There are many signs this week that the U.S. is headed for—or is already in the midst of—a deep recession. The Department of Labor reported this month that the net job loss in the U.S. over the last year was 760,000, with 159,000 of those jobs lost in September alone. A year ago, the unemployment rate was 4.7% and has now risen to 6.1%, the worst showing in seven years.
In Orlando, where the Walt Disney World Company has an entire staff devoted to projecting just how many people will visit each of its parks on any given day, hotel occupancy has made its largest single one month drop (September 2008 compared with September 2007) since the September 11, 2001 terrorist attacks. That drop was nearly 12%, one of the worst year-to-year showings ever.
General Motors and Chrysler continue to be mum about reports that the two are talking about a merger, but what happens with these two auto giants could very well affect each one of us. GM lusts after Chrysler’s supply of cash (about $11 billion, most of it borrowed) and Chrysler isn’t making it financially and needs a partner in order to survive. But survival as what? If the two companies join forces, analysts believe that something like 66,000 jobs (mostly at Chrysler) will be “redundant,” which would mean at least that many people applying for unemployment. Auto Week reports that for each job lost on an assembly line, ten more jobs would be lost in related industries. You can do the math on that one.
And any deal between these two enormous companies would need an alphabet soup of approvals from the UAW (United Autoworkers Union) to the FTC (Federal Trade Commission) to the JD (Justice Department). And that’s just for starters. It could take up to a year to work through the details, if there is a deal at all, and during the delay, if sales continue to drop, more jobs would be lost.
In the meantime GMAC Credit, owned 49% by GM and 51% by the holding company that is the majority owner in Chrysler, has reported it lost billions in the mortgage crisis, and has closed 20 offices in North America and laid off 930 people. GMAC has also tightened its credit standards so that only those with a credit score of 700 or above can borrow money from GMAC to buy a new car. Nice to know George and Laura Bush, at least, will be able to afford new wheels when they move back to Texas.
Finally, analysts of the Auto Industry say no matter what happens they expect GM and Chrysler to appeal to the U.S. government for some kind of bailout, and that’s in addition to $25 billion in loans Congress gave the automakers in the recent Energy Bill, ostensibly so that they could begin to build more fuel efficient cars. It begs the question: how long can the U.S. treasury keep handing out money?
The U.S. Central Bank announced yesterday it is itself getting into the credit business, providing $540 billion in capital for money market mutual fund investment. This is designed to ease up on tightening credit (see above paragraphs) but now that we’ve seen how the for-profit banks, investment firms, and mortgage companies handled their assets in recent years, we can only imagine how efficient the federal government will be at this same job. And, on that same theme, yesterday Yahoo announced the layoff of 1500 employees. Financial firm National City Corporation let go 4000 employees.
It would take a great deal more bad news than we have seen so far to bring us to the 25% unemployment that marked the depths of the Great Depression. But it is very clear to me that in all the deregulation fervor of recent years, the federal regulatory agencies and Congress, as their watchdog, forgot what they were supposed to do. The mission statements of those agencies included preventing corruption and prosecuting it when discovered. Preventing ursury and predatory lending. Instead, we have seen every big corporation lining up at the Congressional trough, and (practically) every member of Congress lining up at the lobbying trough of every big corporation. A truly symbiotic relationship.
It is tough to imagine that anyone in the White House could really make much of an impact on this mess. I haven’t heard either of the candidates promise to seek out the bad guys who corrupted our system and put them in jail. It is almost as if one has to wait for the whole thing to fall in on itself before the system can be cleansed. Unfortunately, that is going to be a really painful “cure” for the American people.