Tuesday, March 10, 2009


As the economy worsens and the indicators keep going down, (todays market rally notwithstanding) all we keep hearing from defenders of the TARP, stimulus, and other bailout and budget actions taken so far by Obama and the Congress is "give it a chance".

On the face of it that might sound like a reasonable request until you start looking closer at what was said about these programs and the need to pass them immediately, and then applying some common sense.

We were told that the TARP, more bailout money and the stimulus package had to be passed immediately because things were so bad, that if these bills weren't passed and passed immediately things would become far worse. Even catastrophic. Fair enough. But since all these bills were passed, things have in fact become worse.

According to defenders of these bills, time is needed for them to work. But if they truly had to be passed immediately to stop the bleeding and keep things from getting worse, this is talking out of both sides of ones mouth because, according to them, the passage of these bills should have stopped the bleeding. Not fix the economy. Not turn it around. Not improve it. Just stop the bleeding.

If the reason the bills had to be passed immediately was because not passing them would result in immediate catastrophic consequences and that things would worsen, it's fair then to expect that passing them would do what immediate passage was intented to do -- stop them from getting worse. Just like a doctor taking steps to immediately stabilize a patient. Doctors expect those immediate steps to work immediately. It doesn't mean the patient is cured. It doesn't mean they are walking out of the hospital tomorrow. It means that the deterioration has stopped. And if those emergency steps don't work a doctor immediately tries something else.

So far, the passage of these bills with respect to stopping the bleeding and stabilizing the patient hasn't worked. But the response from the defenders of the bills has been, "give it a chance".

There are in fact, immediate results that one could reasonably expect if these bills had the effect its defenders claimed they would have. Its called confidence. Consumer spending is 75% of the country's GDP. If consumer confidence is restored it goes a long way to putting the economy on the right track. Nothing that has come out of Washington has so far restored consumer confidence. In anything.

Secondly , though the market is up today, there has been no confidence from the stock market in the first 10 weeks of Obama's presidency and no confidence in any of the economic packages passed by Congress. According to people who study such things, the market rally today (and we will see if it is sustained in the coming days) has something to do with a percentage of the 200 day Moving Average. Things I not only don't understand but don't even want to understand

The market for better or worse, right or wrong, is what investors believe is an indicator of the future. People buy and sell stocks not based on what they think they will be worth today but what they think they will be worth tomorrow. Or a week from now. Or six months from now. Nothing that Congress has passed so far has been met with confidence by anyone that things are going to improve.

This is not to defend the market as being an indicator of being right or wrong about anything. If these people were so smart the country wouldn't be in the mess its in now. But it is an indicator of what investors at least think what the near future will be.

This is a bad sign because one would think that as evidence that the Administrations strategy is working we would see an immediate response in the form of public confidence that their strategy will in fact work. The opposite has been true.

Since all these bills,bailouts and budgets were partly designed to stop the bleeding and stabilize the patient, its fair to make the point again that so far they haven't worked. The patient has gotten worse. Jobs losses are worse. The stock market is substantially down from where it was when Obama took office.

Its not helping that Obama's Really Great Adventure in picking Cabinet members has slowed things down considerably. Tim Geithner is walking around Treasury with no deputies, and no one to implement and carry out policy. So far, all of the nominated deputies have had to withdraw their names because of tax or other problems and not one deputy position has been filled.

Obama's reaction to all this seems to be, when in doubt make a speech.He's already set a world record for speeches in the first 30 days of a Presidency. Unfortunately making speeches hasn't worked either. When you decide to go to Ohio to give a speech that claims proof that a $767 billion stimulus bill is working is because it saved 25 jobs on the Columbus Ohio police force you are not going to inspire confidence.

Obama would do much better to stop making speeches since they haven't had any positive affect on anyone or anything. Or if he is going to make a speech, stop telling us how bad things are, that they are going to get worse, and stop spending the first 10 minutes of every speech telling people what they already know and then saying its not your fault. We know. We know.

There are still things that can be done that could and would have an immediate effect. Bernake and others say ( and I think they are right) that the economy cant turn around until the banking system is stabilized. People are rightly outraged at the behavior of the banks and their executives for being at the center of this mess. Politically, helping the banks won't score any points or be politically popular and asking Obama to do something that isn't politically popular or score any political points would be like asking Charles Barkley to keep quiet. It's not in Obama's nature.

But the smartest thing that can be done right now to help the banks is for the government to take over the toxic assets of these banks at a price most favorable to the government, say 10-20c on the dollar. The banks will take a big hit but they deserve to. But then those assets can be off their books and they can get back to the business of trying to make money which they do mostly through fees and lending. The assets can turn out to be worthless, but if they are it wont be the first time the government threw money down the drain. They were doing it for years being overcharged by Halliburton during the Bush Administration. And there is always the possibility that some of these assets might produce something and repay the taxpayer at least something. In the meantime it gets the banking business back on its feet.

The other thing Obama could do is, while taking the toxic assets off the books of these big banks, is aggressively prosecute people both on Wall Street and in the banking business who abused the system, and broke the rules and/or laws. For example, Lehman Brothers sold default investment swaps against the mortgage bundles they were selling knowing that if they all went bad they didn't have the cash to pay off on them. They all went bad, they didn't have the cash to pay off and went out of business. But this had to be against the law. Making these people pay with jail time would give the taxpayers some sense of justice being done and make the whole process easier to swallow . And it would do one other thing that the economy needs right now and doesn't have. It would instill confidence in the Obama Administration.

