I am pleased that so many of you are being thoughtful and willing to share your views. My sense is that if we do not express our views, find common ground we can not coalesce behind the political leadership we need to keep America from sliding into third rate nation status.
I received the following and offer it for your consideration:
Comments on the Current Economic/Political Situation in America
Sam Ginsburg / October 4, 2010
Americans tend to limit their vision of the world to the borders of the United States and to a time no earlier than the last election, or in some circles, to the last quarter. In a world that is being globalized at an every increasing rate, this near sightedness and lack of historical perspective is foolhardy and perilous to the future of this country.
America received a wakeup call warning us of the impending impact of economic globalism in the 1970’s when the Arab oil producers nationalized their oil, raised oil prices and threw the American economy into a tailspin that did not end until Paul Volcker brought rampant inflation under control by inducing a recession some ten years later during the Reagan years. Reagan then promptly dismissed Volcker so he could introduce the Free Market - Anti Regulation -Trickle down ideology espoused by his fellow Republicans. During this period, Japan grew its economy to become the second largest in the world by becoming the largest exporter to the United States by closely managing its government protected industries to increase exports while restricting imports. At about the same time, after the death of Mao-Tse-Tung, China began, what now can be seen, as the greatest national economic expansion in the history of the world – an expansion based on exports that has yielded double digit GDP growth over decades and has yet to show any sign of slowing down – a record of historical dimension totally orchestrated by a government, not private enterprise, and a Communist one no less.
The result of these changes and that of other “exporting” nations in Asia and the oil and gas producing countries of the world has been the greatest transfer of wealth and of jobs in the history of the world – from the Western, free nations, of the world to the exporting, nations of the world. Americans were told, not to worry when our industrial base shrunk from 60% of GDP to less than 10% - we were now transforming into an “information technology” economy and we would grow jobs in cleaner, safer, environments. Americans compensated for the loss of high paying factory jobs by sending their wives to work thus transforming the adage that two can live as cheaply as one to two workers can earn as much as one.
Every decade since the 1970’s has seen increasing erosion to the American way of life, most Americans aspire to, by countries outside of the United States. Clean office technology jobs began to be outsourced to other countries where the labor costs were less. High paying construction jobs have been decimated by alien workers from Mexico. Today, highly skilled legal, medical and architectural services are being outsourced to countries like India and China. And 30 years of ever increasing trade deficits with China and Japan has transformed the mighty American state into a debtor nation and 30 years of Free Market economics has brought us to the brink of another Great Depression from which no one knows when we will exit.
The argument about whether business or government is better at creating jobs in the country or which should be put in charge of getting this country back on track has to be seen in its historical context. The history of the last several decades has clearly proven that the free market, anti regulatory policies of the past have failed and new strategies are needed to address the reality that state-controlled foreign nations have exploited the American version of free market competition and have seriously impacted our economy and our labor force and that private corporations cannot possibly fix this problem. Nor can private corporations solve the numerous other problems confronting our nation such as global warming, alternative energy, heath care and education without the guidance of a government as effective as the Chinese state. We need to learn from our major competitors to combine the forces of private enterprise with long-term government strategies and assistance to produce growth and prosperity.
Having arrived at this conclusion, I am sad to say that America’s government no longer works. It is torn between two parties that can no longer work together and whose goals are limited to the next election. As for large business, their goals are limited to the force that fuels capitalism, Greed - defined by the results of the upcoming quarter and/or the goals prescribed by their executive’s bonus agreements. Tom Friedman, of the NY Times, in his latest editorial talks about the dysfunction of our government and the possibility of a third party entering the forthcoming presidential election. I wish I could believe this was possible. Instead I believe that, for years to come, America will continue to fumble from election to election and quarter to quarter and the nation will continue to decline as a world power and its influence will decline as our European partners seek to replace the dollar as the international currency and strengthen their connections to China and Russia and to the other extravagantly rich Sovereign wealth fund nations of the world who are sitting on rapidly expanding troves of trillions of dollars of private equity capital flowing to them from us and the rest of the western world who continue to import their products on a massive scale.
Tuesday, October 5, 2010
Sunday, October 3, 2010
The Economy
Here is how one of you caring, thoughtful people responded to the Economy blog.
I disagree with the premise that only business can create jobs. Though I certainly agree that we need more business investing and spending to aid the country in getting back on track, it seems to me that, more importantly, we need the government to take the lead and act as the engine to lead us on the road to recovery. The enormous public works projects of the Roosevwelt era did create jobs and stimulate the economy, but as Paul Krugman, in the November 10, 2008 edition of the NY Times, points out: the Roosevelt plan to end the Depression was not successful because it did not go far enough. It was Roosevelt's own cautious approach that almost undid him. Krugman writes, And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
Though Obama is not (contrary to Republican claims) raising taxes, he and the Democarats are exhibiting the same type of cautiousness, and, unfortunately, it seems to be yielding the same results:continued unemployment and a potential defeat in the coming elections.
As in the '30s there are numerous areas in which the government should invest. Our infrastructure is crumbling: roads, bridges, dams and schools all must be build or reconstructed, and we need, enormous government investment in, among other areas, clean energy, medical research and, of course, job retraining.
We need the bold leadship and bold change that we were promised. I do not fault President Obama for failures along these lines. He has put forth constructive plans and a stimulus package which was significantly cut back by the " just say no" right wingers in both parties. If the "Stimulus Package" hasn't lived up to its promise, a significant part of the reason is because of the those cutbacks, and not because it has proven too expensive. This is why I firmly believe we should be pushing for further govenment investment in the economy, not less.
