Is this a surprise - Indiana manufacturing declines

Indiana Manufacturing Jobs Drop Nearly 8 Percent According to Industrial Directory:

"The Directory reports Indiana suffered a 1% loss in manufacturing employment between 2005 and 2006, a loss of 2.4% between 2006 and 2007, and a 2.2% decline over the 2007-2008 survey period.

Manufacturers' News reports Indiana is now home to 10,748 manufacturers employing 610,491 workers.

'As with the entire nation, the recession continues to chip away at Indiana's core sectors. The auto industry has taken the greatest hit, while the faltering housing market has affected industries such as wood, furniture and building products,' says Tom Dubin, President of the Evanston, IL-based publishing company, which has been surveying industry since 1912.

MNI reports a quarter of the state's losses were felt in the auto industry, which tallied a loss of 12,814 jobs or 14.4% over the year following layoffs and closings at RV manufacturers and suppliers such as Monaco Coach Corp, Starcraft RV, Travel Supreme and Newmar Corp., as well as continuing cuts at the Big Three and their suppliers. The auto industry currently accounts for 73,364 jobs, while the transportation equipment sector as a whole employs 90,660. One bright spot in the auto sector was the opening of a new Honda plant in Greensburg that will be producing fuel-efficient vehicles."

GM - The Sahpe of Things to Come?

Latest new courtesy of The Indianapolis Business Journal - Hubler of Shelbyville on GM closure list:

"Hubler Chevrolet Center Inc. of Shelbyville and several other General Motors dealerships in Indiana are on the chopping block after receiving notice Friday that their dealership agreements would not be renewed when they expire late next year.

But most dealers are keeping quiet about the notifications as they hold out hope they can persuade GM that they deserve to stay open.

Nationally, about 1,100 GM dealers have received notice. But unlike Chrysler LLC, which released a list Thursday of almost 800 dealers it plans to terminate, GM is keeping its list secret.

Joe Munson, vice president of Hubler Chevrolet told The Shelbyville News that he was surprised to receive the closing letter, particularly because of the strong sales his dealership has logged since opening in Shelbyville in 1988."

GM's Downsizing Strategy Moving With Great Efficiency comes from workforce.com:

"Employing the efficiency of an automotive assembly line, General Motors has laid off close to 3,400 salaried workers in recent months, moving individual employees from their desks and out the door in a half-hour’s time.

The GM layoffs are part of a last-ditch effort to “right-size” its workforce in order to avoid the kind of bankruptcy filed by Chrysler on Thursday, April 30.

Yet it looks like the latest round of layoffs is just that—the latest round, giving employees who remain at GM little relief.

May 1 marked a soft deadline for accomplishing the first round of layoffs. It also marked the beginning of a pay cut—3 to 10 percent, depending on a person’s rank—for many of the remaining 26,250 salaried workers in the U.S.

Now the company is looking to its next major deadline of June 1, when, according to a regulatory filing last week, GM said it would run out of cash unless it receives more financing and debt relief. In the filing, GM said it expected additional manpower reductions among its salaried workforce. The company also said it would trim its hourly workforce by 7,000 more than it had outlined in its first restructuring plan submitted February 17.

Then there was Experts say GM bankruptcy almost inevitable from The Muncie Star Press

To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business -- all in three weeks.

"I just don't see how it's possible, given all of the pieces," said Stephen J. Lubben, a professor at Seton Hall University School of Law who specializes in bankruptcy.

Meanwhile. Anderson's GM retirees shiver but not with anticipation.

How Dangerous is Obama's Red Ink

Reading Robert J. Samuelson's Obama's Dangerous Debt and I have to wonder. I generally favor Samuelson but he does not offer any alternative. If we are to shore up our economy - which means the world's economy - what else can we do but what Obama proposes? Here is what Samuelson has to say:

"At worst, the burgeoning debt could trigger a future financial crisis. The danger is that 'we won't be able to sell [Treasury debt] at reasonable interest rates,' says economist Rudy Penner, head of the CBO from 1983 to 1987. In today's anxious climate, this hasn't happened. American and foreign investors have favored 'safe' U.S. Treasurys. But a glut of bonds, fears of inflation -- or something else -- might one day shatter confidence. Bond prices might fall sharply; interest rates would rise. The consequences could be worldwide because foreigners own half of U.S. Treasury debt.

