financial crisis

I give MoveOn.org this much. When it comes to their friends they never let the facts get in the way of a good story.

This weeks's meme is the man who will humble corporate control of government is Connecticut Senate candidate and Nancy Pelosi lackey Chris Murphy

One year ago today, the Supreme Court gave corporations the same First Amendment rights as you and me, in the Citizens United decision. And in the last election, we saw what this corporate takeover of our democracy looks like, with a record-setting $4 billion spent on the elections.1

Connecticut Rep. Chris Murphy has been a leader in the fight to rein in corporate control of our democracy. He was one of the first signers of our Fight Washington Corruption pledge, which included a call to overturn Citizens United, and he organized other congressional candidates to join him and "take back our democracy from the big corporate special interests who have so dominated our political decision making in the last decade."2

A corporate front group targeted Rep. Murphy with over a million dollars in attack ads in retaliation for his bold stand3, but Rep. Murphy fought hard, and with help from local MoveOn members, won in November.

Yesterday, Rep. Murphy announced his candidacy for the U.S. Senate seat currently held by Joe Lieberman. It's exciting that as a champion in fighting corporate influence in Washington, Chris Murphy can make this a real issue in the race for Senate.

Will you call Rep. Murphy to thank him for his leadership on this issue? Then, ask him to make sure the issue of corporate influence remains front and center in the Senate race over the next two years by encouraging all the candidates to speak out forcefully on the need to rid our political system of corporate influence.

Now, the rest of the story about Chris Murphy and the corporate buyout of the federal treasury.

MoveOn doesn't tell folks Chris Murphy received well over $2 million from special interest PACs  

MoveOn doesn;t tell people Chris Murphy has raised over $1 million from the financial services industry. Which comes as little surprise as Murphy served on the House Banking Committee when it approved the 2008 TARP bailout.   Indeed, Murphy voted for the $700 Billion TARP bailout withing hours of receiving a large contribution from the American Bankers Association.

So, when did Murphy decide it was time to start fighting corporate influence in Washington? Oh. maybe it was during the health care reform fight....umm...no since the Pharma lobby ran a blitz of issue ads praising Murphy.   Did those ads explain Murphy's flip-flop on allowing drug reimportation? Hey, decide for yourself.

No, Chris Murphy suddenly decided corporate money in politics was a bad thing when the corporations that didn't like health care reform paid for ads against him. The contributions from special interests to stuff his 7 figure warchest and the slick issue ads promoting his agenda, well, then it was good government. 

Incumbent politicians don't like Citizens United for the same reason Microsoft doesn't like Macs. When you have a monopoly you want to stifle the means of competition. You want the people whose industries are at risk to come to you on bended knee, checkbook in hand. How dare these people complain directly to the public!  

You see, it's all about protecting your investment. And MoveOn has invested a lot in Chris Murphy.  He was their Number one recipient of campaign cash in 2006. So when a group like AAF  opposed to big government runs the same type of ad MoveOn ran, take MoveOn's umbrage with a grain of salt. And also understand why MoveOn looks the other way when their boy Murphy ladels out trillions to bankers and drug companies. They are going to stand by their man.  Getting him into the Senate will pay a return on their investment.

And this investment may suddenly go sour if the new darling of the hard left, Keith Olbermann  is persuaded to run for the open Connecticut Senate seat.  How could the unctuous Murphy and his corporate liberalism compete with the 200 decibel leftism of Olby? 

The problem with investing millions of dollars in a product is after awhile, a newer brand goes on the market. MoveOn and Murphy may find their base of support has moved on to a guy who only took millions from Corporate America to call conservatives the worst people in the world. Heh   

There's been a lot of comparisons of President Obama to President Reagan,  President Kennedy and President Roosevelt; among non-divine historical figures. Based on this forecast from the noted right-wing rag, the New York Times, it appears unlikely that on one score Obama will reprise Reagan; he is unlikely to preside over a jobs boom in his re-election year.  

As the recession grinds on, more and more of the nation's means of production -- its workers, its factories, its retail outlets, its freight lines, its bank lending, even its new inventions -- are being mothballed.

