Eeyore's Important News and View

Recession may jeopardize 401(k) contributions November 4, 2008 - 5:06pm
By DAVID PITT AP Business Writer
DES MOINES, Iowa (AP) - Retirement accounts already battered by a steep market decline may get hit again as several companies suspend or reduce their 401(k) match to save cash.
Workers at General Motors Corp. and Frontier Airlines Holdings Inc., for example, could potentially lose thousands of dollars in company contributions from their retirement accounts.
GM, which recently announced it was suspending company matches for its 32,000 eligible salaried workers, said Monday its U.S. auto sales plunged 45 percent as it struggles along with competitors to survive the credit crisis and financial market turmoil.
"People know these actions are necessary to conserve cash and maintain viability," said Dan Flores, a company spokesman.
Matching contributions average about 11 percent of a company's profits, according to a recent survey of more than 1,000 companies by the Profit Sharing/401k Council of America.
Now, with the economy driving profits down, some companies are forced to cut costs and look to their 401(k) contribution as a way to eliminate millions of dollars in spending.
Frontier Airlines suspended its 401(k) match on June 1 as part of a wider effort to cut costs as it works its way through Chapter 11 bankruptcy protection. The airline's plan matched 50 percent of employee contributions, up to 10 percent of salaries. The company reported that the match cost it $4.2 million in 2006.
"This is a recession-type of response. These employers are really up against it and they have to decide to cut somewhere and this seems like the least bad place for them to cut," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College.
Last year more than 58 million U.S. workers set aside a portion of their paycheck in a 401(k) retirement plan, and some industry surveys indicate as much as 90 percent of employer-sponsored plans provide a company match.
There are substantial savings to be had for companies large and small, but comprehensive benefits are vital to attracting top talent and staying competitive.
Jamie Bloomquist, 40, works for Maine Boats, Homes & Harbors, Inc., of Camden, Maine. Even with just eight full-time employees, he enjoys a 3 percent match on his account.
"It seems to me that would not be the best place to start cutting because it does say something about their commitment to their work force and their commitment to you as an employee," he said.
For workers who lose the company match, it's essentially a pay cut, said Tom Stritikus, 38, of Seattle, who gets a match of 7.5 percent from his employer.
"People get enraged with they don't get cost of living adjustment for one or two years," said Stritikus, an associate dean at the University of Washington. "But to think about taking an actual cut to your salary is quite a daunting proposition."
Many investors will be watching closely because suspending or reducing 401(k) matches is an echo of the 2001 recession when more than a dozen large companies including Ford Motor Co., Goodyear Tire & Rubber Co. and Charles Schwab & Co. altered their policies.
After seeing profits plummet in 2001 and 2002, Schwab surprised many in the financial services industry when it suspended its match in early 2003 for about 11,600 workers.
"It was something that the company did very reluctantly," said spokesman Mike Cianfrocca. "It was certainly one of the hardest decisions that was made." Management reinstated its 401(k) match in January 2004.
Schwab, which manages company-sponsored retirement plans covering 1.3 million workers, said it hasn't heard of any of its clients planning to suspend or reduce their match in the current climate.
The Vanguard Group Inc. said its research indicates about 5 percent of company plans it manages suspended or reduced matches in the 2001 to 2003 recession.
Spokeswoman Linda Wolohan said it's too early to determine whether that experience will repeat itself in the current downturn because such trends sometimes take months to emerge.
At the moment, there aren't expectations for widespread cuts to corporate contributions. Among large corporations, it's likely to rival the 15 or so companies that were documented in the 2001-2003 downturn.
Principal Financial Group Inc., which manages 33,000 retirement plans covering nearly 3 million workers, said less than 1 percent of its client companies with 401(k) plans changed course in the previous recession.
The Center for Retirement Research at Boston College studied the trend in 2001-2003 and found 15 companies including Prudential Financial Inc., Ford Motor Co., Daimler Chrysler and CMS Energy had suspended their contributions. Most had resumed contributing within two to three years, Munnell said.
One company restoring its benefit is Goodyear, which announced in February 2007 that it would freeze its traditional pension plan on Dec. 31 and replace it with a 401(k) beginning Jan. 1, 2009. Management says the move saves $100 million this year and up to $90 million in 2009 and beyond.
Wayne Ranick, a spokesman for United Steelworkers Union, which represents workers at Goodyear, said the philosophy for many companies is to shift as much of the cost of health care and retirement to workers and away from the company.
"If companies are suspending their 401(k)s, I'm sure its reflective of the economic times," Ranick said. "You're just starting to see the slowdown that's going to take effect."
The ability to discontinue contributions in lean times is one of the features of the 401(k) plan that makes it so attractive to employers, said Jack VanDerhei, research director at the Employee Benefits Research Institute.
"Employers want the flexibility of saying if it's a profitable year and I have more money, I will share it with you," he said. "If it's not a profitable year, I might lower the match or in some cases temporarily suspend it all together."
The last time companies cut back on their match workers did not pull their own money out of their 401(k) plans in large numbers, said Robyn Credico, director of defined contribution plans for business consultant Watson Wyatt. She doesn't expect many to cut back their own contributions this time.
Research has shown that worker participation in a retirement plan is in large part passive and they tend to leave it alone unless pushed by some financial need to change it.
Cutting their own participation would make matters worse, said Barrie Christman, a vice president in the Principal Financial's 401(k) business.
"All they'd be doing is compounding the problem," she said. "I'd hope people would step up their own contribution, but that could be hard to do in this environment."
For millions of workers, the matching contribution is a critical part of their retirement plan. The most common match is 50 cents for each $1 a worker contributes up to 6 percent of the worker's salary. For example, a worker earning $50,000 a year contributing 6 percent, would put $3,000 into the 401(k) account and the company would put in $1,500.
The real impact on the worker isn't from the loss of $1,500 but rather the lost opportunity to benefit from the compounding of interest on that money over time _ which could easily grow to hundreds of thousands for younger workers.
http://wtop.com/?nid=111&sid=1510788

Blue Mountain Freezes $3.1 Billion Credit Hedge Fund
By Saijel Kishan
Nov. 3 (Bloomberg) -- Blue Mountain Capital Management LLC froze its largest hedge fund after clients asked to pull a ``meaningful percentage'' of their money even as it outperformed the industry average by almost 10-fold this year.
The $3.1 billion Blue Mountain Credit Alternatives Fund declined 2.4 percent through October, compared with the 19.6 percent loss by the HFRX Global Index compiled by Chicago- based Hedge Fund Research Inc. Withdrawals were suspended so Blue Mountain wouldn't be forced to sell assets in falling credit markets, the firm said today in a letter to clients.
``This shows that nobody is immune from the huge investor outflows in the industry at the moment,'' said Matt Simon, analyst at New York-based Tabb Group, a financial-services consulting company.
Investors fleeing the worst financial crisis since the Great Depression have forced hedge funds such as Deephaven Capital Management LLC and RAB Capital Plc to halt redemptions. In most cases, the funds have underperformed competitors. The Deephaven Global Multistrategy Fund was down 15 percent this year through September and lost an additional 10 percent in October.
Several of Blue Mountain's fund-of-funds shareholders were under ``liquidity pressures'' from their own clients, Blue Mountain Chief Executive Officer Andrew Feldstein said in the investor letter, a copy of which was obtained by Bloomberg News.