The Obama budgets flirt with deferred distress, though we can't know what form it might take or when it might occur. Present gain comes with the risk of future pain. As the present economic crisis shows, imprudent policies ultimately backfire, even if the reversal's timing and nature are unpredictable.

The wonder is that these issues have been so ignored. Imagine hypothetically that a President McCain had submitted a budget plan identical to Obama's. There would almost certainly have been a loud outcry: 'McCain's Mortgaging Our Future.' Obama should be held to no less exacting a standard."

I have no idea what might have been said McCain. We - the whole country - have been lead down a garden path towards a service economy for most of my adult life. That leaves a lot to fix. We know now that we cannot base our entire national economy on financial services that amount to not much more than financial chicanery.

We now confront the effects of mollycoddling our remaining industrial companies from the brunt of complete international competition. We now know the true costs of not having a sane energy policy means that GM and Chrysler are heading towards bankruptcy and we have a quagmire called Iraq.

I am guessing that much of Obama's plans hinge on one idea - that we can increase our national incomes to match the costs of change. Think about his education plans.

All I can do is consider what Paul Krugman wrote yesterday in The Perfect, the Good, the Planet:

"Now, however, a somewhat uneasy coalition of progressives and centrists rules Washington, and staking out a position has become much trickier. Policy tends to move things in a desirable direction, yet to fall short of what you’d hoped to see. And the question becomes how many compromises, how much watering down, one is willing to accept."

I think Obama is making the necessary bet to fix our economic and financial problems. I onoly worry that it is too late.

Regulating Hedge Funds - The View from Europe and Scotland

I suspect that we will see more regulation of hedge funds on this side of the Atlantic. The Sunday Herald published EU puts Scotland’s small hedge fund sector in jeopardy giving us an idea of how the Eurpoeans wnat to regulate hedge funds

SINCE THE global financial meltdown began, financial services sectors across the world have become increasingly nervous about European and/or US politicians forcing through punitive and ill-considered regulation to appease public anger.

This anxiety eased with the appearance of carefully considered reports on the possible shape of future regulation, such as those by Lord Turner, chair of the UK's Financial Services Authority (FSA), and an influential European report by the former head of the International Monetary Fund, Jacques de Larosiere. However, the sector's anxieties have been fully justified with the European Union's announcement on April 29 of a draft directive, cobbled together without consultation, aimed squarely at the European alternative fund management sector - often dubbed "the shadow banking system".

Seen as throwing subtlety to the winds, the EU has produced a piece of draft legislation that sweeps together hedge funds, private-equity funds, commodity funds, real estate funds and infrastructure funds. It proposes to regulate them all if the funds under management exceed 100 million.
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To put this in context, in hedge fund terms, a 50m fund is a start-up fund and most such funds would expect to exceed £100m in a year or two. This means that the EU has used rather a fine mesh for its regulatory net, and apparently intends to scoop up even the tiddlers - funds which by no stretch of the imagination could be classified as a "systemic threat" to the Eurozone. The legislation, if allowed to pass, will, as an incidental by-product, impose a heavy regulatory burden on Scotland's tiny hedge fund management sector.

***

David Aldrich, managing director of alternative investment services at The Bank of New York Mellon, (BNY Mellon) called the directive "a political attack on hedge funds, rather than a rational approach". A survey by BNY Mellon showed that while the global hedge fund sector is expected to shrink from just over $2 trillion in 2008 to $1trn by the second quarter of 2009, the sector will enjoy a resurgence - if it is not regulated to death - and by 2013 will have surpassed the high-water mark of 2008.

Commenting on Scotland's hedge fund sector, Aldrich said: "The reason why Scotland, which has no advantages such as the beneficial tax or corporate structures offered by offshore havens such as Bermuda or the Cayman Islands, enjoys a strong, if small, hedge fund sector has purely to do with the excellence of Scotland's fund managers - a few of whom have been attracted to the absolute return philosophy of hedge funds."

The sector in Scotland tends to focus on long/short equity strategies rather than on the more exotic strategies offered by London-based hedge funds. However, its performance through the crash has been outstanding.

