RTCS

Views on the News

March 28, 2009

 

Views on the News*  

Obama was elected as a populist president, but he has lost the ability to listen.  The president is getting what he asked for, but perhaps not what he had in mind.  During the campaign, Barack Obama beckoned Americans to put aside their cynicism about politics and re-engage as active citizens.  They are now doing so with red-hot anger.  Populism was the highly creative, self-made movement formed by desperate farmers in the late 19th century.  It is disparaged in elite circles, but it generated vital ideas that ultimately reshaped government and democracy.  Encouraged by Obama's message of hope, agitated by darkening economic prospects, many people have thrown off sullen passivity and are trying to reclaim their role as citizens.  Timely intervention by the people could save the country from some truly bad ideas now circulating in Washington and on Wall Street.  Congress seems to display indifference to the inevitably bankrupting consequences of their profligacy: their disguising a $1 trillion political patronage bill as an economic stimulus package when only 23% of it is arguably stimulative in the short term; and their audacity in forcing (and rewarding) banks to make uncreditworthy loans, pressuring Freddie and Fannie to "securitize" them, encouraging AIG and others to traffic in "derivatives," and then punishing all of them instead of taking the blame themselves?  They are the ones who created this havoc and then refused to take corrective regulatory action when warned of the impending financial disaster.  Robert Reich lays it out plainly: “The Wall Street bailout is starting to look like the most expensive tax-supported fiasco in history… The president cannot afford to lose the public’s confidence that his administration is a careful steward of the public’s money. The public was willing to go along with a large stimulus package. But it won’t go along with a second stimulus, and certainly not another TARP. And until the public feels confident that its money isn’t being thrown down a rat hole, it may balk at other ambitious undertakings such as healthcare or education or the environment.”  Congressional leaders are once again rushing to enact hasty "reforms" that might get the financial monkey off their back, but will permanently damage our democracy.  These ideas could lead to the creation of a corporate state, legitimized by government and financed by everyone else.  If people and the president do not stand up for just solutions, politics as usual will prevail.

 

Obama has “lost that loving’ feeling.”  It was brilliant communications skills that carried Obama to the presidency.  However the discipline and strategic focus of the campaign have yet to move into the White House.  The story of the day often catches our “Teleprompter-in-Chief” flat-footed or on the defensive, and is regularly undercut by fellow Democrats.  This shows Obama has a tin ear sometimes, and that he’s often a poor communicator, despite all we’ve heard to the contrary.  The financial crisis he was elected to fix has only grown worse under his tutelage, losing another 2,000 plus points on the Dow since his ascension.  The ‘smoothest transition on record’ stopped being smooth when Bush went back to Texas, and has since been a mélange of scandals and dithering.  The immense sums in his budget are starting to stun the more moderate Democrats who once put their hopes in his ‘moderate’ temperament.  He and some of his high-profile picks have shown a repeated addiction to unforced errors and slights, mixing up names, misplacing dates, dissing Nancy Reagan, dissing the British Prime Minister, dissing the Special Olympics, created and run by John Kennedy’s sister, giving the impression the administration is run by the under-informed and the boorish and socially compromised.  In short, the idea of Obama, the eloquent, elegant, trans-racial hero, able to inspire his way around anything, ran into reality and was dissolved by it, revealing a not-well-prepared neophyte politician with an embarrassing penchant for gaffes.  There are telltale signs that his Presidency is flailing, out of control:

·    His allies are moving to protect the president.

·    The president gets out of town.

·    Top spokesmen dismiss the crisis as a distraction.

·    Administration figures can't keep their stories straight.

·    The president indulges in hyperbole.

Obama invokes Reagan almost as often as he invokes FDR, but if we want an appropriate comparison for the situation America faces today, it is not the great depression or the Reagan revolution but rather the Carter malaise: appalling weakness and gloom both at home and abroad.  Obama’s entire administration is drowning in a public feeding frenzy of their own making, so they are throwing out whatever argument pops to mind.

