I can balance our checkbook. And that's how I like it: balanced. Where I know how much money we have, and that amount isn't less than the checks we've written.
Pretty simple. But somehow all those geniuses on Wall Street and in government can't figure out how to do the same thing.
They're used to spending more than they have. Under George Bush, we've had massive federal budget deficits. Not surprisingly, this charge it attitude has been reflected in the financial markets, where "take the money today and don't worry about tomorrow" has been the watchword.
This week's TIME magazine explains the monetary madness clearly in "The Price of Greed: How Financial Madness Overtook Wall Street."
But it doesn't pinpoint who is at the root of the problem. Recently my daughter told me about an article her Republican friends are throwing in her face. It's by Republican strategist Michael Reagan, and claims that Democrats are to blame.
Not true, according to a much more believable Daily Kos post, "Three Times is Enemy Action."
Yes, some Democrats were complicit in fostering deregulation during the Clinton years. The impetus for letting greed run wild, though, came from Republicans like Phil Gramm, one of John McCain's policy advisors.
So here we are, fellow American taxpayers, being asked to trade "cash for trash," as Paul Krugman puts it.
Some skeptics are calling Henry Paulson's $700 billion rescue plan for the U.S. financial system "cash for trash." Others are calling the proposed legislation the Authorization for Use of Financial Force, after the Authorization for Use of Military Force, the infamous bill that gave the Bush administration the green light to invade Iraq.
There's justice in the gibes. Everyone agrees that something major must be done. But Mr. Paulson is demanding extraordinary power for himself — and for his successor — to deploy taxpayers' money on behalf of a plan that, as far as I can see, doesn't make sense.
It sure doesn't.
A local Salem columnist got it right today when he said that Bush's proposed bailout privatizes profits and socializes risks. Meaning, all those financial types who screwed up get to keep their bonuses and high-paid jobs, while the bad mortgages and other debt they embraced gets foisted off on the public.
I've asked Bush for my own bailout, since I've made plenty of screwups with my money over the years. So did this Business Week guy in "Dude, where's my bailout?"
Fortunately, there's some pushback. It's obvious, and deeply rankling, that Bush is trying to play his usual B.S. game of scaring us silly (Saddam! Mushroom cloud!) in order to get a blank check for whatever crazy scheme he wants Congress to buy off on.
CNN has a poll on its home page that asks whether people agree with the $700 billion bailout. So far 208,000 votes have been cast, 68% (including mine) saying "no."A Washington Post story finds almost universal opposition among ordinary folks to Bush's rewarding irresponsibility. Americans are mad as hell.
Senate Democrats seem to be on the right track. They want the public to have an ownership stake in the companies that are being bailed out by taxpayer dollars.
Sure, why not? Then we can fire the idiots who got us into this mess, cancel their severance packages, and get some real social benefits out of the socialization of the financial sector. Since we're headed toward becoming the United States of France, let's go all the way and really embrace the goodies sound public policies can bring us.
Like, a decent health care system. It's crazy that Bush has resisted government getting more involved in assuring that Americans have access to affordable health care, but he's willing to spend hundreds of billions in a giveaway to Wall Street.
Obama, smartly, is starting to hammer away on the connection between health care and the Bush-McCain love of financial deregulation.
If you think the mortgage market is screwed up after eight years of Bush's whatever attitude, imagine what will happen if McCain gets to carry out his plan to bring the same laissez faire approach to the nation's health care system.
Any bailout plan has to be structured around a central core of outrage. The screw-ups have to get screwed, or they'll just keep on screwing up – knowing that there's no downside to failure if you're part of a big financial institution.
In an interview economist Dean Baker tells it like it is.
Well, we've been knowing since six years. The basic story was, we had a housing bubble, which, again, these people are supposed to be smart. They're paid tens of millions of dollars. They should have recognized the housing bubble. They should have recognized that house prices would fall, as they have been. And what that meant was, you made a loan on a house for $250,000, $300,000, $400,000, that house price was likely to fall. So if you did that with zero down, as many of them did, plus having mortgages, you know, the predatory mortgages, the subprime mortgages that have got them in particular trouble, these were guaranteed to go bad in many cases.
