Post-Christmas Commerce

My personal and wholly unscientific observation about the retail season just ended is that economic reality has dampened the frenetic shopping this year. Both yesterday’s and today’s papers were noticeably light on advertising supplements compared to former years.  The day after Christmas has traditionally equaled or exceeded sales for the day after Thanksgiving, but apparently the advertisers didn’t feel that would be the case.

My one trip to a large retail store this month was to Target, looking for some basic clothing items. The shelves were lightly stocked, with gaps for many price lines and sizes. I wasn’t there for gift shopping, just for basics for myself. I don’t know if the hot items on everybody’s gift list were in stock, but it seems likely that retailers kept their inventories lower this year than in the past, and more than ever did markdowns early and often.

Some indicators of economic health may be trending upwards, but my little window on the larger economy shows continuing weakness.

The Virtues of Capitalism

Capitalism has been very, very good to my family and to me. The economies of the industrial world have largely prospered under various forms of capitalism, except for the occasional hiccup, in a rather severe example of such unpleasantness we find ourselves now. Perhaps we could say of capitalism what Winston Churchill said of democracy, it is the worst of all economic systems, except for all the rest.  However, I have been thinking about a quotation that took up permanent residence in my disorderly memory years ago. I know that it was in a footnote in The Politics of Rich and Poor, by Kevin Phillips. Phillips cited a statement by another author regarding the seven deadly sins and capitalism. In my memory, the quotation is this:

The success of capitalism absolutely depends on the exploitation of each of the seven deadly sins, with the possible exception of Sloth.

I have never been able to remember who was cited as the originator of that caustic assessment of our founding principle of national wealth. This morning, with the assistance of the internet and Google Books, I may have located it, although not the precise page and wording. In 1944, Lewis Mumford wrote a book titled, The Condition of Man.  Searching within the text available on line, the closest I could come to the quotation above was on p. 162 in the paperpack edition published in 1973 as a Harvest Book:

Between the thirteenth and nineteenth centuries one may sum up the change in the  moral climate by saying that the seven deadly sins became the seven cardinal virtues…Greed, gluttony, avarice, envy and luxury were constant incentives to industry…

Nice to know, more or less, at the cost of 19 years of wondering, and an hour of Googling. It appears that Mumford did include Sloth as necessary to capitalism, and thinking of all the products designed to ease the effort of daily life, probably he was right.

Going back to Phillips and his book on rich and poor, the burden of his message was that the transfer of wealth from the middle and lower middle class to the wealthiest tiny percentage of the population of the country was likely to weaken and eventually destroy our economy. It appears that 19 years later, some evidence that he was right has just fallen in on us like the roof of a badly constructed building.

For the sake of my children and grandchildren, I hope it is not so.

London All Fools’ Day

As political and economic figures from the large industrial powers gathered in London for a conference on global financial problems, upwards of 4,000 demonstrators converged on the Bank of England among other targets to protest everything from banks to global warming to capitalism itself. Most, according to news reports, confined their activities to signs, songs and slogans. The minority all seemed to be wherever a camera was running.

Protesting globalization of world business and banking is a right, but logic and judgment make better points than shoving matches and photogenic blood streaming from superficial head wounds. During one television broadcast of street scenes from this morning, one particular clip of a young man with such a bloody head was looped repeatedly as the announcer read details of the clashes.

The economies of the world are already globalized, this particular meeting addresses the need for global regulation to avert the sort of chaos we have been experiencing for the past six months. The demonstrators are out of that process by choice and by lack of understanding how the world works.

Finance and Populism

This morning on the MSNBC news show Morning Joe, guest Jon Meacham drew parallels between the present financial crisis, populist response to it, and the similar issues during the Andrew Jackson presidency. I had the same thoughts as I read Meacham’s latest book, American Lion: Andrew Jackson in the White House, shortly after its publication last November. The crisis in the financial industry was rapidly spreading through the economy, unabated by early infusions of federal funds into the larger financial firms, largest among them AIG. Slowly (to those of us not in the industry) the extent to which credit default swaps, a rarefied sort of insurance against failed securities, were involved has become apparent. The trip wire to this failure of unsecured insurance occurred within a unit of AIG.