Rough Times Building Businesses

Building Businesses in Turbulent Times — HBS Working Knowledge:

"In fact, cost cutting and restructuring are simply the first steps in repositioning and leading your company and industry through the crisis and in defining how business will be conducted in the future. In this interview, Applegate explains how large and small companies can position themselves to survive—and thrive—in turbulent times."

The Chrysler Bankruptcy

First off, the bankruptcy petition courtesy of The New York Times is here. Things gets interesting about page 32.

From The Kokomo Tribune comes Fiat impressed with Kokomo facilities:

Representatives from Italian automaker Fiat SpA toured the four Kokomo Chrysler plants and were reportedly impressed with the facilities.

Fiat announced Thursday it would form a partnership with Chrysler LLC that is expected to return the American automaker to profitability.

Fiat has agreed to share its engine and powertrain technology with Chrysler and intends to produce an economical model in the U.S.

Shawn Fain, a representative with United Auto Workers Local 1166, said the tour took place about a month ago.

“They were impressed with the facilities,” Fain said of the Kokomo Transmission Plant, Kokomo Casting Plant and Indiana Transmission Plants I and II. “They wanted to see the facilities to determine if we had the capacity to do the work.”

Which fits with some scuttlebutt I heard last week and some of this gets touched on in the bankruptcy petition.

The New York Times covers the filing with Chrysler Begins Voyage Down Bankruptcy Route:

As part of its reorganization, Chrysler said Friday that it planned to shut eight plants permanently, lay off about 6,500 workers and close an unspecified number of dealerships.

Judge Gonzalez granted Chrysler’s request to use its existing cash management system, which would enable the company to transfer money to other subsidiaries to keep operating.

Lawyers for various constituencies, including banks, car dealerships, hedge funds, parts makers and others have been working around the clock readying their arguments to make sure their interests are protected in court.

Thomas E. Lauria of the law firm White & Case, who represents a committee of the secured creditors, declined to comment to reporters and did not raise any objections to the motions at the hearing. It is still unclear whether the group, which includes Oaktree Capital Management, OppenheimerFunds, Stairway Capital Management, Schultze Asset Management, Group G Capital Partners and the TCW Group, will object to Chrysler’s restructuring plan at the continuation of the case next week.

The lenders, who say they believe they are being treated unfairly in the process, may request that Chrysler be liquidated. But, according to the company’s own analysis, a liquidation would cost more than $2 billion and there are unlikely to be many buyers for Chrysler’s assets.

***

Judge Gonzalez has experience with major bankruptcy cases, having overseen the reorganization of Enron in 2001, which set a record by filing for bankruptcy with $63 billion in assets, and WorldCom in 2002, which topped Enron with $107 billion assets when it filed.

Court documents filed by Chrysler in New York on Thursday showed that Chrysler’s re-emergence from bankruptcy could take until Aug. 28, or four months from now.

Bankruptcy always contains some element of unpredictability, and the debtholders who oppose the new arrangement could argue in court that the company is worth more to them in liquidation.

And also Chrysler Files to Seek Bankruptcy Protection:

But administration officials said they believed that it was highly unlikely that a bankruptcy court judge would side with the minority when those holding 70 percent of the debt had signed off on the arrangement.

Chrysler said its factories would go mostly idle starting Monday, and remain so for the bulk of the process. Auto workers will receive about 80 percent of their base pay during the shutdown. The Treasury is providing $3.3 billion in so-called debtor-in-possession financing, and administration officials said during a conference call with reporters that no jobs would be lost during the bankruptcy.

Any future cuts, they said, would be decided by the new company’s board — which is to include representatives appointed by the union, the administration and the government of Canada, which also lent money — and the successor to the Chrysler chief executive, Robert L. Nardelli, who said he would leave the company at the bankruptcy’s end.

Some older stuff now.

Local unions confident in Obama’s plan (Kokomo Tribune):

UAW Local 1166 representative Shawn Fain didn’t want a bankruptcy to occur at the company at all, nevertheless, he thinks it’s better it happened now.

