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Considering the Future, Because Somebody Should

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Economic actions are moving fast and furiously in Washington. President Obama railroaded his $787 billion so-called “stimulus and “recovery” plan through Congress. Now, the President is moving quickly to address other issues negatively affecting our economy. On Wednesday the President announced a new bailout plan for distressed homeowners and began considering further loans to the bankrupt American auto industry.

Of course all of these actions are knee-jerk responses to a situation that continues to spiral out of control. Based on politics and not sound economic considerations, the President and Congress continue to spend us into oblivion in an effort to heal our economic ills. The $12 trillion Uncle Sam has committed or already spent has done nothing to save our sinking ship. If the consequences of this federal largess were just temporary and carried no future repercussions then we could all sleep more soundly at night. However, what Washington has already done and is about to do will have enormous negative consequences for many years to come.

By following their political instincts, policymakers in DC aren’t considering the future consequences of their current economic policy actions. Take their position on the auto industry for instance. On Tuesday night, GM and Chrysler got back to Washington with a restructuring plan and their hands out looking for $14 billion more. Of course, the billions already loaned to them by the taxpayers was simply a stopgap measure to prevent them from going belly up on the watch of President Bush. Now, President Obama faces the same political considerations. So, forget about whether giving Detroit more money makes any economic sense, they will get it because politicians don’t like to look uncompassionate.

The problem is that whatever amount the President gives them will not be the end of it. GM and Chrysler’s woes have been building for decades and now they are trying to restructure during the biggest economic downturn since the Great Depression. If the market doesn’t think the two carmakers are a good investment, then why should the government? By continuing to finance these failures someday we will face the choice of either losing all of our money or continuing to throw money at them for the sake of the money we already spent. What a great choice that will be.

Then there is the increased support that Fannie Mae and Freddie Mac will be receiving with the President’s plan to “help” homeowners. Already slated to receive $66 billion in taxpayer support for projected losses, the two mortgage giants would receive up to an additional $400 billion under Obama’s plan. Treasury Secretary Geithner was quoted as saying that the support “will provide forward-looking confidence in the mortgage market and enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners.”

Weren’t Fannie and Freddie big culprits in causing this current mess? Since nothing has changed including the provisions of the Community Reinvestment Act why should we retool the mortgage giants with hundreds of billions of taxpayer dollars? What does “ambitious efforts” mean? Is this another recipe for disaster?

More automaker bailouts and strengthening Fannie and Freddie are troubling propositions to say the least. But, an even bigger concern is the Federal Reserve’s monetary policies combined with Obama’s plans to stem the tide of foreclosures. As mentioned earlier, the Fed along with the Congress has pumped in almost one hundred percent of GDP in dollars into our economy in the last year. The federal funds rate still stands at an artificially low 0 percent. Of course, the Fed has lowered the rate to this ridiculous percent not because that is what the market called for, but to stimulate the housing market. However, last week, refinancings made up 74.2 percent of all mortgage applications. So, instead of stimulating new buying, the policy is encouraging refinancing. That’s fine, but then President Obama comes along and proposes helping distressed homeowners refinance their homes with hundreds of billions of dollars in subsidies.

This combination of Fed monetary policies and Obama’s homeowner bailout will lay the foundation for another banking crisis. As millions of homeowners lock into artificially low rate, long term mortgages this will set the stage for future bank failures. When consumer prices begin to rise significantly because of Fed monetary policies and Congressional spending, the Fed will have no choice but to raise interest rates to quell inflation. Banks will experience difficulties because on the one hand they will be taking in much less money through their loans than they have to pay the Fed for new money and they will lose deposits on savings accounts as customers move money to higher yielding money market accounts. This is what caused the savings and loan crisis. of the late seventies and it will cause another banking crisis in the future if Washington continues with these reckless economic policies.

At the end of the day, the Fed’s monetary policies and the government’s fiscal program to end this economic crisis are all about politics over sound economic policy. They represent nothing more than a massive expansion of the socialist welfare state, which has been discredited time and time again. Our policymakers’ lack of creativity in dealing with this crisis is appalling. Their neglect in considering the future consequences of their actions is criminal.

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About Kenn Jacobine

  • So true. It’s troubling to say the least.

