The US Banks Were Bailed Out in the Past, But Uncle Sam Wasn’t The Savior September 22, 2010

Banks Have Been Bailed Out Many Times in US History

Dow Jones Since 1900

On This Date in History In 1906, San Francisco had a great earthquake. The effects of that quake led to a financial trouble spot that turned into a full-blown economic crisis. At that time, there was no central bank or Federal Reserve. With the system stretched by the stress of the San Francisco quake, some doofus tried to corner the copper market and when that failed, all of the banks who made loans to back the scheme were in trouble so they started calling other loans and the Panic of 1907 was created. People lost confidence in the system and several banks  failed. A bailout was needed. President Theodore Roosevelt was claiming that everything was fundamentally in great shape and threatened a federal takeover of all trusts if the bankers and financial gurus couldn’t get thier houses in order. Who came to the rescue? None other than J. Pierpont Morgan was the savior; the same JP Morgan who had bailed out the system in 1871 and 1895 and the same JP Morgan that is related to JP Morgan Chase who bailed out Bear Stearns in 2008.   To fend off the threats from Teddy Roosevelt, Morgan huddled with his banking brethren and convinced them that they needed to work together to salvage the system in order to save all of their hides and the future of the banking system.   He also convinced the Secretary of the Treasury to pony up $25 million to the effort. The recession did not turn into a depression and the 1907 Panic led directly to the eventual establishment of the Federal Reserve in 1913.

JP Morgan May Have Looked Like a Wild Old Man But He Saved Uncle Sam Bailed Out the Nation Several Times

While the numbers are not as large…not the $700 billion to $800 Biillion that the banking bailout became in 2008-09, the other numbers are not as large either. The Dow Jones Industrial Average fell 39% in 1907. On this date in 2008, the market had lost and gained about two percent over the previous month and politicians ran around making comparisons to the Great Depression when a comparison to 1907 might have been a better barometer . In order to equal the fall of the 1907 panic, the Dow that was around 11,015 on September 22, 2008 would have had to fall to 7000 and it was on this date in 2008 that the Dow fell some 300 points and arguably didn’t stop falling until March 9, 2009 when the Dow Jones Industrial Average bottomed out at 6547.   So, while it was, and in some measure still is, an extremely difficult and precarious situation, it was not totally unprecedented and it wasn’t necessarily a good match with the Great Depression. It’s just the depression of the 1930′s is all the general public, politicians and most people in the media know about.  Several times in the past,  it was JP Morgan engineering a bailout with some government help and this time it was the Federal Reserve and Uncle Sam engineering a bailout with some other private help. When you hear also of rumors that today’s problem was a plot by those who stand to profit, keep in mind that in 1907 it was rumored that the banks had caused the whole panic just to line their pockets.   Aside from the Great Depression, there were a bunch of “panics” in financial circles and the resultant recessions or depressions  that came fairly regularly…perhaps too regularly. The Dow is currently in a trading range between about 9900 and 10,70o and, in recent days, there has been a declaration that the recession is over. 

Year	Unemployment rate
1923-1929	3.3
1930	8.9
1931	15.9
1932	23.6
1933	24.9
1934	21.7
1935	20.1
1936	17.0
1937	14.3
1938	19.0
1939	17.2
1940	14.6
1941	9.9
1942	4.7

With unemployment still hovering near 10%, the rebound of the stock market and the claim that the recession is over are by no means a guarantee that the market and economy won’t go back in the tank.  Nevertheless, both are, and especially the Dow Jones, are certainly at a different place than anyone in March 2009 could have foreseen.   If something happens that causes a big drop in stock prices again, then maybe we can start to refer to the Great Depression as it relates to the stock market, which is but one indicator.   Unemployment is pretty bad but its more like the late 1970s and early 1980′s, not the 1930′s.

No Hoovervilles Today Like in 1930

The big thing about the Great Depression is that its depths were so far reaching that it led to new regulation by the government into financial markets than had ever been contemplated by the founders or anyone else in an effort to try to control the economy such that these setbacks wouldn’t be so deep or so frequent. To a large degree, it has worked pretty well but to expect these things to never happen or think its some sinister plot just is to not accept reality.