“[Obama] cares about the families and the thousands of people this affects,” said Fain, who was also a member of the UAW Chrysler National Negotiating Committee. “If this was eight years ago, we wouldn’t be having this conversation at all. We would have been liquidated.

“We hoped to avoid bankruptcy, but it’s here. We are not out of work and we have our jobs. Now, we need to get this [bankruptcy] done as fast as we can so we can get back to work.”

Obama Vows Swift Overhaul As Chrysler Enters Bankruptcy - washingtonpost.com:

"But some bankruptcy specialists warned that the court process can be unpredictable and difficult to manage in the case of a company as vast as Chrysler. Fearing the worst, for example, the National Automobile Dealers Association, which represents Chrysler dealers, has hired law firm Arnold & Porter to protect dealer investments.

The administration's assertion that the bankruptcy could wrap up within 60 days 'is something I would expect someone who has never been involved in a bankruptcy would say,' said Jean Robertson, chair of business restructuring at Calfee, Halter & Griswold. 'There is nothing typical about this case. It's like Frankenstein, and Frankenstein isn't pretty.'"

Bankrupt Chrysler owes Cummins $43.9M:

"Chrysler LLC owes Cummins Inc. $43.9 million, the ailing automaker disclosed in its bankruptcy filing yesterday, making the southern Indiana company one of its top unsecured creditors.

A Cummins spokesman said some of that money will be covered by the U.S. Treasury Department's new Supplier Support Program, which the company entered last month.

'It's our belief a large percentage of that is going to be covered,' spokesman Mark Land said. 'That program is working. Some of it's already coming our way.'

Chrysler's bankruptcy raises big questions for Cummins, which less than two years ago counted the manufacturer's Dodge Ram pickup as its single-largest customer.

Cummins is the exclusive provider of diesel engines for the heavy-duty Dodge Ram, and it has been working on a new light-duty line."

Meanwhile, Fiat appears to be building an empire out of some other US properties: Amber warning light as Fiat woos German ministers in attempt to take control of Opel.

Lauth Goes Into Bankruptcy

Okay, we all have been concentrating on Chrysler, and while not as big, Lauth unit seeks bankruptcy protection has osmethng to say about our Indiana economy:

"Real estate developer Lauth Investment Properties LLC filed for Chapter 11 bankruptcy court protection this morning after months of weathering brutal market conditions here and across the country.

The filing in Indianapolis bankruptcy court listed assets and liabilities of up to $10 million.

It wasn't immediately clear whether Lauth Investment Properties represents only part of the Lauth Group Inc. development empire.

IBJ reported last month that Lauth Group had cut about 90 percent of its staff and lost control of part of its portfolio to an equity partner."

As if you do not know

Congress Approves Obama's $3.4 Trillion Spending Blueprint - washingtonpost.com

Despite a persistent recession and soaring budget deficits, Democrats overwhelmingly endorsed the president's request for hundreds of billions of dollars in new spending over the next decade for college loans, early childhood education programs, veterans' benefits and investments in renewable energy aimed at reducing the nation's dependence on foreign oil.

Lawmakers also agreed to use a powerful procedural tool known as reconciliation to advance the president's proposal to expand health coverage for the uninsured -- a move that ensures Republicans would not be able to filibuster the legislation. Unlike in 1993, when then-President Bill Clinton unveiled a universal coverage plan that went nowhere on Capitol Hill, Obama has a strong mandate for change from both chambers of Congress and a mid-October deadline for key congressional committees to send legislation to the full House and Senate.

Congress Approves Obama's $3.4 Trillion Spending Blueprint - washingtonpost.com

The budget resolution didn't win a single vote from Republican lawmakers, who were enraged that the deficit is projected to exceed $1.2 trillion next year. House Minority Leader John A. Boehner (R-Ohio) called it an "audacious move to a big socialist government" that piles "debt on the backs of our kids and our grandkids."

Still, the measure passed the House by a vote of 233 to 193 and the Senate 53 to 43. Only 17 Democrats in the House and three in the Senate voted against it, as did Sen. Arlen Specter of Pennsylvania, who announced Tuesday that he would leave the Republican Party.