  • When I consider the future all I see is bleakness. I think Obama may be able to do enough damage in just 2 years that we may neve recover.


  • Dave may actually mean this.

    More likely, he is just being a drama queen.

    Obama’s policies didn’t come from some mysterious repository of bizarre or radical notions. They are based on the advice and counsel of some very smart and well-qualified individuals — far smarter than Dave Nalle, Kenn Jacobine, or myself.

    The resulting decisions may be good, may be bad, will probably be a mix of the two. But your brand of caricature and distortion is just rhetoric, nothing more.

  • A recent book by Michael J. Panzner, a review:

    When Giants Fall.

  • bliffle

    #2 — Dave says:

    “When I consider the future all I see is bleakness. I think Obama may be able to do enough damage in just 2 years that we may neve recover.”

    I think this is a copout. IMO Dave is just looking for a way, any way, to blame the disasters of the Bush era on a guy who has only been in office a month.

    it’s a cheap shot.

  • How can Dave, or anybody else for that matter, even dare to suggest what will or will not work? That is the most presumptuous, thickheaded attitude displaying nothing but ignorance and utter stupidity. We are at the crossroads, and anyone who tries to say anything to the contrary is an utter fool. They deserve neither mention not a response.

    And no – I don’t want to attribute ulterior motives to them. Let somebody else be the judge. But there’s one thing I feel I must mention. They’re all resemble a bunch of rats running for cover while the ship is sinking. But that’s not a moral judgment – I hasten to add – only an apt description.

    I just hope that we’ll recover from the present crisis, if only to hear what the nay-sayers will have up their sleeve. That would be a hell of a satisfaction.

  • All that will happen, Roger, is that the naysayers won’t agree that there has been a recovery.

    I’m reminded of 1980s Britain. Margaret Thatcher’s Conservatives inherited a country which under Labour rule had become economically crippled, was in thrall to the unions and had a deficit and an inflation rate that was off the scale. Truly drastic action was needed and Thatcher took it.

    Government spending was brutally capped and whole industries privatized or closed down to break the power of the unions. By most economic measures, Thatcher’s strategy palpably worked.

    But because there was an inevitable price to be paid – soaring unemployment being the most obvious – by no means everyone agreed that we were better off. I personally think Thatcher went, in the end, too far. The communities that had provided the workforce for the closed and privatized industries were decimated. Whole cultures and ways of life disappeared. There are always trade-offs. Not everyone likes taking their medicine, and there are always some who suffer from side-effects.

    Whichever way we come out at the other end of this mess, there are going to be some people who aren’t happy with the results.

  • It’s very interesting you’re being fairly objective about M. Thatcher’s mixed results. One could only hope for a similar effort on the part of the opposition.

    I suppose it’s useless trying to argue that the present situation is dire and that any kind of recovery would be better than none, because those who’d be opposed to the measures could always claim a more fortuitous result if they had their druthers. Which is kind of sad in that nothing short of a crash or total disaster might do the trick and open some eyes – which would be a heavy price to pay for the result, and I certainly don’t wish it.

    So I guess, no matter what happens, there’ll always be those who’d argue that things could have gone better if and only if . . .

    Not much of a hope for reuniting the human race.

  • Kind of hopeful news if it could be accomplished:

    halving the deficit

  • I was a Thatcher fan in the early years, Roger. For the first three general elections at which I was politically aware (I was only old enough to vote at the last of those three, in 1987) I supported the Conservatives. I suppose I’m an exception to Churchill’s rule in that I’ve become more liberal as I’ve got older.

    I applauded the rejuvenation of the British economy in the early 1980s, and for that I account Thatcher one of our greatest prime ministers. Because she was such a great friend and inspiration to Reagan, her policies led, in many ways, to the transformation of the US as well. I don’t think any modern British prime minister other than Churchill has had such a profound influence on our nation’s – and the world’s – history.

    It wasn’t only the economic and cultural landscape she changed, but the political one as well. With the defeat of the trade unions and the dismantling of most heavy industry the opposition Labour Party, which had been largely taken over by its socialist faction, lost its power base. To have any hope of ever forming a government again, it had to re-invent itself. It’s now a centrist, social democratic party which on some issues actually stands further right than the Conservatives.

