I’ll be the first to say that we need more transparency in the information we receive.  Inarguably, the quantity of the media we take in on a daily basis is severely overshadowing the quality.  In that light, I’m very careful to lend any credence to snippets seen on TV or through condensed versions of interviews.

It’s with that regard that I really enjoy reading full transcripts of interviews, in particular interviews given by fairly level headed people, even when the interviewee is someone not so level headed.  A politician, if you will.

So it was with great concern that I read an interview by Maria Bartiromo in this weeks edition of Business Week.  Coincidentally, I had just got done watching a 60 minutes interview with chairman of the House Financial Services Committee Barney Frank, when I opened up to Maria’s weekly Facetime piece with none other than Barney Frank himself.

Naturally, many of Franks responses to straight forward questions took jabs at Republicans.  To be expected, we are talking about a Democrat in this instance (not to say that Republicans don’t take jabs, it’s just an observation).  What troubles me are Franks views on the market place, and the ability of a free market to regulate itself.

The kicker for me was Franks response to Bartiromo’s very pointed question, “So whose fault is this?“, with regards to the current housing crisis.

The bad loans were made by the unregulated entities. What you’re going to see next year is a rediscovery of the importance of regulation. We’ve had a period of a philosophy that said: “Let capital do whatever it wants. Don’t regulate it. Don’t tax it. Don’t restrict its international movement, and it will reward you.” And yes, it does do some good because it creates wealth, but it creates wealth in a maldistributed way. More important, it creates excessive risk. What we will do next year is put rules in place that constrain those risks. -Source

Right.  Let capital do whatever it wants.  Don’t regulate it?  So what does it mean when when the government goes to two public companies (namely Fannie Mae and Freddie Mac) and says “We think you ought to open up lending to more people.”

And it creates excessive risk?  Far be it for the government to force excessive risk upon the markets, say, by forcing them to make loans to people they know couldn’t pay them off?

And creating wealth in a “maldistributed way”?  How about forcing risk in a maldistributed way, Mr. Frank?

It appears that Mr. Barney Frank is yet another politician who needs a lesson in history.

Actually, he could just use a transcript of his own decisions.  For instance, in 2000, when Richard Baker proposed a Fannie and Freddie reform bill that would force more oversight on the then over leveraged firms, Frank insisted that the concerns were overblown and there was “no federal liability there whatsoever.”

Then, in 2002, Mr. Frank stated, “I do not regard Fannie Mae and Freddie Mac as problems,” he said in response to another reform push. And on top of that, “I regard them as great assets.”

Then, in late 2003, when the Fannie and Freddie accounting scandal reared it’s ugly head, Mr. Frank simply stated the following :

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems,the more pressure there is on these companies, the less we will see in terms of affordable housing.” -Source

Right.  What he really meant to say was that we shouldn’t exaggerate the problems, lest we risk not being able to give everyone the ability to own a home… that they really can’t afford.

On to 2004, after Fannie Mae came forward revealing they had made a financial mistake to the tune of billions of dollars, Mr. Frank continued that the lenders “posed no risk to taxpayers”, and went further to say that “I think Wall Street will get over it” should the two companies fold.

On to today.

Today Mr. Frank is taking the traditional road by blaming who else?  The Bush administration.

“The truth is when President Bush took office, and the Republicans controlled both houses of Congress, he did not make any progress on comprehensive legislation to reform the regulation of the Government Sponsored Enterprises.  It was not until 2005, when the House, on a bipartisan basis, and over the President’s objections finally passed a reform bill.  It died in the Senate in part because the White House’s failure to make it a priority. -Source

Note: I embolden the word “truth” in the above statement, as when a politician starts off a sentence by saying “The truth is…”, you know he’s lying.

Actually, that’s not quite right.

Back in 2003,

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry. -Source

It’s too bad that Mr. Frank opposed President Bush’s efforts to impose more regulation on Fannie and Freddie in 2003, yet now that he has some skin in the game, he needs to divert attention away from his own historical ineptitude.

I suppose he’s merely taking advantage of the short term memory of America.

Economics, Politics Barney Frank, Fannie Mae, finance history, Financial regulation, Freddie Mac, Politics, short term memory

Two days ago, my good buddy MJ posted a comment on the post regarding how I voted.  One of his questions was how the Republicans would have faired against Barack Obama if Romney were their man instead of McCain.

