far worse, and getting worse still.

Most economists predict it'll take till 2010 to burn off our excess
housing inventory. RGE Monitor say Fannie and Freddie bailouts aren't
working; they'll soon be "profoundly insolvent" and need to be
"nationalized." Treasury Secretary Henry Paulson has no long-term
plans, he's a caretaker, plugging holes, anxious to get back to Wall
Street's money machine, running out the clock till he turns over the
catastrophe he enflamed to a new bunch of politicians and their armies
of 42,000 greedy lobbyists.

Lessons learned? Zero. Why? Wall Street, Washington and Corporate
America are a one-trick pony with one narrow-minded strategy: Economic
g-r-o-w-t-h, bull markets, megabonuses. In good times they tout "free
markets." But when greed bombs, these big babies throw free market
"principles" under the "Reagan Revolution" bus as their lobbyists go
whining to Congress for megabillion taxpayer bailouts and access at
the Fed casino's discount window to siphon off more taxpayer money.
What hypocritical wimps!

Wall Street and its co-conspirators are doing such a miserable job,
America needs a new strategy: Stop all the short-term "hole-plugging."
Let go and let an old-fashioned "Good Depression" do the job that our
happy-talking leaders refuse to do. Let it clean house and reawaken
America to basic values. Otherwise a "Good Depression" will turn into
a new "Great Depression."

Here are seven strong reasons favoring this alternative strategy:

1. Yes, an honest diagnosis: soul sickness in American capitalism
America's problems are not the economy, not markets, nor even
politics. The endless bickering campaign is distracting us from facing
our real long-term problems. Yes, our economic pains are real, but
they're just symptoms. Since 2000 America has seen had a relentless,
sickening overdose of bad news: stupidity, deceit, corruption and even
evil behavior. Americans are n-u-m-b, suffering post-traumatic shock
syndrome.

The real problem is our thinking, our brains -- something deep in our
cosmic soul, says Jack Bogle's "The Battle for the Soul of
Capitalism." We lost our values, our moral compass.

2. Yes, time to admit this really is like the 1930's Great Depression

Comparing today with the Great Depression has become common sport. In
a Newsweek special "Seeing Shades of the 1930s," Daniel Gross writes:
75 years ago "Wall Street, after two terms of a business-friendly
Republican president, self-immolated on a pyre of greed, incompetence
and excessive optimism."

Like Dr. Scott Peck says in "The Road Less Traveled:" "Life is a
series of problems. Do we want to moan about them or solve them?" We
need to grow up, stop whining, roll our sleeves up and solve real
problems.

3. Yes, a Good Depression would reveal self-destruct bubble-thinking

In a recent Atlantic article "Irrational Exuberance" author Robert
Shiller warns: "Bubbles are primarily social phenomena. Until we
understand and address the psychology that fuels them, they're going
to keep forming."

Housing inflated 85% in a decade: "Historically unprecedented ... no
rational basis for it." Today there's a huge excess housing inventory,
higher-credit mortgages are now in jeopardy, the write-offs are now
projected at $2 trillion -- on top of a $3 trillion war, $10 trillion
federal budget, and more.

Bubble-thinking is contagious; it will trigger a pandemic. Shiller
says "few people seem immune to boom thinking. The recent bubble grew
so large partly because the very people responsible for the financial
system's oversight came to share the general public's rosy
expectations."

Unfortunately our leaders are still ignoring the underlying problem:
Nothing is being done about "our psychological vulnerability to
bubble-thinking."

Shiller then warns of a new megameltdown: "We recently lived through
two epidemics of excessive financial optimism. I believe we are close
to a third episode, only this one will spread irrational pessimism and
distrust -- not exuberance ... our economic problems will become much
worse than they need to be, and our social problems will multiply."

4. Yes, a Good Depression will stir outrage, force real reforms

In a recent Wall Street Journal article, Jim Grant, Forbes columnist
and respected editor of the Interest Rate Observer [and erstwhile fan
of Doug Henwood], framed his title as a question: "Why No Outrage?"
Why? He notes: "Through history, outrageous financial behavior has
been met with outrage. But today Wall Street's damaging recklessness
has been met with near-silence, from a too tolerant populace."