Approval of the budget blueprint marked a huge victory for Obama on his 100th day in office, but it was not a slam-dunk for him. Lawmakers trimmed his tax-cutting plans, refusing to extend his signature tax credit for working families past 2010 unless it is paid for. They sliced $10 billion from his spending request for non-defense programs in the fiscal year that begins in October and jettisoned his suggestion that another $250 billion would be needed to stabilize the banking system. They also refused to authorize the use of reconciliation for his plan to cap greenhouse gas emissions.

George F. Will - Washington Unreconciled on 'Reconciliation' and Torture - washingtonpost.com

The reconciliation process was created in 1974 to facilitate adjustments of existing spending programs. Former senator John Sununu, a New Hampshire Republican, writing in the Wall Street Journal, says using reconciliation to ram through health-care reform would "circumvent the normal and customary workings of American democracy." But those workings have changed markedly.

The most important alteration of the legislative process in recent decades has been the increasingly promiscuous use of filibusters to impose a de facto supermajority requirement for important legislation. And "important" has become a very elastic term.

It should be difficult for government to act precipitously. "Great innovations," said Jefferson, "should not be forced on slender majorities." Revamping health care -- 17 percent of the economy -- qualifies as a great innovation. This is especially so because the administration and its allies, without being candid about what is afoot, are trying to put the nation on a glide path to a "single-payer" -- entirely government-run -- system. They would do this by creating a government health insurance plan to compete with private insurers. It would be able to -- indeed, would be intended to -- push private insurers out of business.

But when Republicans ran the Senate, they, too, occasionally made dubious use of reconciliation. And Republicans' merely situational commitment to legislative due process was displayed in 2003 when they held open a House vote for three hours until they could pressure enough reluctant Republicans to pass the prescription drug entitlement.

GM: The You Know What Looks At The Fan

Pressure on GM grows as bankers attack survival plan - Times Online

A statement issued by GM bondholders said: “We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favouritism of one creditor over another.” The advisers are preparing to issue a counter offer within the next ten days.

GM, in its revised survival plans, made no mention of Vauxhall, its British operation, which employs 5,000 people, nor of the German business operating under the Opel brand with a workforce of 25,000.

Tony Woodley, joint general secretary of Unite, the union, said that a fire-sale by GM of Opel and Vauxhall to Fiat might follow as part of GM’s restructuring. Mr Woodley said that the British, German and Spanish governments should fight such a move because GM Europe needed far more investment than Fiat could muster.

Fritz Henderson, chief executive of GM, admitted that the chance of bondholders agreeing to the debt-for-equity swap by the May 25 deadline was slight. He said: “It’s not impossible, but the bankruptcy is now more probable.”

Thin the headline says it all - very close to the feces hitting the fan. is this a game of chicken or a drag race down a blind alley?

Book Review - London Times - Bankers Leading Us Into The Great Depression

Lords of Finance: 1929, the Great Depression and the Bankers who Broke the World by Liaquat Ahamed review

Norman became a broken man when ­sterling was forced off the gold standard by a run on the pound and — perhaps more inexplicable to Norman — after a new American president, Franklin Delano Roosevelt, chose to devalue the dollar when he didn’t have to. In 1948, a couple of years before he died, Norman wrote: “As I look back, it now seems that, with all the thought and work and good intentions, which we provided, we achieved absolutely nothing… Nothing that I did, and very little that old Ben [Strong] did, internationally produced any good effect — or ­indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds.”

It would be tempting to dismiss the interwar years as a period of collective insanity, when there were no voices of common sense and reason among the world’s political, economic and intellectual leaders. But that would not be right. The great British economist, John Maynard Keynes, routinely saw the elephant in the room and was ­ignored until it was too late. Keynes was eventually invited to be a member of the Court of the Bank of England, where he regularly lunched with Norman. “I do enjoy these lunches at the Bank,” said Keynes. “Montagu Norman always absolutely charming, always absolutely wrong.”

Not much of a surprise: Pontiac to Die

GM to announce death of Pontiac, other restructuring | thestarpress.com | The Star Press

Both people confirmed that the plan includes the death of Pontiac, famous for the Trans Am sports car and the GTO. Efforts in the last few years to market Pontiac as performance-oriented brand failed to work. The company had said it wanted to keep Pontiac as a niche brand with one or two models, but is buckling under tremendous government pressure to consolidate its eight brands, several of which lose money.