Gary Tomei
-----
I disagree with the premise that only business can create jobs. Though I certainly agree that we need more business investing and spending to aid the country in getting back on track, it seems to me that, more importantly, we need the government to take the lead and act as the engine to lead us on the road to recovery. The enormous public works projects of the Roosevwelt era did create jobs and stimulate the economy, but as Paul Krugman, in the November 10, 2008 edition of the NY Times, points out: the Roosevelt plan to end the Depression was not successful because it did not go far enough. It was Roosevelt's own cautious approach that almost undid him. Krugman writes, And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
Though Obama is not (contrary to Republican claims) raising taxes, he and the Democarats are exhibiting the same type of cautiousness, and, unfortunately, it seems to be yielding the same results:continued unemployment and a potential defeat in the coming elections.
As in the '30s there are numerous areas in which the government should invest. Our infrastructure is crumbling: roads, bridges, dams and schools all must be build or reconstructed, and we need, enormous government investment in, among other areas, clean energy, medical research and, of course, job retraining.
We need the bold leadship and bold change that we were promised. I do not fault President Obama for failures along these lines. He has put forth constructive plans and a stimulus package which was significantly cut back by the " just say no" right wingers in both parties. If the "Stimulus Package" hasn't lived up to its promise, a significant part of the reason is because of the those cutbacks, and not because it has proven too expensive. This is why I firmly believe we should be pushing for further govenment investment in the economy, not less.
Gary Tomei
-----
Saturday, October 2, 2010
This President is Great Continued: The Economy
You may have wondered why I did not mention jobs and the economy yesterday. The answer is that it is a subject that must be addressed on its own.
The president and government, as mentioned previously, can not create sustainable long term employment. Government can put in stop gap measures such as the hiring for the US Census, unemployment benefits or infrastructure projects to repair or build roads, bridges and the like. Roosevelt tried that; but in truth from 1929 until the US entry into WWII, unemployment(25%) and a stagnant economy were entrenched. Why did the war change things and people go back to work? One million people went into the military and the rest, both men and women, went in to America's factories.
Only business can create sustainable long term employment. Business is sitting on the side lines with trillions of not invested dollars parked in retained earnings on their balance sheets. Why? Business does not have the confidence that this administration is trustworthy to protect its interest and be fair.
These three concepts confidence, trust, and fairness are and have been the under pinnings of all economies since the beginning of time. Read or read about Adam Smith, John Maynard Keynes, John Hicks and today's Robert Shiller out of Yale and you will see the recurring theme that these Animal Spirits are what drive any economy. Animal Spirits is a term coined by Keynes that comes from the Latin animus meaning the use of ones feelings, mind and gut instincts to make economic decisions.
So, business should come off the sidelines, start investing and hiring which would pump money into the economy. The government must cheer them on. Both, however, must demonstrate fairness, confidence and trust for this depression to end.
More specific recommendations on what each should consider doing in future blogs. Please let me know what you think
The president and government, as mentioned previously, can not create sustainable long term employment. Government can put in stop gap measures such as the hiring for the US Census, unemployment benefits or infrastructure projects to repair or build roads, bridges and the like. Roosevelt tried that; but in truth from 1929 until the US entry into WWII, unemployment(25%) and a stagnant economy were entrenched. Why did the war change things and people go back to work? One million people went into the military and the rest, both men and women, went in to America's factories.
Only business can create sustainable long term employment. Business is sitting on the side lines with trillions of not invested dollars parked in retained earnings on their balance sheets. Why? Business does not have the confidence that this administration is trustworthy to protect its interest and be fair.
These three concepts confidence, trust, and fairness are and have been the under pinnings of all economies since the beginning of time. Read or read about Adam Smith, John Maynard Keynes, John Hicks and today's Robert Shiller out of Yale and you will see the recurring theme that these Animal Spirits are what drive any economy. Animal Spirits is a term coined by Keynes that comes from the Latin animus meaning the use of ones feelings, mind and gut instincts to make economic decisions.
So, business should come off the sidelines, start investing and hiring which would pump money into the economy. The government must cheer them on. Both, however, must demonstrate fairness, confidence and trust for this depression to end.
More specific recommendations on what each should consider doing in future blogs. Please let me know what you think
Friday, October 1, 2010
This President is Great!
Hey! Quite a statement right? Hear me please. Tea Party? Yeah, well Carl Paladino, Meg( I didn't know she was illegal) Whitman, the lady from Delaware, Christine O Donnell who lied on her resume and is against masturbation, sex of any kind, don't mess with my Medicare and Messrs. Gingrich, Bohner, Madam Palin from Alaska(OMG is there another planet I can move to) and Anger??? Are any of you who read this blog ready to turn over our nation to these do nothing, self serving, so-called leaders?? I hope not.
Did you know:
1)Wall street has been reigned in and hates it.
2)The Banks have yet to write off any toxic investments.
3)Health care insurance companies are on notice and dare not be greedy.
4)TARP is over this Sunday and out of $700 billion dollars offered, less than $200 billion is out there.
5)Larry Summers is gone!! He was one of the group: Summers, Geither, Greenspan, Paulson and Goldman Sacks who brought us depression 2008.
Come on folks, this president has taken each item on his agenda and has either gotten it done or has it tee'd up. Yet to come are immigration, energy, and education.
