Thursday, March 05, 2009

It's the Economy, Stupid

I don't really know what is going on with the economy. I mean, you can watch The Real News, and they say one thing.

Anyway, The Real News has an interesting take on the economy. I think they got it a bit wrong. I mean, sure, there are different reasons for what is happening to our economy, but let's look at the housing market for a moment.

We have banks who are lending money to people, but as soon as the loans are out there, they sell the loans to someone else. So someone qualifies someone for a loan, then they sell that loan. So does the bank really care if the person can pay the loan since the loan has been sold? Hmmmmmmmmm. It would seem to me that there would be a tendency to qualify everyone for the loan. And because wages have not really gone up in 30 years (which is highlighted on the video), we Americans can pretend that we are doing better than our parents by qualifying for a house that is bigger than the house we grew up in. It makes us feel better, and while we are feeling better, we can roll our Visa/Mastercard bills into the new house at the same time. Nice.

I was reading somewhere else that the 800 Billion that was given to banks was sort of wasted money because they did what was in their best interest, suring up their positions, paying their key executives, whatever. And we get mad when they do what is in their best interest because Congress did not anticipate this.

Obama has been in office a short time, and he has already pushed through one bill (worth about $800 Billion), and then he introduced a big ass budget (about 1.3 Trillion deficit). Oh, crap. I mean, George W Bush was a big spender. Problem is, when times are good, we don't want to pay down debt. So when times are bad, we increase our deficit, and when times are good, we really don't make headway – we just start different "programs" that make our elected officials look good. Even The Resident asked a bunch of people, and most on camera did not trust the government with the stimulus package.

Okay, this is more for me than for you. I am just a bit pissed. Just click to your next blog. Me, I am going to start drinking. Well, that is something productive.

18 comments:

AcuityTodos said...

A nice depressing Thursday post. Pass me a glass!

Seriously, though, i agree with the analysis of the "want it now, want it better" ethos that has permeated society. I recall a junior employee at my consulting company who required his first house to be 4 beds, detached, new, granite, custom this and that. it wasn't "appropriate" for him to have less.

As to rescue efforts, I believe the problems that have been spawned are beyond the understanding of individuals. If you haven't read it, this book is a lucid treatise on what we now face, and how we might move forward - http://www.homerdixon.com/ingenuitygap/

It also has a gripping opening chapter - better than many fiction stories I have read.

74WIXYgrad said...

I like your rant. I can see that you bemoan the lack of personal responsibility and the fact that people pin their entire hope on what happens inside the beltway. Things were good during the mid nineties a good part due to the dot com boom. People were putting their faith on a whole lot of blue sky. They listen to whoever is in charge tell them things will eventually get better and are then putting their faith in a lot of hot air.

We want our elected officials to do this and do that, but we don't want anyone to show us how to do this and do that.

Perhaps I should stick to poetry.

Grant said...

For me, I think a lot of the problem is that the news announced the economy was in a downfall, then businesses (like my employer) got greedy and tried to use it as an excuse to cut costs (they cut 10% of my salary, 27.5% of some others, and eliminated all paid holidays, etc.) which lead to less money in the economy and now we really do have a serious problem.

Leesa said...

Acuity: thanks for the reading list. My current house is nearly twice as large as the house I grew up in (and we are sans children). But we rented for years and years and years, first.

WIXY: I think I could rant about politics for a while now.

Grant: My employer cut costs as well. No pay increases, no travel, no nothing. Everyone is in shock and all are shutting down. Not sure that is the right thing to do, but the Government is partly to blame.

LarryLilly said...

I lean towards helping people when times are tough. I lean towards people first, institutions next. I am also a firm proponent of capitalism. However i know when left alone man will be greedy, sinful and corrupt. We have laws and we have rules and regulations, and lacking ALL of them we get what we got, greed to the 10th power. Now that we are here, let capitalism play out. Let AIG and the banks go it alone. Bad debt will get right-sized. The period will be tough but not ALL banks were bad players. I am sorry that people thought that if they made 50,000 a year they could some how afford a home worth 400,000 plus two car payments, 3 kids, charitable contributions and the rest of the blab it and grab it crowd. Greed comes in the form of money I get without real work and bling-bling I get without real wealth.

Remember the bridge that failed in Minneapolis? That is ONE bridge that needed work, we have thousands just like it. Do you think that the sewer pipes are still working, water plants? Again, nope, they need work.

Take the money, plow it into infrastructure, get people back to work, let the banks take it on the chin, investors will spend elsewhere on companies that have a future based on honesty and not a house of cards.

Ian Lidster said...

