Tattered Hope (photo: San Diego Shooter)

Broadway, 9 am, March 15. Drivers and passers-by notice a gloomy statement on a big electronic screen used for roadwork warnings: “New York is dying”. No one still knows if it was some weird marketing campaign or just the action of a computer freak that hacked the screen to send a scary message to an already depressed local population.

The message was perhaps extreme, but nevertheless close to the feeling of many inhabitants of the ‘Big Apple’. New Yorkers are noticing less people walking on the usually crowded sidewalks in downtown and fewer customers in shops. Everywhere, mostly on the doors of restaurants and buildings, there are signs “for rent” and “for sale”. It never happened before – neither after 9/11 – that those signs could hang for months, without buyers and investors showing up with fresh cash. Even bleaker is the situation in the suburbia, in particular in Brooklyn. Thousand house owners were evicted in the last months, as they were unable to pay back their debts to banks and creditors.

New York is not an exception. The mood in the rest of the country is going down together with the prices in the shopping malls: -70% since last December in some cities in Florida. It seems the ghost of deflation will become real in 2009. The ‘country of all possibilities’ looks like if it is rapidly changing under the axe of the financial and economic crisis or, as some commentators named it, Great Depression 2.0. The sparkling skylines of New York, Chicago, San Francisco are hiding a new reality made of poverty, insecurity and fear for the future.
 

Save the ‘beast’

Since months, the US economy is on a free fall. The unemployment rate is increasing at a speed never recorded in the last 25 years, factories and offices are going out of business, 13 trillion dollars of US families’ wealth vanished in one year. Foreclosures are up 81%, GDP down 6%. Wall Street lost 20% of its value since Obama became president. And Nouriel Roubini, the first economist to predict already in 2006 the current financial crisis, prognosticates the recession will last until the end of 2010. At least. “Growth will be close to zero, unemployment will go up over 10%”, he recently stated in at TV interview.

While America is struggling, people are still wondering how things could go so wrong. The explanation is a mixture of ingenuity, frauds, and crimes. Everything started because of unrealistic low interest rates. Everybody, including people with the lowest incomes, could start to have their own houses. The verb ‘afford’ went out from the dictionary. As the market strategist Barry Ritholtz explains in the book ‘Bailout Nation’, “the banks gave credits without supervision and in a totally unregulated framework”. Their plan was to “repackage” those risky debts together with good debts, to resell them to Wall Street firms that will further resell them on a global level, cheating buyers and making a lot of money. Something went wrong. The basic assumption that fuelled that system that house prices will never go down was mistaken.

One of the culprits of the crisis is definitely the American Insurance Group (AIG). AIG is the ‘beast’ that since months is eating billions of dollars of US taxpayers. It is a well without bottom, but there is no solution for the US.  Either you save AIG or the entire US and world economy collapses. AIG was insuring those ‘bad debts’ made by the bankers and Wall Street and getting huge amount of money for that. The company insured more bad debts than it could cover in case things went wrong. To make things worst, AIG was as well one the biggest actors in the credit default swap (CDS) market, an extremely risky way to make money speculating on the default of insurance policies. A complicate thing to explain in plain words. When things started to go wrong because of the credit crunch in 2007, AIG was still the second biggest insurance company in the world, with 116.000 employees and 110 billion dollars net profits per year. Today, they are just a phantom maintained alive by the billions granted by the Obama administration. Since September 2008, AIG shares lost 95% of their values and over 150 billion dollars were thrown by Washington to AIG in order to avoid its collapse. The insurance company is so ramified that its bankrupt could cause a domino effect that will spread to the global financial system, bankrupting banks, insurances, families, even the Manchester United, owned by AIG.

Notwithstanding the huge amount of public money invested for saving the insurance company, the AIG decided – without shame – to pay over 160 million dollars in productivity bonuses to its manager. When the news spread, people starting publicly to express their anger and disgust. Police officers are now asked to protect the homes of AIG managers and several private security agencies were employed to secure the AIG’s buildings. Bomb-sniffing dogs are also used for protection. Edward Liddy, chief executive of AIG, asked his employees to return the money when the bonuses scandal erupted. Too late. Americans are angry and life threats are directed every day by phone and email to AIG employees and managers. Mr. Cuomo, the New York General Attorney that is investigating on AIG, confirmed that there are “security concerns related to AIG staff”. The names of the employees that received the million dollars bonuses will not be released to the press, or at least not before a “serious risk assessment”, added Cuomo.
 