Let's give him a chance to get it done. Has he made mistakes? Yes, in style as well as content. Did he bring people into his admin who helped create the problem? Yes he did. Again, not in content; but in style. He is an intellectual, deep feeling man who can not believe what he has been asked to do. Well, neither can I!
Here is my suggestion: Get behind the President Stop being partisan.
That is it! Stop doubting, get into the fray, stop listening to Rush, Glen, Michele, Newt, Ed, Rachelle, Keith and the rest of the SNL crowd, left, right or indifferent. They care only about their ratings and earnings.
Talk( I almost said pray) my friends to the Goddess, the God, the Universe, your Family whom ever you think controls or influences events.
Give this President a chance!!!
Did you know:
1)Wall street has been reigned in and hates it.
2)The Banks have yet to write off any toxic investments.
3)Health care insurance companies are on notice and dare not be greedy.
4)TARP is over this Sunday and out of $700 billion dollars offered, less than $200 billion is out there.
5)Larry Summers is gone!! He was one of the group: Summers, Geither, Greenspan, Paulson and Goldman Sacks who brought us depression 2008.
Come on folks, this president has taken each item on his agenda and has either gotten it done or has it tee'd up. Yet to come are immigration, energy, and education.
Let's give him a chance to get it done. Has he made mistakes? Yes, in style as well as content. Did he bring people into his admin who helped create the problem? Yes he did. Again, not in content; but in style. He is an intellectual, deep feeling man who can not believe what he has been asked to do. Well, neither can I!
Here is my suggestion: Get behind the President Stop being partisan.
That is it! Stop doubting, get into the fray, stop listening to Rush, Glen, Michele, Newt, Ed, Rachelle, Keith and the rest of the SNL crowd, left, right or indifferent. They care only about their ratings and earnings.
Talk( I almost said pray) my friends to the Goddess, the God, the Universe, your Family whom ever you think controls or influences events.
Give this President a chance!!!
Sunday, September 12, 2010
And God Speaks...in the Onion
I waited till the 11th had passed to bring you a summary that I believe says it all. This piece was written in 2001 and was published in the Onion. By the way this is funny, right on and should keep us all in perspective:
God Angrily Clarifies 'Don't Kill' Rule
SEPTEMBER 26, 2001
NEW YORK—Responding to recent events on Earth, God, the omniscient creator-deity worshipped by billions of followers of various faiths for more than 6,000 years, angrily clarified His longtime stance against humans killing each other Monday.
"Look, I don't know, maybe I haven't made myself completely clear, so for the record, here it is again," said the Lord, His divine face betraying visible emotion during a press conference near the site of the fallen Twin Towers. "Somehow, people keep coming up with the idea that I want them to kill their neighbor. Well, I don't. And to be honest, I'm really getting sick and tired of it. Get it straight. Not only do I not want anybody to kill anyone, but I specifically commanded you not to, in really simple terms that anybody ought to be able to understand."
Worshipped by Christians, Jews, and Muslims alike, God said His name has been invoked countless times over the centuries as a reason to kill in what He called "an unending cycle of violence."
"I don't care how holy somebody claims to be," God said. "If a person tells you it's My will that they kill someone, they're wrong. Got it? I don't care what religion you are, or who you think your enemy is, here it is one more time: No killing, in My name or anyone else's, ever again."
The press conference came as a surprise to humankind, as God rarely intervenes in earthly affairs. As a matter of longstanding policy, He has traditionally left the task of interpreting His message and divine will to clerics, rabbis, priests, imams, and Biblical scholars. Theologians and laymen alike have been given the task of pondering His ineffable mysteries, deciding for themselves what to do as a matter of faith. His decision to manifest on the material plane was motivated by the deep sense of shock, outrage, and sorrow He felt over the Sept. 11 violence carried out in His name, and over its dire potential ramifications around the globe.
"I tried to put it in the simplest possible terms for you people, so you'd get it straight, because I thought it was pretty important," said God, called Yahweh and Allah respectively in the Judaic and Muslim traditions. "I guess I figured I'd left no real room for confusion after putting it in a four-word sentence with one-syllable words, on the tablets I gave to Moses. How much more clear can I get?"
"But somehow, it all gets twisted around and, next thing you know, somebody's spouting off some nonsense about, 'God says I have to kill this guy, God wants me to kill that guy, it's God's will,'" God continued. "It's not God's will, all right? News flash: 'God's will' equals 'Don't murder people.'"
Worse yet, many of the worst violators claim that their actions are justified by passages in the Bible, Torah, and Qur'an.
"To be honest, there's some contradictory stuff in there, okay?" God said. "So I can see how it could be pretty misleading. I admit it—My bad. I did My best to inspire them, but a lot of imperfect human agents have misinterpreted My message over the millennia. Frankly, much of the material that got in there is dogmatic, doctrinal bullshit. I turn My head for a second and, suddenly, all this stuff about homosexuality gets into Leviticus, and everybody thinks it's God's will to kill gays. It absolutely drives Me up the wall."
God praised the overwhelming majority of His Muslim followers as "wonderful, pious people," calling the perpetrators of the Sept. 11 attacks rare exceptions.
"This whole medieval concept of the jihad, or holy war, had all but vanished from the Muslim world in, like, the 10th century, and with good reason," God said. "There's no such thing as a holy war, only unholy ones. The vast majority of Muslims in this world reject the murderous actions of these radical extremists, just like the vast majority of Christians in America are pissed off over those two bigots on The 700 Club."