The people said GM won’t have much new information on Hummer, Saturn or other brands, including Europe’s Opel. GM has indicated it wants to focus on four core brands, Chevrolet, Cadillac, GMC and Buick.

Union Deal with Chrysler

Chrysler and Union Agree to Deal Before Federal Deadline - NYTimes.com

DETROIT — Union leaders said Sunday that they had reached an agreement with Chrysler that meets the federal government’s requirements for the automaker to receive more financing.

The deal also includes Fiat, the Italian automaker with which Chrysler was ordered by the government to form an alliance before Thursday.

Neither the United Automobile Workers union nor the company released details of the agreement, which modifies the union’s 2007 contract and reduces the amount of money Chrysler must pay into a new health care fund for retirees.

Fiat and Chrysler

Kokomo Tribune; Kokomo, Indiana - Chrysler lenders make counteroffer

DETROIT -- Chrysler’s lenders have delivered another counterproposal to President Barack Obama’s auto task force, as the gap narrows on what the company can pay and what creditors will accept to reduce $6.9 billion in loans, according to a source familiar with the process.

Kokomo Tribune; Kokomo, Indiana - Chrysler talks intensify

In New York, a group representing Chrysler's secured lenders on Thursday was preparing to send to Treasury its latest terms to wipe out much of the $6.9 billion in company debt they carry. The two sides remain far apart in these crucial talks.

The Canadian Auto Workers said Thursday night they were close to a deal on labor concessions with Chrysler, but with the number of details still to be worked out, talks were expected to continue today.

In Italy, Fiat SpA Chief Executive Sergio Marchionne said he was still committed to concluding an alliance with Chrysler, but reiterated that the Italian automaker would not inject cash to close the deal.

In Washington, the Obama administration's auto task force continued intensive negotiations with the United Auto Workers on an agreement to protect the bulk of workers' health care and pension benefits in the event of bankruptcy.

Would Detroit Sound Any Better in Italian? - NYTimes.com

At an extraordinary moment when the global financial crisis has put governments, rather than auto executives, in the driver’s seat, Mr. Marchionne may have found a way to build an empire with — almost — no money down.

Great Depression Revisionism of a Different Sort?

Strategies - The Road Back From the ’29 Crash Wasn’t So Long, After All - NYTimes.com

But a careful analysis of the record shows that the picture is more complex and, ultimately, far less daunting: An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 — less than four and a half years after the mid-1932 market low.

How can this be? Three factors have obscured this truth from investors: deflation, dividends and the distinction between the Dow Jones industrial average and the overall stock market.

Obama Tax "Increase" Not So Bad

Economic View - Before the Tea Party, Thank Your Lucky Stars - NYTimes.com

Other protesters contended that the tax system already strains the vital connection between individual effort and reward and warned that further tax increases might destroy it.

But these accusations don’t withstand scrutiny. The current system is much fairer than many people believe, and the president’s proposal will make it both fairer and more efficient.

Contrary to what many parents tell their children, talent and hard work are neither necessary nor sufficient for economic success. It helps to be talented and hard-working, of course, yet some people enjoy spectacular success despite having neither attribute. (Lip-synching members of boy bands? Money managers who bet clients’ retirement savings on subprime-mortgage-backed securities?)

Far more numerous are talented people who work very hard, only to achieve modest earnings. There are hundreds of them for every skilled, perseverant person who strikes it rich — disparities that often stem from random events.

***

The president’s proposal is modest: raising the top marginal tax rate from 35 percent to 39.5 percent, its level when Bill Clinton left office and well below the corresponding level in most other industrial countries. There has never been a shortage of talented people willing to work hard for success — even in countries with top rates much higher than 50 percent. And the president’s proposal would not cause such a shortage in 2010.

It would, however, promote more efficient provision of public services, in much the same way that contingent fee contracts often promote more efficient provision of services in the private sector. For example, when lawyers are willing to waive fees unless their client wins, wrongfully injured accident victims often gain legal representation they couldn’t otherwise afford. Similarly, when government levies higher tax rates on the wealthy, we can provide public services that the wealthy and others greatly value but that would otherwise be beyond reach. Under such a tax system, the heavier tax bill becomes payable only if we’re lucky enough to end up among life’s biggest winners.

