Posts Tagged 'economy'



Nationalize Now …

I am going to try and keep this as short as possible because I’m off on a biz trip tomorrow (expect a lot less blog activity from me for about a week) and have things I need to get done before then.

But I just had to comment on the statement released jointly this afternoon by the Treasury, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Fed.

In the statement, which discusses the upcoming ‘stress test’ process all large banks will be undergoing starting Wednesday, the government in essence reaffirmed its preference that the banking system remain in private hands, saying in part:

“Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.”

For the past several weeks, I have maintained that we need to address our financial crisis in a significant and comprehensive way if we expect the other aspects of our recovery plan, such as our stimulus package, to have any kind of lasting impact.

I have argued that the banking system is so poorly capitalized that we will eventually need to nationalize significant swaths of our banking system, and that I’d rather get there sooner than later before we throw away hundreds of billions of dollars trying to put band-aids on a mortal wound.

I have heard several objections to the idea of nationalizing our banking system over the past several weeks. I will go through them quickly.

1) Do you really expect the government to run a bank effectively?

No, I don’t. And the mandate will have to be for the government to clean up any nationalized institution and get it back into private hands as quickly as possible (though perhaps in a different, less unwieldy form, i.e. turning a conglomerate like BofA into a bunch of smaller institutions based on region or function).

However, it’s not like we’re going to be putting lifelong bureaucrats and politicians in charge of running the day-to-day operations of nationalized institutions. Except for maybe the top tier of management, the vast majority of bank personnel would remain in their current positions, and I assume that respected, qualified individuals who have always worked in finance would make most of the major decisions.

More importantly, I find it deliciously ironic when people pursue this line of argument, because as bad as government will likely be at running banks, how can they possibly do any worse than our vaunted private system, which obviously got us into the current mess in the first place.

2) Nationalizing the banks will throw the system into chaos.

The system is already in chaos. The question is would nationalization cause the kind of systemic collapse that some people argued almost happened when Lehman Bros. was allowed to fail. Opponents fear a situation where all lending would shut down and people would start running to their banks to pull out money, creating a financial panic that we’ve largely avoided so far.

I don’t think this would happen at all. Perhaps the automobile manufacturers can make a rational case that if they were forced to declare bankruptcy, consumers would be much less likely to buy their cars because of concerns about car quality, or warranties being honored. But I think if anything, when it comes to their finances, consumers would feel more confident knowing their money was in the hands of the government. Corporations and other healthier banks I think would also perhaps be more willing to do business with nationalized institutions.

After all, this would be a nationalization, not a bankruptcy where assets would have to be sold immediately and at any price; once the uncertainty of the banks’ survival was removed, the government could take its time in figuring out the best way to handle the toxic asset situation and eventual reprivatization process.

3) Nationalization would call into question the very essence of our capitalist system.

I think this could happen. Confidence in the integrity of the system is a key prerequisite for a healthy, functioning capitalist economy. It’s why large and widespread examples of fraud and abuse, like we’ve seen with Enron and Madoff, create so much long-term damage.

Equity and especially bond holders who see their investments, contracts and covenants basically voided by the federal government would no doubt wonder about the very essence of private markets and private property, and whether they could feel confident that they truly owned any of their other investments.

However, I think we can mitigate these concerns by structuring the process and the language we use to make it clear that any nationalization plan would be both limited in scope and temporary in nature.

Unfortunately, we are facing an emergency situation and extreme measures are sometimes needed at those times. We can deal with the economic philosophizing later.

There are other arguments people have made against nationalization. Some argue that while nationalization may have worked for Sweden and Norway, it will be too expensive here. Others say that if we just tried to value these toxic assets accurately and dropped arcane accounting techniques like mark-to-market, nationalization wouldn’t even be necessary.

I think the critics of nationalization are all swimming in denial. Nationalization won’t be easy and painless. Mistakes will undoubtedly be made throughout the process. Certain investors would obviously lose everything. It’s merely the best of a bunch of bad choices. And whether we like it or not, it’s already happening: We already have basically nationalized Fannie Mae and Freddie Mac and AIG, and could own 40% of Citigroup if a current capital infusion plan being negotiated is implemented.