Continued God, "Read the book: 'Allah is kind, Allah is beautiful, Allah is merciful.' It goes on and on that way, page after page. But, no, some assholes have to come along and revive this stupid holy-war crap just to further their own hateful agenda. So now, everybody thinks Muslims are all murderous barbarians. Thanks, Taliban: 1,000 years of pan-Islamic cultural progress down the drain."
God stressed that His remarks were not directed exclusively at Islamic extremists, but rather at anyone whose ideological zealotry overrides his or her ability to comprehend the core message of all world religions.
"I don't care what faith you are, everybody's been making this same mistake since the dawn of time," God said. "The Muslims massacre the Hindus, the Hindus massacre the Muslims. The Buddhists, everybody massacres the Buddhists. The Jews, don't even get me started on the hardline, right-wing, Meir Kahane-loving Israeli nationalists, man. And the Christians? You people believe in a Messiah who says, 'Turn the other cheek,' but you've been killing everybody you can get your hands on since the Crusades."
Growing increasingly wrathful, God continued: "Can't you people see? What are you, morons? There are a ton of different religious traditions out there, and different cultures worship Me in different ways. But the basic message is always the same: Christianity, Islam, Judaism, Buddhism, Shintoism... every religious belief system under the sun, they all say you're supposed to love your neighbors, folks! It's not that hard a concept to grasp."
"Why would you think I'd want anything else? Humans don't need religion or God as an excuse to kill each other—you've been doing that without any help from Me since you were freaking apes!" God said. "The whole point of believing in God is to have a higher standard of behavior. How obvious can you get?"
"I'm talking to all of you, here!" continued God, His voice rising to a shout. "Do you hear Me? I don't want you to kill anybody. I'm against it, across the board. How many times do I have to say it? Don't kill each other anymore—ever! I'm fucking serious!"
Upon completing His outburst, God fell silent, standing quietly at the podium for several moments. Then, witnesses reported, God's shoulders began to shake, and He wept.
Have a nice day and please get it!
God Angrily Clarifies 'Don't Kill' Rule
SEPTEMBER 26, 2001
NEW YORK—Responding to recent events on Earth, God, the omniscient creator-deity worshipped by billions of followers of various faiths for more than 6,000 years, angrily clarified His longtime stance against humans killing each other Monday.
"Look, I don't know, maybe I haven't made myself completely clear, so for the record, here it is again," said the Lord, His divine face betraying visible emotion during a press conference near the site of the fallen Twin Towers. "Somehow, people keep coming up with the idea that I want them to kill their neighbor. Well, I don't. And to be honest, I'm really getting sick and tired of it. Get it straight. Not only do I not want anybody to kill anyone, but I specifically commanded you not to, in really simple terms that anybody ought to be able to understand."
Worshipped by Christians, Jews, and Muslims alike, God said His name has been invoked countless times over the centuries as a reason to kill in what He called "an unending cycle of violence."
"I don't care how holy somebody claims to be," God said. "If a person tells you it's My will that they kill someone, they're wrong. Got it? I don't care what religion you are, or who you think your enemy is, here it is one more time: No killing, in My name or anyone else's, ever again."
The press conference came as a surprise to humankind, as God rarely intervenes in earthly affairs. As a matter of longstanding policy, He has traditionally left the task of interpreting His message and divine will to clerics, rabbis, priests, imams, and Biblical scholars. Theologians and laymen alike have been given the task of pondering His ineffable mysteries, deciding for themselves what to do as a matter of faith. His decision to manifest on the material plane was motivated by the deep sense of shock, outrage, and sorrow He felt over the Sept. 11 violence carried out in His name, and over its dire potential ramifications around the globe.
"I tried to put it in the simplest possible terms for you people, so you'd get it straight, because I thought it was pretty important," said God, called Yahweh and Allah respectively in the Judaic and Muslim traditions. "I guess I figured I'd left no real room for confusion after putting it in a four-word sentence with one-syllable words, on the tablets I gave to Moses. How much more clear can I get?"
"But somehow, it all gets twisted around and, next thing you know, somebody's spouting off some nonsense about, 'God says I have to kill this guy, God wants me to kill that guy, it's God's will,'" God continued. "It's not God's will, all right? News flash: 'God's will' equals 'Don't murder people.'"
Worse yet, many of the worst violators claim that their actions are justified by passages in the Bible, Torah, and Qur'an.
"To be honest, there's some contradictory stuff in there, okay?" God said. "So I can see how it could be pretty misleading. I admit it—My bad. I did My best to inspire them, but a lot of imperfect human agents have misinterpreted My message over the millennia. Frankly, much of the material that got in there is dogmatic, doctrinal bullshit. I turn My head for a second and, suddenly, all this stuff about homosexuality gets into Leviticus, and everybody thinks it's God's will to kill gays. It absolutely drives Me up the wall."
God praised the overwhelming majority of His Muslim followers as "wonderful, pious people," calling the perpetrators of the Sept. 11 attacks rare exceptions.
"This whole medieval concept of the jihad, or holy war, had all but vanished from the Muslim world in, like, the 10th century, and with good reason," God said. "There's no such thing as a holy war, only unholy ones. The vast majority of Muslims in this world reject the murderous actions of these radical extremists, just like the vast majority of Christians in America are pissed off over those two bigots on The 700 Club."