    It was when I started working with some people in the mid-80s who had been affected in a quite different way by Britain’s economic retooling that my views on Thatcher started to change. Aside from that, I think that her ‘my way or the highway’ attitude, which had been absolutely necessary to get things done in the early years, in her final term of office became a stand she more often than not took just for the hell of it.

    Reluctant as she was to do it, I think she did step down at the right time.

    Sadly, Lady Thatcher (as she became after she resigned her Commons seat) is now suffering from dementia. She remembers being Prime Minister but doesn’t know that her husband, Denis, died some years ago.

    If you have the stomach for political memoirs, I highly recommend hers, The Downing Street Years. Absolutely fascinating, erudite, passionate and for the most part, candid.

  • Very interesting, Doc. You’ve seen both ends of the spectrum. So you’re saying the Labor Party was destroying the country?

  • Yes. I can’t forgive them. Never voted Labour, never will.

  • Well, Great Britain always had strong socialistic tradition, starting with the Fabians and so forth. Do you suppose the unions were able to get such a stronghold on business because the British Empire itself was slipping?

  • Maybe we can pick up this thread tomorrow. I see some interesting parallels here with the U.S – as a kind of delayed reaction – and also significant differences.

    Of course, the Industrial Revolution had originated in England, which is understandable why the germs of “socialism” would take roots there first, by way of reaction to the hardships and the abuses.

    Are you familiar with the writings of Raymond Williams?

  • Cindy


    Do you know how I can find out if a link can be fixed or if it is just linked wrongly for a reason?

    I want to read this (in Culture)

    Here Come the Language Police
    — What will you do when they come to take your words away?
    OPINION by Brian D’Ambrosio

    But, it links to the homepage. And I wrote about it on the yahoo e-mail discussion thingy yesterday. But, no help. Any ideas?

  • That’s odd, Cindy. The link certainly appears to be formatted correctly – the right URL appears when you point your mouse over it – but, as you say…

    I don’t know how to diagnose and fix the problem myself but will raise it on the editors’ group.

  • Cindy

    OK, thanks mucho Dr.D.

  • Kenn Jacobine


    What do you base this comment on?

    “Obama’s policies … They are based on the advice and counsel of some very smart and well-qualified individuals”

    Aren’t these individuals the guys most responsible for this mess – Larry Summers with Clinton reappointed Greenspan, Bernanke’s ignorance speaks for itself, Geithner led the New York Fed and still hasn’t accounted for the first $350 billion of Bushes bailout.

    As far as my rhetoric is concerned, I got out of the stock market when it was at 12,000 and have converted a good chunk of my portfolio into gold. So I talk the talk and walk the walk. If these “very smart and well-qualified individuals” had only read history (the Minneapolis Fed report and the S&L crisis of the 1970s)I would have more faith in them.


  • Cindy,

    Apparently the article has been deleted because it was found to have been plagiarized. That’s why when you click on the link it takes you to the home page.

  • I think this is a copout. IMO Dave is just looking for a way, any way, to blame the disasters of the Bush era on a guy who has only been in office a month.

    The disasters of the Bush era are only disasters if they harm they did is not repaired. The idea of electing Obama – I thought – was to have someone responsible undo the harm done by Bush. Yet Obama has kept on many of the same people or their ideological twins, and is pursuing and expanding on the same failed policies.

    Bush gets plenty of blame for his mistakes, but Obama gets more because coming after Bush he ought to know better.


  • This entire discussion as to who is more to blame is nothing but partisan bickering.

  • Cindy

    Ah, thanks Dr.D. Too bad. I would have liked that one, no doubt.

  • Aren’t these individuals the guys most responsible for this mess – Larry Summers with Clinton reappointed Greenspan, Bernanke’s ignorance speaks for itself, Geithner led the New York Fed and still hasn’t accounted for the first $350 billion of Bushes bailout.

    There has been strong bipartisan praise for both Summers and Geithner. Greenspan was viewed as an untouchable near-deity during the 1990s boom years, so reappointing him was a no-brainer. If Greenspan is your primary objection concerning Summers, then you’re not exactly reacting to the man’s entire record. He’s acknowledged as one of the world’s most brilliant economists.

