How to Save the Economy?

[nathanael]

Economy we must fix. That's a given! But we will not fix it killing the unborn ... killing our helps from God! Obama doesn't get this! It's "above his pay grade"! This said, I will tell you what other thing we need to do: Put the evicted homeowners back in their homes! Give them an affordable monthly rate! Make homes affordable to the poor millions, by letting them to assume possession of millions empty homes. Ask the home building industry to keep building homes. Let all Americans have homes and affordable monthly payments! This will save the economy overnight! There are many other things we can do. The forum is open.

[kaima]

Panic of 1873

chronicle.com/temp/reprint.php?id=477k3d8mh2wmtpc4b6h07p4hy9z83x18
By SCOTT REYNOLDS NELSON
As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else. But as I turn the crank on the microfilm reader, I have been hearing weird echoes of recent events.
When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now. Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.
But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing). The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track. Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.
The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.
As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, "economic organization crumbled with some primeval upheaval." Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms "tramp" and "bum," both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York's Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania's coal fields in 1875, when masked workmen exchanged gunfire with the "Coal and Iron Police," a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.
In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.
The echoes of the past in the current problems with residential mortgages trouble me. Loans after about 2001 were issued to first-time homebuyers who signed up for adjustablerate mortgages they could likely never pay off, even in the best of times. Real-estate speculators, hoping to flip properties, overextended themselves, assuming that home prices would keep climbing. Those debts were wrapped in complex securities that mortgage companies and other entrepreneurial banks then sold to other banks; concerned about the stability of those securities, banks then bought a kind of insurance policy called a credit-derivative swap, which risk managers imagined would protect their investments. More than two million foreclosure filings — default notices, auction-sale notices, and bank repossessions — were reported in 2007. By then trillions of dollars were already invested in this credit-derivative market. Were those new financial instruments resilient enough to cover all the risk? (Answer: no.) As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment. Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)
The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.
In the end, the Panic of 1873 demonstrated that the center of gravity for the world's credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India. Beyond that I would not hazard a guess. I still have microfilm to read.
Scott Reynolds Nelson is a professor of history at the College of William and Mary. Among his books is Steel Drivin' Man: John Henry, the Untold Story of an American legend (Oxford University Press, 2006).

[nathanael]

Excellent article! We need as much historical review as we can get. The mortgage crises seem to pop up again and again. This harks back to my solution: find a way to appreciate the million vacant houses and put people in them! Build another million and do the same. Give people reasonable payments and meaningful jobs. No nation is viable without people working! China is a living example. We must create jobs! Can the lessons from the New Deal be applied to the current crisis? I think, they must. But we also need to prod China and India to buy more from the U.S. I cannot understand why there are so many factories closed! Africa needs our products and so does Asia. We need a World Bank that lends money to the poor nations for importation! Once they develop, the money will be repaid.

[karl]

Kai

A very interesting and revealing article presentation. I was struck with the historical material presented for as a foundation of work. Although, one must be of careful with over presentation of material for as to confuse with the point of focus, and that is the currant time period of now and present situation.

As of only an opinion to express of the plight of the currant and past home buyer question of default. For only as of my own opinion to express in and of this situation.

For as a Democratic Republic, each individual person, holds the responsibility of their actions. In-as-much as to blame of and for a given situation that has gone south, those folks of the banking industry, must take back these properties, at a loss due to limitations of currant actual value and former inflated value.

In most of these sub-prime lending cases, the lending institutions only were offering to the consumers, a time limit loan of 5 years of and variable rate of interest below of prime rate. Then at expiration of this specified time limit {5 years}, the loan would expire and then to be renewed at the currant rate of interest as specified by the terms of the original purchasing contract.

Those folks knew at time of signing, this would be the case, and still they have signed that contract. As proof of knowledge, the seigneurs must by US contractual agreement, be advised by the officers representing the lending institution of each and every segment of this legal binding contract, as the purchasing agreement has disclosed, and then counter signed by the officer of the bank/loan representative in conjunction as with purchasing individual{s}. For this is the legal law as pertaining to the {Law of Hammurabi}{in as much to all legal documents, must be signed, witnessed}.

As so, then for why lay the blame upon the banking industry for the stupidity of the American purchaser? For these folks were out to slice a fat pig, and were caught with their bare butts hanging in the breeze.

For in this stead, the purchasing folks, had at their option, to negotiate at market price, a standard 30 year mortgage. And as forth wit, were not to take this safe action.