Obama has to do something more than make speeches and send out strategists to say "give it a chance". And since he made a point of saying he pays no attention to what happens on Wall Street on a day to day basis, today's rally should not be anything that he or his administration should point to as an example of those programs "working". Because it's not.

In terms of stabilizing the patient, nothing his administration has done up to now has worked. While we still don't know if it will work long term, there is every reason to expect that these actions should have stopped the deterioration and restored some confidence and they haven't.

Obama also needs to find something positive to say that will give people confidence instead of reminding people of how bad things are. And he has to stop telling us that this mess isn't his fault. Everyone knows it's not his fault. But one thing he can be sure of. If things don't get better, it will be.


Anonymous said...

Right on (as usual), Marc! The points made at the end about the banking industry are so on target. Yes, the government needs to temporary take over the banks. Just about every panel of world reknowned economists has made this point. Why has the administration not followed through? And, yes, greedy CEO's need to be prosecuted (this was one point Bob Barr made when he was campaigning that I thought was great, though I supported him for President).

Meanwhile, as long as you're making note of the number of speeches Obama has made, I thought I would throw into the mix the fact that it has also been documented by the media that he uses a teleprompter quite quite often (far more frequently than previous Presidents).

Do you think TARP actually stands for: Teleprompter and Repeat Phrases?


PS Thanks for your blog. It saves my sanity!

Anonymous said...

...sorry, typing too fast:

First paragraph correction - "...though I did NOT support him for President."

Stop. Breathe. Think. Proof Read.

Sal said...

At the same time he was promoting those 25 jobs in Columbus, a steel plant in Cleveland suspended jobs for about 950 workers.


Blogger Profile said...

I hold all legislators responsible, including Obama, Biden and Clinton. All were complicit in the big grab under Bush. Biden voted for the Bankruptcy Bill of 2005. Obama was mum on the war after he got in and, along with Hillary, voted consistently to fund it, knowing full well what portion of those funds went to KBR. And even though Hillary was consistently a vocal opponent of Bush's policies, I don't recall her fighting for regulation of mortgage lenders, like she fought to protect reproductive rights. This is my perception.

People say it's the system, that Republican's were in the majority and therefore should be blamed for all of this. I don't agree. The Senate, no longer a deliberative body, has failed us, and blaming the Republicans deflects from the conversation we should be having. Why is it that Senators no longer use the power they have to hold votes or to filibuster?

Anonymous said...

Blogger Profile - I greatly appreciate your comment. I think you've raised a very important point that often gets lost as issues get polarized and folks dive into one camp or another. Our nation is huge, the issues are complex, we're in a massive crisis and there's likely plenty of blame to go around if one wants to blame. I think the Republicans Party under Bush made a mess of things. I think the Democrats showed little integrity along the way. Perhaps it's true that power corrupts, or maybe it's just that we don't really address important things like integrity, speaking truht to power, living and making decisions so that at the end of the day you can live with yourself, even if it means sacrificing some things in order to do so. Anyway, enough rambling. Again, thanks for your post.


Sarah Ferguson said...

thanks anna.

'blogger profile'

sue said...

blogger profile- I too think you make a lot of good points-
as always- am appreciative of Marc's ability to articulate my thoughts for me!
Many noted points- this is a mess for the whole country- Obama did nothing while he was in the senate to change anything (except his job title) and I think there needs to be a continued populist movement to get congress to remember that they work for us!
The bit about the teleprompters- can anyone here imagine what the MSM would be screaming about W if he has used a teleprompter??? But they make all of these concessions for Obama- who basically has the ability to read and inflect. That about summarizes up his qualifications.
Did anyone catch Corey Booker on Bill Mahr last week? Corey is the mayor of Newark NJ ( a city where I once worked in the projects- the city government was so corrupt back in the early 90s)- I am not certain of how the city is doing under Booker- but he may be one to watch in the future- a democrat with integrity and on-the-job experience!

minty said...

Many of these things weren't against the law because there was no regulations of them. No regulations..no law. There was no requirement to have sufficient funds when these derivatives went bad. It is really like buying insurance on your neighbors house, then help set the fire to collect the insurance thinking you are all so smart. But the insurance company just took your insurance premium and ran because they were not legally obliged to provide the coverage you thought you were so smart to buy.

The banking industry isn't fixed because Team Obama, like Team Bush before them, is trying to save the bankers. Bankers finance politicians, the financial system is for the rest of us.

DancingOpossum said...

We all knew that whoever stepped up to the WH was going to be facing a colossal clusterf*** of gargantuan proportions.

BUT. Obama and his followers insisted that he would be ready to handle it, that he had a rare and celestial combination of talents that would allow him to handle this with all the skill, grace, and strength necessary--and more. They shrugged off his glaring lack of experience and the blatant signs of his physical and intellectual laziness. These didn't matter in the face of his towering intellect, personal charm, and ability to play the media.

And he WANTED the job. Not only wanted it but lied, stole, and cheated to get it.

So, he's got it. Now what? Was he ready on day one? No. It's day, what, 87, and he's still not ready. He may not have caused this mess but he wanted to fix it and convinced a lot of people that he could. The outcome rests squarely with him.

Anonymous said...

Just Give

TRAPs a chance!