The Great Depression and Now

Remember reasoning by analogies always have a limited run - no two things are ever identical. Here is a good reminder of that fact. Learn what you can and then figure out what are the differences.

Robert J. Samuelson - The Financial Crisis and the Great Depression - washingtonpost.com

The Depression was exceptional in its economic ferocity. As Liaquat Ahamed writes in his book "Lords of Finance": "During a three-year period, real GDP [gross domestic product] in the major economies fell by over 25 percent, a quarter of the adult male population was thrown out of work. . . . The economic turmoil created hardships in every corner of the globe, from the prairies of Canada to the teeming cities of Asia."

Anyone who wants to know why should read this engrossing book. Ahamed, a professional money manager, attributes the Depression to two central causes: the misguided restoration of the gold standard in the 1920s and the massive inter-governmental debts, including German reparations, resulting from World War I.

***

Still, striking differences separate now from then. The biggest is that governments -- unencumbered by the gold standard -- have eased credit, propped up financial institutions and increased spending to arrest an economic free fall. The Federal Reserve and the International Monetary Fund have made loans available to emerging-market countries to offset the loss of private credit. Nor is there anything like the international rancor that followed World War I and impeded cooperation: In 1931, the French balked at rescuing Austria's biggest bank (Creditanstalt), whose failure triggered a chain reaction of European panics.

When countries left the gold standard -- the United States effectively did so in 1933 -- their economies began to recover. Some indicators now imply that the present decline is ebbing ("glimmers of hope," says President Obama). China shows similar signs of improvement. All this diminishes the dreary comparisons with the Depression. But if these omens prove false, a more somber conclusion could emerge.

The mistakes of the Depression were rooted in prevailing economic orthodoxies, which had been overtaken by new realities. The present policies likewise reflect today's orthodoxies. But what if they, too, turn out to be misguided because the world has moved on in ways that become obvious mostly in retrospect?

Obama Economic Theory

I think the idea is sound but I wonder how it will be executed. What I am learning from this economic crisis is just how unstable we have been these past few years. We keep jumping from fad to fad, being told this way to prosperity. Sounds like a return to tradtional - conservative? - values - of hard work, steady work.

Obama plans to regulate new 'bubbles'

But what Obama rarely says about ending the “cycle of bubble and bust” is this: He’s prepared to intervene to make sure that kind of red-hot growth doesn’t occur.

And he’s willing to do it with added government regulation if needed to prevent any one sector of the economy from getting out of balance – the way the dot-com boom did in the 1990s and the real-estate market did earlier this decade.

According to Austan Goolsbee, a key Obama economic adviser, the president plans to focus on stopping bubbles along with preventing busts. And in an interview with POLITICO, Goolsbee said the administration will be on the lookout for new bubbles, like the tech stocks or housing prices.

If new threats are spotted, he said Obama would use “regulatory oversight to prevent guys who want to make a quick buck from doing real harm to the economy. ... That is what it means to get out of the bubble-and-bust cycle.”

It’s a controversial and largely untested idea – one that involves government intervention in the economy to a degree that recent presidents have been unwilling or unable to impose. There would be great political risks for Obama, particularly after the depths of this painful recession, and it would open him up to criticism that he is trying to squelch the free market.

Two Views on The Economy - Theory Kind of Stuff

Not one that I will necessarily agree with:

The Becker-Posner Blog: Is the Stock Market an "Efficient" Market?--Posner

But what about stock market bubbles? The explanation may lie in the fact that under Knightian uncertainty, often the best, though not a good, predictor of the future is the immediate past. If there is no weather forecasting, probably the best guess as to tomorrow's weather is that it will be similar to today's. If stock prices are rising, this suggests that something is happening to make people think that corporate profits will be greater in the foreseeable future. One might counter by asking why, if investors are expecting stock prices to continue rising, prices don't immediately jump to their peak value. But there is some inertia in trading, and, more important, no one can know the market peak in advance; for if everyone knew that, no one would sell at the current price or buy at the peak price, and trading would come to a halt.

And one that I will. Sorry but I think Milton Friedman is overrated.