I am sorry, for I hold nothing but crocodile tears for these folks.

Perhaps I am singing in the wrong choir here with the wrong choir book. If this is so, please do inform and provide correction.


Karl

[kaima]

Karl,

I read the article with pleasure due to a totally unexcpected side benefit. It described the economic effect American had In Europe in the 1870's with out agriculture and our mines. Our success gave Europe a very hard time competing.

Since my family comes from Northern Hungary (Slovakia), it was particularly interesting.

I am sure there was quite an effect of American competiition in Poland at the time, driving down prices and causing some havoc!


Kai

[Jaga]

Kai,

I saw the article a couple of days ago and I saved a link so that I will be able to read it carefully after these 4*10 hours working days. From what I looked now, it is excellent, thanks!

[karl]

Oct 7, 2008 15:21:59 GMT -7 kaima said:

Karl,

I read the article with pleasure due to a totally unexcpected side benefit. It described the economic effect American had In Europe in the 1870's with out agriculture and our mines. Our success gave Europe a very hard time competing.

Since my family comes from Northern Hungary (Slovakia), it was particularly interesting.

I am sure there was quite an effect of American competiition in Poland at the time, driving down prices and causing some havoc!


Kai

Kai

For not the risk of becoming a bore, I wish only to add a bit to your reply. {this was a result whilst clean up of my deplorable post reply to you}.

The article brought into focus some points that give the shudders to our manufacturing. For your American ingenuity in use of automated technology formerly un-heard of, is an icon of inspiration in our part of the world.

For your now deceased mass manufacturing icon of Mr. Henry Ford, taught us the art of mass production. We learnt the efficiency of modern infrastructure from your rail road icons in construction and engineering. For these techniques were invaluable for design and construction of our currant Autobahn that seems to be a feature most remembered by most with the mythical thinking of total lack of speed limit.

But perhaps a point should be brought forward of the American efficiency. Was the seemingly instant conversion/re-alignment of American industrial focus from peace time consuming production, to a total re-focus into war time production. This on a previously un-heard of scale.

America has all that is required to out-produce European out put and market dominance. You have the available raw materials, massive fuel resources. A very excellent infrastructure with only the need of easily accomplished improvements for efficiency. And, a very large labour pool of very well public educated work force.

It is all there, what is lacking is the proper focus of leadership.

If perchance, America gains this re-alignment of focus. We are in trouble {Europe}. For if then the American leadership of industry learns to out produce us, and learns to control the international market place, we then will be only vassal's of yes people of sub-servancie.

Karl

[nathanael]

Just a brief observation on the coming summit of the world ministers of economy in the White House. Judging by the media, there still seems to exist a lingering uncertainty on what to do about the crisis, understandably so. Not being an NBA, my voice is just another voice. But I would urge the White House, and those ministers, to at least revive the question of one world currency, the dollar! Many currencies invite speculation and uncertainty in the global markets. All currencies could be converted to dollar value, making trade far more simple and profitable. The nations can certainly retain the indexes of each other's wealth, and even the names of their currencies, but the denominational value should be one for one (ex: 1 dollar = 1 yuan, or peso, or DM, or euro, or yen). President Bush, to his credit, has been advocating this, though unsuccessfully in years past. But the current crisis indicates that he was right. It may not be a panacea, but it may be a quantum step in the right direction! Incidently, the Polish media are reporting that, "if the summit at Washington fails," Japan will call for another summit in Tokyo." The President Bush has been put on notice: deliver, or we take over! I have not seen this reported in America, yet. I already see Wall Street being moved to Tokyo.

[nathanael]

There is news about the GM-Chrysler merger. Is there a correlation between "merging" and "emerging"? The merger seems inevitable. But, how about reaching out to emerging nations? I would prefer GM and Chrysler to offer emerging economic powers, like Irak, a 50,000 truck and utility vehicle sale in exchange for discounts. This would keep these companies working and afloat! No company can survive making products, but no selling! I see several nations where such deals could be made under the plausible pretext to save world economies! Why not for instance China, India, Australia, Japan, even Kazachstan? We need to learn new ways to do Capitalism!

