I don’t want to be negative all the time but, folks, I just don’t see a way out of the economic mess without some more serious pain being inflicted. And this pain might last a long, long time. Note that I say MORE serious pain because, unlike the talking heads and the economists who are debating whether we have entered a recession or not, I’ve maintained that for most people tough economic times have been part of their lives for a long time.
But, every day, we see more news about the imploding financial sectors–an implosion that will cascade back to everyone of us because businesses will shed more workers because they can’t get credit or easy money and banks won’t make loans to consumers. Today, Wachovia became just another red-ink bank:
Moving quickly to put an end to the constant spill of red ink, the Wachovia Corporation, the banking giant, booked an $8.9 billion loss and slashed its dividend its first quarter under new leadership.
And…
Wachovia has faced staggering losses from its ill-timed acquisition of Golden West Financial, a large California lender that specialized in so-called pay-option mortgages. Loans made to builders and commercial real estate developers have started to sour. With the credit markets frozen, it has been forced to take steep markdowns on billions of dollars of unsold buyout loans and complex mortgage investments it holds on its books.
The bank’s results were much worse than Wall Street anticipated, a stark contrast to its big bank rivals that handily bested the low targets analysts set. In premarket trading, its shares fell more than 10 percent.
The steep losses of banks is one part of the ugly picture. The other part is one that a really great piece of reporting by Gretchen Morgenson, the very able reporter of The New York Times, sketched this past Sunday. Her in-depth piece of reporting on debt told us this:
Today, Americans carry $2.56 trillion in consumer debt, up 22 percent since 2000 alone, according to the Federal Reserve Board. The average household’s credit card debt is $8,565, up almost 15 percent from 2000.
College debt has more than doubled since 1995. The average student emerges from college carrying $20,000 in educational debt.
Household debt, including mortgages and credit cards, represents 19 percent of household assets, according to the Fed, compared with 13 percent in 1980.
Even as this debt was mounting, incomes stagnated for many Americans. As a result, the percentage of disposable income that consumers must set aside to service their debt — a figure that includes monthly credit card payments, car loans, mortgage interest and principal — has risen to 14.5 percent from 11 percent just 15 years ago.
By contrast, the nation’s savings rate, which exceeded 8 percent of disposable income in 1968, stood at 0.4 percent at the end of the first quarter of this year, according to the Bureau of Economic Analysis.
More ominous, as Americans have dug themselves deeper into debt, the value of their assets has started to fall. Mortgage debt stood at $10.5 trillion at the end of last year, more than double the $4.8 trillion just seven years earlier, but home prices that were rising to support increasing levels of debt, like home equity lines of credit, are now dropping.
In those few paragraphs, you can see what regular people face. And that didn’t just start with the current financial sector meltdown. This has been building over a number years. And, though she could have gone into this more in depth, the few words I put in bold sum this up: incomes have not kept up for Americans…not to buy fur coats and yachts like hedge fund managers but simply the ability to pay mortgages, health care and other basic expenses.
And banks continue to prey on people:
They have honed sophisticated marketing tactics, gathering personal financial data to tailor their pitches. They have spent hundreds of millions of dollars on advertising campaigns that make debt sound desirable and risk-free. The ads are aimed at people who urgently need loans to pay for health care and other necessities.
It doesn’t stop ever. Indeed, when you access Morgenson’s article from the newspaper’s archive, the Google ads below it are all for new credit cards. Ain’t that ironic.