``We are not comfortable with this state of affairs,'' Feldstein wrote. ``If we were to unwind or sell positions to meet current redemptions, the severe liquidation costs would be borne inequitably by the remaining investors.''
Investors may pull as much 25 percent of their money from hedge funds by the end of the year, Morgan Stanley said in an Oct. 24 report. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June, the New York-based bank said.
A spokesman for Blue Mountain, which oversees $5.5 billion from offices in New York and London, declined to comment.
Affiliated Managers Stake
The firm was started in 2003 by Feldstein, a former JPMorgan Chase & Co. managing director, Stephen Siderow and Gery Sampere. BlueMountain last year sold a minority stake to Affiliated Mangers Group Inc., the U.S. holding company for more than two dozen investment firms.
The Blue Mountain Credit Alternative fund has returned an average of 45.8 percent annually since inception. The fund seeks to profit from discrepancies in the prices of securities in the corporate loan, bond, credit and equity derivatives markets, a strategy known as relative-value trading.
The firm's $1.1 billion equity alternatives fund has lost 0.9 percent this year through October, while its $400 million BlueCorr fund has returned 21.3 percent, according to the investor letter.
Blue Mountain offered investors a plan that includes waiving the notice and lock-up provisions of the Blue Mountain Credit Alternative fund for all clients. Investors have until Nov. 10 to decide whether to redeem their existing investment or exchange all or part of their investment with any one or more of three share classes.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.
http://www.bloomberg.com/apps/news?pid=20601087&sid=afLyPPpU0yK4&refer=home

Grim exports, manufacturing index raises fears of recession
By Sue Kirchhoff and Barbara Hagenbaugh, USA TODAY
WASHINGTON — A rash of dismal data Monday underscored economists' fears that the nation is falling into a deep recession, with manufacturing plummeting, banks pulling back on consumer and business loans and construction spending dropping.
Of particular concern is a sharp decline in export orders for U.S. goods, which had been a bright spot in the economy. Global demand is slowing as foreign economies falter and the U.S. dollar rises against other currencies.
"The plunge in new export orders to a new all-time low raises concerns that the only remaining area of strength for the U.S. economy might also collapse," said Harm Bandholz, economist at UniCredit Markets.
U.S. manufacturing activity sank to the lowest level in more than 26 years in October as orders, production, employment and exports all declined, the Institute for Supply Management said Monday.
The ISM index of factory activity was 38.9 in October, down from 43.5 in September and the lowest since September 1982, when the economy was in one of the longest recessions in the post-war period. A reading below 50 points to contraction. "October was the month in which the manufacturing sector came off of its pedestal," says Norbert Ore, head of the ISM survey.
In a second report, the Federal Reserve said about 85% of domestic banks had tightened standards for business loans to large and midsize firms in the past three months, up from 60% that reported doing so in a July survey. About 75% of lenders toughened criteria for lending to small firms during the most recent quarter, while about 85% set higher standards for commercial real estate loans.
Businesses weren't the only ones finding credit hard to come by. Nearly 60% of lenders toughened up credit card lending, while almost 65% raised the bar for other types of consumer loans during the past three months.
Tighter credit was a big reason that construction activity weakened in September. The Census Bureau said construction spending declined 0.3% from August and 6.6% from a year ago. Housing continued to tumble. Non-residential building eked out a slight gain; that is expected to change.
"Credit has been very hard to pry loose from banks," says Kenneth Simonson, chief economist at the Associated General Contractors of America. "A lot of projects that contractors thought would be coming on line now have been put on hold."
http://www.usatoday.com/money/economy/2008-11-03-ism-construction_N.htm

Investors shun Greek debt as shipping crisis deepens
Freight rates for shipping are crashing at the fastest pace ever recorded as banks shut off credit lines to the industry, precipitating a sudden crunch in world trade.

By Ambrose Evans-Pritchard and Rowena Mason Last Updated: 5:20PM GMT 03 Nov 2008
Investors shun Greek debt as shipping crisis deepens
The Baltic Dry Index measuring rates for coal, iron ore, and grains, and other dry goods plummeted below 1000 yesterday, down 92pc since peaking in June.
The daily rental rates for Capesize big ships have dropped $234,000 to $7,340 in weeks, leaving operators stuck with heavy losses on long leases. Empty ships are now crowding Singapore and other global ports.
"It is extremely serious, " said Jeremy Penn, president of the Baltic Exchange. "Freight rates have never fallen this steeply before. It is telling us that world trade in raw materials has slowed dramatically. Shippers are having genuine difficulty obtaining letters of credit from banks," he said.
The shipping crisis is another blow to the City of London, which earned £1.3bn in foreign receipts from the industry last year. Maritime services employs 14,500 staff in the UK.
It is also beginning to cause strains in Greece, where the yield spread between Greek 10-year bonds and German Bunds rocketed to a post-EMU record of 123 basis points yesterday.
The upheavals on the bond markets came as Iceland was forced to raise interest rates 6 percentage points to 18pc by the IMF as a condition for its $2bn (£1.3bn) rescue package.
The draconian terms raise fears that the IMF will apply the same medicine to Hungary, Ukraine, Belarus, Serbia, as well as Pakistan and a long list of other countries that may soon need a bail-out. Critics says the Fund risks repeating errors it made in Asia's 1998 crisis when it imposed a one-size-fits-all contraction policy on the region, causing bitter anti-Western feelings and arguably making matters worse.
A deflationary strategy of this kind could prove counterproductive –or worse – if applied in enough countries simultaneously. It would defeat a key purpose of the rescues, which is to stabilise the global financial system.
The Icelandic krona traded for the first time in a week, but dealers said it was changing hands at roughly 240 to the euro compared with the rate of 152 to the euro fixed by the central bank.
Ominously for Greece, this is the first time its debt has broken its tight linkage with Italian bonds – which traded at spreads of 100 yesterday. The markets are now clearly singling out the country as the most vulnerable of the EMU members.
"This shipping slowdown is a worry for Greece, " said Chris Pryce, a director of Fitch Ratings, which downgraded the country's credit outlook last week. Fitch warned that Greece has a public debt of 92pc of GDP, leaving it no safe margin for fiscal stimulus in a downturn.
"Shipping has overtaken tourism to become the country's biggest industry. They get their finance from other countries, so I think there are going to be a lot of worried bankers in London," he said.
Shipping specialists say the Royal Bank of Scotland and HSBC provide the lion's share of loans for both the bulk goods and tanker fleets, exposing these two banks to further potential losses.
Greek shipping families control a third of the global freight market for bulk goods, with operations split between London and Pireaus.
Mr Pryce said Greek banks had expanded rapidly in the Balkan region and Turkey, with heavy exposure to Serbia and Macedonia. "They saw this as a growth region, but they may be thinking differently about it now," he said.
Michael Klawitter, a credit strategist at Dresdner Kleinwort, said the market flight from Greek bonds marked a dangerous moment for the euro. "There has been a massive widening of spreads. We are no longer having a theoretical discussion about the viability of monetary union. People are really concerned for the first time," he said.
"It is not surprising that they are looking closely at Greece. Greek banks have been buying all kinds of assets across the Balkans and they are heavily exposed to the housing market," he said.
