The story of Jdimytai Damour, the Wal-Mart temporary employee who was trampled to death is a sickening verdict on the consumerism disease plaguing this nation. The worker was trampled to death as rabid shoppers broke down the door at 5:00am in New York. Other Wal-Mart employees tried to help Mr. Damour but the crowd kept rushing in like salmon swimming upstream to spawn. Shoppers simply stepped over his body and witnesses even said that some people continued shopping even after the incident was announced! An innocent man was killed simply because people couldn’t be civil or patient enough to purchase a VCR?

In Desert Hot Springs, two people were killed when they had a shootout in a Toys R Us store:

“(LA Times) Joan Barrick, 40, of Desert Hot Springs said she was buying a Barbie Jeep for her daughter when two women started brawling. As the women swung at each other, the men they were with also started arguing.

The younger of the two lifted up his shirt and flashed his handgun, pulling the grip from his baggy pants pocket. The other man yanked out his own handgun and started chasing him down the aisle and firing, witnesses said.

Barrick hid behind a stack of DVDs and recited the Lord’s Prayer. “If I’m going to die, I need to make peace,” she said. “A lot of people were crying. I was crying. We were all very, very scared.”

What a sad state of affairs. In early reports, it looks like people somehow defied the laws of financial logic and are spending in droves. Of course, it is much too early to gather figures but the fact that we are even discussing “brisk and strong” sales is astounding. People are rushing out to buy Guitar Hero and Grand Theft Auto to indoctrinate a generation in mindless drivel. Think of Grand Theft Auto. You play the role of a criminal who car jacks innocent bystanders and shoots police while talking with prostitutes for fun. Is this what we are spending our money on? And Guitar Hero gives people the chance to play a fake guitar and pretend to be a rock star. Just what we need, another generation of self indulgent egomaniacs.

What ever happened to learning to play a real guitar? We have a large number of our population who are living fake lives. Just look at what TV shows are popular. All these reality shows have large audiences because people are so bored with their own lives that they need to watch the drama of others to feel alive. And the lives of those on reality TV aren’t even real! How twisted is that? We can lament about these societal issues but look at this fake economy we have built over the last decade. A society pretending to be richer than it really is by mortgaging our own future with debt. Then we expect that the next generation who is in a trance in front of Grand Theft Auto is going to be equipped to deal with this epic calamity? Time for parents and the younger generation to prioritize. The only thing we have trained millions is to get ready for a Mad Max world which given our economic mess isn’t so far fetched. Heck, we have tons of shiny brand new off road vehicles that are simply sitting on lots.

Nothing highlights our lack of preparation more than the big 3 automakers going down in flames. Sure, we can argue that it was because of this credit crisis or because of legacy costs but the reality is they were outperformed by foreign competitors. People voted with their wallets. The big 3 bet on large expensive gas guzzling urban tanks and lost big. Now, they are teetering on the verge of extinction like the Tyrannosaurs rex. If the credit crisis was at fault, why aren’t Toyota and Honda on the verge of bankruptcy?

We are at a major crossroads here. As a society, it is time we refocus our energy on the sciences and engineering and stop thinking about how many ways we can put granite countertops in every kitchen of America. If we are serious about staying competitive, we need to invest money in these areas. Initially NASA was seen as a big waste but I think most Americans would rather see money invested in NASA instead of WaMu. Yet the sad thing is even with all these pathetic bailouts, all the money is going to financial companies which are at the heart of the matter. Take a look at the money already set aside for this mess:

*Source: Motley Fool

So far the government has spent $2 trillion of this amount and we can rest assured more of it will be used up since it is already committed.

I think it is important to understand the magnitude of the mess we are in and to put it into a historical perspective. I started a series called Lessons from the Great Depression back on August 2nd of 2007, a few days prior to the peak of the stock market. In fact, our first article was looking at a personal letter from a lawyer from a small town recounting the destruction caused by the Great Depression. Here are some of the comments at the time:

“Yes, this is a housing bubble. We’ve survived housing crashes before and I see no reason why we couldn’t survive this one.

It’s fashionable to label every bubble crash as the next Depression. The Internet bubble was supposed to bring a depression, so was Black Friday in Oct 87, the OPEC problems before then.

Just b/c this is a bubble, doesn’t mean the country will go to “hell in a henbasket”. The U.S. will survive this like it survives everything else.”

The reason that this was being compared to the Great Depression was the global magnitude of the problem. The technology bubble as big as it was occurred primarily in a few nations. It impacted a large number of people but nothing in the scope of the current credit bubble. Here is another comment from someone who would benefit from a history lesson:

“Um, that “letter” is a fake. Anybody else catch that the author used the verb SKYROCKET???!!!! There were no skyrockets in 1933! Doh!!”

