A year ago, it looked the Fed had proven it was capable of handling what was then called the subprime mortgage crisis. By now we ought to know better, and things are actually worse than you think.
Much worse. You think the collapse of Lehman Brothers (proud business partner of the State of Florida and the UF Investment Corporation) was big news? It’s got everyone talking, but the future’s even uglier.
For $695, you can get access to Highline Financial, an organization that has ranked the strength of the 10 largest financial institutions on a scale from 0-99, with the larger numbers indicating the most sound. Like most Americans, I don’t have that kind of money lying around, but radio consumer advocate Clark Howard apparently does. He reports:
Citigroup gets a 1; Wachovia gets a 6; and Bank of America gets a 17. These are ugly numbers. On the flip side, U.S. Bancorp and the Bank of New York Mellon score 81 and 71, respectively.
Woah. On a scale of 0-99, the largest banking corporation in the world has a soundness rating of one. The official banking partner of UF has a six. We’re in a lot of trouble.
But wait, you say, oil is falling. That can fuel an economic recovery.
Not so fast. That may be the worst sign of all.
Falling oil prices represent bets against US economic growth, which demands oil. After all, we are the world’s largest oil customer. We’re in the middle of hurricane season, which threatens domestic supplies in the Gulf, and violence is rocking Nigeria, our fourth-largest supplier. We know that would normally drive up prices. Remember January? But oil has reached a 7-month low. The smart money is not optimistic about our future. The trouble, it appears, is only beginning.
There are two ways to deal with an economy that appears poised for a dramatic contraction. The first, advocated by John Maynard Keynes and employed by Roosevelt to end the Great Depression, is to use the public sector to stimulate economic growth. Government investment in infrastructure, scientific research, and services that ensure the general welfare of citizens (like healthcare, education and welfare) can ensure people can continue to live comfortably and contribute to the economy.
The second is to allow private companies to take over those tasks. Rather than using the democratic institutions of government to help everyone and help provide for long-term prosperity for the many, some state, local and federal governments are letting well-connected companies take over the public sphere to make money. In many cases, this restricts access to those who can afford it.