Surely You're Kidding, Mr. Friedman

First, another "New Economy" theory? Please. Remember 10 years ago when we were all being told that the Dot Com Boom had changed all the rules? Turns out it hadn't. And none of the innovations Thomas is banging the drum for now will change them either. New tools? Yes. New rules? No.

Second, just what kind of crystal balls do you think the venture capital people have, Thomas? I remember reading one of the tech tabloids that were all around Seattle during the Dot Com Boom and looking at a cartoon of a scruffy teenager announcing that he had created a website for his cat and then watching the suits line up to dump money on him. It was about that bad. And of course the VC people also made the real estate bubble possible. Let's just say they haven't proved infallible in locating long-term investments.

Third, and here's the kicker, your economy isn't even real, let alone sustainable, if all it produces is electrons and documents. We have a textbook case in the United Arab Emirates right now: Dubai and its "New Economy" are having to be saved from ruin by Abu Dhabi and that dirty, old school dinosaur stuff it pumps. If you want an economy that lasts more than ten years, you need to make stuff: food, tools, stuff you can touch, stuff you can pick up, and yes, stuff you can drive around in.

Local Banks Doing Good

Local banks keep lending strong with TARP

First Merchants President and CEO Mike Rechin said that bank would probably repurchase its $116 million worth of stock within two or three years but had no immediate plans to do so, predicting the economy would not turn around in the next year.

“Our original interest was it gives you the capital to try to be an active lender in the community,” Rechin said. “I don’t think the balance of this year is likely to get a lot stronger economically, so I like having access to the capital.”

Locally, Mike Baker, who is regional president of First Merchants in the Madison County area, can use the extra capital to provide for any type of lending, from mortgages to small business loans.

Rechin said First Merchants, headquartered in Muncie, probably wouldn’t have a problem lending the money even if it didn’t participate in TARP, but the extra funds would help the bank if the recession continues.

“We were well capitalized before the money,” he said. “I don’t think we would have a problem, but the safety cushion that the excess capital provides makes me very confident that even if the recession lasts until 2010, that we’re going to continue to be a real consistent source of banking services for our customers.”

Anyone want to bet that their lending standards were a bit different than those used by Citigroup, Wells Fargo, etc?

Small Midwestern Cities Are Dying?

Oh, boy. Too many response I can make to this. Like, we did not know this? You think you have seen backwaters - wait till you see Elwood! (That is an inside joke for my Madison County readers.)

Seriously, we probably need to be reminded of this possibility. Keep us from the addiction of false nostalgia. Read the solutions, too.

Warning: Small Midwestern cities are dying:

"But a lot of them will decline into backwaters, cut out of the global conversation, lived in by people who are too poor, too uneducated to afford anything better," Longworth said. Some will become ghettos, he added.

In introducing Longworth, Tom Kinghorn, treasurer of Ball State University, said Longworth's book Caught in the Middle: American's Heartland in the Age of Globalism, was "heartbreakingly familiar to many of us." Kinghorn spoke of "failing schools," "hollowed-out cities," "sometimes clueless politicians" and other problems.

The reasons for the decline of the Rust Belt are well known, Longworth said. They include high wages and relatively low skills, the rise of the Sun Belt, the loss of jobs to Mexico, Japanese superiority in the making of automobile, televisions and other products and globalization, including the Internet and the addition of several billion new workers from relatively poor countries.

There are solutions offered and I think they could be implemented here:

Longworth offered some answers: new technology, including green energy like wind, solar and biofuels; community colleges that teach 21st century skills; communities like Steubenville, Ohio, that are willing to link to big cities, even those like Pittsburgh that are in other states; embracing immigrants and public transportation like high-speed and light rail.

"I'd like to see this Midwest region take a truly regional approach to its problems and solutions," Longworth said. "Some of the Midwest's tired old towns and cities may not survive in any real sense. But those that do won't do it by relying on their own dwindling resources, by staying proud and independent, by refusing cooperation with other towns and cities.

Our political leadership needs to realize we must change, that the idea that if you want change then leave the state is dead.

We need to ask why Anderson and Muncie do not collaborate more.

We need to ask if our schools are training us into this backwater or not.