A scared society

While the Obama administration is throwing billions in the black hole of companies like AIG and people are getting more frustrated, many Americans are loosing hope this crisis will ever come to an end. Some are answering in a stereotypical ‘American style’ to their fears.  In the first two months of 2009, almost 3 million Americans bought new guns, a clear sign of the sinister mood of the nation. According to the statistics of Wall Street, at the moment the most profitable shares in the stock exchange are those belonging to companies selling weapons and canned food. The revenue of weapons producers like Smith and Wesson, Sturm Ruger and of Hormel Food increased of over 70% in the last months.

The mood of many Americans is not surprising if one looks at the data related to the job market. In total, over 8 million people in the US are without job and other 8 million are forced to work part-time. The official unemployment rate went up to 8,1% in February, the highest data in 25 years. Over 4 million workers lost their jobs since the ‘official’ beginning of the crisis, in December 2007.

President Obama said that the “unemployment data are scary”, but he added that his “government is putting huge efforts against the crisis.”  During a visit in Ohio at the beginning of March, Obama stressed that the € 800 billion stimulus plan will have an impact on the economy. “We need to be patient”, he added referring to the increasing unemployment.

But the US job market is in a bleak situation and there is no space for patience. Thousand job fairs are organized throughout the US. They are filled with people searching for employment. Thousand of them are former financial experts, directors of companies, bankers laid off in the last months. They are accepting whatever it is offered, from plumbing jobs and gardening to housekeeping and baby-sitting. Even the Web is flooded with blogs and forums giving hints to the new unemployed. “I got laid two times in three weeks”, writes Daniel Higginbotham, a former web developer and now writer of the blog ‘Happy Job Search’. “The first time I got fired I tried to deal with everything myself”, he writes. “The result was that I felt like no one cared (surprise!). I felt miserable.” Daniel subsequently decided to keep an online diary of his efforts to go back to work and give precious tips to other people in the same situation. Now his blog is one of the most followed in America. A sign of the times.
 

Home sweet home

If you loose your job, there is a high chance you will end up getting evicted from your house. This is the nightmare of thousand of Americans. In many cases, it already became reality.

The worst places to live in this period are the cities that based their economy on manufacturing. Detroit, the homeland of the “Big three” – General Motors, Chrysler and Ford – is one of the places where the crisis has hit the hardest. Cars remain unsold countrywide, export collapsed. At the commercial harbour of Baltimore, in Maryland, over 60.000 new American cars are waiting since months to be shipped to Europe and Asia. The local authorities had to pay 6 million dollars for a new car storage area, in order to free space in the port and to avoid the complete stop of its activities. The same happened in California.

There is unfortunately a little need for big, expensive and fuel-thirsty American cars. SUVs are not anymore fashionable, like the city where they are produced. According to the Chicago Tribune, the median price for a home sold in the month of December 2008 in Detroit reached the ridiculous level of 7.500 dollars. Not per square meter, but in total. Workers are getting fired and they are leaving a future ghost city.
 

Yes, they can

If you are American, some reasons to be optimistic exist. The house prices are starting to get stabilized in certain areas of the country, mostly in the Midwest. Obama is also pressuring for restructuring the American industry. No more huge SUVs, but ecologic cars that can be sold not only in America, but also in the rest of the world. The ‘green economy’ could boost the US recover: solar panels, ecologic vehicles and biofuels. Americans are also spending less money, buying less on credit and some are even started to grow their own vegetables, following the example of the First Lady, Michelle Obama, who recently transformed part of the White House garden in a vegetable plot. And don’t forget: the USA is a unite country. In difficult times, Americans tend to grit teeth, support the President and try to find practical solutions to cope with the problems. Exactly the opposite than Europeans who in this crisis are getting more divided than ever and seem not willing to cope with the economic problems coming from Eastern Europe. Who will be the biggest looser in Great Depression 2.0, it has still to be seen.