    I object to your rhetoric, and particularly to your characterization of individuals, because it is so simplistic, so ad hominem. You have indulged in specious, one-line insults directed at Geithner, Clinton, and others. This is not political dialogue – it’s cheap, unsophisticated polemics.

    There is more to Tim Geithner than his tax returns; he certainly will account for TARP II, but he is understandably reluctant to do a rushed job of the details. He wasn’t in charge of TARP I, so there may be a limit to how much ‘accounting’ he can do about it.

    [For what it’s worth, I think TARP I makes too easy a target; as Barney Frank says, “It sucks. But without TARP, things would suck even more.” Meaning the system could have collapsed last fall; as The Economist pointed out at the time, even if TARP worked, it would be impossible to prove and the bailout would invevitably remain politically unpopular. That it may have been done clumsily doesn’t mean it shouldn’t have been done.]

    None of these men is perfect. But your attitude that you know more than they do is fairly laughable — and completely unsupported by your writing.

  • I’ve just been watching the PBS Frontline documentary “Inside the Meltdown.” It’s absolute must viewing for anyone who wants to better understand the events that started to cascade, more or less, with the failure of Bear Stearns last March.

    There was some controversy on this site before the program aired about its political bias, because the only members of Congress interviewed are Chris Dodd and Barney Frank. Not to worry — 90% of the talking heads in the film are Wall Streeters who were directly involved. Dodd and Frank just talk about what happened in the infamous meeting between Bernanke, Paulson and leaders of Congress.

    It’s not a politically-focused piece at all. It attempts to lay out complex events in a manner that makes sense of the story. It is superbly well done.

  • Cindy

    Hey look, this guy was writing about what is happening too:

    “Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised…” (1867)

  • That’s a pretty cool find, Cindy. In all innocence, I ask, who wrote it?

    By the way, today on the George Stephanopoulos program, there was a discussion of who to blame for the crisis, and whether having a bipartisan investigatory commission would be worthwhile.

    George Will said there are about 300 million people responsible: the American public who went on a 25-year unfunded spending spree.

    Paul Krugman countered that he disagreed: there are actually 600 million responsible, because Europeans went on at least as large a spree as the US.

  • I suspected it was Marx. When I Googled it to be sure, the first result was from an Italian site that credited “Karletto Marx”!

  • Cindy

    Any guesses Handy…?

    (without looking)

  • Cindy

    Pretty smart guy…

  • Cindy

    Too bad he didn’t get rid of the idea of a state…

  • Cindy

    George Will and Paul Krugman both agree? Paul Krugman actually tops him Will in his idiocy?

    I recall having had some small shred of hope about Krugman.

    He is certainly no Galbraith.

  • bliffle

    Dave said:

    “The disasters of the Bush era are only disasters if they harm they did is not repaired.”

    As I said, copout.

  • bliffle

    Constant attempts, such as those by Will and Krugman, to blame our financial problems on ordinary citizens are just plain wrong. Wrong both for placing blame and wrong in saying that ordinary citizens adopted poor personal strategies.

    Citizens have very little group power, especially in the USA where unions are almost non-existent and even Co-ops are fading from sight. The contracts are written by businesses. Financial offerings are created by businesses. Government regulation, if any, is done by remote institutions that seem even more remote to the individual citizen and even more cozy with the big businesses they claim to regulate.

    Most US citizens are individualistic, reluctant to form citizen organizations against the business world, and believe that they can survive and prosper while struggling against a climate that greatly outnumbers and outspends them.

    As a result, the terms of contracts are totally determined by the massed parties on the other side of the negotiating table when the citizen sits down to negotiate. He’s simply outgunned.

    How else to explain the 30% interest rates that nearly every credit card holder labors under?

    Anyone can look around and see that you will never be able to finance your retirement simply by saving. You can’t put enough money aside from your pay to finance a future with the meager rates offered by ‘safe’ investments, assuming you could identify one.

    But most people are canny enough to figure out the advantages that have accrued to many people through home ownership, and in case they aren’t there are many people around to explain it all to them.

    So people took the only course that was really open to them. They sacrificed to buy a house.

    Sure, people bought TVs and cars and such because they thought they had their futures secured. After all, they had a house whose value increased every year and a company pension and some stocks, as well as a Social Security stipend.