Sometimes, news people say they need to give commentary to “give perspective” or a particular news event. Dan Rather used to defend journalists providing analysis instead of just reporting for that specific reason. Yet, it helps if those giving “analysis and perspective” had some perspective in the first place. It’s probably hyperbole and just outright ignorance that media types or politicians trot out the Great Depression comparison.  I remember when President Clinton was running for his first term against George H. W. Bush, they said then that it was the worst economy since the Great Depression.  It certainly wasn’t even close to the economy of the Great Depression then and it’s arguably not the same now.   It’s probably best to leave that moniker on the shelf until its truly warranted.   Let’s hope it can stay on the shelf and we can call this the great recovery. Some of us need a job, not panic.

Weather Bottom Line:  We will continue with this mid to upper 90′s nonsense through Friday.  A front will be approaching then and will pass through.  As it does so, our rain chances will go up. Trouble is that we are so dry there may not be enough moisture for this guy to give us as much rain as one might ordinarly expect from a strong front.  But, it’s a chance.  The good thing is that it will knock the mercury down to the upper 70′s to low 80′s for the weekend and it may be the sign of a pattern change.  Some models are showing a big ol’ storm dropping down into the central plains and the Ohio Valley by the middle of next week.

Recent Bank Bailout Just One of Many-Uncle Sam Doing Work That JP Morgan Did September 22, 2009

Banks Have Been Bailed Out Many Times in US History

Dow Jones Since 1900

On This Date in History  In 1906, San Francisco had a great earthquake.  The effects of that quake led to a financial trouble spot that turned into a full-blown economic crisis.  At that time, there was no central bank or Federal Reserve. With the system stretched by the stress of the San Francisco quake, some doofus tried to corner the copper market and when that failed, all of the banks who made loans to back the scheme were in trouble.  started calling other loans.  People lost confidence in the banks as several failed. A bailout was needed.   President Theodore Roosevelt was claiming that everything was in great shape and was threatening a federal takeover of all trusts if the bankers and financial gurus couldn’t get thier houses in order. Who comes to the rescue?  None other than  J. Pierpont Morgan was the savior the same JP Morgan who had bailed out the system in 1871 and 1895 and the same JP Morgan that is related to JP Morgan Chase who bailed out Bear Stearns last year. He got together with his banking brethren and convinced them that they needed to work together to salvage the system in order to save all of their hides and the future of the nation. He also convinced the Secretary of the Treasury to pony up $25 million to the effort. The recession did not turn into a depression and the 1907 Panic led directly to the eventual establishment of the Federal Reserve in 1913.

JP Morgan May Have Looked Like a Wild Old Man But He Saved Uncle Sam Bailed Out the Nation Several Times

While the numbers are not as large…not the $700 billion to $800 Biillion that the banking bailout became in 2008-09, the other numbers are not as large either. The Dow Jones Industrial Average fell 39% in 1907.   On this date in 2008, the market had  lost and gained about two  percent  over the previous month and politicians ran around making comparisons to the Great Depression when a comparison to 1907 might have been a better barometer . In order to equal the fall of the 1907 panic, then a Dow that was around 11,015 on September 22, 2008 would have had to fall to 7000 and it was on this date in 2008 that the Dow fell some 300 points and arguably didn’t stop falling until  March 9, 2009, the Dow Jones Industrial Average was down to 6547.   So, while it was, and in some measure still is, an extremely difficult and potentially catostrophic situation, it was not totally unprecedented and it wasn’t necessarily a good match with the Great Depression.  It’s just that’s all the general public and certainly most people in the media know about.  Before it was JP Morgan engineering a bailout with some government help and this time its the Federal Reserve and Uncle Sam engineering a bailout with some other private help. When you hear also of rumors that today’s problem was a plot by those who stand to profit, keep in mind that in 1907 it was rumored that the banks had caused the whole panic just to line their pockets.   Aside from the Great Depression, there were a bunch of “panics” in financial circles and the resultant recessions or depressions came fairly regularly…in fact to regularly.  The Dow is now knocking back at the 10,00o door and while it is by no means a guarantee that it won’t go back down, it’s certainly at a different place than anyone in March could have foreseen.  If something happens that causes a big drop again, then maybe we can start to refer to the Great Depression as it relates to the stock market, which is but one indicator.  Unemployment is bad but its more like the late 1970s and early 1980′s, not the 1930′s. 

No Hoovervilles Today Like in 1930

The big thing about the Great Depression is that its depths were so far reaching that it led to new regulation by the government into financial markets than had ever been contemplated by the founders or anyone else in an effort to try to control the economy such that these setbacks wouldn’t be so deep or so frequent.  To a large degree, it has worked pretty well but to expect these things to never happen or think its some sinister plot just is to not accept reality.