Greece has a current account deficit of 15pc of GDP, the highest in the eurozone. Investors were willing to turn a blind eye to this during the credit boom, but they have now become wary of any country with a deficit in double digits.
Mr Klawitter said Greece is not the only country in the eurozone that is coming under the microscope. "The spreads on what was once rock-solid Austrian debt have reached 90. Investors have started to look at the numbers and they realise that cross-border loans by Austrian banks to Eastern Europe are over 80pc of GDP, and that is really worrying in this turmoil. They have seriously begun to think that one – or several – East Europe an countries are going to fail to get their act together and go the way of Iceland," he said.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3275375/Investors-shun-debt-as-shipping-crisis-deepens.html

Thoughts On Disaster Survival, Post Katrina...The follow information was provided via several emails by a friend heavily involved in the New Orleans disaster of hurricane Katrina, during the course of the disaster itself. Many of the comments were LIVE to that moment in time....I’ve had over 30 people staying with me since Sunday, evacuating from New Orleans and points south in anticipation of Hurricane Katrina. Only two families were my friends they told other friends of theirs that they knew a place where they could hole up, and so a whole bunch arrived here I didn’t mind, because there were six RV’s and travel trailers, so we had enough accommodation. However, I’ve had the opportunity to see what worked - and what didn’t - in their evacuation plans and bug-out kits, and I thought a few “lessons learned” might be appropriate to share here.1. Have a bug-out kit ready at all times. Many of these folks packed at the last minute, grabbing whatever they thought they’d need. Needless to say, they forgot some important things (prescription medications, important documents, baby formula, diapers, etc.). Some of these things (e.g. prescriptions) obviously can’t be stocked up against possible emergency need, but you can at least have a list in your bug-out kit of what to grab at the last minute before you leave 2. Renew supplies in your bug-out kit on a regular basis. Batteries lose their charge. Foods have an expiration date. So do common medications. Clothes can get moldy or dirty unless properly stored. All of these problems were found with the folks who kept backup or bug-out supplies on hand, and caused difficulties for them.3. Plan on needing a LOT more supplies than you think. I found myself with over 30 people on hand, many of whom were not well supplied and the stores were swamped with literally thousands of refugees, buying up everything in sight. I had enough supplies to keep myself going for 30 days. Guess what? Those supplies ended up keeping 30-odd people going for two days. I now know that I must plan on providing for not just myself, but others in need. I could have been selfish and said “No, these are mine” - but what good would that do in a real disaster? Someone would just try to take them, and then we’d have all the resulting unpleasantness. Far better to have extra supplies to share with others, whilst keeping your own core reserve intact (and, preferably, hidden from prying eyes ).4. In a real emergency, forget about last-minute purchases. As I said earlier, the stores were swamped by thousands of refugees, as well as locals buying up last-minute supplies. If I hadn’t had my emergency supplies already in store, I would never have been able to buy them at the last minute. If I’d had to hit the road, the situation would have been even worse, as I’d be part of a stream of thousands of refugees, most of whom would be buying (or stealing) what they needed before I got to the store.5. Make sure your vehicle will carry your essential supplies. Some of the folks who arrived at my place had tried to load up their cars with a humongous amount of stuff, only to find that they didn’t have space for themselves Pets are a particular problem here, as they have to have air and light, and can’t be crammed into odd corners.If you have to carry a lot of supplies and a number of people, invest in a small luggage trailer or something similar (or a small travel trailer with space for your goodies) - it’ll pay dividends if the S really does HTF.6. A big bug-out vehicle can be a handicap. Some of the folks arrived here with big pick-ups or SUV’s, towing equally large travel trailers. Guess what? - on some evacuation routes, these huge combinations could not navigate corners very well, and/or were so difficult to turn that they ran into things (including other vehicles, which were NOT about to make way in the stress of an evacuation ). This led to hard feelings, harsh words, and at least one fist-fight. It’s not a bad idea to have smaller, more maneuverable vehicles, and a smaller travel trailer, so that one can “squeeze through” in a tight traffic situation. Another point a big SUV or pickup burns a lot of fuel. This is bad news when there’s no fuel available (See point 10 below.)7. Make sure you have a bug-out place handy. I was fortunate in having enough ground (about 1.8 acres) to provide parking for all these RV’s and trailers, and to accommodate 11 small children in my living-room so that the adults could get some sleep on Sunday night, after many hours on the road in very heavy, slow-moving traffic. However, if I hadn’t had space, I would have unhesitatingly told the extra families to find somewhere else - and there wasn’t anywhere else here, that night. Even shops like Wal-Mart and K-Mart had trailers and RV’s backed up in their parking lots (which annoyed the heck out of shoppers trying to make last-minute purchases). Even on my property, I had no trailer sewage connections, so I had to tell the occupants that if they used their onboard toilets and showers, they had to drive their RV’s and trailers somewhere else to empty their waste tanks. If they hadn’t left this morning, they would have joined long, long lines to do this at local trailer parks (some of which were so overloaded by visiting trailers and RV’s that they refused to allow passers-by to use their dumping facilities).8. Provide entertainment for younger children. Some of these families had young children (ranging from 3 months to 11 years). They had DVD’s, video games, etc. - but no power available in their trailers to show them They had no coloring books, toys, etc. to keep the kids occupied. This was a bad mistake.9. Pack essentials first, then luxuries. Many of these folks had packed mattresses off beds, comforters, cushions, bathrobes, etc. As a result, their vehicles were grossly overloaded, but often lacked real essentials like candles, non-perishable foods, etc. One family (both parents are gourmet cooks) packed eighteen (yes, EIGHTEEN ) special pots and pans, which they were going to use on a two-burner camp stove... They were horrified by my suggestion that under the circumstances, a nested stainless-steel camping cookware set would be rather more practical. “What? No omelet pan?” Sheesh...10. Don’t plan on fuel being available en route. A number of my visitors had real problems finding gas to fill up on the road. With thousands of vehicles jammed nose-to-tail on four lanes of interstate, an awful lot of vehicles needed gas. By the time you got to a gas station, you were highly likely to find it sold out - or charging exorbitant prices, because the owners knew you didn’t have any choice but to pay what they asked. Much better to leave with a full tank of gas, and enough in spare containers to fill up on the road, if you have to, in order to reach your destination.11. Have enough money with you for at least two weeks. Many of those who arrived here had very little in cash, relying on check-books and credit cards to fund their purchases. Guess what? Their small banks down in South Louisiana were all off-line, and their balances, credit authorizations, etc. could not be checked - so many shops refused to accept their checks, and insisted on electronic verification before accepting their credit cards. Local banks also refused (initially) to cash checks for them, since they couldn’t check the status of their accounts on-line. Eventually (and very grudgingly) local banks began allowing them to cash checks for not more than $50-$100, depending on the bank. Fortunately, I have a reasonable amount of cash available at all times, so I was able to help some of them. I’m now going to increase my cash on hand, I think... Another thing - don’t bring only large bills. Many gas stations, convenience stores, etc. won’t accept anything larger than a $20 bill. Some of my guests had plenty of $100 bills, but couldn’t buy anything.12. Don’t be sure that a disaster will be short-term. My friends have left now, heading south to Baton Rouge. They want to be closer to home for whenever they’re allowed to return. Unfortunately for them, the Governor has just announced the mandatory, complete evacuation of New Orleans, and there’s no word on when they will be allowed back. It will certainly be several weeks, and it might be several months. During that period, what they have with them - essential documents, clothing, etc. - is all they have. They’ll have to find new doctors to renew prescriptions; find