They acted as though house prices would just keep going up forever, and they could just keep, you know, going along these lines. They leveraged themselves to the hilt. The investment banks, like Lehman and Bear Stearns, leveraged themselves to a ratio of thirty-to-one. In other words, if they had $10 billion in capital, they had loans on the order of $300 billion. I mean, this was just asking for disaster.
And, you know, again, it did collapse. It was totally predictable it would collapse. You know, I didn't know when, didn't know exactly who, but it was totally predictable. And now they're running to us and asking us for handouts. Think of what we do to welfare people, when they—you know, everything they have to go through to get, you know, a $500-a-month check, and these people want billions, no questions asked. Unbelievable.
It's easy to "monday-morning-quarterback" this debacle, but the fact is it happened and blame can be cast in every direction. Of course we don't want government intervention and the screw-ups don't deserve a bailout, but without liquidity and capital this economy will sink. The medicine is bitter and may be too little too late, but there is a glimmer of hope. In the meantime, hold hard assets and not cash.
Whatever is left of the economy after the current round of crisis interventions by the Fed could go down the drain if Obama is elected and carries out his plans for sharp increases in taxation. Even if Obama does not understand the linkage, most Americans do and will turn sharply against Obama’s tax plans if McCain hammers away at the risk they pose for us all.
During the Great Depression, Congress raised taxes sharply in the Revenue Act of 1932. The top rate went from 25% to 63%. As a result, the real GDP dropped by 13.3% and unemployment rose from 15.9% to 23.6%.
In 1990, Bush Sr. famously broke his “read my lips – no new taxes” pledge of the 1988 campaign and raised the federal gasoline tax, federal excise taxes, and imposed 10% surtax on the top income bracket, raising its taxes to 31%. The recession which followed in 1991-1992 cost him re-election.
It is obvious that increasing capital gains taxes by a minimum of one-third and possibly doubling them, both of which Obama has proposed during his campaign, would send a clear signal to investors to keep their money under the mattress. Who would buy stock now knowing that the tax on any profits he or she will make is going to go up sharply if Obama becomes president?
Look at what happened just last year in Michigan. Democratic governor Jennifer Granholm raised taxes on almost everything in 2007. Income taxes shot up 11.5% and the state’s 6 percent sales tax was expanded to dozens of new services like investment advice, janitorial services, landscaping, ski lifts,=2 0carpet cleaning, and tanning. The $1.75 billion tax package shook the economy to its foundations. Michigan became the only one of the fifty states with a shrinking gross domestic product (GDP). The value of all goods and services produced in the state fell by one half of one percent while the national GDP rose by 3.4%. The state fell from 23rd in GDP to 35th. Taxes caused a disaster.
In a strong economy, Obama’s tax hikes would raise questions. In a weak economy, they portend a catastrophe. It would be like bleeding a sick patient, the medicine of two hundred years ago, depriving him of blood even as he needs more not less circulating through his arteries.
McCain’s populist rhetoric, including his pledge to fire SEC Chairman former Congressman Christopher Cox, is important for a Republican candidate. But his focus should shift to the tax issue. With firms suffering, withering, and dying for a lack of capital, tax increases on those who invest would be a horrible mistake. Americans will realize this obvious fact and McCain should use it to gain the advantage in discussing the economy. There is no reason for the economy to work to Obama’s advantage when he is committed to a doctrinaire program of tax increases and spending hikes. McCain can use the issue to run rings around him, if he's smart enough to do it.
Posted by: condor | September 22, 2008 at 07:09 PM
Condor, Obama does not want to increase taxes for everyone; and what he does when he gets in, you don't know about McCain either. We are in a mess and our government is borrowing money that currently costs $.22 of every tax dollar just to pay the interest. Do you believe that can go on? You ignore the connections between McCain and what has happened, all those working with him who have had a hand in this and profited from it. You ignore anything that would show McCain and Palin as inept because you want to vote for them. I obviously don't know you but could it be you don't want to vote for a black man even if he's half white and you can't admit the truth? To me it doesn't make logical sense to look at McCain's connection to all of this and think he can fix it. He will get us into another war (maybe two) and then where will we be? You appear not to be thinking aboutyour vote, other than justifying it to yourself, but I hope you will look at where our country is and think about whether those who got us here can be trusted to get us out! Obama is not the danger. I hear some say well I have black friends. Maybe they do but are they somehow afraid a black can't be trusted to lead them? The only time my husband got asked if he minded having a switch to a new boss, it was to a black man. My husband didn't mind and the black man was one of his best bosses. I hope those who are secretly bigots will stop and look at what they are going to get by that attitude. Not saying you are one, Condor, but you might ask yourself what Republicans have done for you personally and where our country is right now with their leadership and then look at the possibility that change is needed badly!