The question is whether we continue to engage in a form of Chinese water torture by trying to fix the situation in a piecemeal, haphazard manner or finally come to grips with the magnitude of our current crisis by devising a plan that deals with the situation once and for all.

Michael Phelps may have been onto something (pun intended) …

I can’t stop stewing over the fact that the South Carolina sheriff decided to investigate Michael Phelps’ notorious bong hit, with an eye toward possible prosecution.

Phelps may be onto something!

Phelps may be onto something!

I know, I know, the sheriff dropped the investigation earlier this week after deciding there wasn’t enough evidence to convict Phelps, who wisely did not admit to smoking the funny weed but merely apologized for using ‘bad judgment.’

But still, the fact that we had even the beginnings of an investigation is an outright travesty. I actually thought it was a joke until I read that the sheriff arrested eight students after his posse stormed the house where the party was held and found trace amounts of marijuana.

All around us, this country seems to be going to hell, and with state unemployment at 9.5%,  South Carolina seems to be going through some particularly dark times. There just has gotta be something more pressing on the South Carolina police force agenda than going after a U.S. Olympic champion who decided to let loose one night and get stoned.

In fact, why is this country still not having a serious discussion about legalizing marijuana?? Even 500 leading economists, including the great Milton Friedman, believe the societal benefits of legalization would far outweigh the costs. Sure, $13 billion in tax revenue and cost savings may not sound like a lot when you’re looking at trillion-dollar deficits, but you gotta start somewhere (and in some states like California, those kind of dollars could actually make a dent).

Marijuana is the easiest argument to make for legalization because few people can argue that it is more dangerous than alcohol or cigarettes. And the successful medical marijuana state initatives have at least paved the way for us to begin a reasonable discussion about the issue.

But frankly, if I had my way I wouldn’t stop with marijuana. I’d legalize all drugs, and then tax the shit out of them. And then I’d move on to prostitution and do the exact same thing.

I’m not about to argue that legalizing drugs and prostitution would limit their occurrence in our society by making them more expensive or perhaps less ‘cool’ among the younger kids. On that front, legalization has had a mixed record in countries where it’s been tried.

However, I don’t think legalization would dramatically raise the levels of occurrence either, or burden our already strained health care system.

And these are areas where the government could actually do some good through taxation and regulation, filling in state revenue gaps (without going into more debt) and helping to combat contaminated drugs in the black market or the spread of STDs and violence in the sex worker industry.

We are wasting so many resources – in our police stations and our courts and our jails – to fight these silly wars which can’t be won, and which are funding terrorist organizations and hostile governments throughout the world.

Laws already exist on the books to guard against drug- or prostitution-related crimes, such as driving under the influence, or forced enslavement. I strongly believe we have the right to do whatever we want to our bodies as long as we are not harming others in the process. That to me is one of the core principles of what it means to be an American.

And could there possibly be a better example of an American hero than Michael Phelps? He brings home the gold and then possibly shows us one way to help solve our economic woes … Awesome!!

Questions: Stimulate Me

OK, so Obama’s tough talking apparently worked.

The administration got three moderate Republican senators to agree to support the stimulus package and prevent a filibuster. In return, some $100 billion in spending from the package was removed while some Republican proposals for tax cuts and credits were adopted (most notably a $15,000 credit for homebuyers).

Of course, the compromise has pissed off some politicians on the left, but likely not enough to jeopardize a Yea vote.  The bill will pass the Senate soon, and then move to a committee where the House and Senate will negotiate on the final bill.

I just spent about an hour or so scanning through the revised stimulus bill, all 736 pages, and there’s plenty of good news (assuming you like the idea of the government spending $827 billion to try and stimulate the economy).

Despite the compromises, this is still clearly a Democratic bill. While there is certainly a fair amount of money going to the military and national security, the biggest sums are reserved for the areas that most liberals care about – education, health care, environment and green technology development, public housing and the homeless, public transit and other infrastructure.

For me, the good news is that the bill is pretty explicit about how the government will track the effectiveness of the money being spent, including the creation of a consumer-facing Web site that will have great detail on every dollar (aside from potential national security issues).