Outrage against these practices, building for months, crystallized in the past week or two, with the news of large bonuses paid to employees within this very unit. The impact on Main Street, a mantra early in the crisis, has focused on these bonuses. The current issue of Newsweek magazine, of which Jon Meacham is the Editor, centers on the populism ignited against Wall Street

As I read American Lion last fall, the struggle between Andrew Jackson and the Bank of the United States seemed to closely parallel the current situation. The Bank of the U.S., actually the second Bank of the U.S., was a private business filling many of the functions of the government, for private profit, as well as being a depository of federal funds – at no interest paid to the government.  Sort of a combination of Fannie Mae, Ginnie Mae, and the Fed, only without any regulation to speak of.

Men of great intelligence and financial knowledge ran the Bank of the U.S., much as was the case recently with the large firms that have so nearly wrecked the U.S. economy. Profit and public policy do not mix well, at least in the public eye when there is fallout like the current ghastly train wreck.

I do not understand the complexities of what happened, a condition shared by many in power and on the street. The virtual nationalization of the banking industry accomplished in such short order last fall may work out to the economy’s benefit, and therefore to our own. I hope so. Learning from history would have been a better way; prevention trumps crisis management.

Friedman’s “All Fall Down”

In his column published yesterday on the NYT website, Thomas Friedman reviews the financial disaster in plain words. Friedman’s piece was prompted by an article in the Sunday NYT about Citigroup’s “rush to risk,” followed by the Monday announcement of another federal bailout for that entity. After citing the bad decisions, the greed, the stupidity or cynical exploitation by “some of our country’s best-paid bankers [who] were overrated dopes,” Friedman ticks off the many willing hands from bankers on down who share the blame, lenders, borrowers, security brokers and others.

Friedman’s concluding summary:

That’s how we got here,  a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash. These are the wages of our sins. I used to say our kids will pay dearly for this. But actually, it’s our problem. For the next few years we’re all going to be working harder for less money and fewer government services – if we’re lucky.

A Jeremiad for the 21st post-America Century. God save the United States.

Dogma and Business

CHANTILLY, Va. (AP) — A new drug store at a Virginia strip mall is putting its faith in an unconventional business plan: No candy. No sodas. And no birth control. Divine Mercy Care Pharmacy is among at least seven pharmacies across the nation that are refusing as a matter of faith to sell contraceptives of any kind, even if a person has a prescription.

There have been a number of stories over the past few years about pharmacists refusing to fill contraceptive prescriptions. As far as I know, this is the first story not involving a national chain, such as WalMart or Walgreen’s or CVS. I see that seven, “at least”, other pharmacies are known to be doing this.

Defenders of the pharmacy cite the businessman’s right to define what will be sold and what will not. I am not versed in the regulatory or ethical strictures on licensed pharmacists in this sort of case. I suspect such standards vary from state to state. If there is no regulatory or ethical violation of public or professional standards, I suppose the decision not to provide birth control products, prescribed or OTC, to customers is permissible. Even though the reasoning ignores scientific facts of fertilization in describing birth control pills as “killing babies.”

Interestingly, the store also does not sell condoms. And a Roman Catholic bishop blessed the new store, sprinkling holy water about the premises. Do condoms also “kill babies?”

It will be interesting to see if this store, and others like it, can attract enough customers to stay in business. I personally would not shop at such a store, although I am out of the procreation business myself, being somewhat aged. I don’t consider the underlying motives consistent with my beliefs about the relationship of belief and compelled behavior.

Personal Responsibility

“Personal responsibility!” is an often-heard mantra in the blogosphere, on discussion boards and on talk radio. It is the rallying cry of those who oppose any role for government in cushioning economic shocks for those who have suffered the vagaries of the economy. Even the scale and possible consequences of the present credit dislocation have not blunted the calls for “letting the market work,” i.e., allowing the failure of all the over-extended banks involved in the tangled markets in mortgages and mortgage security bundles. The idea that letting the banks fail would “teach them a lesson,” the “them” presumably being the officials of those banks.