To be honest, I’m not sure it would have mattered.  Taking a step outside my own viewpoint and looking at the overall campaign Barack Obama ran, I’m not sure the Republicans had a big name they could put up against the man from Illinois and stand a fair chance in the same economic environment that McCain had to operate in.

As I mentioned in a quick response to MJ, Barack Obama had the charm and charisma that is almost uncharacteristic of a politician, regardless of affiliation.  He has a way of communicating that sucks you in, mesmerizes you, and you go away feeling part of his team.  The problem is, he really doesn’t say much at all, you know you like what ever it was, you just don’t know why.

Try this: Watch a speech given by Barack Obama, and try and quantify how you feel after watching.  Then, sit down and read the transcript of what he just said.  If you remove the charisma and charm, his message takes on a whole new meaning.  Or at least less of one.

In my opinion, if this election were held 10 months ago, Barack Obama doesn’t stand a chance.  Given the nature of our political system, capitalizing on such a widespread event like a severe economic downturn that affects nearly everyone, the minority party will beat the incumbent 9 times of 10.

I take issue with MJ’s other statement, though:

I said it before and I will say it again, the economy is hurting and until programs are put together to keep people in homes and save banks, instead of programs just to save banks, the current course of events will continue until things bottom out.

I disagree.  Putting a program in place to keep people in homes is like trying to fight a war without taking casualties. There are two types of people that are being forced out of their homes: the type that couldn’t afford the home in the first place, and the type that gambled on variable rate interest rates when interest rates were at an all time low to begin with.

You won’t solve any economic problems by keeping people in houses that couldn’t afford them in the first place. Even if you (and I mean YOU because the government would spend YOUR money to do it) pay off their mortgage all together, their income levels won’t support the local economics of their neighborhood as it would if they had their own money to make the monthly payments.

The other type, the type that gambled on moving interest rates, are arguably collateral damage.  You could say that they were taken advantage of, and to a certain extent I agree, but it doesn’t justify bailing them out of a decision that was ultimately their own.  No one should know and understand your finances and investments better than you.  And if some one convinces you that a 4% variable rate mortgage is a good idea when rates really can’t go down much more, that’s on you pal.

There is another type of person that is being forced out of their homes right now, and those are the people that were living on the ragged edge of their means, even though they were making all their payments.  One lay off and they’re done.  You’ll have that during any economic down turn.

Bailing out the banks is another issue, as the economic effect of an illiquid banking system is more far reaching than the housing problem.  You have retirment accounts and pensions, along with other traditional investments that are predicated on a financial system that makes loans.  You have to keep liquidity in the banking system, or the banking system will fail at it’s sole purpose: lending.

That’s not to say I agree with how the government is going about stimulating the banks at all.

In the end, you’re going to see the course of events continue until things bottom out, regardless of whom you bail out.  The more money you use to do the bailing though, the longer it will take to bottom out.

MJ goes on to say:

It’s scary to see different companies reporting their earnings, because with each report an annoucement of job cuts of 3%-5% occurs.

True.  That happens in every recession.  Always remember, the harder the markets rise, the harder they fall.

You see job cuts follow earnings because job cuts have an immediate effect.  You tell an employee to stop working, and you stop paying them right then and there.

Capitalism will heal this problem fastest so long as the government doesn’t try to “help” it.  There are those that say capitalism is what got us into the spot we’re in, but what they forget is that it was Bill Clinton that tried to “help” it by pushing Freddie and Fannie to make loans to those who couldn’t afford them.  That’s not capitalism.

You can have capitalism, or you can have socialism.  You can’t have both and expect things to work out and differently than they have.

Economics, Politics Economics, free market capitalism, Politics

To be honest, I’m not at all happy with how the election turned out.  However, I’m not sure I would have been “happy” if John McCain would have won, either. But the people voted, and I accept that, and political affiliations aside, I think it’s pretty cool that we have an African American President.

Perhaps it’s not that I’m not happy with the results, maybe it’s that I’m uneasy.  Yeah, that’s a better term.

I find it troubling that we’ve elected to the office of the President of the United States a man that has unarguably affiliated himself with such questionable people.  The likes of Jeremiah Wright and William Ayers; neither of these men reflect what I view as men with respectable character to be associated with at all.  One can argue about the extent in which Barack Obama was associated with either of these men, but the fact that he was associated with them at all speaks to his own character and morals, first and foremost.  After all, I believe your character is reflected upon by the company you keep.