This idled capacity, like baseball players after a winter off, takes time to bring back into robust use. So even if the recession miraculously ended tomorrow, economists estimate that at least three years would pass before full employment returned and output rose enough for the economy to operate at full throttle.

So when do things "return to normal"?

 The Obama administration, like the Roosevelt administration 75 years ago, is trying to break this logjam through government spending, using it in effect as a substitute for consumers who are jobless or short of credit. The spending is also a substitute for companies that hesitate to extend themselves or see no profit in doing so.

But the president's solution, the recently enacted stimulus package, spreads $787 billion over two years. So even if every dollar of spending restored a dollar of output, President Obama would be nearing the end of his first term before output approached the level achieved just before the start of the recession in December 2007.

I might add one concern I have is it seems likely to me much productive capacity will be permanently shut down. Some of this may be in "Neutron Jack" fashion; for example, when Obama idles the F-22 production line even if the plant in Georgia is left intact, the skilled labor is going to be in the wind and incapable of being replaced in short order.

A permanent --or at least "sticky"---reduction in the private sector's ability to supply goods coupled with monetary expansion unseen in American history. Stagflation, anyone?

I also find agreement from another voice of the right, 538.com's Nate Silver.  Here's a few excerpts from his post, Why We're Probably in For a Long Recession 

Silver reviews in his February 10 post economic declines and recoveries since 1945, and breaks out the "post-Greenspan" ones as having more "inertial momentum" than the more volatile economies previously. The Greenspan era has been noted for fewer recessions, but slower recoveries, according to Silver.

  Now suppose instead that we perform the same process based solely on data from the Greenspan Era -- from August 1987 onward. This gives us a rather different result:

I would argue that since February notwithstanding the "relief rally " off Dow 6500 and a few signs of housing liquidity that we are moving closer to the "red line"; which Silver anticipates would yield a peak unemployment rate of 9.6% in May 2010.

Silver also seems skeptical with the long tail of this model " it is not necessarily out to lunch in thinking that the equilibrium unemployment rate will be in the high 5's rather than numbers like 4.0 that we are used to." 

What is the effect of a 9.6% unemployment rate on the 2010 midterm elections?   Well we do have some useful background from the 1980's  The Republicans lost 26 house seats that year perhaps because unemployment reached 10.8% in November 1982.

So much for Joe Lieberman's "make nice" on behalf of Chris Dodd.

He predicted voters will realize Dodd is too valuable to lose, as the economy begins improving while Dodd keeps working on legislation to fix the financial system.

No "Joementum" in the job market that I'm seein

Back to Nate Silver. He asked this question "When will voters blame Obama?" Answer:

Obama crosses the 50 percent threshold at almost exactly 18 months from now, which would mean September 2010. At that point, a majority of voters say they will hold Obama accountable for the performance of economy

When unemployment is likely to exceed 9%. Not timely just eight weeks out from an election.

OK, so maybe the Democrats get bloodied in 2010. Won't the economy come roaring back like it did for Reagan?

Well, this was the pattern from 1982 to 1984      The unemployment rate fell quickly from its Autumm 1982 spike, ending 1983 at 8.3% and reaching 7.2% on election day.

Payroll increased by 3.5 million in 1983 and by another 3.5 million prior to election day 1984;  Source: http://www.bls.gov/ces/ 

Today we remember Reagan burying Mondale in the largest landslide in history, but his re-election was a near run thing; his approval was below 50% for most of 1983 and finally started into positive terrotory as the election neared.Polls in early summer 1984 showed both Mondale and Hart within single digits of Reagan.  ; had the economic recovery been slower or weaker American history might have been radically different.

So what will be the upshot if by election day 2012 national output is no higher than upon the start of the recession?. Well, barring an unprecedented drop in productivity total employment will be less than when he assumed office.  And, barring an unprecedented drop in the over 18 US population, the labor force will be larger. So it's probably reasonable to expect that the November 2012 unemployment rate will exceed the January 2009 rate of 7.6%   Sure Reagan got re-elected with unemployment in the 7's....but will Obama be able to point to massive job growth immediately prior to his election? 

