Tuesday, May 31, 2011

A Crony Capitaism Recession

I wrote this for a local paper.

By Nick Sorrentino

The good news is that there won’t be a double dip in the economy. There won’t because we never climbed out of the first dip. We are in a bumpy depression. There are ups and there are downs, but generally we are in a solid decline economically.

It is true that the stock market has gained much of the ground back that it lost in 2008. But it is still down by more than 10% from prior highs. The S&P 500 has been down for the past 4 weeks.

On CNBC this week David Blitzer, Chairman of the Standard and Poor’s Index Committee said, "Home prices continue on their downward spiral with no relief in sight."

The dollar continues to decline though there was a slight bump up after we took down Osama Bin Laden in early May. That is why gas prices are at $3.75 a gallon and not $4.10 a gallon.

But this is unlikely to last. The dollar will probably continue to weaken, and as it does the price of a gallon of gas priced in US dollars will go up. Goldman Sachs is predicting $5.00 gas by July.

This, while 1 in 7 Americans are on food stamps. 1 in 4 American children are on food stamps. The sad truth is that the EBT card rolls are getting longer 2 ½ years after the initial crash. Some areas in the South and Midwest are much worse than the national number.

The unemployment rate officially stands at 9%. This is bad enough, but when factoring people who no longer qualify for unemployment (because it ran out,) and those who are chronically underemployed, the rate is much higher. Some believe the real number to be in the 20% range.

I know quite a few people who would love to work, but can’t make it happen. These are people with skills and educations.

Why is this? Why hasn’t there been a robust turn around? The experts in Washington are doing everything they can to help those of us who live out in the hinterlands, right?

They bought back our old cars, you know the ones that didn’t have a car payment, so we could buy new cars at inflated prices, which did have car payments.

They instituted the First Time Home Buyer Tax Credit of $8,000 so that people without a house that was going down in value could also enjoy the special pleasure of watching their biggest investment depreciate in front of their eyes.

Don’t forget that they nationalized GM and Chrysler and Freddie Mac and Fannie Mae. Yep, the experts bailed them all out with your money, now they limp along as “zombie” companies.

Then there’s Wall Street, which was also bailed out with your money. Funny, all the “experts” making the calls in Washington also come from Wall Street. Not that I have any problem with investment firms. I am a rabid capitalist.

Unfortunately to be for many financial firms these days is not to be for “capitalism.” It is to be for “crony capitalism,” or corporatism. In capitalism one can win or lose. In crony capitalism, so long as one has the right connections in government one need not fear real loss. Uncle Sam is always there to save a well connected and generous (with campaign contributions) firm in trouble.

It should come as no surprise that Chairman Dodd of the Senate Finance Committee got a sweetheart deal on his mortgage from Countrywide Financial. Nor should it surprise us that after the University of California system, Goldman Sachs was Obama’s biggest donor in 2008. This is the way it is.

So for some, the Great Recession, really has been great. So long as one is in the club the money sun always shines. For those on the outside things look considerably less bright.

About Me

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of Exelorix.com a social media management company.