Tuesday, February 24, 2009

Obama Through the Looking-Glass

No matter how well you deliver a speech, it is what you say that ultimately counts. Regarding this blog's major cause to help in a small way to redirect this country- its economics and culture- away from a reliance on lending (credit) back to its prior pride in being as debt-free as possible, President Obama decisively sided with the debt culture tonight:

The concern is that if we do not re-start lending in this country, our recovery will be choked off before it even begins.

You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll.

But credit has stopped flowing the way it should. Too many bad loans from the housing crisis have made their way onto the books of too many banks. With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending, families can’t afford to buy homes or cars. So businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.

That is why this administration is moving swiftly and aggressively to break this destructive cycle, restore confidence, and re-start lending.

We will do so in several ways. First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small business loans to the consumers and entrepreneurs who keep this economy running.

Instead, the President could have recalled John F. Kennedy's First Inaugural Address and in economic terms paraphrased JFK's words, which were:

And so, my fellow Americans: ask not what your country can do for you - ask what you can do for your country.

My reading of the text of the President's speech suggests that the greatest sacrifice he asks of the American people is to help their children with their homework, or for younger people to attend at least one year of education beyond high school. Not to get on my own soapbox, but I have to believe that during this financial and economic crisis, Americans fully believe that they and this country have a rendezvous with destiny, and will restrict current consumption to secure their financial future: it's called saving. It's an old virtue that is actually making a comeback, despite the exhortations from the Fed, the Feds and the media that a crisis is a terrible time to regain that old-time religion.

Instead, Mr. Obama, in calling for more and more flows of credit, ignored the fact that plenty of lending is still going on and that it makes sense to borrow and lend less when the pace of business is slower and bankruptcies are on the rise. His assertion that "credit has stopped flowing the way it should" is questionable at best. How should credit flow? Who should create it? Why should the quantity of credit keep increasing when it has nearly led to the ruination of our economy? Why would anyone think that future loans will be made any better than those made pursuant to the negligent lending practices of recent times?

Equally important to the above thematic discussion is the sad fact that the speech could not quite hide the fact that the President insists that taxpayers must sacrifice on one thing: they must provide open-ended subsidies to the banks so that the banks can then turn around and lend them money- at a profit to the banks so they can get off life support. From the speech:

Still, this plan will require significant resources from the federal government – and yes, probably more than we’ve already set aside. But while the cost of action will be great, I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade. That would be worse for our deficit, worse for business, worse for you, and worse for the next generation.

I want to say to the President: "Mr. Obama, tear down these banks."

There are plenty of well-run banks that will prudently fund the small businesses the President professes to care so much about. They are asking for no taxpayer money. They only want the Feds to stop subsidizing their poorly-run larger competitors. Mr. Obama's argument, which is identical to that of George W. Bush, is that we collectively should borrow money and then simply give it to the banks so that the banks can then lend our own (borrowed) money back to us would be recognized as illogical if such were argued in front of the Supreme Court, but in the court of public opinion it is known that the public is more knowledgeable about Britney's comeback than it is about financial matters.

A public hooked on debt is being asked to double down on it. We are being asked for the ultimate sacrifice: rather than just keep the money we have, we are supposed to add to our debts so that some of us can beseech a lender to lend some of our own money back.

It's Looking-Glass economics.

Copyright (C) Long Lake LLC 2009

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