And remember too, when Obama took office inflation and interest rates weren't a concern.  What would a return to $4/gallon gasoline do to his political fortunes?

At this stage, my money is Obama's gonna have to be a Roosevelt; since I seriously doubt he'll end up resembling Ronald Reagan. 

Patrick Ruffini wrote a post on  Next Right  yesterday where he sees a golden opportunity for the GOP to gain some political ground by running on an agenda that includes healthy cuts in the size of government. He believes the GOP is "galivinized" to make cutting government by a third - back to 2007 levels - the centerpiece of a revival even if, as he realistically points out, not much will change given the huge advantage currently enjoyed by liberals in Congress.

It's an ambitious proposal and is predicated on the idea that people will reject the naked statism being advanced by President Obama and come home to the party of smaller government as a reaction to the bail-out culture as well as the heavy handed attempts by the Administration to gain outright control of companies like GM and AIG.

But will they? Obama still enjoys broad support among the American public and beyond that, you have to wonder how much people really care that government has instituted policies that are destroying the free market and limiting freedom. The small percentage who are paying any attention at all to what is happening in Washington will hear this by Obama and be satisfied:

Let me be clear: the United States government has no interest or intention of running GM. What we are interested in is giving GM an opportunity to finally make those much-needed changes that will let them emerge from this crisis a stronger and more competitive company.

If the lie is told often enough, people will believe it - especially when the media doesn't think it's their job to call Obama out for his prevarications. Have you seen any article (outside of the Wall Street Journal and a few reactionary newspapers) or any news broadcast beyond a few CNBC and Fox segments that even discusses the possibility that what Obama is doing is nothing short of a government takeover of GM? If you can fire one CEO, hire another, force bankruptcy, and guarantee warranties, not to mention deciding which "changes" GM should make in their business plan, that sounds an awful lot like "running GM" to me.

But the average voter doesn't hear any of that. All they hear is the president standing up on national TV and solemnly proclaiming one thing while his Administration is blatantly doing exactly the opposite. The key to any good propaganda is to make the lie believable. And for the moment, the people trust the president to tell them the truth. Right now, people just aren't that upset with what is going on save the minority of us who are paying a little closer attention to what's going on in Washington. And don't forget, there's another minority of people paying attention who are supporting the President and urging him to do more. Liberal activists have only just begun to hold the president's feet to the fire and before all is said and done, America could potentially be a place that you and I wouldn't recognize from just two years ago.

Patrick makes this point in his post:

The end result of this agenda, the size of government at 2007 levels, may seem minimalist in any broad sweep of history, but it is galvanizing in a way it wasn't before because of the sheer scope of what's changed in six months. The yawning gap between where we are now and where we were two years ago gives conservatives an ambitious goal to reach for and a reason for being again, even if the end result is little change over time. And if we get a mandate to actually cut government significantly -- and I think the public mood will shift there in a few years if not sooner -- it might not be that much harder to cut it to below pre-Obama or pre-Bush levels because current levels are so out of whack that people would not be able to tell the difference between that and what the status quo was in the mid-2000s -- only that it is change.

Unfortunately, history is not on Patrick's side. The most conservative president in history couldn't shrink the size of government. The most conservative Congress in history barely made a dent in the size of government during the 1990's and then turned around and became the biggest spendthrift Congress in history. "Shrinking" the size of government to 2007 levels can't be done simply because it is not 2007 anymore. A great tide washed over the country last November and when it ebbs, no one knows where we will be. But there is an historical certainty there will be no road back the way we came. As powerful as the Obama wave seems to be today, even he cannot erase all the contours of what Reagan built many years ago. Similarly, if, as many suspect, Obama's victory was a transformational moment in history, the next wave of change cannot entirely undo what has been done by his Administration.

The game has changed. Nationalized health insurance is on the way, more top down solutions to education are being contemplated, wholesale changes to business and industry as a result of the green craze will be forced on the economy, the defense budget will be drastically cut, and that's probably only the beginning. Patrick believes the voter will rebel against these changes. That remains to be seen. But what is certain is that they won't turn to Republicans for the answers no matter how "galvanized" the GOP becomes.

