A Call to Sanity: 3 of 3 on the new TARP bill

Thursday, April 2, 2009

It was February 13th, 2008 that George Bush signed his stimulus check bill into law and thereby began the most irresponsible, inefficient, and ineffective fiscal stimulus policies that government has ever enacted. It started with the rebate checks, then TARP, then auto company loans, then the Obama’s stimulus, then the omnibus bill, now proposed new regulations, the take over of the auto industry, a proposed new TARP plan, and the Obama budget. Bush spent almost 1 trillion and Obama has spent 1.2 trillion with plans to spend another 2.8 trillion with new TARP and his budget (please note, his budget is far more, but I’m only counting his deficit spending in his budget). These plans have already weakened the position of the nation, limited our options in a time of recession and are or will be utter failures. All the while, congress has barely lifted a finger in opposition, nor have they been open to opposing views and bipartisan ideas.

I’ve been blogging on all of these over the last two months, but wanted to tie it all together with my opposition to the new TARP Proposals and Obama’s budget. I feel it is important to pause for a moment and look at what has been done and what we are doing, before we continue this wanton bleeding of the American economy. I urge you to please consider these failures and ask yourself if we should continue allowing our elected officials to cram the same ideas into law over and over again, without debate and without consideration of alternatives.

So here is a brief history on the policies and failures. See my February post for a discussion on Keynesian Economics. The general rule is that stimulus most change the rate of consumption which also increases investment or change the rate of investment which increases consumption:

Bush’s Stimulus - This was a step in the right direction, but had no staying power. Although the large payments were likely to increase spending, it did not have any long term change in consumption. It was a one time spending spree. Also, the high cost of gas over the summer ate up most of the funds.

TARP - Although it helped to stabilize banks in the short term, it created a large veil of secrecy that has caused instability in the markets to this date. Investors in stocks and companies investing in new capital will not take risks where there is a large degree of uncertainty regarding the risk they are taking. The TARP bill laid out no frame work aside from the dollar amount of the bill and that the Treasury Department was in charge. As a result, you have companies sitting on their funds waiting to see what happens to these banks and investors shuffling their money around trying to guess at what the government is going to do. What do we expect? The bill was rushed into law and set no specifics as far as how the bill was to be carried out. Who was to get what, how much, and what were they supposed to do with the money once they got it? The idea was that institutions were supposed to use the money to back their troubled assets or rid themselves of it. Little of this occurred. Instead, institutions sent the money into their regular operations treating the cash like it was some buried treasure recently found in their basement. In the wake we’ve found miss appropriation to the tune of 40 billion from the Treasury and AIG preferences in paying out billions to foreign companies. Let’s not forget how Geithner dropped the ball with the AIG bonuses. All of this caused the persistence of the credit crunch while a billion dollars sifted through the system like clutching a fist full of sand. The more sand the banks grabbed, the more the sand slipped through their fingers.

Auto Industry Bailout - You can look at my previous post. In taking over the auto industry we have both set a dangerous precedent where government can seize control on a whim, while at the same time causing more uncertainty. The structure of a corporation has always been to allow the shareholders a say in how the company is run. What investor would buy into a company and relinquish their ownership rights to the government. I know many think the rich run companies, but CEOs run the company, they do not own it.

Obama’s Stimulus - I have previously tackled this waste of a bill in my February posts. However, only a month later and we can see how immeasurably useless this bill is. The $400 a month per person, though the general economic theory is an excellent idea, fails in the same way Bush’s stimulus fails and that is that $13 dollars a pay check does not change one’s rate of consumption. Infrastructure spending has become an utter joke as many Republican and Democrat controled legislatures move to use the money to fill in budget gaps. Green energy may create jobs one day, but we’ll be waiting years to see the impact. The reason I’m going back through all of this is because we had an opportunity to get it right. I’ll be the first to admit that Bush did not leave Obama a lot of room to work, but I strongly disagree that this let’s Obama off the hook. A true leader works with what they’ve got. I can only imagine Obama leading the revolution instead of Washington and the endless complaints at each battle lost. How he was hindered by the fact he only had farmers for soldiers where the British were carrier professionals. Obama has missed the important step of American ingenuity, which has almost always been leaders finding solutions to problems using the resources available even if those resources are limited. Obama failed this test of leadership and used his first legislation as President to pass a wish list of “down the road” agendas that will have no impact on the economy in the short run. Since then the world has ceased to finance American debt, leading us to print our way out of the problem. Though I am speculating, I have no doubt that a serious and well thought out stimulus would have been supported by international investors. Instead we are dooming ourselves to devastating amounts of inflation in the future and it only gets worse with every deficit trillion that continues to be spent every month. The promise of inflation is not speculation, it is economics.