[nathanael]

A crisis of this magnitude requires many catalysts, and OPEC is certainly one of them. The global economic crisis, while caused by a universal greed, was further precipitaded by lack of unity among the nations, and this includes the jihadist propagandas, like OPEC's. There is lots of blame to be shared around. Many nations, European Union included, decoupled from the dollar out of sheer self-interest. This didn't help. Expensive wars were and still are being fought. Asia likewise tried to go its own way, hampering the dollar and trade. The worst, of course was the overconfinence and inaction. The Great Depression generation has largely passed away, and the younger generations were too busy, and too duped, with computer models and games. Once the crisis is over, the lessons from it will continue to be assimilated for years. For now, we need to weather the storm through!

[nathanael]

There is talk of trade suspension. I absolutely endorse trade suspension until the fears cool off! It is silly to open Wall Street and other stock exchanges throughout the world in this fear climate! I have been thinking about this for days. Now the idea comes from Britain. Why not give vacations to the brokers? Stocks cannot fall if all the exchanges are closed! But this would have to be global and simultaneous ... otherwise many sharks would take advantage, using the available stock exchanges to damage the market further!

[uncltim]

What if we abandon the practice of usury all together and be done with it?

[kaima]

Oct 12, 2008 6:59:41 GMT -7 uncltim said:

What if we abandon the practice of usury all together and be done with it?

That would be radical, conservative and Christian. Certainly not in keeping with our practices!

here is another 'lighthearted aspect'

[nathanael]

Oct 12, 2008 6:59:41 GMT -7 uncltim said:

What if we abandon the practice of usury all together and be done with it?

We shouldn't do that, and we need not do that, Uncltim. I do not advocate "usury," but people, especially the poor, need to keep borrowing. Economy, to be successful, needs borrowing, even at a certain risk. What we need is controls, controls, controls. There is an enlightening article in Business Week (MSNBC) by Robert Berner and Brian Grow, titled "States warned about the impending mortage crisis." This article illustrates my point, and if true, we better elect McCain! It's a must read. Much of the blame for the current mortage crisis, if not all, is due to unwise lending practices "protected by the Democrat political appointees and Democrat appointees to the Supreme Court"! Talk about lack of wisdom in the high places! Did you know that Judge Ruth Bader Ginsburg, yes, the same liberal Judge who made Roe v. Wade possible, has blocked in April 2007 the State of Michigan of policing the unwise lending by Wachovia? It sounds the bell to me! This radically liberal Judge has left the controls of mortage market in the hands of another Democrat Clinton appointee, a certain Mr. Hawke, head of the Office of Comptroller and Currency, de facto castrating Michigan and all U.S. states of protecting themselves from this terrible crisis! Ginsburg has forbidden the states to defend themselves from this crisis! We all know the rest of the story. If America survives, the first thing we must do, is to change the composition of the Supreme Court! The liberal thinking has blinded the minds of some of our leaders!

[kaima]

Oct 12, 2008 12:20:30 GMT -7 nathanael said:

Much of the blame for the current mortage crisis, if not all, is due to unwise lending practices "protected by the Democrat political appointees and Democrat appointees to the Supreme Court"! Talk about lack of wisdom in the high places!

Did you know that Judge Ruth Bader Ginsburg, yes, the same liberal Judge who made Roe v. Wade possible, has blocked in April 2007 the State of Michigan of policing the unwise lending by Wachovia? It sounds the bell to me! ....

If America survives, the first thing we must do, is to change the composition of the Supreme Court! The liberal thinking has blinded the minds of some of our leaders!

With SEVEN of the nine justices being Republican appointees, I don't know how you can get much more of a conservative court. Perhaps we should allow you to review and approve their opinions.

However, the 'conservative' Rehnquist (appointed by Reagan) court will be remembered for its 5 to 4 decision in Bush v. Gore which ended the electoral recount during the presidential election of 2000 and led to the presidency of George W. Bush. In addition, the Rehnquist court decriminalized homosexual sex (Lawrence v. Texas).

The current line up is:

John Roberts (Chief Justice)
January 27, 1955 (age 53) G.W. Bush
John Paul Stevens
April 20, 1920 (age 88) Ford

Antonin Scalia
March 11, 1936 (age 72) Reagan

Anthony Kennedy
July 23, 1936 (age 72) Reagan

David Souter
September 17, 1939 (age 69) G.H.W. Bush

Clarence Thomas
June 23, 1948 (age 60) G.H.W. Bush

Ruth Bader Ginsburg
March 15, 1933 (age 75) Clinton

Stephen Breyer
August 15, 1938 (age 70) Clinton

Samuel Alito
April 1, 1950 (age 58) G.W. Bush