Unfortunately, all the personal wealth of those at the top of the financial hierarchy in this country would not begin to offset the damage already done, even if that wealth could somehow be extracted from the offending executives. Such a prospect would please no one better than the high-priced defense attorneys who would flock to defend the financial mavens.

The markets today went up with as much celerity as they had fallen in previous sessions. As a barometer of real economic health or otherwise, the stock and bond markets do not inspire confidence. I have no clue how this crisis will play out, except to note that the rules we learned in Mr. Fulghum’s kindergarten, especially “clean up your own mess,” cannot be exported into the byzantine complexities of the credit implosion now facing us. We all have to clean up the mess. It is already there, and the buck stops with the taxpayer.

Thanks, Columbus

Not just for stumbling across the Americas, but for prompting by way of the Holiday Bill one more day without a Banking Sleighride.

Wall Street and world markets will open as usual, perhaps responding to statements from European governments that infusions of capital into banks are likely. The U.S. money honchos are making similar noises. I am reminded of a New Yorker cartoon dating from the Great Depression, with a little man (Hoover? Don’t remember) peering around a corner, to see an endless succession of corners ahead. Recovery is around the corner, but which one?

I have fretted over the past five years about eroding my retirement monies. Had I saved every penny, and added to my little store, the past couple of weeks likely would have left me in the same sorry shape I find myself today.

I can feel concern for others, strangely enough, who have children still to raise, mortgages to sweat over and face a lifetime in the shadow of this colossal failure of judgment on the part of financial titans. I will have plenty of company in the corners of poorhouses all over the country, but my generation has a shorter time to endure the consequences of economic folly.

America Held Hostage…Day Five

After leaders of the House of Representatives reported they had an agreement on a slightly modified version of the Bush Administration’s financial bailout plan, the roll call vote ended with the plan defeated, 228 to 205. A number of Republicans blamed the partisan comments of Speaker Pelosi for the defeat, while Democrats said the GOP leaders couldn’t muster promised support from their own party members.

The markets went crazy, bad crazy.

It appears to me that both sides are playing electoral chicken with this issue, maneuvering for advantage in the elections this year and for years to come, tarring the other party as the ones who “lost the economy,.”

The damage to the economy is already done. The collapse of the housing bubble, lowering the value of real estate, including much mortgaged at subprime rates, has caused a huge drop in the value of all those mortgages, perhaps even amounting to the $700 billion proposed as the cost of the bailout bill. I do not know, nor do I believe anybody knows, the exact figure, or even an approximation. How to handle this loss is the only question; whether to gradually dispose of the mortgages or properties for some steep discount over a period of years, or allow the market take its course, resulting in immediate foreclosures and bankruptcies for many more financial institutions.

I believe there are congresspersons of character who will work to sort this out. I do not believe that today’s events were representative of those better angels of our government. Meanwhile, economic chaos.

*Sigh*

America held captive…day two

What drama, what confusion, what ideological posturing has taken place in Congress over the past two days.

First the President proposed a $700 billion purchase by the federal government of bad assets of banks and financial institutions, to restore confidence and free banks to lend again. Overnight rebellious leaders of the President’s party came up with another plan, insuring loans rather than outright purchasing them with taxpayer dollars.

Lacking the financial knowledge to analyze the meager details released about either plan, I have no idea who is blowing the most smoke here, but I suspect everybody is scrambling to cover their electability in the near future, from the presidential candidates on down. As I understand it, there are many banks on the list the Fed keeps of problems serious enough to watch. If we string this debate out, many more dominoes are going to fall, and credit, already contracting, will disappear. The economy is already the “sick man of the G8,” what will happen then? Foreign governments hold a prodigious amount of debt instruments sold by the federal government. Runs on banks could morph into a run on the United States Treasury.

When I read the comments by Republican opponents of a bailout, I keep hearing the theme song from “All in the Family,” with Jean Stapleton and Carroll O’Connor disharmonizing,

Mister, we could use a man
Like Herbert Hoover again . . .

I wonder if there is light at the end of this tunnel?

I hope so, for me, and for my children and grandchildren.