a place to live (a FEMA trailer if they’re lucky - thousands of families will be lining up for these trailers); some way to earn a living (their jobs are gone with New Orleans, and I don’t see their employers paying them for not working when the employers aren’t making money either); and so on.13. Don’t rely on government-run shelters if at all possible. Your weapons WILL be confiscated (yes, including pocket-knives, kitchen knives, and Leatherman-type tools); you will be crowded into close proximity with anyone and everyone (including some nice folks, but also including drug addicts, released convicts, gang types, and so on); you will be under the authority of the people running the shelter, who WILL call on law enforcement and military personnel to keep order (including stopping you leaving if you want to); and so on. Much, much better to have a place to go to, a plan to get there, and the supplies you need to do so on your own.14. Warn your friends not to bring others with them I had told two friends to bring themselves and their families to my home. They, unknown to me, told half-a-dozen other families to come too - “He’s a good guy, I’m sure he won’t mind ” Well, I did mind... but since the circumstances weren’t personally dangerous, I allowed them all to hang around. However, if things had been worse, I would have been very nasty indeed to their friends (and even nastier to them, for inviting others without clearing it with me first ). If you are a place of refuge for your friends, make sure they know that this applies to them ONLY, not their other friends. Similarly, if you have someone willing to offer you refuge, don’t presumeon his/her hospitality by arriving with others unforewarned.15. Have account numbers, contact addresses and telephone numbers for all importantpersons and institutions. My friends will now have to get new postal addresses, and will have to notify others of this their doctors, insurance companies (medical, personal, vehicle and property), bank(s), credit card issuer(s), utility supplier(s), telephone supplier(s), etc. Basically, anyone who sends you bills, or to whom you owe money, or who might owe you money. None of my friends brought all this information with them. Now, when they need to change postal addresses for correspondence, insurance claims, etc., how can they do this when they don’t know their account numbers, what number to call, who and where to write, etc.?16. Have portable weapons and ammo ready to hand. Only two of my friends were armed, and one of them had only a handgun. The other had a handgun for himself, another for his wife, a shotgun, and an evil black rifle - MUCH better I was asked by some of the other families, who’d seen TV reports of looting back in New Orleans, to lend them firearms. I refused, as they’d never handled guns before, and thus would have been more of a danger to themselves and other innocent persons than to looters. If they’d stayed a couple of days, so that I could teach them the basics, that would have been different but they wouldn’t, so I didn’t. Another thing - you don’t have to take your entire arsenal along.Firearms for personal defense come first, then firearms for life support through hunting (and don’t forget the skinning knife ). A fishing outfit might not be a bad idea either (you can shoot bait ). Other than that, leave the rest of your guns in the safe (you do have a gun safe, securely bolted to the floor, don’t you?), and the bulk ammo supplies too. Bring enough ammo to keep you secure, but no more. If you really need bulk supplies of guns and ammo, they should be waiting for you at your bug-out location, not occupying space (and taking up a heck of a lot of weight ) in your vehicle. (For those bugging out in my direction, ammo supply will NOT be a problem... )17. Route selection is very, very important. My friends (and their friends) basically looked at the map, found the shortest route to me (I-10 to Baton Rouge and Lafayette, then up I-49 to Alexandria), and followed it slavishly. This was a VERY bad idea, as something over half-a-million other folks had the same route in mind... Some of them took over twelve hours for what is usually a four-hour journey. If they’d used their heads, they would have seen (and heard, from radio reports) that going North up I-55 to Mississippi would have been much faster. There was less traffic on this route, and they could have turned left and hit Natchez, MS, and then cut across LA on Route 84. This would have taken them no more than five or six hours, even with the heavier evacuation traffic. Lesson think outside the box, and don’t assume that the shortest route on the map in terms of distance will also be the shortest route in terms of time.18. The social implications of a disaster situation. Feedback from my contacts in the LSP and other agencies is very worrying. They keep harping on the fact that the “underclass” that’s doing all the looting is almost exclusively Black and inner-city in composition. The remarks they’re reporting include such statements as “I’m ENTITLED to this stuff ”, “This is payback time for all Whitey’s done to us”, and “This is reparations for slavery ”. Also, they’re blaming the present confused disaster-relief situation on racism “Fo sho, if Whitey wuz sittin’ here in tha Dome waitin’ for help, no way would he be waitin’ like we is ” No, I’m not making up these comments... they are as reported by my buddies. This worries me very much. If we have such a divide in consciousness among our city residents, then when we hit a SHTF situation, we’re likely to be accused of racism, paternalism, oppression, and all sorts of other crimes just because we want to preserve law and order. If we, as individuals and families, provide for our own needs in emergency, and won’t share with others (whether they’re of another race or not) because we don’t have enough to go round, we’re likely to be accused of racism rather than pragmatism, and taking things from us can (and probably will) be justified as “Whitey getting his just desserts”. I’m absolutely not a racist, but the racial implications of the present situation are of great concern to me. The likes of Jesse Jackson, Al Sharpton, and the “reparations for slavery” brigade appear to have so polarized inner-city opinion that these folks are (IMHO) no longer capable of rational thought concerning such issues as looting, disaster relief, etc.19. Implications for security. If one has successfully negotiated the danger zone, one will be in an environment filled, to a greater or lesser extent, with other evacuees. How many of them will have provided for their needs? How many of them will rely on obtaining from others the things they need? In the absence of immediate State or relief-agency assistance,how many of them will feel “entitled” to obtain these necessities any way they have to, up to and including looting, murder and mayhem? Large gathering-places for refugees suddenly look rather less desirable... and being on one’s own, or in an isolated spot with one’s family, also looks less secure. One has to sleep sometime, and while one sleeps, one is vulnerable.Even one’s spouse and children might not be enough... there are always going to be vulnerabilities. One can hardly remain consciously in Condition Yellow while bathing children, or making love A team approach might be a viable solution here .20. Too many chiefs, not enough Indians” in New Orleans at the moment. The mayor has already blown his top about the levee breach: he claims that he had a plan in place to fix it by yesterday evening, but was overruled by Baton Rouge, who sent in others to do something different. This may or may not be true... My LSP buddies tell me that they’re getting conflicting assignments and/or requests from different organizations and individuals. One will send out a group to check a particular area for survivors but when they get there, they find no-one, and later learn that another group has already checked and cleared the area. Unfortunately, in the absence of centralized command and control, the information is not being shared amongst all recovery teams. Also, there’s alleged to be conflict between City officials and State functionaries, with both sides claiming to be “running things” and some individuals in the Red Cross, FEMA, and other groups appear to be refusing to take instructions from either side, instead (it’s claimed) wanting to run their own shows. This is allegedly producing catastrophic confusion and duplication of effort, and may even be making the loss of life worse, in that some areas in need of rescuers aren’t getting them. (I don’t know if the same problems are occurring in Mississippi and/or Alabama, but I wouldn’t be surprised if they were.) All of this is unofficial and off-the-record, but it doesn’t surpriseme to hear it. Moral of the story if you want to survive, don’t rely on the government or any government agency (or private relief organization, for that matter) to save you. Your survival is in your own hands - don’t drop it 21. Long-term vision. This appears to be sadly lacking at present. Everyone is focused on the immediate, short-term objective of rescuing survivors. However, there are monumental problems looming, that need immediate attention, but don’t seem to be getting it right now. For example: the