Continued God, "Read the book: 'Allah is kind, Allah is beautiful, Allah is merciful.' It goes on and on that way, page after page. But, no, some assholes have to come along and revive this stupid holy-war crap just to further their own hateful agenda. So now, everybody thinks Muslims are all murderous barbarians. Thanks, Taliban: 1,000 years of pan-Islamic cultural progress down the drain."
God stressed that His remarks were not directed exclusively at Islamic extremists, but rather at anyone whose ideological zealotry overrides his or her ability to comprehend the core message of all world religions.
"I don't care what faith you are, everybody's been making this same mistake since the dawn of time," God said. "The Muslims massacre the Hindus, the Hindus massacre the Muslims. The Buddhists, everybody massacres the Buddhists. The Jews, don't even get me started on the hardline, right-wing, Meir Kahane-loving Israeli nationalists, man. And the Christians? You people believe in a Messiah who says, 'Turn the other cheek,' but you've been killing everybody you can get your hands on since the Crusades."
Growing increasingly wrathful, God continued: "Can't you people see? What are you, morons? There are a ton of different religious traditions out there, and different cultures worship Me in different ways. But the basic message is always the same: Christianity, Islam, Judaism, Buddhism, Shintoism... every religious belief system under the sun, they all say you're supposed to love your neighbors, folks! It's not that hard a concept to grasp."
"Why would you think I'd want anything else? Humans don't need religion or God as an excuse to kill each other—you've been doing that without any help from Me since you were freaking apes!" God said. "The whole point of believing in God is to have a higher standard of behavior. How obvious can you get?"
"I'm talking to all of you, here!" continued God, His voice rising to a shout. "Do you hear Me? I don't want you to kill anybody. I'm against it, across the board. How many times do I have to say it? Don't kill each other anymore—ever! I'm fucking serious!"
Upon completing His outburst, God fell silent, standing quietly at the podium for several moments. Then, witnesses reported, God's shoulders began to shake, and He wept.
Have a nice day and please get it!
Tuesday, August 31, 2010
I am Really Worried!
The US economy is in the dumpster and is not showing signs of real recovery. Meaning, JOBS, AND NOT GOVERNMENT JOBS. Make no mistake here. The government(any government) can only create temporary jobs as Roosevelt did back in the depression and Obama did with the census. Business is the only group who can create long term sustainable employment. And Business is not investing in growth or employment until they think there is a more reasonable or even favorable climate toward business and taxes in Washington. Chicken and Egg? We shall see. Meanwhile there is a worthwhile Wall Street Journal column in today's paper that I share with you here:
By ANDY KESSLER
We should have eaten those toxic assets instead of sweeping them under the carpet.
The Troubled Asset Relief Program (TARP) was a foolish bait and switch. To prevent the 2008 financial crisis from worsening, TARP was originally designed to buy toxic mortgage derivatives weighing down banks and Wall Street, but no one could decide what price to pay for them. Too high and TARP would look like a government handout. But if the Treasury paid what they were worth, which was not much, financial firms would have to take huge write-offs, forcing many of them into insolvency and even nationalization.
So Treasury Secretary Hank Paulson switched plans, investing TARP funds directly into banks for a piece of equity. The idea was that banks would "earn out" their toxic portfolio—i.e., slowly write them off against the profits gained by the Federal Reserve's zero interest rate policy. It was a bold bet that the Treasury and Fed could engineer an economic recovery without allowing the bottoming action of a sharp but swift repricing of the U.S. housing stock. It turns out they only bought time, not a recovery, and now we are paying for that mistake.
Despite all efforts, the deleveraging continues. The $862 billion Congressional stimulus didn't stimulate the economy because it went into unproductive projects. The Fed's $1.4 trillion quantitative easing/dollar printing sent 30-year mortgage rates to record lows, but not enough people are buying homes because home prices haven't fallen enough to clear the inventory. And with 9.5% unemployment and 18.4% underemployed, there are more sellers than buyers.
Home sales dropped 27% from a year ago July to a 3.83 million annual rate, which was blamed on the May expiration of the $8,000 home buyer's tax credit. Dig deeper and it's even scarier. Existing home inventory (the number of homes for sale) now stands at four million units—that's a 12.5-month supply versus the average 6.2-month supply since 1999. As late as 2005, home inventory was just 2.5 million. Using that as a baseline or normal number, there are now around 1.5 million "extra" homes on the market that are not selling and either empty or soon to be foreclosed.
And those toxic mortgage assets? As far as I can tell, most are still there, valued at "mark to wish" since the Financial Accounting Standards Board's relaxation of "mark to market" accounting rules. Who knows what they're really worth? The stock market is guessing not much, sending finance stocks like Bank of America, Wells Fargo and even J.P. Morgan down close to 52-week lows. The Dow is once again flirting with 10,000. Money that had been flowing into stocks is now flowing into bond funds.
Wall Street smells a rat. Why? Because without a housing turnaround, jobs in construction, decoration, mortgage banking, auto sales and finance will stay in the doldrums. Delinquency rates, which are a leading indicator of foreclosures, are on the rise. According to the latest Mortgage Bankers Association survey, in the second quarter, prime adjustable-rate mortgage (ARM) delinquency rates rose to 9.3%, with prime fixed-rate mortgages seeing delinquencies up 4.75%. On the subprime side, ARM delinquencies hit 30.9% with fixed at 22.5%.