Sometimes, news people say they need to give commentary to “give perspective” or a particular news event. Dan Rather used to defend journalists providing analysis instead of just reporting for that specific reason. Yet, it helps if those giving “analysis and perspective” had some perspective in the first place.  It’s probably hyperbole and just outright ignorance that media types or politicians trot out the Great Depression comparison.  It’s probably best to leave that moniker on the shelf until its truly warranted. Let’s hope it can stay on the shelf and we can call this the great recovery.  Some of us need a job, not panic.

Pattern Conducive for Heavy Rain Threat in SE US

Weather Bottom Line: The pattern has set up as expected.  That is with almost a cutoff low in the west as part of a big trof that dug out in the west.  The long wave pattern is such that with the low to our west and a surface high in the extreme southeast, there is a very strong southerly flow into the Southeastern quadrant of the country.  That has resulted in the expected influx of deep Gulf moisture.  With the trof situated as it is, little disturbances rotate around anywhere from going through the Ohio Valley to going through the Dixie states.  With abundant deep moisture, this sets the stage for potential flooding events anywhere in the region.  It was our turn on Sunday and then parts of Georgia took a hit on Monday.  This pattern will remain in place for the rest of the week.  The result for us will be muggy nights with fog potential each morning.  We will be cloudy quite often than not with any sunshine that comes about to create convection in the afternoons producing at least scattered t’storms.  Afternoon highs should be held in the lower 80′s by the time of year, cloud cover, rain and the moisture content.  Rain chances will remain in the picture through the week with the potential of any situation that develops to produce very heavy rain.  The pattern will shift over the weekend.  The trof out west will move east and lift somewhat with a push of colder air behind.  I would think that any strong storms would be most likely on Sunday or Saturday night with the front.  The expected cooler weather will get here for next week.

Some Data Suggest Economy Not Worst Since Great Depression…Not Yet July 15, 2009

Year	Unemployment rate
1923-1929	3.3
1930	8.9
1931	15.9
1932	23.6
1933	24.9
1934	21.7
1935	20.1
1936	17.0
1937	14.3
1938	19.0
1939	17.2
1940	14.6
1941	9.9
1942	4.7

 

 

 

 

 

 

 

 

I recent months, we have constantly been told that this is the worst economy since the Great Depression.  The Dean of the University of Texas business school said so in March.  President Obama said so in September during his presidential campaign and continues to say so today.   If you look at a few key indicators, one may question that assessment. Professor Lee McPeters takes exception to the notion.

But, when one looks at the unemployment rate numbers from the years just after the 1929 crash, we find that they rise to an average rate of 8.9 in 1930 and top out at 24.9 in 1933. (as per the BLS) It stays above 20% through 1935 and then remains in the mid to upper teens until World War II.  Our most recent unemployment rate was pegged at 9.5% which is far less than the era of the Great Depression.  However, when one looks at more recent historical numbers, we find that the current unemployment rate reflects more accurately with the early 1980′s. In 1982, the avg rate for the year was 9.7% and in 1983, 9.6% of labor was unemployed.  For the 8 years of President Clinton’s administration, the unemployment rate was 5.2%.  During the GW Bush administration, the average unemployment rate was 5.3%,

Beginning Date           Ending Date           Dow Industrials          Loss
    ————–               ————-             ——————              —-
Sep.  3, 1929               Jul.  8, 1932             381.17  to   41.22     -89%
Mar. 10, 1937         Mar. 31, 1938             194.40  to   98.95     -49%
Nov. 12, 1938           Apr.  8, 1939             158.41   to  121.44     -23%
Sep. 12, 1939           Apr. 28, 1942             155.92   to   92.92     -40%
Jan. 11, 1973             Dec.  6, 1974          1051.70  to  577.60    -45%
Sep. 21, 1976           Feb. 28, 1978          1014.79  to  742.12     -27%
Apr. 27, 1981           Aug. 12, 1982         1024.05   to  776.92     -24%
Aug. 25, 1987           Oct. 19, 1987         2722.42   to 1738.74     -36%
Jul. 16, 1990              Oct. 11, 1990         2999.75   to 2365.10     -21%

If we take a brief look at the stock market crash of 1929, we find that the market’s initial jolt was a loss of 89% from late 1929 to mid 1932.  For the current environment to be on par with that time frame, if we consider a market high in 2007 of a 14164 Dow Jones, then the Dow would have to fall to 1558 to equal the malaise.  Midday on July 15, 2009 the Dow stood around 8500.