Port of Louisiana is the fifth-largest in the world, and vital to the economy, but the Coast Guard is saying (on TV) that they won’t be able to get it up and running for three to six months, because their primary focus is on search and rescue, and thereafter, disaster relief. Why isn’t the Coast Guard pulled off that job now, and put to work right away on something this critical? There are enough Navy, Marine and Air Force units available now to take over rescue missions.Another example there are over a million refugees from the Greater New Orleans area floating around. They need accommodation and food, sure but most of them are now unemployed, and won’t have any income at all for the next six to twelve months. There aren’t nearly enough jobs available in this area to absorb this workforce. What is being done to find work for them, even in states remote from the problem areas? The Government for sure won’t provide enough for them in emergency aid to be able to pay their bills. What about mortgages on properties that are now underwater? The occupants both can’t and won’t pay; the mortgage holders will demand payment; and we could end up with massive foreclosures on property that is worthless, leaving a lot of folks neck-deep in debt and without homes (even damaged ones). What is being done to plan for this, and alleviate the problem as much as possible? I would have thought that the State government would have had at least the skeleton of an emergency plan for these sorts of things, and that FEMA would have the same, but this doesn’t seem to be the case. Why weren’t these things considered in the leisurely days pre-disaster, instead of erupting as immediate and unanswered needs post-disaster?22. Personal emergency planning. This leads me to consider my own emergency planning. I’ve planned to cover an evacuation need, and could probably survive with relative ease for between two weeks and one month but what if I had been caught up in this mess? What would I do about earning a living, paying mortgages, etc.? If I can’t rely on the State, I for darn sure had better be able to rely on myself I certainly need to re-examine my insurance policies, to ensure that if disaster strikes, my mortgage, major loans, etc. will be paid off (or that I will receive enough money to do this myself).I also need to provide for my physical security, and must ensure that I have supplies, skills and knowledge that will be “marketable” in exchange for hard currency in a post-disaster situation. The idea of a “team” of friends with (or to) whom to bug out, survive, etc. is looking better and better. Some of the team could take on the task of keeping a home maintained (even a camp-type facility), looking after kids, providing base security, etc. Others could be foraging for supplies, trading, etc. Still others could be earning a living for the whole team with their skills. In this way, we’d all contribute to our mutual survival and security in the medium to long term. Life might be a lot less comfortable than prior to the disaster, but hey - we’d still have a life This bears thinking about, and I might just have to start building “team relationships” with nearby [people of like mind] 23. The “bank problem.” This bears consideration. I was at my bank this morning, depositing checks I’d been given by my visitors in exchange for cash. The teller warned me bluntly that it might be weeks before these checks could be credited to my account, as there was no way to clear them with their issuing banks, which were now under water and/or without communications facilities. He also told me that there had been an endless stream of folks trying to cash checks on South Louisiana banks, without success. He warned me that some of these local banks will almost certainly fail, as they don’t have a single branch above water, and the customers and businesses they served are also gone - so checks drawn on them will eventually prove worthless. Even some major regional banks had run their Louisiana “hub” out of New Orleans, and now couldn’t access their records. I think it might be a good idea to have a “bug-out bank account” with a national bank, so that funds should be available anywhere they have a branch, rather than keeping all one’s money in a single bank (particularly a local one) or credit union. This is, of course, over and above one’s “bug-out stash” of ready cash.24. Helping one’s friends is likely to prove expensive. I estimate that I’m out over $1,000 at the moment, partly from having all my supplies consumed, and partly from making cash available to friends who couldn’t cash their checks. I may or may not get some of this back in due course. I don’t mind it - if I were in a similar fix, I hope I could lean on my friends for help in the same way, after all - but I hadn’t made allowance for it. I shall have to do so in future, as well as planning to contribute to costs incurred by those who offer me hospitality under similar circumstances.25. People who were prepared were frequently mobbed/threatened by those who weren’t. This was reported in at least seven incidents, five in Mississippi, two in Louisiana (I suspect that the relative lack of Louisiana incidents was because most of those with any sense got out of Dodge before the storm hit). In each case, the person/family concerned had made preparations for disaster, with supplies, shelter, etc. in good order and ready to go. Several had generators ready and waiting. However, their neighbors who had not prepared all came running after the disaster, wanting food, water and shelter from them. When the prepared families refused, on the grounds that they had very little, and that only enough for themselves, there were many incidents of aggression, attempted assault, and theft of their supplies. Some had to use weapons to deter attack, and in some cases, shots were fired. I understand that in two incidents, attackers/would-be thieves were shot. It’s also reported that in all of these cases, the prepared families now face threats of retribution from their neighbors, who regarded their refusal to share as an act of selfishness and/or aggression, and are now threatening retaliation. It’s reportedly so bad that most of the prepared families are considering moving to other neighborhoods so as to start afresh, with different neighbors.Similar incidents are reported by families who got out in time, prepared to spend several days on their own. When they stopped to eat a picnic meal at a rest stop, or an isolated spot along the highway, they report being approached rather aggressively by others wanting food, or fuel, or other essentials. Sometimes they had to be rather aggressive in their turn to deter these insistent requests. Two families report attempts being made to steal their belongings (in one case, their vehicle) while over-nighting in camp stops on their way out of the area. They both instituted armed patrols, with one or more family members patrolling while the others slept, to prevent this. Seems to me to be a good argument to form a “bug-out team” with like-minded, security-conscious friends in your area, so that all concerned can provide mutual security and back-up.My take I can understand these families being unwilling to share the little they had, particularly in light of not knowing when supplies would once again be available. However, this reinforces the point I made in my “lessons learned” post last week plan on needing much more in the way of supplies than you initially thought If these families had had some extra food and water in stock, and hidden their main reserve where it would not be seen, they could have given out some help to their neighbors and preserved good relations. Also, a generator, under such circumstances, is a noisy (and bright, if powering your interior lights) invitation saying “This house has supplies - come and get them”. I suspect that kerosene lanterns, candles and flashlights might be a more “community-safe” option if one is surrounded by survivors.26. When help gets there, you may get it whether you like it or not. There are numerous reports of aggressive, overbearing behavior by those rescuers who first arrived at disaster scenes. It’s perhaps best described as “I’m here to rescue you - I’m in charge - do as I say - if you don’t I’ll shoot you”. It appears that mid-level State functionaries and Red Cross personnel (the latter without the “shoot you” aspect, of course) were complained about most often. In one incident, a family who had prepared and survived quite well were ordered, not invited, to get onto a truck, with only the clothes on their backs. When they objected, they were threatened. They had pets, and wanted to know what would happen to them and they report that a uniformed man (agency unknown) began pointing his rifle at the pets with the words “I’ll fix that”. The husband then trained his own shotgun on the man and explained to him, in words of approximately one syllable, what was going to happen to him if he fired a shot. The whole “rescuer” group then left, threatening dire consequences for the family (including threats to come back once they’d evacuated and torch their home). The family were able to make contact with a State Police patrol and report the incident, and are now determined that no matter how much pressure is applied, they will not