Omnibus Bill - A continuation of the irresponsible spending that started with the stimulus. This bill was more about earmarks than keeping the government running. Obama should have stood up for the people of this country and sent it back for revision.

New Regulations and TARP 2 - Like the original TARP, these new regulations are too vague, do not define any limits on the Treasury’s power and lead to instability. Geithner has proposed to hedge systemic risk, by promising bailouts and government take over, instead of creating rules that would minimize systemic risk so as to avoid the need for bailouts altogether. In addition, we are going to waste money on regulation that has never stopped institutions from exploiting the loop holes. We need legislation that will not hedge but minimize systemic risk and end the too big to fail scenario. This will limit the damage of the inevitable loop holes in regulation. All the while, keeping the tax payer dollars away from the danger of constant bailout and keeping the power hungry bureaucrats from nationalizing our banking system.

Obama’s Budget - Simply, this is a continuation of Obama’s denial to deal with the crisis we are in. I understand that a recession is not fun to manage, but most be managed none the less. I understand that Obama would rather work on health care and global warming, but was handed a recession to fix first. However, his denial to act only continues to compound the problems. Obama truly is the exact opposite of Bush in this regard. Where Bush was focused only on the situation at hand, like the war in Iraq, he failed to plan what to do once America gained control of Iraq. Obama on the other hand is so focused on what he wants to do once the recession has ended that he’s failing to make any realistic plan to bring the recession to an end. This of course prolongs the recession, weakens the recovery, and burdens those suffering. Is it any wonder his budget mimics his shortsightedness?

Now the fault of our two Presidents is evident from my remarks, those to blame are continuing to get a pass. I hold the democrat controlled congress most responsible. These are the officials directly elected by the people. Congress has done nothing in the way of creating new ideas, participating in sincere debate regarding the President’s plans, nor offered alternatives. I am tired of seeing the same failed policies being tried time and time again without a second thought from congress.

I apologize for the long post, but someone needs to call a spade a spade. Obama has not been secretive in his grab for power and narrow focus on policy for future years. He’s stated this time and time again. However, anyone can see the folly of counting the chickens before they hatch. Bush gravely mismanaged the war and like such, Obama is gravely mismanaging the economy. We have learned nothing from the last President. As conservatives failed to hold Bush’s feet to the fire, the liberals fail to hold Obama to account. Let’s change the paradigm and hold the President accountable on new TARP legislation and his budget. Let’s force some honest debate and public bipartisan discussion. Just as the President is running out of options with the economy, we are running out of time to force the issues and direct our representatives in a meaningful way.

5 comments

The Law said...

Whew... I'm going to try and tackle these without a reply that is long enough to be its own post!

Re: Bush Stimulus - EXACTLY why I believe tax cuts alone is not true stimulus. A large percentage of people used this money to pay off debt, which means there was, as you pointed out, a lack of consumption. A BETTER stimulus was Major Guiliani's of New York City (also practiced on Long Island). For one month there was no tax on anything. And for that month EVERY store was packed. There was sales galore, what you see is what you get. Even after taxes returned, people were still shopping. Giving tax cuts when people are broke as hell is more likely to be saved or used t pay down debt, NOT stimulate the economy. I believe we are in half agreement here.

Re: Tarp - Clear evidence that a law is only as good as a govenance's ability to enforce it. I suspect had banks used that money for the purpose intended, then credit would have been at least a little loosened. Without the necessary punishment for not faithfully following the law, the govenment to some extend has to be blame for this. Obama has in fact acknowledged this mistake (though I'll admit, he quickly adds a positive message to draw away focus)

Re: Auto Industry - The government may not own the auto industry in the way that is owns AIG, BUT given that govenment money is why the big three still exist, I think it is quite unfair to think they do not have a psuedo controlling interest. We must demand more of the manufacutring sector in terms of reliability, earth friendliness, and less reliance of oil, otherwise they will not do it. Innovation is mainly driven by demand. However it is no secret that speculators and propoganda control public interest and awareness in order to turn a profit ont he consumer.

Re: Omnibus Bill - I do not understand the point of it really. I'm not sure anyone does. Can't back up this one at the moment. I commented quite a bit on my view on new regulations so...

Re Obama's budget - Energy, healthcare, education. I cannot overstate how important these three things are. These three core issues have been promised to us for over 3 decades, and no major stride has been made.

As a teacher, I know that our educational system sucks really really bad. Obama's focus on conceptual big picture education, using tests as benchmarks rather than the true measure of knowledge is EXACTLY where we need to be. Children these days already have an unbridled understanding f concepting thinking in our facebook, micro blogging culture. But teachers do not know how to teach these kids, and as a result, kids reject school. It needs a SERIOUS overhaul, and we cannot wait another day for it.