Dow Jones 1974-June 30 2009

1929 Crash...Forecast or Simply History?

 The most recent bear market had a low of 6547 which means the drop from the 14164 high was about 54%.  Now, the Dow had a rebound after the 1929-1932 bear market ended and it rose to at least 194 by 1937, from which time the Dow took another 49% tumble.  The rebound is often referred to as a “false peak” because the apparent recovery in the economy as indicated by the Dow rising 373% from the 1932 low to the 1937 high.  Our current rise from the 6547 low is about 30%.  Earlier in the year, the rebound was more like 40%.  So, the question will be, is our current rise just another “false peak” or is there a real recovery. 

	GDP percent change based on current dollars	GDP percent change based on chained 2000 dollars
1930	-12.0	-8.6
1931	-16.1	-6.4
1932	-23.2	-13.0
1933	-4.0	-1.3
1934	17.0	10.8
1935	11.1	8.9
1936	14.3	13.0
1937	9.7	5.1
1938	-6.2	-3.4
1939	7.0	8.1
1940	10.0	8.8
1941	25.0	17.1
1942	27.7	18.5
1943	22.7	16.4
1980	8.8	-0.2
1981	12.2	2.5
1982	4.0	-1.9
1983	8.7	4.5
2004	6.6	3.6
2005	6.3	2.9
2006	6.1	2.8
2007	4.8	2.0
2008	3.3	1.1

The 2008 GDP numbers are a bit misleading because the last two quarters showed contraction with a substantial 4th quarter contraction of the GDP over 6% with the first quarter of 2009 contracting by 5.5%, based on 2000 dollars.  The contraction of the economy as a percentage of GDP is definitely more pronounced than in the late 1970′s and early 1980′s if you only look at the last two quarters and compare it to the annual GDP.  But, you can’t do that. It’s comparing a full year to a couple of quarters.  For instance, the second quarter of 1980 saw a GDP fall of 7.8%, which is greater than any of the past 3 quarters.  It was bad timing for President Carter because he was trying to get re-elected.  Bad timing because the total change in GDP for that year was just 2 tens of one percent.  So, the story is still being written as to how well this recession compares to the early 1980′s.  But, the GDP change for the entire year of 1930 was negative 8.6% followed by -6.4% in 1931 and then a huge contraction of 13% in 1932.  We’ve had two quarters with a 6% and 5.5% decline. 

All of this points to a recession comparable to the late 1970′s and early 1980′s.  The comparison to the Great Depression is simply a tough argument to make, at this point.  I truly hope, as I think everyone does, that politicians will not be able to accurately say that we are in the worst condition since the Great Depression.  Many people have blamed the depression on Herbert Hoover.  Others blamed the deep recession of the late 70′s and early 80′s on Jimmy Carter.  Could this be the reason why the media and politicians choose Republican President Hoover’s legacy instead of Democrat President Jimmy Carter’s?  Or is it more because from a PR standpoint, the Great Depression is something that every one knows about.  Maybe its more attention getting or sexy to talk about the Great Depression instead of a simple recession.  But, regardless of the reasoning, many aspects of the current situation cannot credibly be compared with the depression and more accurate reporting by the media and proclamations by policians would be that it is the worst in 30 years.

 

SPC Convective Outlook Thu 8am to Fri 8am

Weather Bottom Line:

  Today we have a classic situation with a storm coming out of the plains, dragging up warm front.  Clouds and showers with a few t’storms are in the cards but all of the clouds and such should suppress any big storms.  But, the warm front will draw up warm, moist, unstable air behind it so that will set the stage for Thursday as the cold front approaches.  It’s a pretty strong cold front with highs behind it for Friday and the weekend in the upper 70′s and low 80′s.  I would think that we would have a reasonably good chance for t’storms and possibly strong storms on Wednesday afternoon or evening.