This is all hugely important because if I were someone without scruples, I’d be reading through this bill and just thinking about all the ways I could get my share of what could easily become a fraud-ridden boondoggle.

So what’s the questions part of this column, you ask?

Well, I am going to list below two (or more) of the programs or projects that are currently slated to receive more than $1 billion in government money, and I want you to tell me which one you think is more important and why? Any you’d get rid of?? (This is not a comprehensive list of the billion-dollar initiatives, and there were literally dozens more falling just short of ten figures).

1) $1.2 billion for aviation security vs. $1.2 billion for youth activities (incl. summer employment, state grants) vs $1.5 bln for state and local law enforcement?

2) $9 billion for federal building funds (including $6 bln to make them green) vs $9 billion for broadband expansion initiatives vs $8.4 bln for public transit?

3) $1 billion for dislocated worker training vs $1 billion for Head Start?

4) $1,35 billion for the National institute of Health vs. $1.2 billion for research at the National Science Foundation?

5) $13.5 billion for special education programs vs $13.869 in student financial assistance vs. $13.0 bln for elementary and Secondary Act of 1965 (incl. school improvement)?

6) $17.5 billion for CDC screening and immunization vs. $14.398 for renewable energy development?

7) $2 billion for advanced battery grants (incl. vehicles) vs. $2 billion for high-speed rail corridor program?

8)$2.25 billion for redevelopment of abandoned/foreclosed housing vs. $1.5 bln for homeless prevention?

9) $4.5 bln for electricity delivery and energy reliability vs $5.5 for surface transportation (i.e. highway/bridges) vs. $5 billion for health information technology investments?

10) $1 bln for nuclear weapons program vs. $1 bln for prisons?

The Daily Buzz (An Experiment in Multimedia)

Ok, so I am totally going to risk extreme personal embarrassment by doing this, but I decided to experiment with a little video rundown of some of the day’s top stories as indicated by Yahoo Buzz!, which is a Digg-like service at http://buzz.yahoo.com. I basically put on my Unabomber/Deadman outfit, recap the top articles that interested me, and throw in a little commentary for good measure.

As you will quickly see, it is totally off-the-cuff with no script so frankly, it’s not that professional (Alas, I do have another job that pays the bills so I have to throw it up there, warts and all). But I have to admit, it was fun to do so if people like watching it, I may keep doing it. Be happy to take any of your suggestions for improvement (I know the glare of the sunglasses is distracting, but I’m not yet ready to totally drop my anonymity yet).

Here are the stories I run down: (The video is underneath)

Obama calls stimulus bill delay ‘inexcusable’ (AP)

Simpson Gets Into Bizarre Crying Fit At Concert

Christian Bale Apologizes for F-Word Filled Tirade

Christian Bale Apologizes for F-Word Filled Tirade

USA Swimming Suspends Phelps for Three Months

USA Swimming Suspends Phelps for Three Months

Stimulus vs. Spending and the need for Recessions

Over on dagblog, one of our writers DF posted an interesting post on the latest drama in our economic crisis called ‘Macroeconomics 101: Spending versus Stimulus, or ‘How I learned to stop worrying and love recession.” It basically discussed how silly some of the recent political commentary has been, particularly the claim by many Republican lawmakers that Obama’s stimulus package was full of programs that would do little to stimulate the economy. This is my response. I encourage everyone to read DF’s original post as there is also a fair amount of continued dialogue in the comment section.

So DF did a stellar job of getting to the heart of our economic crisis and the current debate over Obama’s planned stimulus package and spelling it out simply and effectively. I do, however, have some issues with his thesis.

Unlike DF, I believe there IS a difference between stimulus and pure spending, although where and how you draw that line is admittedly a subjective process. Stimulus is government spending that then encourages corporations and/or individuals to spend money of their own as well. Government spending by itself will certainly add to GDP, but without a stimulative component, it will have very little notable impact (the Consumer ‘C’ in GDP is almost 2/3ds of the total in the US) and certainly will be unlikely to reverse a recession.

Now you can have a legitimate debate about what types of policies are more stimulative than others, and that’s where things get subjective (for instance, giving people money, or tax refunds, would seem by its nature to be stimulative but that stimulus package last year ended up being nothing more than an ineffective short-term stopgap with most of the money going to shore up corroded balance sheets – not the worst thing in the world but not very stimulative).

