The U.S. Economy, 75% Based on Consumption, Is 100% Broken by Bankers Who, after a Bailout of $12 TRILLION, Are Still Stealing from Consumers!

Blogger’s Note: Below I reprint recent blogs by Robert Reich and Jim Hightower, which combine to tell a tale of unbounded greed by the few, leading to a dismal future for the many. N.B. Reich is correct that the U.S. GDP is 70% consumption, if real estate is excluded. However, home sales have normally accounted for another 5%. “But the traditional housing market, the one that involves willing buyers and sellers, is still dead, with transactions lower than they have been for decades.”

When Will The Recovery Begin? Never.

by Robert Reich, posted July 09, 2009

The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.

Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.

That's where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.

Personally, I don't buy into either camp. In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water -- owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.

Robert Reich’s Latest book, "Supercapitalism," is now out in paperback. For copies of articles, books, and public radio commentaries, go to www.robertreich.org. This blog is available as an RSS feed.

Big Bankers Mounting Sneak Attack on Consumers

by Jim Hightower, AlterNet. posted July 10, 2009.

Have you received your thank-you note? I'm still waiting for mine.

More than a year into the Wall Street bailout, I've yet to get any sort of "thank you" from even a single one of the big banks that you and I propped up with $12 trillion in direct giveaways, indirect giveaways, government guarantees and sweetheart loans. You'd think their mommas would've taught them better. But I've begun to think that waiting on a simple gesture of banker gratitude is like waiting on Donald Trump to have a good hair day -- ain't gonna happen.

Far from showing appreciation, the largest banking chains are now going out of their way to stiff us. Instead of nice notes, they are quietly slipping new gotchas into our monthly credit card bills and bank statements. In June, for example, Bank of America abruptly raised its fee for a basic checking account by 50 percent. Citibank jacked up the interest rate on some of its cards to 29.99 percent. And JPMorgan Chase more than doubled the required minimum payment on its cards.

Across the board, fees have skyrocketed to their highest levels on record, including assessments for such common occurrences as overdrafts (as high as $39), stop-payment actions ($39 -- double what it was 10 years ago), balance transfers (up more than 50 percent in the past year) and ATM use (nearly doubled in 10 years).

To add insult to injury, the banks blame us for their rate increases. Because the economy is such a wreck (massive job losses, falling incomes, millions of home foreclosures and other unpleasantness), industry spokesmen say there is a greater risk that customers will bounce checks or fall behind on their credit-card payments. Thus, claim purse-lipped bankers, they must protect themselves from us by ratcheting up rates and fees. "There is an increased riskiness around repayment because of the recession," spaketh one lobbyist for the financial giants.

Glade doesn't make enough "Spring Lilac" to cover up the stench of this argument. Come on -- it was the greed and incompetence of Mr. Jolly Banker that wrecked our economy, caused the recession and forced the odious bailout on us. They want us to pay for that?

The truth is, they are socking it to their customers for two reasons: 1) they can, and 2) fee hikes are a shifty way to snatch enormous levels of new income for themselves without doing anything to earn it.

These are the geniuses who made an ugly mess of the core business of banking -- which is to make good loans. To make up for their huge losses in that business, bankers have essentially been reduced to flim-flam fee-scammers. Last year, assessment of consumer fees became the main business of banks, totaling 53 percent of the industry's income!

That was before the current outbreak of fee frenzy. In the first three months of this year, for example, Bank of America's fee income rose 50 percent above the same period of 2008 -- an extra $4 billion in revenue for the bank.

"Fees 'R' Us" is what big banks have become. This is why they are panicked by reforms presently coming out of Washington. Already, President Obama has signed a bill to restrict credit-card gouging, and Bank of America, Citigroup and JPMorgan (which control about 58 percent of the nation's credit-card market) are scrambling to jack up their rates and fees before the new law takes effect next February.

Now, the bankers are lobbying frantically to kill Obama's plan to create a Consumer Financial Protection Agency, which would have regulatory power to prohibit a wide range of finance-industry abuses. For the first time, we consumers would have our own seat at the regulatory table -- an agency with the independence and clout to counter the Federal Reserve and other agencies that primarily serve big banks.

From the bailout to the explosion in fees, we've seen that Wall Street's financial titans won't control their greed. For the sake of the economy, the well-being of America's majority and the advancement of our nation's democratic values, we must do it for them. For more information, contact Americans for Financial Reform: www.ourfinancialsecurity.org.

To find out more about Jim Hightower, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

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