This is not good for banks that still own toxic assets of any type of mortgage, subprime or not. If home prices fall further, and I can't see too many scenarios where they won't, these toxic assets are all set to drop in value. At some point, buyers of bank debt will get nervous. Think of these mortgage derivatives as soon to be nonperforming loans, the same ones that were a 20-year anchor dragging down Japan.
If this toxic sludge were sitting on a shelf at the Treasury or Fed, it really wouldn't matter. They can both hold them indefinitely without any real consequences. But instead, even a small uptick in foreclosures could take down the banking system—again. The trajectory is scary, but we don't have to get there.
There are three fixes:
• QE toxic. The Fed's quantitative easing has been focused on buying Treasurys as well as packages of high-quality mortgage assets. It's time to go back to the original TARP and start buying toxic assets directly from banks, no matter the price. If they become insolvent, set up the Treasury to inject capital a la TARP2 and allow the Federal Deposit Insurance Corporation (FDIC) to implement a quick-turnaround, prepackaged bank resolution and receivership. Clean those balance sheets up for good, else we relapse into financial crises again and again.
• Import buyers. Someone has to step up and buy those 1.5 million extra homes in inventory. I would wager there is a backlog of high-paying jobs for educated foreigners well beyond what H1-B visas allow to trickle in. In the name of financial stability, create a million visas for qualified immigrants, say, those with a masters or Ph.D., and watch home prices start to rise.
• Wait. Business deleveraging is an overhang for the economy, but it's really the consumer that is overdrawn. Digging through household liabilities numbers, I calculate that since 2006 consumers overshot by approximately $4 trillion in debt. Even at normal economic growth rates, that calls for at least seven years of consumer deleveraging. We're now three years into it. Bad policy (tax increases and regulatory burdens) will only extend it. You can't hurry up this deleveraging.
There are so many price distortions that markets, let alone business leaders, are confused as to what is real. So they sit on their hands. The only way out is to let prices go to where they need to go to clear the overhang. This is especially true of housing and the housing assets clogging up bank balance sheets. Next time banks are under fire (and I hope we are not heading toward a next time), buy them out, fire management and restart the franchise with a clean bill of health. We are starting to see what the alternative is.
Mr. Kessler, a former hedge fund manager, is the author most recently of "Grumby" (Vigilante, 2010).
By ANDY KESSLER
We should have eaten those toxic assets instead of sweeping them under the carpet.
The Troubled Asset Relief Program (TARP) was a foolish bait and switch. To prevent the 2008 financial crisis from worsening, TARP was originally designed to buy toxic mortgage derivatives weighing down banks and Wall Street, but no one could decide what price to pay for them. Too high and TARP would look like a government handout. But if the Treasury paid what they were worth, which was not much, financial firms would have to take huge write-offs, forcing many of them into insolvency and even nationalization.
So Treasury Secretary Hank Paulson switched plans, investing TARP funds directly into banks for a piece of equity. The idea was that banks would "earn out" their toxic portfolio—i.e., slowly write them off against the profits gained by the Federal Reserve's zero interest rate policy. It was a bold bet that the Treasury and Fed could engineer an economic recovery without allowing the bottoming action of a sharp but swift repricing of the U.S. housing stock. It turns out they only bought time, not a recovery, and now we are paying for that mistake.
Despite all efforts, the deleveraging continues. The $862 billion Congressional stimulus didn't stimulate the economy because it went into unproductive projects. The Fed's $1.4 trillion quantitative easing/dollar printing sent 30-year mortgage rates to record lows, but not enough people are buying homes because home prices haven't fallen enough to clear the inventory. And with 9.5% unemployment and 18.4% underemployed, there are more sellers than buyers.
Home sales dropped 27% from a year ago July to a 3.83 million annual rate, which was blamed on the May expiration of the $8,000 home buyer's tax credit. Dig deeper and it's even scarier. Existing home inventory (the number of homes for sale) now stands at four million units—that's a 12.5-month supply versus the average 6.2-month supply since 1999. As late as 2005, home inventory was just 2.5 million. Using that as a baseline or normal number, there are now around 1.5 million "extra" homes on the market that are not selling and either empty or soon to be foreclosed.
And those toxic mortgage assets? As far as I can tell, most are still there, valued at "mark to wish" since the Financial Accounting Standards Board's relaxation of "mark to market" accounting rules. Who knows what they're really worth? The stock market is guessing not much, sending finance stocks like Bank of America, Wells Fargo and even J.P. Morgan down close to 52-week lows. The Dow is once again flirting with 10,000. Money that had been flowing into stocks is now flowing into bond funds.
Wall Street smells a rat. Why? Because without a housing turnaround, jobs in construction, decoration, mortgage banking, auto sales and finance will stay in the doldrums. Delinquency rates, which are a leading indicator of foreclosures, are on the rise. According to the latest Mortgage Bankers Association survey, in the second quarter, prime adjustable-rate mortgage (ARM) delinquency rates rose to 9.3%, with prime fixed-rate mortgages seeing delinquencies up 4.75%. On the subprime side, ARM delinquencies hit 30.9% with fixed at 22.5%.
This is not good for banks that still own toxic assets of any type of mortgage, subprime or not. If home prices fall further, and I can't see too many scenarios where they won't, these toxic assets are all set to drop in value. At some point, buyers of bank debt will get nervous. Think of these mortgage derivatives as soon to be nonperforming loans, the same ones that were a 20-year anchor dragging down Japan.