And where I really disagree with you is that you seem to think government is in a better position to spend than consumers or corporations. With consumers, maybe you could argue the point, given how badly household balance sheets have gotten, but aside from the financial industry, corporate balance sheets are actually in very good health and they could probably invest a lot more capital in the system if they had confidence (and arguably lower tax rates).

Of course, any significant corporate investment also requires a free flowing credit system, which has been dramatically impaired because of our financial crisis. Resolving our toxic asset problem is at least as important as the passage of any stimulus package because not only would it allow credit to flow again (although hopefully in a more rational manner) it would also restore a bit of the confidence that is a necessary prerequisite for any lasting spending by consumers OR corporations.

But getting back to the government and its ability to help us spend our way out of this mess …. they’re in the worst shape of anybody to do the work! Obviously, the government CAN spend the money since they control the printing press, but that won’t mean it’s a good idea. At $1.2 trillion dollars (prior to any stimulus plan being passed), this year’s U.S. deficit alone equates to over $4000 per person in this country, and that exceeds the average credit card household debt of $3,235 (which you can easily argue is too high as well).

Increasing the deficit will only place a bigger burden on this country’s future generations – at some point, guess what, the Chinese and other foreign governments will stop wanting our debt because they’ll wake up and notice the crappy state of the balance sheet, and at that point, you will see and feel pain like you’ve never experienced.

If we are spending money on things that are needed, like long-decaying infrastructure or intriguing alternative energy technologies, then perhaps the additional onus on the country’s balance sheet will make sense. But I am very skeptical that we’ll be able to spend $800 billion without seeing much of it going to waste.

I guess when you get down to it, I have a problem with your main thesis

First, we all have to agree that a recession is what I’ve stated it is above and that this is an undesirable condition in which we all have a vested interest of avoiding.

Recessions are necessary parts of the free market business cycle. Sure, we’d love to avoid or shorten them, but it’s my belief that without them you can’t have the good times. The key in my opinion is to pursue policies and regulations that limit the extremes on both sides of the cycles, but unfortunately, we threw ourselves one big consumption and credit orgy over the past decade, and we must pay the piper.

We need to be very careful we don’t throw good money after bad, and make the problem even worse by sapping oomph from any eventual recovery or setting us up for a bigger, more painful fall later.

Obama’s Inaugural Address : The (Almost) Line-by-line review

A friend of mine asked me on Facebook what I thought of Obama’s speech yesterday, and I told him my initial reaction was ‘ho-hum.’ It did a good job of listing the challenges we face as a nation and world, and of calling us to action. I thought its foreign policy section was particularly strong. But the address by itself didn’t move me much on an emotional level, and I certainly didn’t think it had any of those memorable, JFK-worthy turns of phrases that would be quoted fifty years down the road.

Yet, I decided to reread the transcript again to see if I missed anything. As I kind of expected, it was better the second time around. I thought there was a more cohesive theme centered around responsibility, both individual and societal, than I remember getting from listening to the speech. I still think it lacked some emotional heft, and I still don’t see those quotable lines that will stand the test of time, but overall, it was well-constructed.

I hereby offer my (almost) line-by-line review:

————————————————

My fellow citizens: I stand here today humbled by the task before us, grateful for the trust you have bestowed, mindful of the sacrifices borne by our ancestors. I thank President Bush for his service to our nation, as well as the generosity and cooperation he has shown throughout this transition.

It’s a good beginning, with that three-phrase construction (humbled, grateful, mindful) that all good speeches, and Obama’s in particular, use so effectively. This will be the only time we hear W’s name, but he throws some pointed daggers at the former (how good does that sound!) president for his policies later in the speech.

Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because we the people have remained faithful to the ideals of our forebears, and true to our founding documents.

So it has been. So it must be with this generation of Americans.