    Can you honestly blame them for feeling secure enough to buy a color TV?

    Then one after another the pillars of their financial lives were removed: no company pension, no employer healthcare, stock market goes in the tank, and finally even their house value evaporates. Now, there are even some nuts who want to eliminate Social Security!

    They tried the best they had the power to do. Now, for the REAL offenders, the enablers of all that thievery and chicanery to turn around and blame the individuals at the bottom of the financial food chain, is terrible.

  • Except that I think, bliffle, the larger point was that even ordinary citizens got caught in the frenzy and wanted to capitalize on the bubble – again, because of greed. So we all fed fuel to the fire.

  • Cindy

    As usual bliffle has an uncanny way of putting things in sensible order.

  • Baronius

    The lending institutions were hookers. They sold something that shouldn’t have been offered, and shouldn’t have been bought. The millions who tried to play the system were the johns, keeping the hookers in business. Fannie Mae and other federally-backed programs were the pimps.

    Round them all up.

  • How simpler can it get, B-tone? Now, tell that to our friends on the Right and see the response you’ll get. They’ll accuse you of being a heretic, denying the true faith of the church of capitalism.

  • Baronius

    Roger, that’s Baronius, not Baritone. And it doesn’t say much about your understanding of the conservative argument if you think what I’m saying is heretical to the Right.

  • Well, whatever the Right’s argument may or may not be, which I don’t care to get into it now, I agree with the content of #36.

  • After watching the Frontline hour on the meltdown, there is one inescapable conclusion: Hank Paulson did it, although it’s debatable that anyone else would have done better, and he certainly didn’t act alone.

    By allowing Lehman Brothers to fail, and then propping up AIG, he set off the death spiral we’ve been watching ever since.

    He forced the CEOs of the largest banks to let the government buy shares — “We don’t want your money,” several of them said when he summoned them to the Treasury Dept and made them sign agreements to sell the shares.

    And he was a free-marketer who did all this with pain and reluctance written all over his face.

    Fascinating stuff.

  • I don’t understand, your comment, Handy. What exactly are you saying?

  • I was describing the content of the PBS program on the Fronline series, entitled “Inside the Meltdown.”

  • bliffle

    Roger said:

    “Except that I think, bliffle, the larger point was that even ordinary citizens got caught in the frenzy and wanted to capitalize on the bubble – again, because of greed. So we all fed fuel to the fire.”

    It was less greed, IMO, than survival instinct.

    Most people could care less about figuring out Capital Gains, Amortization, Income/Debt ratios, etc.

    But we were all frightened by the specters from the great depression: 25% unemployment, men traveling the country riding the rails looking for work, entire families uprooted from their homes, widespread poverty and malnutrition.

    Most people just want to have a pleasant low profile life, enjoy their families, enjoy some modest hobbies, etc.

    The Really Greedy people are few in number, but they constantly accuse everyone else of being equally greedy in order to alleviate their own guilty feelings.

    If greed were that overwhelming in our natures then our societies would quickly devolve into crime-ridden chaos. But it is not so. Even now, as we confront the problems in front of us, we are trying to get together appropriate responses and fixes through our cooperative communal institutions: government, business, even blog sites!

    The human is a gregarious animal. We quickly learn that the admission price for getting the blessings of society is to surrender some of our greed to gain acceptance. We learn give-and-take.

    We are neither the fiercely independent cougar nor the mindless hive ant.

  • Maybe so, bliffle. But lots of people refinanced their perfectly good mortgages, many others have purchased homes with the idea of reselling within a year or two and making good on capital gains. There were all kinds, and it was a kind of frenzy.
    I’m not saying now many were not duped, but you cannot altogether disavow any responsibility from the less-than-sensible consumer.

    The “get rich quick” idea is, for many, the essence of America, of what America is about – they had bought it without reservation. So when they saw everyone on Wall Street making a bundle, the natural reaction would be: Why not me?

  • bliffle

    But I think that is a defensive move. Looking at the excesses of Our Leaders one might rightly conclude that you have to emulate their opportunism just to survive.

  • I’m willing to go along with that, especially when it comes to individual cases (since who can really tell). And to be generalizing here is tricky proposition.