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Conservative commentators frequently claim that the structure of the American labor market produces rates of unemployment that are exceptionally lower than those found in other advanced economies. That claim, however, is a misleading one due to variations in how unemployment rates are calculated and an omission of quality-of-life differences.

Even if the argument were true, a new report by the Center for Economic and Policy Research concludes that  “the current economic crisis, however, has turned the case for the U.S. model almost entirely on its head.” The report shows that the U.S. now has the fourth-highest standardized unemployment rate among major industrial nations. Moreover, only two nations — Spain and Ireland — have recorded larger changes in their unemployment rates.

The graph shows standardized unemployment rates and recessionary changes in 21 countries.

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In yesterday’s issue of The New York Times Magazine, Edmund Andrews, an economic reporter, chronicled his personal experience with the housing bubble and how his involvement with alternative mortgage products and lenders wrecked his financial well-being.

The article nicely encapsulates many of the problems that fueled both the 2000s boom and the current bust: a speculative housing bubble, abusive lending practices, lax government regulation, individual mistakes, debt traps and unexpected job losses. What makes the piece especially telling is how even someone who knows better and is well-off could become enmeshed in a disastrous financial situation.

Writes Andrews on how he and his new wife purchased their dream house:

The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty [who had just relocated] had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane.

But this was unlike any other time in history. My real estate agent gave me the number of Bob Andrews, a loan officer at American Home Mortgage Corporation. Bob wasn’t related to me, and I had never heard of his company. “Bob can be very helpful,” my agent explained. “He specializes in unusual situations.”

…………..

As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. One of its specialties was serving people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what our incomes could justify. In industry jargon, we were “Alt-A” customers, and we usually paid slightly higher rates for the privilege of concealing our financial weaknesses.

…………..

What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob figured, it was my job to decide whether I could afford it. His job was to make it happen.

“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”

…………..

“Don’t worry,” Bob reassured me, saying what almost everybody else in real estate was saying at that moment. “The value of your house will be higher in five years. You’ll be able to refinance.”

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Most media stories about tomorrow’s national employment report will focus on the net change in the number of payroll positions since the start of the recession.  As of March, the net loss totaled 5.1 million jobs.

While important, this figure is misleading because it doesn’t account for the number of jobs that must be created each month to keep up with the natural growth of the labor force. According to a recent report by the Economic Policy Institute, the American economy must net 127,000 positions each month just to keep pace with population growth.

If those missing jobs are accounted for, then the economy has lost, on net, not 5.1 million jobs but 7 million. That is the number of positions that they economy would need to regain today if it were to return to its pre-recession level of employment.

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Common sense would suggest that a stream of media leaks showing just how undercapitalized some of America’s largest banks are would cause the value of bank shares to fall and financial markets to slide. Yet leaks of the results of the federal “stress tests” have had the opposite effects: the values of bank shares and financial markets have rallied this week.

What gives? And what does it mean for the public?

One explanation comes from the blog The Baseline Scenario:

In rejecting “nationalization” (regulatory takeover and conservatorship), the government has not ensured a private, properly functioning banking system. Instead, it has muddled into a broken-down, undercapitalized system that is nominally in private hands, but is able to tap the state for apparently limitless support. And to date, that support has flowed on one-sided terms, with the taxpayer accepting downside risk but limited upside potential. No wonder bank shareholders are comfortable with this outcome.

As a result, the banks have largely preserved their existing management teams and bonus plans: on Wall Street, first-quarter accruals for bonuses returned to the levels of the glory years of 2006 and 2007. Creditors and counterparties have been kept whole, most notably through the AIG bailout. And shareholders have seen their share prices supported by the promise of sustained government support. The incentives we have ended up with are more similar to those of a nationalized system than those of a free market. Instead of state-owned coal mines run for the benefit of miners (the U.K. in the 1970s) or state-owned oil and gas companies run for the benefit of bureaucrats (the Soviet Union in the 1980s), we have state-backed banks in the U.S. run for the benefit of bankers and their creditors.

The smart economists in the Obama administration must know what is going on. But having insisted that large bank takeovers are tantamount to nationalization and therefore off the table, the administration is betting that the financial system will repair itself ….

This is possible. With the competition in both investment banking (Bear Stearns, Lehman) and mortgage lending (most of the specialist mortgage lenders) gone, the survivors all enjoy larger market shares and higher prices, contributing to their somewhat healthy profits in the first quarter. Even the large banks that receive the lowest grades in the stress tests will be given relatively cheap capital by the government; Treasury will use its resulting stakes to apply behind-the-scenes pressure to the banks (more government influence), but without taking decisive steps to clean up bank balance sheets ….

But success is by no means certain….

In the end, when a financial system is dominated by banks that are too big to fail – and they do fail – the only options are an FDIC-style takeover or the kind of public-private co-dependency that we see today. As far as the current crisis is concerned, the die is cast and the big banks won.