When I first heard the speech, I thought the phrase ‘Gathering clouds and raging storms’ was a bit too much. Don’t gathering clouds precede raging storms? If he is specifically talking about this time, and not just generally, then i think gathering clouds would have been sufficient. As bad as things are today, they’ve certainly been worse in our history. Inflation under 5%, unemployment under 8%, no terrorist attack on our soil since 9/11. Part of my issue with government’s response to the current economic crisis is we are throwing trillions of dollars at a problem which we don’t yet fully understand and which likely will need time to get resolved no matter how much stimulus we throw at it. Economies go through cycles…it’s par for the course. Overreacting, at the expense of any fiscal restraint, would be unwise.

The same is true with our foreign policy situation. Islamic fundamentalism is a very real threat. But overstating the threat, and thereby overreacting and overreaching with our strategies, only leads us to engage in intractable and irrelevant conflicts which can often end up making matters worse.

These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land — a nagging fear that America’s decline is inevitable, and that the next generation must lower its sights.

Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America — they will be met.

This is to me seems like a lost chance for one of those memorable lines. ‘But know this, America – they will be met’ won’t cut it. Meeting challenges just doesn’t sound that impressive (‘How do you do, Challenge? My name is Barack.’)

On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord.

On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics.

We remain a young nation, but in the words of Scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free and all deserve a chance to pursue their full measure of happiness.

‘The time has come to set aside childish things’ is a good line, though Obama can’t take credit for it. The rest of the paragraph is just full of cliched platitudes.

In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of shortcuts or settling for less. It has not been the path for the faint-hearted — for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things — some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom.

All well and good, but what’s wrong with preferring leisure 8) (That’s just me pursuing ‘my full measure of happiness!”) And “the makers of things”? Really?!?

For us, they packed up their few worldly possessions and traveled across oceans in search of a new life.

For us, they toiled in sweatshops and settled the West; endured the lash of the whip and plowed the hard earth.

For us, they fought and died, in places like Concord and Gettysburg; Normandy and Khe Sanh.

Another three-pack of repetitive phrasing. This one works well.

Time and again these men and women struggled and sacrificed and worked till their hands were raw so that we might live a better life. They saw America as bigger than the sum of our individual ambitions; greater than all the differences of birth or wealth or faction.

“Worked till their hands were raw” is one of the cliched phrases that Obama sometimes overuses. Struggled and sacrificed would have sufficed.

This is the journey we continue today. We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

I really do hope we are ready to stop putting off unpleasant decisions, as I do feel that is one of the major reasons we are in the current crisis. But I’m not sure I’ve heard anything yet from Obama to suggest those are forthcoming.

For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act — not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology’s wonders to raise health care’s quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. All this we will do.

One of his best paragraphs. It’s the call to action paragraph and there are some rather specific goals he is setting out here – some doable, some probably not, all important.

Now, there are some who question the scale of our ambitions — who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage.

What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. Those of us who manage the public’s dollars will be held to account — to spend wisely, reform bad habits, and do our business in the light of day — because only then can we restore the vital trust between a people and their government.

Just like it takes two to tango in an argument, it takes two to let go of an argument. Here he is addressing the concerns of the other side, letting it be known that he will not just be your father’s liberal, but that government will only spend when it can do so wisely and effectively. I hope the other side is similarly willing to let go of those stale political arguments and work toward compromise.

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control — and that a nation cannot prosper long when it favors only the prosperous. The success of our economy has always depended not just on the size of our gross domestic product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart — not out of charity, but because it is the surest route to our common good.

Starts off with another line for the economic conservatives and free-market proponents in the crowd, before laying down the hammer by letting it be known that regulation and income redistribution will not be completely unavoidable. I love the content, even if the wording isn’t very poetic — “depended not just on the size of our GDP, but on the reach of our prosperity” and “nation cannot prosper long when it favors only the prosperous” just aren’t very pretty.

As for our common defense, we reject as false the choice between our safety and our ideals. Our founding fathers … our found fathers, faced with perils we can scarcely imagine, drafted a charter to assure the rule of law and the rights of man, a charter expanded by the blood of generations. Those ideals still light the world, and we will not give them up for expedience’s sake. And so to all the other peoples and governments who are watching today, from the grandest capitals to the small village where my father was born: know that America is a friend of each nation and every man, woman, and child who seeks a future of peace and dignity, and that we are ready to lead once more.