 

 

The financial crisis is Obama’s vehicle to transform the US economy from free market capitalism to centrally planned socialism.  There is no doubt how this happened: a greatly improved climate for business was created by sharp reductions in taxes on businesses and individuals.  But the Obama administration is going in exactly the opposite direction with its anti-business measures, and as a result the stock market has dropped sharply and prospects for a quick recovery are sliding with it.  Each thousand points of the Dow represents nearly half a trillion dollars of wealth taken out of the hands of businesses and individuals.  After running a campaign against the $1 trillion deficit he "inherited" from President Bush and the Republicans, Obama quickly matched it.  During his first 50 days in office, he and his Democratic-controlled Congress spent $1 billion an hour.  Under Obama's proposed budget, the overall national debt doubles in five years and triples in 10.  Not exactly "moving from an era of borrow and spend to one where we save and invest," as he promised.  Obama is seeking to establish this atypical, artificially bloated FY 2009 as the new baseline from which his budgets should be compared, falsely implying that President Bush incrementally increased the deficit each year until it reached the annual figure of $1.3 trillion and that it will remain that high unless he brings it down. Apparently smiling at our collective stupidity, he thus plans to disguise his increases in annual spending as decreases and take credit for cutting the budget in half by the end of his term.  If a few dollars of Obama tax rebates is supposed to stimulate the economy, how anti-stimulative is it to take a trillion dollars out of the hands of businesses and individuals through policies that predictably drive the market sharply down?  How much weaker will this make the world economy, and how much more misery will it create for the world’s poor?  Fear is spreading as Obama courts hyper-inflation with massive spending and deficits, conducts a war through every conceivable tax increase against business and wealth creators, burdens us with massive new entitlements when we can’t even pay for the ones we already have, and adopts growth-stifling new regulations in the pursuit of an ideological wish list.  Confidence is key in any economy, and confidence is rapidly evaporating as Obama is increasingly seen as a man who has no idea what he is doing - one with no understanding of economics and in the grip of the economically destructive ideas of ivory tower university radicals.

 

The current world-wide economic and financial crisis does not represent a failure of capitalism or of markets, but is actually the result of mistakes made by the U.S. Federal Reserve, aided and abetted by Congress and the Administration.  Our economy has expanded and contracted several times over the last 100 years.  Now that the government has made it their business to stop a recession, it will quickly learn it can no more legislate us out of a recession any more than it can legislate away the principles of mathematics.  If the current recession was allowed to run the normal course of a recession, we would be well on our way to recovery.  An unstable dollar puts the private sector in an impossible situation.  People hate inflation, and it makes them angry.  They feel like they are being robbed—because they are.  When the markets experience inflation and expect more inflation, they will start trying to protect themselves from it.  The longer the inflation goes on, the more real resources the private sector will spend trying to defend itself against it.  Unfortunately, the government is now trying to solve a problem created by printing too much money by printing even more money (plus tax increases, plus economic-superstition-based “stimulus” borrowing and spending).  This will not work.  However given the low tolerance for political pain in D.C., our leaders employed massive doses of spending that killed the pain but did not address the disease.

 

