CIT and Ford: Two Tales of Economic Recovery

(MoneyWatch)  With two months to go in the year, let's take a deep breath and assess where we stand. The economy is in a bottoming process that is neither smooth nor wildly different from previous economic recoveries. The weekend news of CIT's bankruptcy, 9 more bank failures (that makes it 115 closures for 2009) and this morning's better-than-expected earnings from Ford, can sometimes make it seem that recovery from the Great Recession is a fickle as the direction of the wind.


The CIT bankruptcy was not a surprise, but taxpayers are not too happy to learn that the $2.3 billion infusion will likely vanish. (Jim Cramer's "buy" rec on CIT didn't work out as expected either.) Given the billions of direct government investments into teetering companies, it was expected that some investments might go sour. Other candidates for losers include: AIG, Chrysler, Fannie, Freddie and GMAC.

So too with the continuing sobering news from the FDIC--it's expected that 150 banks will be shuttered by the end of the year. From the clinical point of view, there are too many banks, but on the ground, it's hard to gloss over the loss.

Then there's the good news from the survivors--financial behemoths like Goldman Sachs and JP Morgan Chase delighted their shareholders a few weeks ago with great results and today, we learned that Ford Motor made nearly a billion dollars last quarter. This is not an equal opportunity recovery--there'll be winners and losers, with the government playing a role in determining the outcome in some cases.

In the end, recoveries are painful and ugly. They require patience and some weather the process better than others. Austrian economist Joseph Schumpeter (1883-1950) coined the phrase "creative destruction" to describe the process whereby economic downturns that result in lost jobs and busted companies, become the necessary ingredients for the next phase of growth. That's cold comfort for those who perish in the process, but it does help explain the process.

In the end, I suspect we are where we should be--in the midst of a long, drawn out process. To see where we stand by the numbers, check out these great charts from NPR's Planet Money. They haven't been updated through the last couple of months, but the trends remain in place.

Image by Flickr User beamillion, CC 2.0