San Jose, CA – On Friday, Oct. 3, the House of Representatives voted to approve Secretary of Treasury Henry Paulson’s $700 billion bailout plan and then left town to campaign for the election. Despite government reports showing that almost half a million people applied for unemployment insurance benefits in one week alone in September and that the economy had lost 159,000 jobs, Congress did not extend unemployment insurance benefits for the long-term unemployed. This inaction will cause almost 800,000 jobless workers to lose their benefits this month.
San Jose, CA – The year-old financial crisis entered a new stage in September as the U.S. financial system suffered its worst setbacks since the Great Depression of the 1930s. Over the weekend of Sept. 6-7, Fannie Mae and Freddie Mac, two large mortgage companies that were financing three-quarters of U.S. mortgages, were taken over by the government due to their growing mortgage losses. Then a week later the 158-year old investment bank Lehman Brothers failed to find a buyer and had to declare bankruptcy. The following Tuesday, Sept. 16, the giant insurance firm American International Group (AIG), with more than $1 trillion (1,000 billion) in assets, failed to get an emergency loan and was taken over by U.S. government in exchange for an $85 billion dollar loan. The next day the Putnam money market fund had to close down as investors pulled billions of dollars out following a big loss at a smaller money market fund that had made a big loan to Lehman Brothers.
San Jose, CA – On Sept. 5 the Labor Department reported that the unemployment rate in August rose to 6.1%, from 5.7% in July. This is the highest unemployment rate in almost five years. A week earlier a report from the Commerce Department showed that real income (income adjusted for inflation) fell in July for the first time since January, dragging down household spending despite a drop in savings for the month. These two reports show that the economy may be going into a downward spiral of falling income and spending, leading to more layoffs, which in turn cut incomes and then spending even more.
San José, CA – Working people had less to celebrate over the holiday weekend as the number of jobs fell for the sixth month in a row in June. On July 3, the U.S. Department of Labor reported that there were 62,000 fewer jobs in June as compared to May and increased their estimates of job losses for previous months. All told, businesses have shed almost one-half a million jobs since January. Six straight months of job losses has always meant a recession is underway in the past. At the same time, the number of people applying for unemployment benefits jumped to more than 400,000, a level typical of a recession.
Federal Reserve Uses Emergency Powers from the Great Depression of the 1930s
San José, CA – On Friday, March 14, the fifth largest investment bank in the United States, Bear Stearns, failed. Over the weekend the Federal Reserve took over the riskiest mortgage-related investments worth $30 billion and arranged for J.P. Morgan Chase, the third largest U.S. bank (after Citigroup and Bank of America), to buy the rest of Bear Stearns for $2 a share, or 4% of its price on Thursday. The failure of Bear Stearns brings the growing financial crisis full circle, as it was the failure of two Bear Stearns hedge funds that invested in home mortgages that marked the beginning of the crisis last August.
San Jose, CA – New economic data released in early January 2008 showed that the U.S. economy was on the edge of a recession in December. On Jan. 2, the Institute for Supply Management reported that the manufacturing sector shrank in December. Their index fell to 47.7 from 50.8 in November, the lowest level since April of 2003. Then on Jan. 4, the Department of Labor said that the unemployment rate rose to 5% in December, from 4.7% the month before, the biggest one-month jump since the last recession in 2001. In the same report, the Labor Department also said that only 18,000 new jobs were created in December, the weakest number since August of 2003.
San Jose, CA – On Dec. 6, the Mortgage Bankers Association of America reported that home foreclosures and late mortgages rose to record highs in the July to September period. The next day, Bush’s Treasury Secretary Paulson announced a plan to aid home-buyers. While consumer advocates criticized the plan for being too little, too late, Wall Street liked the plan, which would let banks off the hook, and sent stocks up.
