Audit Notes: Our Glass Jaw, Financial Crises, Extend and Pretend

If you’re looking for a single anecdote to sum up the demise of the American economy, you could do worse than The Wall Street Journal’s excellent front-page story this morning on glass and Toledo.

The paper’s James T. Areddy reports that a museum in Toledo, known as the “Glass City,” had to go to China to buy glass for a new expansion.

The Toledo Museum of Art’s $30 million Glass Pavilion is a symbol of America’s “Glass City,” and reflects the legacy of its local glassmakers.

A smudge on the image: The pavilion glass was imported from China, the new global powerhouse of the glass industry.

No one in the U.S. had the capability to satisfy cutting-edge architectural specifications for the curving pavilion, even though the 2006 job involved techniques advanced decades ago by Toledo inventors: bending and laminating glass.

Here’s the nut graph:

For years, the West focused on the threat from China’s low-tech exporters like clothing and furniture makers. Glass represents how an even more potent challenge has arrived: sophisticated, capital-intensive businesses that boast high-tech expertise.

In industries where global demand has shifted to China, the pattern is repeated, from steel to locomotives and turbines to specialized glassworks. Chinese companies that have gorged on growth in the domestic market have managed in just a few years to close the gap on decades of technological innovation in the industrialized West.

Meanwhile, the soaring trade deficit slashed 3.4 percentage points off American GDP in the second quarter—the most in sixty-three years.

(h/t Felix Salmon)

— I haven’t been able to figure out the bullish arguments for the economy or the stock market, for that matter, in the past few years.

The economy was massively out of whack and saved (or at least temporarily reprieved) from 1930’s-style collapse only by unprecedented trillions of dollars poured in by the Fed and the stimulus package. Markets were shored up by said trillions and mark-to-myth, extend-and-pretend accounting. Deleveraging from a decades-long debt-fueled orgy is a long, nasty affair.

Planet Money’s Jacob Goldstein points to a new paper that shows just how much uglier recessions that follow financial crises are than ones that don’t.

Unemployment rates are “significantly higher” in the decade after crises, compared to the decade before. In 10 of the 15 post-World War II crises they looked at, unemployment rates never returned to their pre-crisis levels.

Median housing prices are 10 to 15 percent lower during the entire post-crisis decade, compared to their prices just before the crisis. Of all of the home-price data points they looked at from post-crisis decades, 90 percent showed prices lower than they were before the crisis.

Good times!

— Speaking of extend and pretend, American Banker reports on how banks are delaying foreclosures to stay afloat.

Even as serious delinquencies have continued to soar, foreclosures and default notices have fallen.

y postponing the date at which they lock in losses, banks and other investors positioned themselves to benefit from the slow mending of the real estate market. But now industry executives are questioning whether delaying foreclosures — a strategy contrary to the industry adage that “the first loss is the best loss” — is about to backfire. With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults.

It is becoming harder to blame legal or logistical bottlenecks, foreclosure analysts said.

“All the excuses have been used up. This is blatant,” said Sean O’Toole, CEO of, a Discovery Bay, Calif., company that has been documenting the slowdown in Western markets.

Make sure to check out the chart.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.