Recall that earlier generations faced down fascism and communism not just with missiles and tanks, but with sturdy alliances and enduring convictions. They understood that our power alone cannot protect us, nor does it entitle us to do as we please. Instead, they knew that our power grows through its prudent use; our security emanates from the justness of our cause, the force of our example, the tempering qualities of humility and restraint.

Now this is the shit. It’s poetic, it’s forceful, and it is a direct slap in the face to the arrogance and imperialism of the Bush Doctrine, the Patriot Act, the Iraq war, and all of the other shortsighted foreign policy maneuvers of the old administration.

We are the keepers of this legacy. Guided by these principles once more, we can meet those new threats that demand even greater effort — even greater cooperation and understanding between nations. We will begin to responsibly leave Iraq to its people, and forge a hard-earned peace in Afghanistan. With old friends and former foes, we will work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet. We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you.

Another common Obama trick. Argue forcefully for one side of an argument – in this case, the quiet retreat from various military entanglements and the militaristic policies of the Bush administration – but then end the thought by throwing a bone to the other side of the spectrum – in this case, a little bit of gonna-kill-the-terrorists macho, jingoistic talk.

For we know that our patchwork heritage is a strength, not a weakness. We are a nation of Christians and Muslims, Jews and Hindus — and non-believers. We are shaped by every language and culture, drawn from every end of this Earth; and because we have tasted the bitter swill of civil war and segregation, and emerged from that dark chapter stronger and more united, we cannot help but believe that the old hatreds shall someday pass; that the lines of tribe shall soon dissolve; that as the world grows smaller, our common humanity shall reveal itself; and that America must play its role in ushering in a new era of peace.

Alright! A nod to the non-believers!! But even without that welcome addition, this is a great noble sentiment, if perhaps a bit idealized (there’s still plenty of hatred and division even still in our own country, and the world is a long way away from watching the lines of tribe dissolve and revealing our common humanity.)

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society’s ills on the West — know that your people will judge you on what you can build, not what you destroy. To those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist.

A direct nod to the Muslim community, which is pretty smart given how badly our reputation has suffered there over the past eight years. We will never win over the Islamic fundamentalists, but even moderate Muslims have felt understandably threatened by recent American policy. And I don’t buy the argument I’ve heard that Islam is too extreme and violent a religion to ever embrace Western ideals like democracy and liberty. This paragraph also  includes one of his best sentences – “your people will judge you on what you can build, not what you destroy.” That one may stick around.

To the people of poor nations, we pledge to work alongside you to make your farms flourish and let clean waters flow; to nourish starved bodies and feed hungry minds. And to those nations like ours that enjoy relative plenty, we say we can no longer afford indifference to the suffering outside our borders; nor can we consume the world’s resources without regard to effect. For the world has changed, and we must change with it.

As we consider the road that unfolds before us, we remember with humble gratitude those brave Americans who, at this very hour, patrol far-off deserts and distant mountains. They have something to tell us, just as the fallen heroes who lie in Arlington whisper through the ages. We honor them not only because they are guardians of our liberty, but because they embody the spirit of service; a willingness to find meaning in something greater than themselves. And yet, at this moment — a moment that will define a generation — it is precisely this spirit that must inhabit us all.

The obligatory salute to American troops. But it’s well-written, tying it into the speech’s larger theme of responsibility, service and sacrifice, with a poetic nod to our own heroic past – “just as the fallen heroes who lie in Arlington whisper through the ages.”

For as much as government can do and must do, it is ultimately the faith and determination of the American people upon which this nation relies. It is the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job which sees us through our darkest hours. It is the firefighter’s courage to storm a stairway filled with smoke, but also a parent’s willingness to nurture a child, that finally decides our fate.

This is where I thought the speech fell flat again. I usually hate it when politicians reference specific individuals, but in this case the examples seem too generic and cliched to really hit home emotionally. The last line in particular seems awkward and disconnected – a fireman battling flames and a parent nurturing a child are too different of concepts to be in the same sentence.