For Patrick's proposal to succeed, the word "Republican" will have to be rehabilitated with the voter. The damage done to the party during the Bush years - as Patrick rightly points out - will not be fixed by simply reiterating what the party's message has been since LBJ's presidency. It won't be repaired by offering the same small government mantra no matter how much "big government" is screwing things up. Ruffini points to history to buttress his argument:

The Welfare State mentality of the '60s that created the conditions for 1980 and 1994 systemically excused bad behavior at an individual level, creating millions of individual tragedies. Obamanomics systematically excuses bad behavior at the wholesale macroeconomic level, creating a vicious circle of irresponsibility with major consequences for every American.

If nothing else, the first 70 days of Obama -- with an assist from the last 4 months of Bush -- has left government economic policy so off-kilter that it may take a decade or more to fix. Remember that exhausted to-do list? Not a problem any more.

For the first time in decades, Republicans could run on a platform of cutting government by a third and not seem wild-eyed or mean-spirited. When we talk about the dangers of governments running private businesses, we will have contemporary object lessons to teach with, not bogeymen that are decades old or oceans away. When we talk about getting the government out of our lives, more people will nod their head knowing exactly what we mean, having just footed the bill for bailout after bailout, instead of yawning or dismissing it as a non-issue as they did in the prosperous, laissez-faire post-Reagan America.

All of that would be true if the GOP wasn't totally and deeply discredited as a political party. The difference between 1980 and 1994 and the situation today is that in both those eras, Republicans were competitive across the country. Now, whole swaths of the United States are almost no-go zones for the GOP. Bereft of national leadership, having no counter-agenda that is accepted by the party regulars, and unable to escape the economic legacy of George Bush, Republicans have a lot of work to do in order to be taken seriously - even when they pledge to "shrink" the size of government.

And it isn't just the map that is the problem. Vital segments of the voting public have decisively rejected the party including the 18-35 age group and Hispanics - two groups who are growing in number and becoming more politically savvy at a time when the Republican social agenda is receding in importance to voters and on issue after issue a decisive advantage accrues to the Democrats. Couple this with the thought that Congressional districts will be redrawn in 2010 with a probable increase in Democratic seats as a result and you have not only problems with party ID but systemic hurdles to overcome as well.

Patrick is not talking about an opportunity for the short term but it is hard to fathom at this point where the GOP can begin to close the gap. Ruffini is attempting to reduce the online activism gap but that too is a long term project. Can these problems be overcome by running on a platform "We are not socialists?" In the end, I think Patrick expects too much of the voter, projects our own anger on to them when I am convinced it will take more than what Obama has done so far to rile them up.

What Patrick has latched onto is an illusion of opportunity. The people aren't ready. The party's not ready. The elected representatives certainly aren't ready for what he is proposing. And before we're through, history will have a say as well. For that, no one can predict what the outcome of Obama's assault on capitalism will be nor how well the GOP can respond given the limits imposed on them by their own stupidity and arrogance in the past.

The journal has an excellent editorial today called The Real AIG Outrage that argues the Obama administration is using AIG as a conduit of taxpayer money to make whole AIG counterparties like TARP recipient Goldman Sachs, European banks and others.

When the true scope of this fraudulent use of taxpayer money becomes clear to the US taxpayer/voter, the outrage about the bonuses will seem like a tempest in a teapot.

Yet, the GOP, gropping for months now to differentiate itself from the Democrats, continues to ignore this explosive opportunity. Here is an issue that is politically white hot, that the opposition is mishandling and that has real traction with the American people. Having newly rediscovered our "fiscal responsibility" we and our leaders sit idly by while the Democrats pump billions of taxpayer funds through AIG and into the coffers of their largest campaign contributors; our ire stoked reflexively by a few high profile bonuses.

When this sorry chapter of American history is written, the GOP will be seen as playing compliant handmaid to the Democrats' fiscal malfeasance--the party of No, indeed.