I found the letter in an old file and typed it up since it struck me how similar our current predicament was to that of the Great Depression. The skyrockets are referring to fireworks that of course were invented by the Chinese back in the freaking 12th century! But how would you know that if you sit in front of the tube playing Grand Theft Auto and enjoying Dancing with the Stars and never read a book? I’ve read numerous books covering the Great Depression and the similarities to our current predicament are all there. Here is a list of a few I highly recommend that cover the history and economics of the first half of the 1900s:

Since Yesterday: Frederick Lewis Allen

Only Yesterday: Frederick Lewis Allen

The Great Crash of 1929: John Kenneth Galbraith

Manias, Panics, and Crashes: Charles Kindleberger

The Big Change: Frederick Lewis Allen

The World in Depression 1929 – 1939: Charles Kindleberger

Some are more academic and some are quicker reads. Some focus on the economic aspects of the depression while others also look at the societal changes. All these books are highly recommended and provide excellent perspectives. You’d also learn a lot by simply reading old Harper’s Magazine articles during that time.

Today we are going to examine the years after the great crash. Ben Bernanke who is a self-appointed expert on the Great Depression is having his chance of testing his hypothesis of what went wrong during the Great Depression. As it turns out, he doesn’t have the answer either. Below I’ll type a few important paragraphs from Since Yesterday talking about this time in history and put a sock in the mouth of anyone claiming this is the bottom. We are nowhere close to a bottom.

This is part XXII in our Great Depression series:

16. Items That Sold in the Credit Bubble.

17. The All Hat and No Cattle Nation

18. Charity for Financial Deviants.

19. The Silent Economic Depression

20. The Four Horsemen of the Economic Apocalypse

21. The Big Change

Squandering Ourselves into Prosperity

“June, 1931: Twenty months after the Panic.

The department-store advertisements were beginning to display Eugenie hats, heralding a fashion enthusiastic but brief; Wiley Post and Harold Gatty were preparing for their flight round the world in the monoplane “Winnie Mae”; and newspaper readers were agog over the finding, on Long Beach near New York, of the dead body of a pretty girl with the singularity lyrical name of Starr Faithful.”

“For a long time past, as business slowed up in Europe, a sort of creeping paralysis had been afflicting European finance. Debts – national and private – which had once seemed bearable burdens had now become intolerably heavy; new financial credits were hardly being extended except to shore up the old ones; prices fell, anxiety spread, and the whole system slowed almost to a standstill. During the spring of 1931 the paralysis had become acute.”

Keep in mind that during this time the U.S. was a creditor nation. Even though our Great Depression was horrific, revolutions and fundamental changes came about in Europe that turned their worlds upside down. Hitler slowly started to gain power in Germany and other economies started collapsing under unsupportable debt. The U.S. even right after the crash, still had not faced the worst of the depression. That was still to come and the market rallied many times even after the crash:

“He [President Hoover] called the newspaper men to the White House and read them a long statement which contained both his proposal for an international moratorium and the names of 21 senators and 18 representatives who had already approved it. The newspaper men grabbed their copies and rushed for the telephones.

When the news was flashed over the world a chorus of wild enthusiasm arose. The stock market in New York leaped, stock markets in Europe rallied, bankers praised Hoover, editorial writers cheered; the sedate London Economist came out with a panegyric entitled “The Break in the Clouds” which called the proposal “the gesture of a great man”; and millions of Americans who had felt, however vaguely, that the government ought to “do something” and who had blamed Hoover for his inactivity, joined in the applause. Little as they might know about the international financial situation (which had been getting nowhere near as much space in the press as the Starr Faithful mystery), this was action at last and they liked it. To the worried President’s surprise, he had made what seemed to be a ten-strike. It was the high moment of his Presidency.

Only the French demurred. Hoover sent his seventy-seven-year-old Secretary of the Treasury, Andrew Mellon, to reason with them, and exhausted the old man with constant consultations by transatlantic telephone. After a long delay – over two weeks – the French agreed to the plan with modifications, and the day appeared to have been saved.

But it was not saved at all.”

Now contrary to popular two-second sound clips, President Hoover was trying to resolve the crisis. He fundamentally believed in rugged individualism. This was collapsing because of global pressures and a multitude of factors. The crash of 1929 was only a symptom of a bigger world mess. Now don’t get me wrong, Hoover by all means wasn’t a good President but it is important to put the situation into context. President Coolidge was the bigger accomplice to Wall Street and history looks at him favorably because of the “Roaring 20s.” Will anyone look at this decade in economic awe? Hoover relied on the power base which was on Wall Street and this was quickly losing its halo of power. Plus, they were corrupt to the core just like Wall Street got during this past decade. The market had a brief rally. Yet fundamentally nothing had changed. Our current rally is a dead cat bounce. Nothing has fundamentally changed. In fact the core items of a solid economy are failing; production is down, unemployment is rising, prices are collapsing, and our debt is crushing us. Are these reasons for a rally?

“In the month of September, 1931, a total of 305 American banks closed; in October, a total of 522. Frightened capitalists were hoarding gold now, lest the United States too should go off the gold standard; safe-deposit boxes were being crammed full of coins, and many a mattress was stuffed with gold certificates.

American business was weakening faster than ever. In September the United States Steel Corporation – whose President, James A. Farrell, had hitherto steadfastly refused to cut the wage-rate – announced a ten-per-cent cut; other corporations followed; during that autumn, all over the United States, men were coming home from the office or the factory to tell their wives that the next pay check would be a little smaller, and that they must think up new economies. The ranks of the unemployed received new recruits; by the end of the year their numbers were in the neighborhood of ten millions.”