evacuate. They’ve set up a “shuttle run” so that every few days, two of them go upstate to collect supplies for the rest of the family, who defend the homestead in the meantime.Another aspect of this is that self-sufficient, responsible families were often regarded almost with suspicion by rescuers. The latter seemed to believe that if you’d come through the disaster better than your neighbors, it could only have been because you stole what you needed, or somehow gained some sort of unfair advantage over the “average victims” in your area. I’m at a loss to explain this, but it’s probably worth keeping in mind.27. There seems to be a cumulative psychological effect upon survivors. This is clear even - or perhaps particularly - in those who were prepared for a disaster. During and immediately after the disaster, these folks were at their best, dealing with damage, setting up alternative accommodation, light, food sources, etc. However, after a few days in the heat and debris (perhaps worst of all being the smell of dead bodies nearby), many found their ability to remain positive and “upbeat” being strained to the limit. There are numerous reports of individuals becoming depressed, morose and withdrawn. This seemed to happen to even the strongest personalities. The arrival of rescuers provided a temporary boost, but once evacuated, a sort of “after-action shell-shock” seems to be commonly experienced. I don’t know enough about this to comment further, but I suspect that staying in place has a lot to do with it - there is no challenge to keep moving, find one’s survival needs, and care for the group, and one is surrounded by vivid reminders of the devastation. By staying among the ruins of one’s former life, one may be exposing oneself to a greater risk of psychological deterioration.28. There is widespread frustration over the lack of communication and empathy by rescuers and local/State government. This is partly due to the absence of electricity, so that TV’s were not available to follow events as they unfolded but it’s also due to an almost deliberate policy of non-communication by rescuers. There are many accounts of evacuees wanting to know where the bus or plane was going that they were about to board, only to be told “We don’t know”, or “To a better place than this”. Some have found themselves many States away from their homes. Other families were arbitrarily separated upon rescue and/or evacuation, and are still scattered across two or three States. Their efforts to locate each other are very difficult, and when they request to be reunited at a common location, all of those with whom I have contact report a blanket refusal by the Red Cross and State officials to even consider the matter at this time. They’re being informed that it will be “looked into” at some future date, and that they may have to pay the costs involved if they want to join up again. This, to families who are now destitute I’m very angry about this, but it’s so widespread a problem that I don’t know what can be done about it. I hope that in future, some means will be implemented to prevent it happening again. Lesson learned never, EVER allow yourselves to be separated as a family, even if it meanswaiting for later rescue and/or evacuation. Insist on this at all costs 29. Expect rescuers (including law enforcement) to enforce a distinctly un-Constitutional authority in a disaster situation. This is very widely reported, and is very troubling. I hear repeated reports from numerous States that as evacuees arrive at refugee centers, they and their belongings are searched without Constitutional authority, and any personal belongings seen as potentially suspicious (including firearms, prescription medication, etc.) are confiscated without recourse to the owner. I can understand the point of view of the receiving authorities, but they are acting illegally, and I suspect there will be lawsuits coming from this practice. Another common practice reported on the ground in the disaster areas is for people to be ordered to evacuate, irrespective of their needs and wishes - even those folks who were well-prepared and have survived in good shape. If they demur, they are often threatened and bullied in an attempt to make them abandon their homes, pets, etc. Lesson learned in a disaster, don’t expect legal and Constitutional norms to be followed. If you can make it on your own, do so, without relying on an unsympathetic and occasionally overbearing rescue system to control you and your destiny.30. Don’t believe that rescuers are all knights in shining armor who will respect your property. There have been numerous reports of rescuers casually appropriating small items that took their fancy in houses they were searching. Sometimes this was blatant, right in front of onlookers, and when protests were made, the response was either threatening, or a casual “Who’s going to miss it now?”. Some of our field agents report that thishappened right in front of their eyes. Another aspect of this is damage caused to buildings by rescuers. I’ve had reports of them kicking in the front door to a house, or a window, instead of trying to obtain access with as little damage as possible; climbing on clean, highly-polished tables with hobnailed boots in order to get at an attic hatch to check for survivors; etc. When they left the house, often the door or window was left open, almost a standing invitation to looters, instead of being closed and/or secured. When the families concerned get home, they won’t know who caused this damage, but they will certainly be angered by it. I think that if one evacuates one’s home, it might be a good idea to leave a clearly-visible notice that all residents have evacuated, so as to let would-be rescuers know that this house is empty. On the other hand, this might make it easier for looters, so what you gain on the swings, you lose on the round-abouts...31. If you choose to help, you may be sucked into a bureaucratic and legal nightmare.Example: a local church in the beginning stages of the crisis offered its hall to house evacuees. Local and State officials promptly filled it up with over 100 people. Their “social skills” proved extremely difficult to live with... toilets were blocked, restrooms left filthy, graffiti were scrawled and/or carved on the walls, arguments and disputes were frequent (often escalating to screaming matches, sometimes to physical violence), evacuees roamed the neighborhood (leading to all sorts of reports of petty theft, vandalism, etc.), church workers were subject to aggressive begging and demands, etc. Requests to the authorities to provide better security, administrative assistance, etc. apparently fell on deaf ears - the crisis was so widespread and overwhelming that a small facility such as this seems to have been very low on the priority checklist. After two days of this, with complaints from the neighbors becoming more and more insistent, the church informed local officials that it wanted the evacuees removed at once, if not sooner. They were promptly subject to bureaucratic heavy-handedness (including threats to withhold previously-promised reimbursement for their expenses); threats of lawsuits for daring to insinuate that the evacuees were somehow “lower-class” in their conduct, and for alleged racism, slander, and general political incorrectness; and threats of negative publicity, in that officials threatened to put out a press release denouncing the church for its “elitist” and “un-co-operative” attitude in a time of crisis. The church initially caved in to this pressure, and allowed the evacuees to stay but within a couple more days, the pressure from neighbors and from its own members became impossible to bear, and they insisted on the evacuees being removed to a Red Cross shelter. I’m informed that repairs to their hall will cost over $10,000. This is only one example among many I could cite, but it makes the point clear - if you offer your facilities to authorities, you place yourself (to a certain extent) under their control, and you’re potentially liable to a great deal of heavy-handed, insensitive bureaucratic bullying. Those of you in the same position as this church (i.e. with facilities you could make available) might wish to take note.32. Law enforcement problems will often be “glossed over” and/or ignored by authorities. In many cities housing evacuees, there have been private reports of a significant increase in crime caused by their presence but you’ll find that virtually all law enforcement authorities publicly deny this and/or gloss over it as a “temporary problem”. This is all very well for publicity, but it ignores the increased risk to local residents. I’ve been tracking crime reports in about a dozen cities, through my contacts with local law enforcement and the Louisiana State Police. All the LEO’s I speak with, without exception, tell me of greatly increased crime, including rape, assault, robbery, shoplifting, vandalism, gang activity, etc. However, you won’t see these reports in the news media, and will often see senior LE figures actively denying it. The officers with whom I speak are angry and bitter about this, but they daren’t “go public”, as their jobs would be on the line if they did so. They tell me that often they’re instructed not to report certain categories of “incident” at all, so as not to “skew” or “inflate” the “official” crime figures. I’ve also heard reports from Texas, Alabama and Tennessee of brand-new high-end motor vehicles (e.g. Cadillacs, Lincolns, BMW’s, etc.) with New Orleans dealer tags being driven through various towns, on their way North and West. The drivers were described as “gang-bangers” (and sundry less complimentary terms). However, there have been no reports of stolen vehicles from New Orleans, because there are no workers to check out dealer lots, or report thefts, and no working computers to enter VIN’s, etc. into the NICS database of stolen vehicles - so officers have had no choice but to let these vehicles proceed. Draw your own conclusions.33. Your personal and/or corporate supplies and facilities may be commandeered without warning, receipt or compensation. I’ve had numerous reports from in and near the disaster zone of individuals (e.g. boat-owners, farmers with barns, tractors, etc.) and corporate groups (e.g. companies with heavy equipment, churches with halls, etc.) finding an official on their doorstep demanding the use of their facilities or equipment. If they demurred, they were told that this was an “emergency situation” and that their assistance was being required, not requested. Some of them have lost track of the heavy equipment “borrowed” in this way, and don’t know where it is, whether or not it’s still in good condition, and when (if ever) it will be returned - and in the meantime, they can’t continue their normal operations without this equipment. Others have had their land and facilities effectively confiscated for use by rescue and relief workers, storage of supplies, etc. In some cases, in the absence of their owners, the property of the individuals and groups concerned (e.g. farm gasoline and diesel supplies, the inventory of motor vehicle dealers, suppliers of foodstuffs, tarpaulins, etc.) have been commandeered and used by law enforcement and relief workers, without permission, receipts, reimbursement, etc. Protests have been met with denials, threats of arrest, insinuations of being “uncaring” and “un-co-operative”, etc. Lesson learned if you’ve got what officials need in a time of crisis, forget about Constitutional protections of your property Sure, you can sue after the fact, but if you need your goods and facilities for your own survival, you’re basically SOL. Those of us who stockpile necessities for potential crises like this might want to consider concealing our stockpiles to prevent confiscation and if you need certain equipment for your own day-to-day use (e.g. tractors for farmers, generators, etc.), you might have a hard time retaining possession of these things. This problem applies to relief workers also I’ve had several reports of private relief workers (e.g. those sent in by churches, etc.) having their vehicles and supplies commandeered by “official” relief workers, without compensation or receipt, and being kicked out of the disaster area with warnings not to return. The fact that the “private” workers were accomplishing rather more than the “official” workers was apparently of no importance.34. If you look like you know what you’re doing, you may be a target of those less prepared. There have been many, many reports of individuals who were more or less prepared for a disaster being preyed upon by those who were not prepared. Incidents range from theft of supplies, through attempts to bug out with these persons (uninvited), to actual violence. It’s genuinely frightening to hear about these incidents, particularly the attitude of those trying to prey on the prepared they seemed to feel that because you’d taken steps to protect yourself and your loved ones, you had somehow done so at their expense, and they were therefore “entitled” to take from you what they needed. There’s no logical explanation for this attitude, unless it’s bred by the utter dependence of many such people on the State for welfare, Social Security, Medicare/Medicaid, etc. Since they’ve always been dependent on others, and regarded this as an “entitlement”, in a disaster situation, they seem to automatically assume that they’re “entitled” to what you’ve got In one case, the family’s pet dog was held hostage, with a knife at its throat, until the family handed over money and supplies. In two cases, families were threatened with the rape of their women unless they co-operated with the aggressors. In four cases that I know of, children were held hostage to ensure co-operation. There have also been reports of crimes during the bug-out process. Families sleeping in their cars at highway rest areas were a favorite target, including siphoning of gas from their tanks, assaults, etc. The lessons to be learned from this are obvious. One family can’t secure itself against these threats without great difficulty. It’s best to be “teamed up” with neighbors to secure your neighborhood as a whole, rather than be the one house with facilities in an area filled with those less prepared. If you’re in the latter situation, staying put may not be a safe option, and a bug-out plan may be vital. When bugging out, you’re still not safe from harm, and must maintain constant vigilance.35. Those who thought themselves safe from the disaster were often not safe from refugees. There have been many reports of smaller towns, farms, etc. on the fringe of the disaster area being overrun with those seeking assistance. In many cases, assistance was demanded rather than requested, and theft, looting and vandalism have been reported. So, even if you think you’re safe from the disaster, you may not be safe from its aftermath.36. Self-reliance seems to draw suspicion upon you from the authorities. I’ve mentioned this in a previous e-mail, but I’ve had many more reports of it from those who survived or bugged out, and it bears re-emphasizing.For reasons unknown and unfathomable, rescue authorities seem to regard with suspicion those who’ve made provision for their safety and have survived (or bugged out) in good shape. It seems to be a combination of “How could you cope when so many others haven’t?”, “You must have taken advantage of others to be so well off”, and “We’ve come all this way to help, so how dare you not need our assistance?” I have no idea why this should be the case... but there have been enough reports of it that it seems to be a widespread problem. Any ideas from readers?37. Relief workers from other regions and States often don’t know local laws. This is a particular problem when it comes to firearms. I’ve had many reports of law enforcement officers sent to assist in Louisiana from States such as New Jersey, California, etc. trying to confiscate firearms on the streets, etc., when in fact the armed citizens were legally armed, under local law. One can’t reason with these officers in the heat of the moment, of course, and as a result, a number of people lost their firearms, and have still not recovered them (and in the chaos of the immediate post disaster situation, they may never do so, because I’m not sure that normal procedures such as logging these guns into a property office, etc. were followed). I understand that in due course, steps were taken to include at least one local law enforcement officer in patrols, so that he could advise officers from other areas as to what was legal, and what wasn’t. Also, in Louisiana, law enforcement is conducted differently than in some other States, and officers from other States who came to assist were sometimes found to be domineering and aggressive in enforcing a law enforcement “authority” that doesn’t normally apply here. So, if you’re in a disaster area and help arrives from elsewhere, you may find that the help doesn’t know (or care) about local laws, norms, etc. Use caution 38. Relief organizations have their own bureaucratic requirements that may conflict with your needs. A good example is the Red Cross. In many cases, across three States, I’ve had reports that locals who needed assistance were told that they had to register at a particular Red Cross shelter or facility. The help would not come to them they had to go to it. If they wished to stay on their own property, they were sometimes denied assistance, and told that if they wanted help, they had to move into the shelter to get it. Also, assistance was often provided only to those who came in person. If you left your family at home and went to get food aid, you might be denied aid for your whole family because there was no evidence that they existed - only the number that could be physically counted by relief workers (who would not come to you, but insisted you come to them) would be provided with food. Needless to say, this caused much anger and resentment.I hope that these “lessons learned” are of use to you. I’m more and more convinced that in the event of a disaster, I must rely on myself, and a few friends, and never count on Government or relief organizations for the help I’ll need. Also, I’m determined to bug out for a fairly long distance from a disaster in my home area, so as to be clear of the post-disaster complications that may arise. Once again (as it has countless times throughout history), we see that to rely on others (let alone Government) for your own safety and security is to invite complications at best, disaster at worst.