As citizens, we’re asked to select the next leader of the free world, and John McCain and Barack Obama were the best our two political parties could come up with?  This year more than previous, I feel as though I had to vote for the lesser of two evils.

I digress.

Barack Obama’s success as President is at the mercy of the economy.  The majority of people leaving polling places indicated that the economy was the number one factor when making their decision to vote, and I believe Obama’s success as President will hinge on the same.

If the economy does not turn around within four years, and if unemployment is at levels higher than during the Bush administration, and if the stock market is at levels lower than highest-high during the Bush administration, Barack Obama will have a very difficult time getting re-elected.

Why? He promised change, and people are going to hold him to it (the Republicans specifically will too, for sure).  There were very few fine details of what Barack Obama would change, aside from broad and general overtones that he would raise taxes on the rich, redistribute wealth, raise capital gains and dividends taxes, bankrupt the coal industry allowing electricity prices to “necessarily skyrocket”, give everyone the right to health care, etc.

Unfortunately for the Democrats, if he does any of these things before the economy rebounds, he’ll do nothing but stretch out the recession.  And if he stretches it out too far, he’ll only see a single term as President.

What do you mean by “too far”?

As I’ve mentioned numerous times on this blog, Americans have a severe short-term memory problem (after all, they forgot that it was actually the Clinton administration that started the housing problem). They view $3 gas as “cheap” compared to $4 gas they bought two months prior, even though just 8 months further back in time it was under $2.

They voted for change, but even more explicitly they want change now.  I’m reminded of the character “Violet” in Willy Wonka and the Chocolate factory… “I want the world, and I want it now!”

So, smart guy, what should he do?

If Barack Obama is smart, he’ll “change” very little in the first year of his administration.  The harder the government tries to “fix” our economic problems, the longer those problems will drag out.

Instead, he should cut federal spending until it hurts, and then cut some more.  Be smart about it, and leave the programs that provide a return on investment alone.  There are some obvious infrastructures within the federal government that may benefit from an increase in spending (spending money on the federal highway system always pays off in tough economic times), although those are few and far between.

He can also put a stop to all the needless pork stemming out of Washington too.  All he needs to do is hold a 10 minute press conference on national television and say the following words:  “Any bill that crosses my desk that has so much as one cent of pork or earmarks attached to it will be vetoed, no questions asked.”  Then, back that statement up with action.

Even if it’s a bill to cure cancer, with an additional million to fund a bacon museum, he vetoes it, and holds another 10 minute press conference on national television and explain to the American people why he had to veto a bill to cure cancer.  It’s a simple as that.

After that, show the people the results.  Show them what the budget was before he made his federal spending cuts, and then show the budget afterwords, and detail all the federal programs that were cut and what those cuts saved us.

If there is still a budget deficit, explain to the American people that he’s going to have to raise taxes, slowly, and for everyone, over the next 4 years (assuming he’s planning on running for re-election), and he’ll evaluate the budget every year to determine if he can halt the tax increases or even lower them.

Remember, all Americans should benefit from federal programs equally.  The rich typically don’t benefit from the federal highway system any more than the middle class, and they shouldn’t pay more for it either.  The postal system benefits everyone who has ever mailed a letter.  Just because you pay more taxes doesn’t mean your mail gets delivered any faster, or for any less money for a stamp.  The FAA benefits anyone who travels by air, or anyone who has received cargo or mailed anything via the federal airspace system.  Just because you pay more in taxes doesn’t mean your plane goes any faster or your ticket is any cheaper.  NASA benefits us all, just about equally.  Velcro, microwaves, Tang… all used and consumed by those who pay taxes and those who do.

So it’s all about the economy?

Yes, for the most part.  Barack Obama ran his campaign leveraging his ability to attract money as well as taking advantage of the weak economy.  Remember, it was just over 12 months ago that Barack Obama came out and said he was going to raise taxes… for everyone.  It was easier to get away with then because people still had funds in their 401(k).  As the economic downturn started pressing people financially, he realized that claiming to raise taxes on everyone would be political suicide.  So that’s when he started talking about raising taxes on anyone over a certain dollar amount.  After all, those people should be able to absorb higher taxes… right?

Barack Obama has to “change” things drastically and he has to give the people that voted for him a qualitative and quantitative return on their vote.

If the people that voted for him are no better off than they were at the end of George W. Bush’s term, he will not be re-elected.

I went to the polls to vote for the best man for President, only to find out he wasn’t running.

Economics, Politics Barack Obama, Politics, president, short term memory, United States