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.
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