If this toxic sludge were sitting on a shelf at the Treasury or Fed, it really wouldn't matter. They can both hold them indefinitely without any real consequences. But instead, even a small uptick in foreclosures could take down the banking system—again. The trajectory is scary, but we don't have to get there.
There are three fixes:
• QE toxic. The Fed's quantitative easing has been focused on buying Treasurys as well as packages of high-quality mortgage assets. It's time to go back to the original TARP and start buying toxic assets directly from banks, no matter the price. If they become insolvent, set up the Treasury to inject capital a la TARP2 and allow the Federal Deposit Insurance Corporation (FDIC) to implement a quick-turnaround, prepackaged bank resolution and receivership. Clean those balance sheets up for good, else we relapse into financial crises again and again.
• Import buyers. Someone has to step up and buy those 1.5 million extra homes in inventory. I would wager there is a backlog of high-paying jobs for educated foreigners well beyond what H1-B visas allow to trickle in. In the name of financial stability, create a million visas for qualified immigrants, say, those with a masters or Ph.D., and watch home prices start to rise.
• Wait. Business deleveraging is an overhang for the economy, but it's really the consumer that is overdrawn. Digging through household liabilities numbers, I calculate that since 2006 consumers overshot by approximately $4 trillion in debt. Even at normal economic growth rates, that calls for at least seven years of consumer deleveraging. We're now three years into it. Bad policy (tax increases and regulatory burdens) will only extend it. You can't hurry up this deleveraging.
There are so many price distortions that markets, let alone business leaders, are confused as to what is real. So they sit on their hands. The only way out is to let prices go to where they need to go to clear the overhang. This is especially true of housing and the housing assets clogging up bank balance sheets. Next time banks are under fire (and I hope we are not heading toward a next time), buy them out, fire management and restart the franchise with a clean bill of health. We are starting to see what the alternative is.
Mr. Kessler, a former hedge fund manager, is the author most recently of "Grumby" (Vigilante, 2010).
Thursday, August 5, 2010
One Score Card on the The Fiscal Crisis
I hope you find this WSJ article informative. The newspaper is usually not friendly to government intervention which makes this assessment compelling. It is written by David Wessel of the WSJ.
"Although few realized it at the time, the devastating financial crisis began when money markets seized up in August 2007, prompting the first responders at the Federal Reserve and European Central Bank to act. With the modicum of hindsight that three years offer, what do we know now that we didn't know then?
A few lessons are widely accepted: Unfettered, poorly supervised finance can be dangerous to economic growth. Bankers and financial engineers do what rules encourage and permit, even if it means trouble later. Regulation was less than optimal, if not negligent. And borrowing heavily in good times in the hope they'll last forever is as imprudent as it sounds for homeowners and big bank CEOs.
A few other conclusions, though, are in dispute or are underappreciated. Here are three:
Government, which did fail to head off the crisis, saved us from an even worse outcome.
Hostility to the Bush-Paulson-Geithner-Bernanke (and largely Obama-blessed) bank bailouts, Obama fiscal stimulus and Fed meddling in markets is proof the public doubts this. (Full disclosure: My book, "In Fed We Trust," credits the Fed with a major role in averting another Depression.) Experts debate whether the Treasury and Fed were too soft on the banks and the bankers when they rescued them, about how much the Obama stimulus accomplished, and whether it was the right size and shape.
Those important arguments obscure the really big question: If the government hadn't done what it did, would unemployment be higher and the recession have been deeper and longer?
No one can answer a what-if question with certainty, and those skeptical of the potency of government spending won't be persuaded by economic models that assume government spending is potent.
But we know now that the economy was imploding in late 2008. We know now with detail how paralyzed financial markets were, and how rotten were the foundations of some big banks. We know now that even after all the Fed has done, we still risk devastating deflation.
So the short answer has to be: Yes, it would have been far worse had the government failed to act.
The biggest single bill to taxpayers will come not from a bank bailout, but from mortgage giants Fannie Mae and Freddie Mac.
Most people believe big Wall Street banks got bailed out and continue to profit from low interest rates. That's true, but many banks have paid back taxpayers with interest. Fannie and Freddie, though, burdened by huge mortgage portfolios, have taken $145 billion so far. In a new analysis, Alan Blinder of Princeton University and Mark Zandi of Moody's Analytics put the ultimate price for saving them at $305 billion.
That compares with $71 billion in estimated costs to the Federal Deposit Insurance Corp. for closing failing banks, $38 billion for American International Group, $29 billion for General Motors and its finance arm, GMAC, and somewhere between zero and a profit for banks in which taxpayers invested directly, according to the Blinder-Zandi calculations.
The government didn't nationalize the banks. Someday, it will sell its stake in GM. But it nationalized the mortgage market and hasn't found a way out. So taxpayers keep pumping money into Fannie and Freddie at a rate of greater than $1 billion a week.
The overall cost to Americans as taxpayers looks less than feared initially; the human and economic toll greater.
In narrow budget terms, the rescue of the financial system won't cost as much an initially estimated. The Congressional Budget Office has cut its estimate of the ultimate cost of the Troubled Asset Relief Program (which doesn't include Fannie or Freddie) to $109 billion from $350 billion and probably will reduce it further later this month. Bank losses are simply less than initially thought. In October 2009, the International Monetary Fund estimated U.S. banks would take write-downs of $1.085 trillion. By April 2010, it had reduced that by almost 20% to $885 billion. Officials at the Fed whisper that they may not lose a nickel on all their extraordinary lending.