Tolerant? No, n-u-m-b! "Human progress seems to be the likeliest
culprit." Fear-driven, we prefer the devil we know to a new one. Yet
while "Wall Street may be sweating to fill out this year's bonus
pool," Grant worries that Wall Street will run "itself and the rest of
the American financial system right over a cliff." A Good Depression
brings outrage.

5. Yes, Good Depression forces Wall Street to think outside the box

In a great Bloomberg Markets feature, "No Easy Fix," we're told Wall
Street's "profit formula has hit a wall ... Wall Street's money-making
machine is broken and efforts to repair it after the biggest losses in
history are likely to undermine profits for years to come."

Merrill Lynch is a good example: It is selling 615 million new shares,
a 38% dilution, while hanging on to "$30.6 billion in crummy
derivatives," says Dennis Berman in the Wall Street Journal. Merrill's
stock is about half the 2004 price of $55. Merrill "needs to come up
with $2.8 billion in new profit, not sales, to get back to its 2004
per share earnings levels. That's $43,000 in new profit for each of
Merrill's 65,000 employees."

Unfortunately, Merrill's cash cows (off-balance sheet gimmicks,
derivatives, repackaged asset-backed securitization) that made
megabucks the past decade "have largely disappeared. That puts the
burden on Merrill's old-line businesses -- brokerage, asset management
and investment banking."

Solutions? Cut costs, steal market share or "gradually start to take
on more risk on Merrill's trading desks, which produced the bulk of
the $30 billion in losses the past 12 months."

Warning: Expect more desperate, high-risk and stupid moves: A new
BusinessWeek report says Wall Street's already lobbying Congress to
raid America's $2.3 trillion "pension honey pot." Warning: These are
the same greed-is-good Gordon Gekkos that brought us the last two
rapid-fire meltdowns. Stop them before they turn the next into a Great
Depression.

6. Yes, a Good Depression can prevent America's decline and fall

In "The Price of Liberty: Paying for America's Wars," Robert Hormats,
Goldman Sachs international vice chairman, traces America's wartime
financing from the Revolutionary War to present. Today we're "relying
on faith over experience, hoping that sustained growth will erase
deficits and that the ballooning costs of Social Security [sic],
Medicare and Medicaid will be manageable in the coming decades without
difficult reforms."

Former U.S. Comptroller General David Walker put it in more ominous
terms: "There are striking similarities between America's current
situation and that of another great power from the past: Rome." They
fell for three reasons "worth remembering: declining moral values and
political civility at home, an overconfident and overextended military
in foreign lands, and fiscal irresponsibility by the central
government."

And Pulitzer Prize winning geographer Jared Diamond takes an even
broader historical view in "Collapse: How Societies Choose to Succeed
or Fail:" Many "civilizations share a sharp curve of decline. Indeed,
a society's demise may begin only a decade or two after it reaches its
peak population, wealth and power." He draws historical parallels with
America in the past decade.

Warning: Wall Street's next meltdown won't be a mere statistical
recession. Our monetary system, our financial system and our tax base
are burning out. Like our overextended military, we are handicapped in
our ability to face new threats, much as were Rome, the Mayans and
other great civilizations.

7. Yes, a Good Depression will shock America's warring soul

President Bush said he's a "war president." The American economy is a
war economy driven by our warring soul. We spend 54% of the tax dollar
on war, 47% of the world's total military spending. A half century ago
President Eisenhower warned of this "military industrial complex"
that's running America into bankruptcy.

Today, our economy thrives on war and disasters, generating such
"spectacular profits that many people around the world" are convinced
America's "rich and powerful must be deliberately causing catastrophes
so that they can exploit them" says Naomi Klein in "Shock Doctrine."

Klein's snapshot of Wall Street's soul is disturbing: "An economic
system that requires constant growth, while bucking almost all serious
attempts at environmental regulation, generates a steady stream of
disasters all on its own, whether military, economical or financial.
The appetite for easy, short profits offered by purely speculative
investment has turned the stock, currency and real estate markets into
crisis-creation machines"

Pray for a Good Depression ... before they trigger another Great Depression.

[He never explains how to separate these two.]
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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