I think we are a bunch of spoiled bastards to some extent. I mean, we have been through this before, in the early 1980s and the early 1990s. I feel hugely for those who have lost their homes, but how many people 'qualified' for mortgages that really shouldn't have? Oh, and I have no answers for any of this. I quit drinking a few years ago, but please mark one glass with my name and have it for me.

kathi said...

I was born in 55, I've seen some hard times but this, for me, is the hardest I've gone through. Maybe because I have kids and it's not just me I'm trying to feed and give shelter to.

The stimulus package, at most, will put maybe $10 more in my paycheck. Most the people I work with are complaining about it, asking what will that small amount of money get them. Even though it's not much, it will still pay for a couple more gallons of milk a week, two tanks of gas a month or a good portion of my water bill.

Leesa said...

Larry: I would have liked to see some more input on infrastructure.

Ian: I think we are a bunch of spoiled bastards and bitches.

Kathi: The problem is that we all seem to be looking out for ourselves. And that includes the rich guys that can't seem to survive on 2 Mil/Year.

Awake In Rochester said...

I'm making the same as in 1970? I want my money! That part made sense to me. When I was a kid, fathers worked, and mothers stayed home to raise the children. I'm not saying that a wife should stay home now. I'm saying that 1 person should be able to support the family in case the other wants to raise the children without having to rely on baby sitters, and day care. I think that the younger generation has suffered for the lack of someone being there.

PS - Do you know who "The Real News" is run by? Is it independent? It's difficult to fine a news station that doesn't have some political, or outside influence.

Leesa said...

awake: everyone has a particular slant on the news. I prefer Gnooze.

Gary Baker said...

Hi Leesa,

One thing that you didn't mention in the discussion that I consider important is the role that the government had in the banking failures. During the Clinton administration, Congress and the President decided that it was a top priority to increase home ownership. I think that's a great goal myself, but I really distrust politicians to do these things in a workable manner. Basically, they gave incentives for banks to give more loans to questionable clients. They also set up penalties if to make life tough for the banks if it looked like they weren't. And finally, the government gave Fannie and Freddie the go-ahead to buy up the bad loans and keep buying.

Now there are certainly a lot of people that can be blamed. I'm not disposed toward banks one way or the other. I think good ones should make a profit, and bad or crooked ones should fail. And I definitely dislike the whole mindset of "I deserve this now!" I really don't think a dime of taxpayer money should go to people who over borrowed or walked away from a mortgage they could afford. But on this one I reserve my biggest disdain for our federal government. They were the ones that were supposed to be watching. In fact, a few were watching and raised a flag a couple of years ago about fannie and freddie, only to be told to sit down.

I don't employ the banks or the lousy credit risks in the nation to be looking after my best interests. I employ congress and the president. To my way of thinking, they let us down worse than anybody. In a mixed presidency, I think the idea of bailouts was the worst blunder that President Bush made, and that the current President is shooting the entire nation in the foot by continuing and expanding the programs.

Leesa said...

Gary: I agree that the government is involved in the mess, but it is the banks that made the loans. It seems to me that Republicans, with all of this talk of taking responsibility, don't want the banks to take responsibility. The government is to blame, but part of it does fall to the Federal Researve.

Gary Baker said...

Leesa,

As I said, I am not letting the banks off the hook, but here is the main reason that I blame the government: For decades, and probably longer, the mortgage market was golden. It almost always made a profit. I am not certain about the Great Depression, when things really hit bottom, but it might have even then. This was a cash cow that the bankers loved.

All of this changed when the government used the Community Reinvestment Act to basically extort the banks into loaning to low income people. Let's face it: How reasonable is it that the US bankers were sitting around one day and said "Gee, I know that we make a lot of money on mortgages, but I bet we could do even better if we loaned to people who can't afford it."

You are correct in that the Republicans seem to have little interest in letting the banks take responsibility, and frankly it amazes me, particularly when it was the Democrats who pushed the Community Reinvestment Act, and also backed several minority organizations (Rainbow Coalition, for example) the pressured banks to make bad loans. From that standpoint, I can understand why the Dems would not want scrutiny, particularly Barney Frank. If you look around on the web, you should be able to find a video of McCain warning him two years ago that there were problems with the mortgage banking system and Fannie and Freddie. Frank, head of the oversight committee at the time, I believe, basically told him that everything was fine, sit down, shut up.

I'm not really sure what part in the debacle the Federal Reserve played. I can only research these things for so long at a time. (Blood pressure, you know.)

Jules said...