But only the profoundly pessimistic in August 2007 imagined how deep and prolonged the recession would be, how much federal tax revenues would fall and thus how much the government would borrow, and how many would be out of work for so long. "The most pressing danger we now face is unacceptably weak growth and persistent unemployment rather than outright economic collapse," Peter Orszag said in his last speech as White House budget director.
So the good news is that we're not in a Great Depression. The bad news is that an army bigger than the entire population of Los Angeles has been out of work for a year—4.3 million people—and that just counts those still looking for work.
No wonder there's so much skepticism about the efficacy of fiscal stimulus, and such strong resistance to even think about doing more".
Hope you got something from that analysis. For the people out of work, homes and hope this is not a recession, it is a Great Depression. Job creation we all know is key and we also know that government can not create long term employment. Only the private sector can do that. There are trillions of corporate dollars sitting on the side lines waiting to understand how the administration will act towards business.
Tax cuts expiring, health care costs sure to rise, it is no wonder that business and thinking citizens are nervous and sitting on the side lines.
I wonder what you think? Please comment and have a great day.
"Although few realized it at the time, the devastating financial crisis began when money markets seized up in August 2007, prompting the first responders at the Federal Reserve and European Central Bank to act. With the modicum of hindsight that three years offer, what do we know now that we didn't know then?
A few lessons are widely accepted: Unfettered, poorly supervised finance can be dangerous to economic growth. Bankers and financial engineers do what rules encourage and permit, even if it means trouble later. Regulation was less than optimal, if not negligent. And borrowing heavily in good times in the hope they'll last forever is as imprudent as it sounds for homeowners and big bank CEOs.
A few other conclusions, though, are in dispute or are underappreciated. Here are three:
Government, which did fail to head off the crisis, saved us from an even worse outcome.
Hostility to the Bush-Paulson-Geithner-Bernanke (and largely Obama-blessed) bank bailouts, Obama fiscal stimulus and Fed meddling in markets is proof the public doubts this. (Full disclosure: My book, "In Fed We Trust," credits the Fed with a major role in averting another Depression.) Experts debate whether the Treasury and Fed were too soft on the banks and the bankers when they rescued them, about how much the Obama stimulus accomplished, and whether it was the right size and shape.
Those important arguments obscure the really big question: If the government hadn't done what it did, would unemployment be higher and the recession have been deeper and longer?
No one can answer a what-if question with certainty, and those skeptical of the potency of government spending won't be persuaded by economic models that assume government spending is potent.
But we know now that the economy was imploding in late 2008. We know now with detail how paralyzed financial markets were, and how rotten were the foundations of some big banks. We know now that even after all the Fed has done, we still risk devastating deflation.
So the short answer has to be: Yes, it would have been far worse had the government failed to act.
The biggest single bill to taxpayers will come not from a bank bailout, but from mortgage giants Fannie Mae and Freddie Mac.
Most people believe big Wall Street banks got bailed out and continue to profit from low interest rates. That's true, but many banks have paid back taxpayers with interest. Fannie and Freddie, though, burdened by huge mortgage portfolios, have taken $145 billion so far. In a new analysis, Alan Blinder of Princeton University and Mark Zandi of Moody's Analytics put the ultimate price for saving them at $305 billion.
That compares with $71 billion in estimated costs to the Federal Deposit Insurance Corp. for closing failing banks, $38 billion for American International Group, $29 billion for General Motors and its finance arm, GMAC, and somewhere between zero and a profit for banks in which taxpayers invested directly, according to the Blinder-Zandi calculations.
The government didn't nationalize the banks. Someday, it will sell its stake in GM. But it nationalized the mortgage market and hasn't found a way out. So taxpayers keep pumping money into Fannie and Freddie at a rate of greater than $1 billion a week.
The overall cost to Americans as taxpayers looks less than feared initially; the human and economic toll greater.
In narrow budget terms, the rescue of the financial system won't cost as much an initially estimated. The Congressional Budget Office has cut its estimate of the ultimate cost of the Troubled Asset Relief Program (which doesn't include Fannie or Freddie) to $109 billion from $350 billion and probably will reduce it further later this month. Bank losses are simply less than initially thought. In October 2009, the International Monetary Fund estimated U.S. banks would take write-downs of $1.085 trillion. By April 2010, it had reduced that by almost 20% to $885 billion. Officials at the Fed whisper that they may not lose a nickel on all their extraordinary lending.
But only the profoundly pessimistic in August 2007 imagined how deep and prolonged the recession would be, how much federal tax revenues would fall and thus how much the government would borrow, and how many would be out of work for so long. "The most pressing danger we now face is unacceptably weak growth and persistent unemployment rather than outright economic collapse," Peter Orszag said in his last speech as White House budget director.
So the good news is that we're not in a Great Depression. The bad news is that an army bigger than the entire population of Los Angeles has been out of work for a year—4.3 million people—and that just counts those still looking for work.
No wonder there's so much skepticism about the efficacy of fiscal stimulus, and such strong resistance to even think about doing more".
Hope you got something from that analysis. For the people out of work, homes and hope this is not a recession, it is a Great Depression. Job creation we all know is key and we also know that government can not create long term employment. Only the private sector can do that. There are trillions of corporate dollars sitting on the side lines waiting to understand how the administration will act towards business.
Tax cuts expiring, health care costs sure to rise, it is no wonder that business and thinking citizens are nervous and sitting on the side lines.
I wonder what you think? Please comment and have a great day.
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