Prophets Of Doom? Meet The Regents Of Reality

WITHOUT THESE ECONOMISTS THE TOUGH DECISIONS WON'T BE MADE
Salon's Andrew Leonard lays out who he calls the "Cassandras" and Chicken Little's of economic punditry. Read it here. Whether the piece is meant as a jab at the perceived bottoming out of the economy or an homage; one thing is clear from Paul Krugman to Nouriel Roubini (and I might offer Robert Reich) these are the voices that have consistently shifted overexuberance to the side of caution and reason.

Start with Leonard's assessment of Krugman: "Without missing a beat, Paul Krugman went from being George Bush's most passionate and prominent critic to fulfilling the exact same role for Barack Obama."

This is either a criticism of Krugman's across-the-board disgust with any president or he posits the Nobel Prize laureate feels he can sell papers writing from the side of the minority. It's actually neither, but an inkling shared by this blog that the good ol' boys in Manhattan run the Treasury not matter what party is in power.

The consistent opinion of most of these men says the bailouts are not big enough, but the political solution must take into account the same Americans angry about taxpayer-funded bonuses and a poor economy. With both sides taken into account, all the Obama Administration can muster is what we have received. The hope and the prayer that it is just barely enough to get the country barely above water.

Wall Street Gets Richer; Americans Still Losing Jobs

RECOVERY WON'T RESONATE UNTIL AMERICANS ARE WORKING AGAIN
Way too many journalists are jumping on the economic recovery bandwagon especially when the Dow's 25 percent rise the past month does little to make life easier for you and me.

While some point to Wells Fargo's surprisingly healthy first quarter (Noriel Roubini said Wells Fargo was one of the weaker banks last month in Time. What happened?) as proof the recession has bottomed out, unemployment is still 8.5 percent and likely rising at the same clip. A chipper AP story reports the first week of April had the lowest amount of new jobless claims in months. I'm not sure how much an indicator one good week in the middle of 40 does for the unemployed. This New York Times piece speculates how the strong Dow could be covering up significant problems in the overall economy.

The underlining message in nearly every story, except a very cautiously optimistic article in the Boston Globe today, is that the financial sector is doing well and depending on your politics, the benefits will never "trickle down" to the pocket books of struggling Americans. It's true that short and long-term interest rates are unbelievably low, but how will it translate into more construction of homes? The inventory of already built new homes is high and recently foreclosed homes are even higher. This may be where Wells Fargo's announced $190 billion in new loan applications are emanating. Once the glut of inventory begins to deplete in relation to low interest rates where will this segment of the economy look like?

The job of Wall Street is to keep things positive; to eradicated jitters and to keep the wheels of finance rolling. It really has nothing to do with the problems Americans are dealing with everyday, at least, in the short term. It's likely over a half million more workers will get a pink slip this month. Add to this the previous 5 million and you have quite a segment of the population scrimping and saving and not purchasing goods and services. Don't tell Americans the economy is picking up while they sit and wait for a new job.

Bankers Break It, Taxpayers Buy It

NATIONALIZATION NOT IMMINENT; YET GROUNDWORK IS BEING LAID
The Citibank web site has a curious marketing slogan atop its home page, "we never sleep." Presumably, the motto means customer's can do their banking anytime, but with nationalization of banks becoming more likely by the day, it could be an admission of many sleepless night to come.

The past week has seen more than a whisper campaign from some Democrats and few leading economists that the short-term remedy for the banking system is nationalization. Sen. Chris Dodd has said it may "unavoidable", which is nearly equivalent to saying, "Folks, get ready. It's happening." It's no wonder the stock market, although briefly rallied today, is beginning to see the reckoning a collapse of Citibank, Bank of America and Wells Fargo could mean to the economy and the administration is slowly setting the stage for nationalization. For the time being, though, President Obama and Fed Chairman Ben Bernanke say nationalization is not on the radar. Bernanke's comments today stoked Wall Street and that was his intent.

The Washington Post reports today the Obama administration tweaked the terms of government assistance by demanding common stock in lieu of cash. "The change paves a road toward nationalization for the most troubled large banks," according to the Post. A piece on Bloomberg.com goes further in calling nationalization inevitable.

Nationalizing the nation's top banks has its drawbacks. With taxpayers already shouldering a large burden of risk that is likely to increase in the future, backing the financial sector may be too much. Some economists even believe another stimulus bill of nearly the same sticker price will be needed within two years. On the other hand, taxpayers saw little in return in the form of consumer lending after the initial $350 billion bailout money passed late last year and news reports of lavish executive spending and multi-million dollar bonuses left a lingering distrust of banks to apply the aid judiciously.

How poor is the health of the nation's biggest financial institutions? The grand sage of the credit mess, New York University Professor Nouriel Roubini laid it out in this week's issue of Time, saying Citibank is "on the way to ICU," Bank of America should "prepare the transfusion" and surprisingly, Wells Fargo needs a "Defibrillator. Stat!"

The poor health of these once mighty institution is a reminder of how their bottom line's were nothing more than a house of cards. Just 16 months ago, Bank of America and Citigroup were quarterly flipping top positions for the title of world's largest bank. Today, they may be on the verge of being owned by the biggest economy in the world.