That's why I watch my fake boyfriend on the Daily Show. I can understand him. And he makes me laugh about our debt and the economy...even though they aren't really funny.

Leesa said...

Gary: Might as well blame the IRS tax code as well, as this gave people the false impression that not paying off mortgages was a good financial move, regardless of anything else. The gov't encouraged the bad deals but the banks made them. They should share blame and consequences, but they don't.

Jules: I love the term "fake boyfriend."

Gary Baker said...

In order to get any of the bailout funds, banks have to submit to increased oversight by congress (boy, is that going to help). This includes limitations on their salaries, public ridicule, etc. Aside from that, a lot of financial institutions provide part of their benefits in the form of stocks in the corporation. This includes part of their retirement plans. All of these have taken major hits. Based on this, I would say the banks and the people who run them have taken a pretty good hit. Is it on a par with their level of responsibility? Darned if I know.

Now, compare that with the government. As a figurehead, Bush has absorbed the bulk of the blame, rightly or wrongly. As for the rest of them, what? Their retirement pension is intact. Compared to the bankers, they seem to be getting off pretty lightly. Added to that, a lot of them are making political points by declaring the free market "failed" when it wasn't "free" at all.

I'm something of an oddity, I suppose. One discussion my wife and I have had is "who would you blame more in the event of cheating? Your spouse, or the other party?" My response (and hers as well) is the spouse. They are the ones that took an oath to be faithful. Congress did that as well. The banks never did.

If I seem a little anal retentive about the issue, it's because of what I call "The Disclosure Factor." Did you ever see the movie "Disclosure" or read the book? One part of that movie that really stuck in my mind was a series of messages that Michael Douglas kept getting repeated: "Fix the problem."

Now, if the banks are really the problem, and by that I mean the bulk of the problem, then their might be hope. On the other hand, if Congress is the bulk of the problem and no one holds them accountable because they are concentrating on the banks, then forget about being out of the woods. We haven't even started heading the right direction. A lot of people seemed to think that Bush was major economic influence of the past eight years. I disagree. I think that most of the people that engineered this mess are still in office and have more power than ever before. Kind of makes me nervous. Remarkably, thanks mostly to fervent prayer, I still sleep pretty well.

Leesa said...

Gary: I am a bit more cynical about Congress. What is their oath, really? Please vote for me so I will give you crap (tax rebates, new projects, whatever). There are banking laws, but that is part of the Executive Branch, not Congress. They make sure banks behave.

Getting back to your affair scene (and I don't completely buy it), if the lover gets an STD, who needs to clear up the infection and pay for it? Not the cheating spouse. No, they need to pay for their own actions. The banks took on bad loans, and then sold the damn loans. And we pay the banks. And with the first bail-out money there were no strings. When people gave big fat checks or went on retreats, Congress had their hands in their pockets, thinking, "yeah, strings should have been attached." I don't trust Congress to monitor the bailout. Why should I? What can you point to that would indicate they have the expertise or desire to do this effectively.

Gary Baker said...

Leesa,

I too am very cynical about Congress. When I made the previous notes. I was talking about whose responsibility it was, not that I had any particular faith that they would carry out their duties. As for your note about it being the Executive Branch's responsibility, not Congress, here is a section lifted from the web page on the House Committee on Financial Services, headed by Barney Frank:

"The Committee oversees all components of the nation’s housing and financial services sectors including banking, insurance, real estate, public and assisted housing, and securities. The Committee continually reviews the laws and programs relating to the U.S. Department of Housing and Urban Development, the Federal Reserve Bank, the Federal Deposit Insurance Corporation, Fannie Mae and Freddie Mac, and international development and finance agencies such as the World Bank and the International Monetary Fund. The Committee also ensures enforcement of housing and consumer protection laws such as the U.S. Housing Act, the Truth In Lending Act, the Housing and Community Development Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act, the Community Reinvestment Act, and financial privacy laws. These jurisdictional responsibilities are broken down into the following five subcommittees."

And again, this was the same Barney Frank who was warned over two years ago that Fannie and Freddie were in serious trouble and blew off the messenger. Add to that, it was Congress that passed the Community Reinvestment Act that created a mandate to loan to people who could not afford it. I'm not saying the Executive Branch was blameless. Far from it. I'm saying the Congress had warning of the problem, the means to do something about it, and the obligation to act and they did not. For congress to take the stance that it was all the President's fault is ridiculous, especially when it was Democrat constituencies that traditionally pushed for the Community Reinvestment Act to begin with.

My final reason for blaming the Congress more than anyone else is that they control the purse strings. If they had said no, there could have been no bailout. Period. Bush had no authority to allocate the money.