Is today's economic crisis another Great Depression?
By John Waggoner, USA TODAY
Failed banks. Panicked markets. Rising unemployment. For students of history, or people of a certain age, it all has an all-too-familiar ring. Is this another Great Depression? Not yet.
By any measure, our current economic suffering pales in comparison with what the nation endured from 1929 through 1939. Still, most economists are predicting a long, difficult period ahead. Could it eventually become a depression? It's possible — but not likely.
The Great Depression left a mark on the world that remains today, nearly 80 years after it began. It re-created our banking system, molded our securities laws, and left scars on the nation's psyche that have faded only modestly with the decades. During the Depression, savers watched their money evaporate in bank failures, because deposits weren't insured. Bankers became so unpopular that bank robbers, such as Bonnie and Clyde, became folk heroes.
By the depths of the Depression, 25% of the population was out of work. The Dow Jones industrial average had fallen 89%. The entire banking system was shut for four days by presidential order. Home and farm foreclosures soared. Homeless people created vast shantytowns, called "Hoovervilles," outside most major cities.
The word "depression" became so terrifying that economists stopped using it to describe a business slump. "It was an active choice of words," says Peter Bernstein, the celebrated economist, now 89. The Roosevelt administration judged the word too terrifying for the public to hear, Bernstein says. And for people who lived through the Depression, it was terrifying, indeed. "It was a killer," Bernstein says.
Mitchel Namy, 96, recalls how his family fared. "My father was very successful in the wholesale dry-goods business," Namy recalls. "He lost the business, our home and a valuable 26-acre tract of land in suburban Pittsburgh."
Our economic woes dwindle in comparison. As of the end of June, the latest data available, the nation's gross domestic product was still growing at a respectable 2.8% rate. In the third quarter, it fell at an annual 0.3% rate. Unemployment in September was 6.1%. "We're a long way from the D-word," says David Wyss, chief economist for Standard & Poor's. "It's a recession."
And, in fact, it's not even officially a recession. The National Bureau of Economic Research, the official arbiter of when recessions begin and end, has yet to declare the end of the most recent economic recovery. Even the shorthand version of recession — two consecutive quarters of shrinking gross domestic product — hasn't happened yet.
How today's situation sounds similar
Few people deny, however, that the current economic climate bears disturbing similarities to the start of the Great Depression:
•Big declines in the stock market reduced people's wealth and decreased spending, notes Timothy Canova, associate dean of international economic law at the Chapman University School of Law. The Dow didn't fall steadily: It plunged 47% from its high of 381 in September 1929 through November 1929 and then started a famous "sucker's rally" in the spring of 1930 before plunging to 41 in July 1932.
The Dow fell 42% from its Oct. 9, 2007, high to its Oct. 27, 2008, low, roughly equal to the market's initial tumble in 1929. Far more of the population owns stocks now than in 1929, however: For many people, stock mutual funds are the cornerstone of their retirement savings. In 2006, the latest data available, two-thirds of all 401(k) plans were invested in stocks, a percentage little-changed in the previous 11 years, according to the Investment Company Institute, the funds' trade group.
•The banking system was crippled by bad loans and speculation. In 1929, the bad loans were made to stock speculators; most recently, the bad loans were made to homeowners and investors in mortgage-backed securities.
Banks stopped lending in 1929 to avoid further losses, which slowed the economy even further. By the mid-1930s, more than 5,000 banks had collapsed. Today, banks have also slowed lending to avoid losses, and the credit markets have nearly ground to a halt.
But there are some big differences today that make a repeat of the Great Depression unlikely. The biggest: massive intervention by the world's central banks. "The Federal Reserve has been very aggressive in its role as lender of last resort," says Paul Kasriel, chief economist for Northern Trust. "That's why the Fed was created — not to prevent recessions, but to prevent the implosion of the financial system."
In 1929 and 1930, the Fed actually raised interest rates, draining liquidity from the system, deciding that it was best to stamp out speculation. Although economists still debate the exact causes of the Great Depression, the Fed's moves are often considered one of the prime reasons the economy tumbled so hard.
In addition, President Herbert Hoover raised taxes in 1930 in an effort to balance the budget. At the same time, Congress passed the protectionist Smoot-Hawley Tariff Act, which raised the fees charged on imported goods, setting off a trade war. Exports fell as other countries retaliated against the tariffs, crippling the nation's manufacturing.
In contrast, the government this time has been active in trying to prevent an economic meltdown, precisely because officials worried about another Great Depression. Explaining why President Bush backed the bailout, spokeswoman Dana Perino said: "It was when Ben Bernanke and Treasury Secretary Henry Paulson came to him and said we could be facing something worse than the Great Depression if we don't act, that the president realized that he had to put aside his instincts and focus on what he could do as president of the United States to help save this economy — not to help save Wall Street, not to help save any individual economy, but to help individual Americans all across the country of all economic stripes." The $700 billion bailout bill, and the fiscal stimulus checks that went out early this year, although controversial, show that the government is willing to intervene in the financial system to keep it afloat.
The Fed has cut interest rates nine times since the credit crisis began in September 2007. In addition, the Fed has created several credit facilities, which allow troubled financial institutions to exchange assets that they couldn't sell otherwise for ultrasafe Treasury securities. (The institutions must eventually take back their illiquid assets and return the Treasury securities.)
Have we done enough for prevention?
Despite the Fed's activist role — and the role of central banks around the world — some still worry that further financial calamity is possible. Chapman University's Canova says that $700 billion pales in comparison with what the country spent to get the economy out of the Depression in the 1930s, particularly if you include the massive spending for World War II. "If one lesson of the Great Depression is that the Federal Reserve must be ready to expand the money supply, another lesson is that monetary expansion alone will not renew a growth path for the economy," Canova says.
Another worry: In 1929, stocks were the most overvalued asset. This time, the U.S. had more than one bubble entering the current crisis, says Mark Kiesel, executive vice president at Pimco, and that means that unwinding it all could be more painful and protracted than many think. "We entered this slowdown with massive overvaluation in all assets: commodities, stocks, mortgages and real estate," Kiesel says. Unwinding all those bubbles will lead to a far weaker economy than many experts expect, he says.
And, he says, the worst has yet to come. Unemployment typically lags behind earnings slowdowns: He expects unemployment to rise to as high as 8% in the next year or so. Many experts note that real unemployment may be much higher than the official figure of 6% because those numbers don't include those who have stopped looking for work.
Also, Kiesel says, home prices, which have swooned as much as 25% or more in some areas, still have another 10% to 15% to go.
Finally, the big question is how long it will take for consumers to feel confident enough to start spending again. Unlike the economy of the 1930s, which was largely based on manufacturing and agriculture, the U.S. today is primarily a consumer and service economy. Until consumer confidence rises, spending is likely to stay weak. And that, Kiesel says, won't happen until corporations and consumers pay down their debts. "We had companies with weak balance sheets selling to consumers who were leveraged up, too," he says. The whole process could take years, Kiesel says. "It won't be a depression, but it won't feel good."
http://www.usatoday.com/money/economy/2008-11-03-economy-depression-recession_N.htm