Let us take a look at the unemployment rate during this time:

Even in 1929, unemployment was at historical lows. In 1930, it had jumped but it was still below 10%. In 1931 the rate was now hovering around 15%. In 1932 and 1933 the rate had hit 25%. This is why pundits who keep pointing to 2005, 2006, or 2007 are so off base. Things can change so quickly. Look at the massive amount of layoffs coming down the pipeline. Citibank will layoff over 50,000 people in the next few months. JP Morgan will layoff 19,000 from the WaMu acquisitions. Take a look at the mass layoff announcements:

We are running at decade highs here. A mass layoff announcement is considered when a company has 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period. This is a leading indicator that things will get worse especially since we are in the early stages of this recession. Paulson must have taken a page out of President Hoover’s bailout manual:

“Again Hoover acted, and again his action was financial. Something must be done to save the American banking system, and the bankers were not doing it; the spirit of the day was sauve qui peut. Hoover called fifteen of the overlords of the banking world to a secret evening meeting with him and his financial aides at Secretary Mellon’s apartment in Washington, and proposed to them that the strong banks of the country form a credit pool to help the weak ones. When it became clear that this would not suffice – for the strong banks were taking no chances and this pool, the National Credit Corporation, lent almost no money at all – Hoover recommended the formation of a big governmental credit agency, the Reconstruction Finance Corporation, with two billion dollars to lend to banks, railroads, insurance companies.

As the winter of 1931-32 arrived and the run on the country’s gold continued, and it seemed as if the United States might presently be forced off the gold standard, Hoover issued a public appeal against hoarding and then proposed an alteration in the Federal Reserve requirements which – embodied in the Glass-Steagall Act – eased this situation. Again with the idea of improving credit conditions, he urged, and secured, the creation of a chain of home-loan discount banks, and the provision of additional capital for the Federal Land Banks. Steadily he fought against those measures which seemed to him iniquitous: he appeared before the American Legion and appealed to the members not to ask for the immediate cash payment of the rest of their Bonus money; he vetoed a bill for the distribution of direct Federal relief; and again and again he made clear his opposition to any proposals for inflation or for (in his own words) “squandering ourselves into prosperity.”

Still the Depression deepened.

Already the pressure of events had pushed the apostle of rugged individualism much further toward state socialism than any previous president had gone in time of peace. Hoover’s Reconstruction Finance Corporation had put the government deeply into business. But it was state socialism of a very limited and special sort. What was happening may perhaps be summed up in this way:-

Hoover had tried to keep hands off the economic machinery of the country, to permit a supposedly flexible system to make its own adjustments of supply and demand. At two points he had intervened, to be sure: he had tried to hold up the prices of wheat and cotton, unsuccessfully, and he had tried to hold up wage-rates, with partial and temporary success; but otherwise he had mainly stood aside to let prices and profits and wages follow their natural course. But no natural adjustment could be reached unless the burdens of debt could also be naturally reduced through bankruptcies. And in America, as in other parts of the world, the economic system had now become so complex and interdependent that the possible consequences of widespread bankruptcy to banks, the insurance companies, the great holding-company systems, and the multitudes of people dependent upon them – had become too appalling to contemplate.”

Just change a few names here and there and we are repeating history. Even with the RFC and the notion of crony capitalism made a cameo during this time. Now we call our junkyard the TARP. The world was connected at that time as well. I hear these talking head pundits acting as if during the Great Depression we were somehow savages and didn’t understand capitalism. As if credit default swaps are some form of evolution to the system? Please, the system if anything is more perverted today than it was bank then. And for executives coming to D.C. for cheese we got that going on back then as well:

“It is also almost useless to ask whether Hoover was acting with a tory heartlessness in permitting financial executives to come to Washington for a corporate dole whne men and women on the edge of starvation were denied a personal dole. What is certain is that at a time of such widespread suffering no democratic government could seem to be aiding the financiers and seem to be simultaneously disregarding the plight of its humbler citizens without losing the confidence of the public.”

“…people who had taken these fixed principles for granted, and had shown little interest in politics except for election time, began to try to educate themselves. For not even the comparatively prosperous could any longer deny that something momentous was happening.”

“The autumn of 1931 brought also an outburst of laughter. When old certainties topple, when old prophets are discredited, one can at least enjoy their downfall. By this time people had reached the point of laughing at Oh, Yeah, a small book in which were collected the glib prophecies made by bankers and statesmen at the onset of the Depression.”

A society who doesn’t remember history is condemned to repeat it. Our version of Oh, Yeah can be seen on satirical blogs and TV shows like the Colbert Report and the Daily Show. At a certain point, you have to laugh at how corrupt the system has gotten. We need to keep our spirits light because we have years of perp walks and trials that we will be going through. So much has already been squandered that when we dig deep into the books of failed institutions, we will be stunned. Maybe that is why the Federal Reserve doesn’t want to tell us about those $2 trillion in loans? But, isn’t that our money that is being squandered?

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