If you listen to the business commentary on the government?s takeover of Fannie Mae and Freddie Mac, the two federally created private corporations that dominate the mortgage market, you hear talk of socialism, creeping socialism, interference with the free market or other remarks suggesting that no matter how dire the crisis, government intervention to resolve it is always suspect. This pat consensus dominates nearly all of the reporting on business activity, the stock market and other exchanges and even labor reporting. Not only is it biased in favor of business, it represents the failure of the media to hire informed commentators with a range of views.

 

It does not matter if it?s Fox News or CNBC; they all think that the free market solves all problems once freed from the hand of government regulation. Now mind you, these are the same commentators that bemoan?rightfully?the failure of government regulation to prevent the excesses in the mortgage re-sale market, creating balance sheet uncertainty that has threatened major financial institutions and led to 10 bank failures so far this year.

 

For the record, the bailout, which does nothing to make financial markets responsive to public needs or changes fundamentally the structure of capital markets, is not a socialist action; it does nothing to further socialist goals. Like the Savings and Loan bailout of the 1980s, taxpayers will be paying to preserve the present system, not to change it.

 

What would change it?  For starters, restoring effective bank regulation means reinstating the Glass-Steagal act, rebuilding the wall between investment and commercial banking. That would be a welcome political intervention, though it wouldn?t be a socialist move. It is ironic that a socialist should have to remind liberals and conservatives that markets require fair rules.

 

Just after Labor Day I reported on the increases in economic inequality that the annual Census Bureau Report documented.  A few items from the newspapers last week demonstrate the weakness of the U.S. economy.

 

The Mortgage Bankers Association announced that mortgage delinquencies reached 30-year highs in the second quarter of 2008. New foreclosures jumped to 1.19 percent, the first time in 29 years the figure rose above 1 percent. The total inventory of homes in foreclosure stands at 2.75 percent. That means almost three houses in 100 are in foreclosure?a tripling in just three years. The share of all mortgage loans with one or more payments overdue is at 6.41 percent, an all-time high.

 

Bank losses related to bad housing loans now amount to more than $500 trillion. The Federal Reserve reports that over all mortgage loans (in dollar value) dropped by more than 50 percent, from nearly $782 billion in the first quarter of 2007 to $352 billion in the first quarter of 2008.

 

Existing home sales reached a 10-year low in the second quarter of 2008, as the median price of a single family home dropped 7.6 percent.

 

Unemployment in August jumped to 6.1 percent, a five-year high, and some economists predict a rise to more than 7 percent before year?s end. This was also the eighth month of consecutive job losses, with 84,000 more jobs gone, bringing the net total since January to more than 600,000 jobs erased. Jobs in the private sector actually dropped by 773,000 since January, but were offset by public sector gains. In addition to the 84,000 jobs lost in August, the government revised upwards the number of jobs lost in June and July by 58,000.  The Economic Policy Institute reports that in every period of eight months of consecutive job losses since 1948 the economy was found to be in an official recession. 

 

Since April the jump in unemployment is 1.1 percent, the largest four-month increase since 1981. Unemployment for adults with less than a high school degree reached 9.6 percent, the highest since 1996. Unemployment also went up for college graduates by .3 percent, to 2.7 percent.  African American unemployment jumped by nearly a full percentage point to 10.6 percent, and Hispanic unemployment reached 8.0 percent.

 

The underemployment figure has reached 10.7 percent as almost 6 million workers who want to work fulltime can only get part-time work?another indicator of a recession. And now we learn that the Highway Trust Fund, the government agency that funds road building projects that generate millions of jobs, is nearly out of money.

 

Between the job losses, reductions in hours, declines in home values and credit tightening it is clear that the U.S. economy is in a recession. The impact of the stimulus checks taxpayers received in May and June has dissipated.  The next stimulus package, and there will be one sooner or later, better focus on job creation.  It will take paychecks not stimulus checks to turn around the economy.