Leadership implies making hard choices and getting out of one's comfort zone. Sadly, our "leaders" do not appear ready to lead on the most important issues of the day.

This is an important debate. Rick Santelli was only the first breeze in a mighty storm, and the question is whether we can fuse the frustration to come with a positive, solutions-oriented alternative. -Patrick

I have read some speculation in the last few days that it may be possible for the GOP to make big gains in the House and Senate in 2010 if they “tap in” to the rage being felt by ordinary taxpayers against the savior based economy being created by Obama and the Democrats.

As a tactic, it would probably be a winner. But is there another way to achieve the same result without exacerbating the already deep divisions in American society? We may be in a period of low employment, sluggish growth, and high inflation for a while if the Japan model is any indication with their “lost decade.” This is especially true since the Obama administration shows no signs of lessening the flow of cash from the federal spigot. Taxpayers have seen where most of this money is going already and feel betrayed by a government that is seeking to reward failure and bad decisions. The chances are pretty good at this point that all the “stimulus” in the world is not going to head off a deep recession and the federal government is apparently setting itself up to decide who wins and who loses in this shakeup.

The inevitable populist backlash is predictable. The problem is that mass movements based on populist rage have generally led to untoward and unanticipated consequences. History is littered with these populist outbreaks – especially those that happen as a result of great cultural and economic changes being enacted by a perceived elite. The last major populist movement in America was George Wallace’s candidacy in 1968 (to a much lesser extent in 1964 and 72) that saw the Alabama governor get an astonishing 13.5% of the vote and carry 5 states in the general election. Wallace tapped into the rage and fear being felt by white, working class men who felt threatened (thanks to Wallace’s sneering, bigoted rhetoric) by African American agitation for equality. Nixon and the GOP then mainstreamed the tactic albeit using much more subtle language and even Clinton got into the act with his famous “Sister Souljah Moment,” assuring whites he wouldn’t pander to black racists like Jesse Jackson (Clinton is the only Democrat since JFK to carry any states of the traditional “Deep South.).

In his post Demanding Results from the Stimulus, Patrick advocates a tactic of holding Obama accountable for his promise that the stimulus would create or save 4 million jobs. That's all well and good as far as it goes, but as tactical politics it risks three mistakes. First, how are you really going to measure it? Second, it is entirely reactive; Obama and the Congressional Democrats set the agenda and the GOP "holds them accountable". Third, at the pace the crisis is developing, the stimulus package will be overtaken by events in the next 3-6 months. Remember back in September when the $85bn we paid to acquire AIG seemed like a lot of money? $800bn is going to seem as insignificant in the next 6 months. For example, one among a thousand, Switzerland, that paragon of financial stability and safety, may go the way of Iceland.

Reform of the banking system presents a huge opportunity for the GOP to seize the initiative in dealing with the economic crisis and in so doing put genuine political pressure on the Obama Administration. The GOP should call for nationalization of the insolvent U.S. money center banks.

Many economists and financial policy makers now believe that some, perhaps the majority, of American money center banks are insolvent. The Financial Times quotes former Fed Chairman Alan Greenspan:

It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring...I understand that once in a hundred years this is what you do.

The rational and responsible way to deal with the situation is quickly to take those banks over, write-down the losses and restructure their remaining capital so that they can get back to the business of providing financial intermediation to the American and global economies. Once they are stable they can be sold to new investors.

Unfortunately, as a nation we currently lack the political will to do this. The bankers are reluctant to admit their situation and realize their losses. Politicians of all stripes are beholden to Wall Street for past support and fear the implication of the term "nationalization". But the fact remains: a significant segment of US banking is insolvent. Until they are forced to recognize their losses the big banks hold American capitalism hostage to their failure. Without banking reform an essential prerequisite to economic recovery is missing. Whatever form economic recovery takes, public spending stimulus or private enterprise, it will be hobbled without a sound banking sector. For this reason banking reform will get done however inefficiently. Geithner's "stress test" is designed to identify the insolvent banks with minimum political risk and minimum sacrifice by the bankers.

