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America: befuddled and hungry
Viewpoint
Wednesday December 17th 2008
A tsunami of job losses and a financial swindle to the tune of $50bn – the catastrophes are coming so thick and fast that the currency of crisis itself is being devalued, says Ed Pilkington
Wednesday December 17th 2008
Madoff was arrested on a securities fraud charge. Photograph: Ruby Washington/AP
When a crisis strikes unexpectedly, whether a man-made disaster or a catastrophe brought on by natural causes, there tends to be a trajectory that broadly follows the shape of an arch. There is the initial shock, followed by a dawning realisation of what has happened and then the long, hard process of recovery.
But this time the arch shows no sign of beginning its downward path. The crisis appears to grow with every passing day. One cataclysm follows the next in such quick succession that the currency of crisis itself is rapidly being devalued. Americans find themselves at the centre of the global financial meltdown and have moved well beyond the initial shock, into a state of semi-permanent numb befuddlement.
Consider what happened on just one day last week. Last Thursday began appallingly enough with the release of new statistics that would in normal times have provoked screaming banner headlines, but in the circumstances were reported with a resigned calm. Bank of America, the third largest US bank, announced that it would cut up to 35,000 jobs as a result of the credit crunch.
It was hard to get overwrought about such a large heap of humanity added to the unemployment pile when later that day we learned that fully 573,000 people had filed new claims for unemployment benefit in just the previous week – the highest level for 26 years.
That in turn paled into insignificance when set against the looming drama being played out in Congress, where the Senate Republicans rose up that same evening to deliver the death blow to proposals to bail out the ailing Big Three car makers in Detroit. With General Motors now on the verge of bankruptcy, unless the federal government steps into the breach, as it has hinted it might, a tsunami of job losses could be set in train that would put 2 million more Americans on that pile.
Enough doom and depression for one day? You might think so, but Thursday had one more surprise up its sleeve before it was done, and it turned out to be by far the biggest yet. The news began to filter out that one of Wall Street’s most respected investment managers had been arrested for running a fraudulent business on a gargantuan scale.
"Gargantuan" is a word that applies to an extreme, and it should be used appropriately sparingly. But in this environment of the devalued currency of crisis, it’s hard to find any other word that conveys the enormity of this final shockwave.
Bernard Madoff, a former chairman of the Nasdaq, had taken in billions of investors’ money and had pretended he was making dividends. In fact, he was merely moving the money around, using new incoming capital to generate non-existent profits for other lenders.
This story is striking because it has no direct bearing to the credit crunch, and yet it stems from the same source: a gross lack of regulation that allowed Wall Street figures to get away with financial murder.
The figure that has been put to the damage that Madoff inflicted on his unsuspecting clients through a simple yet massive con is $50bn. Let that number sink in. $50bn. After the disappearance of Lehman Brothers, the collapse of AIG, the $700bn bail-out for the banking system, does that sum have the power to shock?
It does if you look at it this way: if the $50bn proves to be accurate, then the swindle perpetrated by this one Wall Street figure would be greater in scale than Enron.
It does have the power to shock too if you are one of the tens of thousands of investors. Individuals from Florida’s retirement havens to private Swiss banks and charitable foundations discovered that they had gone from considerable wealth to next to nothing almost overnight.
What gives this vast accumulation of misfortune – on just one Thursday – its added edge is that the safety net for people caught up in it is so patchy. If you lose your job, you more often than not lose the healthcare insurance that goes with it. The New York Times recently profiled the case of a pregnant woman who opted for an early caesarean section to have the costs of delivering the baby covered before she was forced to quit her job.
The state provides unemployment benefit, but in most states it runs out after six months. President Bush has extended that by an additional 13 weeks, but after that Americans are on their own.
Which brings us to the one statistic that really does still have the power to shock. This month the number of Americans receiving food stamps is likely to surpass 30 million. That means more than one in 10 US citizens cannot secure the basic calorific intake to survive without government assistance.
The US in December 2008. The world’s richest nation.
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