DAY 2 CONVECTIVE OUTLOOK 
   NWS STORM PREDICTION CENTER NORMAN OK
   1252 AM CDT WED JUL 15 2009
  
   VALID 161200Z – 171200Z
  
   …THERE IS A SLGT RISK OF SVR TSTMS FROM PORTIONS OF THE
   CENTRAL/SRN PLAINS EWD INTO THE TN/LOWER OH VALLEYS…AND THEN NEWD
   INTO NY/PA…
  
   …SYNOPSIS…
   UPPER TROUGH OVER THE WRN GREAT LAKES WILL DEEPEN SEWD THU FROM THE
   MID MS/TN VALLEYS EWD INTO THE CAROLINAS…AS THE UPPER RIDGE BUILDS
   NWD ACROSS THE INTERMOUNTAIN WEST. THE GRADIENT BETWEEN THESE
   SYSTEMS WILL RESULT IN STRONG FLOW ALOFT…40-55 KT AT 500 MB…WITH
   NWLY WINDS FROM THE NRN ROCKIES SEWD INTO KS/OK…AND WLY/SWLY WINDS
   FROM THE MID MS/TN VALLEYS NEWD THROUGH THE OH VALLEY AND INTO THE
   NORTHEASTERN STATES. COLD FRONT ASSOCIATED WITH THE UPPER TROUGH IS
   FORECAST BY LATE THU AFTERNOON TO EXTEND FROM NY SWWD TO NEAR THE
   AR/MO BORDER…AND THEN WWD TO THE CO/NM BORDER.
  
   …KS/OK/NEB SEWD INTO SRN MO/AR…
   CLUSTERS OF STORMS MAY BE ONGOING AT THE START OF THE PERIOD ACROSS
   THE OZARKS AND WRN CENTRAL PLAINS DUE TO LIFTING ASSOCIATED WITH
   SEPARATE LOW LEVEL JETS. WHILE THESE STORMS ARE EXPECTED TO BE
   ELEVATED…STEEP MID LEVEL LAPSE RATES MAY SUPPORT A HAIL
   THREAT…ESPECIALLY WITH THE CENTRAL PLAINS STORMS. HOWEVER…BOTH
   CLUSTERS OF STORMS ARE LIKELY TO INTENSIFY AND BECOME SURFACE BASED
   LATER IN THE DAY AS THEY SHIFT SEWD AND ENCOUNTER A
   WARMING/DESTABILIZING AIR MASS. OTHER STORMS SHOULD ALSO DEVELOP
   NEAR THE FRONTAL BOUNDARY BY LATE AFTERNOON AS STRONG HEATING
   WEAKENS CAPPING INVERSION. ONCE SURFACE BASED STORMS DEVELOP…THE
   COMBINATION OF MODERATELY STRONG INSTABILITY AND EFFECTIVE SHEAR AT
   30-40 KT WILL BE FAVORABLE FOR SEVERE STORMS. GIVEN THE STRONGLY
   VEERING WIND PROFILES AND NWLY FLOW ALOFT…THE DEVELOPMENT OF MCS/S
   WITH COLD POOLS APPEAR MOST LIKELY…WITH WIND DAMAGE THE GREATER
   THREAT…ESPECIALLY DURING THE AFTERNOON/EVENING HOURS.
  
   …LOWER OH/TN VALLEYS NEWD INTO NY/PA…
   AS UPPER TROUGH AMPLIFIES…HEIGHTS WILL GRADUALLY LOWER AND
   TEMPERATURES COOL ALOFT ACROSS THE REGION. ONCE TEMPERATURES WARM
   INTO THE 80S…MODERATE INSTABILITY WILL DEVELOP WITHIN MOIST AIR
   MASS LOCATED AHEAD OF THE COLD FRONT. ALTHOUGH WINDS ABOVE THE
   BOUNDARY LAYER WILL BE MOSTLY WLY/WSWLY…SPEED SHEAR WILL PROVIDE
   SUFFICIENT DEEP LAYER SHEAR TO SUPPORT ORGANIZED STORMS.  EVEN
   THOUGH MODELS VARY ON THE COVERAGE OF STORMS…THE AMOUNT OF
   INSTABILITY AND COOLER TEMPERATURES ALOFT SHOULD SUPPORT SOME SEVERE
   HAIL. HOWEVER…THE DEEP UNIDIRECTIONAL WIND PROFILES APPEAR MOST
   FAVORABLE FOR LINE SEGMENTS AND WIND DAMAGE. SINCE STORMS WILL BE
   DIURNALLY DRIVEN…THEY SHOULD DIMINISH QUICKLY AFTER SUNSET.
  
   ..IMY.. 07/15/2009