The GOP has an historic opportunity to provide the political will to push for what everyone recognizes is necessary. It is a "Nixon goes to China" moment, if you will. By seizing the initiative while others fiddle and calling for reform and restructuring of the American banking system, three huge advantages would accrue to the GOP:

1. On the merits, we will be advocating the right policy and thereby we will build trust and credibility with the American people.  
2. Forcing the bankers to bear their own losses is smart, fair and popular. By advocating the right policy and advocating prompt action, the GOP can reassert our economic bona fides while at the same time serving the interests of the US taxpayer and do so in a way that is easy for the taxpayer/voter to understand. 
3. By coming out forcefully for nationalization the GOP will bring real political pressure to bear on the Obama Administration and the Democratic Congress who are still beholden to their Wall Street masters.

I recognize that this proposal goes against the grain of modern conservative thinking in at least two ways.

First, it takes the banking crisis very seriously indeed and accepts that serious measures will be required to work it out. I do not believe a laissez-faire solution is in the best interests of the American people, the American economy or the Republican Party.

Second, it takes the view that government has an important and even an essential role to play in reforming the banking system.

I know that many conservatives will strongly disagree with me on these two points. Nevertheless, I believe that the policy is correct and that the opportunity is remarkable.

Thanks for listening.

Today, far too many people hear and believe the Dem, anti-market message that Unregulated Banker Greed caused these problems.

What is the consitent Republican Narrative?  We need the best, most true narrative to fight against the false, anti-market, anti-greed smearing that the Dems and their MSM enablers want to spread.

A great start is the Cato Unbound series of blog posts and continuing conversations, starting with a fine Austrian, Larry White on What Really Happened.

Perhaps later I'll revisit this suite of essays, extracting bullet points, and listing them.  Because that's what Reps need, the fairly complete set of bullet points about what happened.

(1) Federal Reserve credit expansion that provided the means for unsustainable mortgage financing, and (2) mandates and subsidies to write riskier mortgages. The enumeration of regrettable policies here is by no means exhaustive.

This list gets longer, and more detailed, in later posts by Larry and others, including useful dissent from J. Bradford DeLong, a prolific blogger and supporter of Paul Krugman.

But the final note by Larry i, while academically fully defensible, s a too weak political conclusion:

It is thus reasonable to think that the crash in the mortgage market was “in some sense,” i.e. to some extent, the fault of excessively risky lending by Fannie Mae and Freddie Mac.  Whether or not we call it “the dominant feature of the mortgage market in the 2000s” (emphasis added), it is safe to say that it was an important feature.  Fannie Mae and Freddie Mac did push the lending financed by their implicit government guarantee “past the limits of prudence.

Republicans need to repeat, over and over, that the primary causes were 1) cheap money, and 2) Gov't interference in the market, pushing to get banks to lend more to risky borrowers.

Other points could be extracted as well, but the main points need to be few, and simple, and true.

The BBC has a good Timeline.

From 2004-2006:

After a two year period between 2004 and 2006 when US interest rates rose from 1% to 5.35%, the US housing market begins to suffer, with prices falling and a rise in homeowners defaulting on their mortgages.

Default rates on sub-prime loans - high risk loans to clients with poor or no credit histories - rise to record levels ...

Then the sub-prime mortgage brokers start going bankrupt.

It's interesting, and telling, that there is no mention of builders going bankrupt.  But residential construction lost over 500 000 workers, and probably far more if the undocumented illegals were to be included.

Because finance IS crucial to successful growth, there are good reasons to be extra careful with the financial system.  However, there's been far too huge growth in Finance, fuelled by the easy profits of mispricing CDS risk and collecting fees w/o giving true value added.

It's easy to understand that overbuilding in houses means a huge drop in construction, and a drop in construction jobs.  Similary, overbuilding in Financial Instruments like Credit Default Swaps, means a huge drop in finance jobs.

All the Big Banks are insolvent, we should be preparing Pre-Packaged Chapter 11 Bankruptcy proceedings, to wipe out shareholders and most bondholders and all top executives.  Let their true loan assets be sold, and their toxic assets be held for a massive clearing house matching  & consolidation exercise to be held by the SEC / Fed / Treasury / Justice.