I also oppose the immediate bail out. We may need to do something but looking at what Paulson proposed would lead us to more of the same with no fix and a lot deeper in debt. Blank checks to the ones who got us here? That's crazy!
For anyone who has not read Naomi Klein's 2007 book 'The Shock Doctrine, The Rise of Disaster Capitalism,' you see how this is playing out once more. Will the American people again fall for it? I hope not.
Posted by: Rain | September 23, 2008 at 08:06 AM
Of course the Democrats are to blame! More importantly it's Bill Clinton's fault. In fact Bill Clinton is directly responsible for every evil act in the world! Don't you people know anything? When Obama takes over next January everything will be his fault and he will be the third most evil indivual to walk the planet, just behind Bill and Hillary Clinton. Don't believe me? Just ask any repub.
Posted by: twocanpete | September 23, 2008 at 01:35 PM
Rains comments are in quotes:
"Do you believe that [govt. borrowing] can go on?"
...Your question was rhetorical I hope, but in case it wasn't the answer is: of course not. The bleeding must stop.
"You ignore the connections between McCain and what has happened,"
...Come on. This thing has been a long time coming and McCain's role is miniscule compared to the delusional mass consciousness of indiscriminate and irresponsible use of debt. The fault runs from the bottom up, and from the top down, political left or right. Greed knows no party lines.
"You ignore anything that would show McCain and Palin as inept because you want to vote for them."
...Man, now there's a pot calling the kettle black.
"could it be you don't want to vote for a black man even if he's half white and you can't admit the truth?"
...OK. So, you are saying that the only reason I could be crazy enough to vote for McCalin is that deep down I am a racist?
I think a lot of white people are crazy enough to vote for Obama because he is black. It's whites who need to convince themselves that they are egalitarian and non-racist.."I'm so open-minded that I am voting for a black man for president." You know there are those types. Are you one? It's to soothe some kind of guilt trip and atone for the wrongs of past generations, I guess, which is a lousy reason to put someone in office.
You know the black vote is purely racist when 96% of them, according to polls, will vote for Obama. So, don't get on me about being racist, if I was, when most blacks are voting along racial lines. Whites are not the only racists.
But I agree even more significant is the fact that there are many whites who WON'T vote for a black president. Some will admit it straight up, but that breed is gradually vanishing. There are the silent racists who, while they have cordial relationships with blacks, deep down harbor a subtle prejudice and feel uncomfortable with them in positions of power although they would never admit it. I think this factor will play a major role in this election even though it's effect will never be known because it is difficult to quantify subconscious motivations.
"you might ask yourself what Republicans have done for you personally and where our country is right now with their leadership and then look at the possibility that change is needed badly!"
...I might ask myself what have republicans OR democrats done for me lately? Like the wonderful Barney Frank, democratic chairman of the House Finance Committee who actually encouraged conditions that led to this debacle by encouraging sub-prime loans to people who never should have gotten them. Or, the scintillating accomplishments of the democratic congress led by Ms. Pelosi. Or the massive debt incured by the city of San Francisco under the leadership of the ultra liberal democratic mayor. I have no reason to trust dems or republicans.
Of course change is needed, but it's not democrat or republican leadership that we need, it's COMPETENT leadership we need. Both parties tend to suck because most of them are politicians first and servants of the people second if at all.
"I also oppose the immediate bail out."
...I oppose it in principle, but without it we're in a depression for sure. As it is, it looks like that's what we're in for anyway, but at least the bail out gives us a chance if it's structured properly. Also, there is the possibility the bad paper assumed by the government, at pennies on the dollar, could actually be a money maker for Uncle Sam if the economy turns around and they liquidate the debt for more than they paid for it.
"Blank checks to the ones who got us here? That's crazy!"
--As bad as they are we need the big financials operating with some liquidity right now. Otherwise, we sink. Sometimes you have to walk hand in hand with the devil until the bridge is crossed.
Posted by: condor | September 23, 2008 at 04:59 PM