When will someone in this administration admit that the real solution to the financial crisis is immediate managed bankruptcies, and not more bailouts rewarding bad behavior that just elongates the problems.  The government seems never to have considered the prospect of allowing AIG to go through the normal bankruptcy process.  True, an AIG bankruptcy would have been a breathtaking event.  It could have caused cascading losses for Europe’s banks, necessitating more government bailouts there, and a (bigger) international crisis; it could have caused insurance policyholders to cancel their contracts around the world, straining reserve funds for failed insurance companies; and it could have caused fright in Asia, where AIG insurance has always been a trusted product.  An impartial judge and an impartial administrator would have taken on all of the tasks that the government and AIG itself have handled so erratically for the past six months.  Finally, in a bankruptcy, the government’s goal for AIG would have been obvious: to wind down a failed company, getting the firm’s good assets, the insurance business, into more competent hands as soon as possible, even at a fire-sale price.  Instead, failed companies may find themselves at the mercy of a government veering from whim to whim as it reads the mood of a volatile public.  Now Tim Geithner has persuaded Obama to recycle Bush administration policy: specifically, the “cash for trash” plan proposed to repurchase sub-prime and alt-a mortgage-backed securities from the banking system, then abandoned, six months ago by then-Treasury Secretary Henry Paulson, and now dressed up to engage the interest of hedge funds and private equity investors.  Under the plan, 7.5% of the purchase price would come from private sources as equity and the same would come from TARP also as equity, then 85% would come from the FDIC, as a low-interest, non-recourse loan, meaning that if the loans default, the FDIC gets the assets but nothing else.  Geithner is of course including private sector investors to attach credibility to a plan that lacks it, but no one should be fooled.  Taxpayers will largely fund these “private” purchases of bank securities which means that private sector investors will not “establish the value” of loans and securities weighing on bank balance sheets.  Instead, the market for “toxic” bank assets will become even more uncertain thanks to private investors playing with money not their own.  The difference now is not that the pricing of these assets has become clearer, but that the federal government has now become the majority owner in the world’s largest insurance company and creditor to the major banks and is reaching out for the rest of the financial community.  It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street.  A clear signal that this is more about government control than stabilization of the banking system is the testimony yesterday from Secretary Geithner that he is seeking the ability to effectively take over non-bank financial institutions using powers similar to those the FDIC and Federal Reserve have over the banking industry.  If the sub-prime securities are truly trash, most of the big banks are troubled and some are insolvent.  The FDIC should put them through receivership, get clean audits, install new management, and begin the necessary shrinkage of the banking system with the big guys, not the small ones.  It should not encumber the banking system we need with failed institutions.  It should not be giving CPR to a market for toxic mortgages that never should have been issued, and certainly never securitized, in the first place.  Rechristening “toxic assets” as “legacy loans” and sprinkling liberally with loan guarantee perfume can’t disguise this pig as anything other than overpriced high risk mortgages.

 

 

Obama said in his budget message "the time has come to usher in a new era of responsibility," but a new report shows the only thing his budget delivers is an unprecedented era of deficits and debt.  According to the CBO, the Obama administration lowballed its deficit forecast by $482 billion over the next four years and $2.3 trillion over the next 10.  In other words, the CBO says that 10-year deficits will be 33% higher than the president claims, should his plans get enacted.  Obama's team employed one of the oldest budget tricks in the books, exaggerating economic growth, to hide the true cost of his tax and spending plans.   The practical implications of this (budget) is bankruptcy for the United States," said Senator Judd Gregg.  Senator Susan Collins said "It would double the public debt in 5 years, triple it in 10 years. ... That is not sustainable. It poses a threat to the basic health of our economy."  Senator Richard Shelby predicted that number could reach $20 trillion in coming years as Obama guides the country to "the fast road to financial destruction."  Obama has tried to position his budget as “investments” in the economy but the only return on these investments is bigger government and deeper debt.

 