Bankruptcy of the bad BigBanks will allow space for good mid-banks to grow.  The country needs growth, not salvage of insolvent orgs in an overbuilt industry.

One of the curious features of 2008 was how little impact the recession seemed to have on everyday life for most of us. Indeed, aside from a few early bears, the hot debate seemed to be whether or not there would be a recession at all. As late as September, traders on Intrade were betting against a recession in 2008. Despite all this, the NBER recently established that the US economy went into recession in December of 2007.

While the recession was drifting by like an iceberg in the background, the financial system was freezing up. The violent tremors occured in June 2007 when two Bear Stearns' hedge funds laden with mortgage debt became publicly insolvent. Bear itself went under in February of 2008 and by July the dominoes really started to fall in the financial sector.

Now, the fallout in the real economy is starting to come fast and furious. This is scary stuff and still we've only seen the tip of the iceberg.

1. Nortel is bankrupt.

Nortel Networks Corp., the phone equipment maker that was once Canada’s largest company by market value, filed for bankruptcy protection after losses mounted and financing dried up amid a deepening recession.

The century-old company, North America’s biggest maker of phone gear and worth about $250 billion at its peak in 2000, fell victim to reduced spending by customers such as Verizon Communications Inc. and competition from Cisco Systems Inc. The company made the filing a day before a $107 million interest payment was due...

2. Retail sales has collapsed.

Retail sales are a key portion of consumer spending and real retail sales have fallen off a cliff.

And retailers are going bankrupt:

• Gottschalks - 1904-2009 - R.I.P.
• Goody's - 1953-2009 - R.I.P.

3. Shipping has is slowing to a crawl across the globe.

"They have already hit zero," said Charles de Trenck, a broker at Transport Trackers in Hong Kong. "We have seen trade activity fall off a cliff. Asia-Europe is an unmit­igated disaster."

Shipping journal Lloyd's List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal "bunker" costs. Container fees from North Asia have dropped $200, taking them below operating cost.

Industry sources said they have never seen rates fall so low. "This is a whole new ball game," said one trader.

The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96pc. The BDI – though a useful early-warning index – is highly volatile and exaggerates apparent ups and downs in trade. However, the latest phase of the shipping crisis is different. It has spread to core trade of finished industrial goods, the lifeblood of the world economy.

Trade data from Asia's export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.

:::::

A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions.

"This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant.

:::::

It became difficult for the shippers to obtain routine letters of credit at the height of financial crisis over the autumn, causing goods to pile up at ports even though there was a willing buyer at the other end. Analysts say this problem has been resolved, but the shipping industry has since been swamped by the global trade contraction.

The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.

Financial Armageddon links to a Wall Street Journal article on the state of the U.S. freight industry: Freight Haulers Slam on the Brakes.

In a normal year, Gordon Trucking Inc. might replace 20% of its fleet of 1,500 big rigs with new trucks. But given the bleak outlook for the freight business, the Pacific, Wash., hauler doesn't intend to buy a single new truck next year.

"We're settling in for nuclear winter in the first half of 2009," says Steve Gordon, operating chief for the company, which hauls everything from paper products to electronics.

He's not alone. Some industry executives and analysts predict that 2009 could be the worst year for freight-transportation volume in three decades or more. As a result, companies in industries ranging from trucking to railroads to ocean shipping are scaling back sharply. 

:::::

At a Kenworth plant in Renton, Wash., more than 400 employees will lose their jobs when the company, a subsidiary of Paccar Inc., suspends making heavy-duty highway trucks at the plant next year, according to Don Hursey of the machinists union, who says he has been briefed on the plans. Just a few years ago, the plant produced 50 big rigs a day, he says. A Kenworth spokesman declines to specify how many workers will lose their jobs.

"This is the tip of the iceberg," Mr. Hursey says. "It's going to be a disaster next year for the entire industry. I'm scared to death."

By way of Bob Stewart at the Ludwig von Mises Institute:

The Crisis in 10 Points