Wednesday, October 14, 2009

Measuring the recession

Today was a good day for investors as the Dow closed at over 10,000 for the first time in longer than a year. Moreover, J.P. Morgan Chase reported some pretty good third-quarter earnings. Hopes are that other major banks, like Citigroup and Bank of America, will report high earnings later this week as well.

Does this mean the banking crisis is over? What about the recession?

That all depends on the scale one uses to measure each. Recovery in the stock market is a good thing. I checked my Scottrade account for the first time in awhile without crying, but it's not like I'm rolling in it, and neither are many other small investors.

Holistically, the economy is still suffering. The housing market is yet to bounce back and foreclosure rates are still high. In my mind, perhaps the most important number for middle-class America is the unemployment rate, which rose to 9.5 percent in September according to the U.S. Bureau of Labor Statistics -- and it's probably growing.

And what about the banking industry? Well, Chase is claiming that the economic crisis -- which they directly helped cause -- has slowed consumer spending to the point where their credit card department is not expected to turn a profit until 2011. On top of that, let's not forget $25 billion they still owe the taxpayers from the June bailout, which may have been one of the worst decisions in our nation's history.

I think you could make the argument that the banking industry is worse off now than it was a year ago -- or at least it potentially could be. We're seeing a phenomenon now where large, failing banks are being purchased by larger, faltering banks. This means that institutions that were already "too big to fail" are not only continuing to fail, but are getting even bigger. Take a moment to let that settle in.

The very concept of "too large to fail" seems to connote ideas of "trusts," "pools," "monopolies," and other business practices that have been illegal for a century. Why can't we break these banks up and overhaul the system? If we allow these institutions to grow without stiff regulation -- and even with it, because we've seen how quickly that erodes -- we are begging for another meltdown. What's worse is the precedent we've set with the bailout, which encourages institutions to act frivolously know that our dime will rescue them. What the hell kind of capitalism is that?!

I guess what it comes down to is the fact that banks are paid up with the right people, so much so that it often overrides the democratic process itself. The Supreme Court's ruling on the Hilary film could make the current situation that much worse. I just wonder how much our system can stand before it collapses on itself...or maybe even implodes against itself.

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