How is it that the most powerful nation in the world cant take care of its sick? Why is it that I have to sweat bullets when I feel really sick because my insurance is gone. Universal healthcare is a MUST. It's not socialized, it is exactly the same except we can buy into a govenment plan that would probably work out just like social security... I have no problem losing a bit of my paycheck if I know I have guaranteed coverage.

Energy... we are SOOOO close. I encourage people to read my friends blog (lifekills.wordpress.com) and my L Comment Spin-off (ltechreport.blogspot.com) as we cover the new technologies that will lead to a greener zero emission, less trees cut down, healthier, and safer America, and planet. There was once a time where there were no interstate highways, and cross country travel was quite difficult. People moaned and groaned about the cost, but there no argument for how important it is we have that system. Green tech is exactly the same. We CANNOT keep putting this off. We could be on a new powergrid by 2016 if we start work now. And we'd save BILLIONS of dollars in energy costs in the conversion process. Just like in Sim City... wind plants are more expensive to build upfront, but the cost less to maintain over the long haul. We could have fully electric cars byt 2013. We can have hi-speed rail by 2020. All the while reducing waste. I cannot overstate how important it is to start the process now, or we WILL fall behind to Eurpoe and Asia. My predicition... whoever controls green tech, controls the world for several generations.

Mission failed. This was a logn reply lol. But I promise future rebuttals will be consise!

tL

April 3, 2009 at 4:37 AM

tL,

As always, your comments are greatly appreciated. My point was not that green energy, education, and health care should not be considered. Though, I'm sure I will greatly disagree with the best way to approach these. My point is that the Presidents are not dealing with or not dealing effectively with the economic crisis. We are not going to get Obama's wish list or if we do it will choke the middle and lower classes if we continue as we are. I'm calling for a focus on resolving the problem. We must fix the problem at hand, then we will be may be able to look at social issues. My posts show this is not what is happening.

You have a great point with Gulliani. Goes back to one of my posts in Feb. Stimulus also needs a hint of drama to work. Going back to that post and the lack of debate. I still am very dissappointed that McCain's proposal to repeal payroll taxes was not considered by the Democrats. It would have put money directly in the pockets of workers and would be a serious prolonged increase in pay. An 8% raise if you will. Which is roughly equivilent to 3 years of raises for the average pay raise. Also, it would have lowered the cost of employment for employers making an incentive to keep more employees instead of laying off and create an incentive to hire more employees. It was automatically means tested so that benefits do not go solely to the rich. It was cheap, about $300 billion. It was instant and only needed the stroke of a pen, no bureaucracy to slow the infusion or divert the funds to a budget black hole. It targeted consumption and investment at the same time. These are the ideas missed when we continually cram the spend and control mentatlity without open debate.

Health care, cap and trade, and education? We can talk about those when it's time to talk about them. Once we are on sustainable economic recovery.

On a side note, hang in their on the health care. I spent a couple of years uninsured and it scared the crap out of me too.

April 3, 2009 at 8:15 AM
The Law said...

As as the economic crisis is concerned, the way I see it, the president is engageing in a short term, mid term, and long term campaign. Now the budget is really a representation of the logn term goals for the next 4-10 years.

I think the short term bleeding seems to be slowing down. And the midterm effects remain to be seen. However, I still feel its way to early to accurately judge the effectiveness of his policies. I say the same to liberal bloggers as well, who don't see how his policies are affecting the middle class either. So I say this... we we take asprin to get rid of a headache, the medicine does not kick in right away. certain chemical reations have to happen first, and then we feel the effect. Our economy is still in the chemical reactions phase. I voted Obama, because he is the first politician I've ever seen who truly understands the middle class and lower class perspective, as well as the perspective of Americans who have become disenfranchised by the system. I'm a rational thinker, so I don't believe in blindly following anything. My trust in Obama lies in the fact that he campaigned on behald of the middle class, and he stikes me as extremely trustworthy. So I think we need to be patient. It will take a great deal of time to unravel this mess, and I strongly believe in the middle class will come out stronger.

April 3, 2009 at 6:52 PM
The Law said...

Oh, btw, GW Bush didn't add the cost of the war into his budget, along with some crucial numbers in defense spending, which would make his budget more expensive than Obama's who did add the cost of the war (which would alone bign his budget to under $1T

April 3, 2009 at 6:54 PM

tL,

Sure it's too early to judge the long term. However, I'm interested to hear what you think was being done short term and which parts were aim short term. Also, what's your definition of short term? I just don't see anything aimed prior to your mentioned 4 year window.

GW was not good on fiscal policy and is part of the problem when it comes to our future inflation. I know he did not have the war on the books, however, I'm going to ask you for a source on "his budget more expensive than Obama's" statement.

April 4, 2009 at 2:21 AM

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