If Congress was serious about fixing the financial crisis they would focus exclusively on fixing the underlying problems, and abandon the healthcare, energy, and education initiatives as unaffordable and a huge distraction!  Until our current entitlement programs (Social Security, Medicare, Medicaid) are addressed and their path to bankruptcy stopped, no more new or expanded healthcare entitlements should be included in the budget.  The most effective thing Congress could do for these runaway entitlements would be to begin the transition to privatization: Medicare to Personal Health Savings Accounts; Social Security to personal accounts; and Medicaid, SCHIP, and Temporary Assistance for Needy Families into block grants back to the states.  The federal government has no Constitutional role providing or guaranteeing insurance coverage, so privatize all federal insurance programs:  Crop Insurance; National Flood Insurance; Property Insurance; Terrorism Reinsurance; Windstorm Insurance, etc.  The federal government also has no Constitutional role in the banking, energy, printing, security, shipping, or transportation industries, so privatize (no more Government Sponsored Enterprises) as independent companies: Air Traffic Control; Amtrak; Export-Import Bank; FAA Facilities & Equipment; Federal National Mortgage Association (Fannie Mae); Federal Home Loan Mortgage Corporation (Freddie Mac);.Federal Reserve Bank, Government National Mortgage Association (Ginnie Mae); Government Printing Office; Pension Benefit Guarantee Corporation; Postal Service; St. Lawrence Seaway; Tennessee Valley Authority; Transportation Security Agency; etc.  The only spending on energy has been on unproven renewable sources meanwhile Congress has been restricting energy exploitation on proven sources on the Outer Continental Shelf, in national parks, and in ANWR.  The second initiative to cut out of the budget is the anti-oil Cap and Trade provisions that punish business with a stealth tax that delivers absolutely no quantifiable economic or environmental benefit, and the only thing it caps is economic growth.  The third initiative to remove from the budget is the unneeded and unaffordable expansion to fund programs “from the cradle up through a career,” having failed repeatedly to solve persistent problems in American education.  Finally Obama should scrub this bill to remove all earmarks attached to this budget to finally do something about fulfilling his grandiose “zero earmarks” pledge.  If Congress adopted these recommended improvements the budget would be halved and there might be a chance that our federal government would not spend its way into bankruptcy!

 

The conservative base no longer has any intention of being restrained by the failed appeasement tactics of the Republican Party establishment.  Unfortunately, that very Republican establishment may be the last group to figure this out.  Far too many of its key players remain wedded to the idea of “bipartisanship” with a Democrat machine that clearly intends to dismantle the very precepts of America’s greatness.  The Mainstream Media has once again revealed itself as partisan filters of news covering ACORN-financed wackos on a bus tour to intimidate AIG execs last weekend rather than covering five separate grass roots taxpayer protests against runaway Congressional spending.  I really wish that Obama would stop repeating the “Big Lie” about Republicans not offering an alternative, because each of the gigantic Democrat spending programs had a Republican alternative that was more effective, cost less, grew the economy, and created new private sector jobs unlike each of the “porkulus” plans rammed through Congress!

 

* There is so much published each week that unless you go out of your way to find it, you will miss important breaking events.   I package the best of this information into my “Views on the News” each Saturday morning for your education and reading pleasure. 

 

If you are sick and tired of government and politics as usual, read my web site with its individual issue analysis and recommendations sections at: http://www.returntocommonsensesite.com .  Individual issue updates this week include:

    

This Week’s Best Articles:

·         Rebuilding the Republican Party for 2010” by Christopher Adamo dated March 19, 2009 published by American Daily at http://americandaily.com/index.php/article/962 .

·         Obama’s Communications Breakdown” by Tobin Harshaw dated March 20, 2009 published by The New York Times at http://opinionator.blogs.nytimes.com/2009/03/20/weekend-opinionator-obamas-communication-breakdown/ .

·         New Deficit Forecast Casts Shadow on Obama Agenda” by Jackie Calmes dated March 21, 2009 published by The New York Times at http://www.nytimes.com/2009/03/21/washington/21deficit.html .

·         Obama Told Us To Speak Out, But Is He Listening?” dated March 22, 2009 published by The Washington Post at http://www.washingtonpost.com/wp-dyn/content/article/2009/03/19/AR2009031902511.html .

·         GOP Predicts Doomsday if Obama Budget Passeddated March 22, 2009 published by Fox News at http://www.foxnews.com/politics/2009/03/22/gop-predicts-doomsday-obama-budget-passed/ .

·         Sorry, but Capitalism Did Not Fail” by Louis R. Woodhill dated March 23, 2009 published by Real Clear Markets at http://www.realclearmarkets.com/articles/2009/03/sorry_but_capitalism_did_not_f.html .

·         “Financial Policy Despair” by Paul Krugman dated March 23, 2009 published by The New York Times at http://www.nytimes.com/2009/03/23/opinion/23krugman.html .

 

David Coughlin

Hawthorne, NY