Our challenges may be new. The instruments with which we meet them may be new. But those values upon which our success depends — hard work and honesty, courage and fair play, tolerance and curiosity, loyalty and patriotism — these things are old. These things are true. They have been the quiet force of progress throughout our history. What is demanded then is a return to these truths. What is required of us now is a new era of responsibility — a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task.

This is the price and the promise of citizenship.

This is the source of our confidence — the knowledge that God calls on us to shape an uncertain destiny.

This is the meaning of our liberty and our creed — why men and women and children of every race and every faith can join in celebration across this magnificent Mall, and why a man whose father less than sixty years ago might not have been served at a local restaurant can now stand before you to take a most sacred oath.

The heart and true purpose of the speech – that the creation of America and its continued greatness has depended upon the solid values and  work ethic of its citizens, and that we must re-embrace those characteristics if are to move ahead again.  “The price and the promise of citizenship” is a sweet phrase. I like the reference to his African father, which makes the theme personal, and subtly brings up the historical significance of the moment without overemphasizing it the point of alienating anyone.

So let us mark this day with remembrance, of who we are and how far we have traveled. In the year of America’s birth, in the coldest of months, a small band of patriots huddled by dying campfires on the shores of an icy river. The capital was abandoned. The enemy was advancing. The snow was stained with blood. At a moment when the outcome of our revolution was most in doubt, the father of our nation ordered these words be read to the people:

“Let it be told to the future world … that in the depth of winter, when nothing but hope and virtue could survive…that the city and the country, alarmed at one common danger, came forth to meet (it).”

If you can’t come up with any memorable quotes of your own, there’s no harm in using the poetry of past leaders, especially when it involves an appropriate metaphor to current circumstances and dovetails in nicely to the meaning you are trying to impart.

America, in the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come. Let it be said by our children’s children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God’s grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations.

Thank you. God bless you. And God bless the United States of America.

It’s a solid finish, harkening back to his storm metaphors from the opening lines. I certainly hope that as we work to solve the current problems we face that Obama remembers these words because the future of our children’s children is most certainly in jeopardy.

Predictions for ’09 (and a review of my ’08 calls) …

In my most recent question column earlier this week, I asked for readers’ predictions for the upcoming year … aside from Genghis bravely predicting that Obama would become POTUS, I didn’t get too many responses.

So I’m going to ask for your predictions again, while repeating some of the predictions I made and adding a couple of more, before I revisit some calls I made this year.

First, the predictions for 2009. I’m sticking mostly to economics, with a few foolish forays into other areas (I was going to make a call that Prophet would finish his Top 10 2008 Albums list next February, but I see now he’s picked up the pace):

Economy

  • Unemployment, now at 6.7%, surges past 9 percent and falls just short of double digits
  • Gold now at about $845-$850, revisits all-time highs at $1000 an ounce, probably later in the year
  • Obama puts alternative energy initiatives on back burner at first, but then gets more involved as light crude oil, now at about $36 a barrel, rebounds first to $55-60 in short-term and then approaches $90 sometime next year. Gas prices again become a political issue.
  • ‘Class’ replaces ‘race’ and ‘immigration’ as the next big battleground in America. We see several examples like the factory sit-in we saw a couple of weeks ago. At least one of these protests turn violent and leads to a fatality. Unemployment benefits get extended again, and numerous other populist measures, including foreclosure relief, get passed by Washington.
  • The market has another down year, probably more than 10%, but stages a pretty decent rally early in the year, with the Dow hitting 10,000 again. IPOs remain few and far between, but Facebook does end up pulling off one of the few big new public stock offerings of the year next fall. The stock does well in the short-term, leading to another mini-rally.

Politics

  • The Obama inauguration attracts more than 3 million visitors, and the combined TV audience for his speech exceeds that for the Super Bowl, drawing more than 100 million viewers. There is at least one announced assassination attempt that is thwarted.
  • Biden was right after all and some terrorist organization or rogue state tests Obama’s resolve by the summer. We have the first attack on U.S. soil since 9/11 and it’s possibly a multi-city attempt that mimics the chaotic action in Mumbai. (Please god I hope I’m wrong on this one).

Sports

  • The Panthers meet either the Patriots or the Colts in the Super Bowl and win it all.
  • The Red Wings win the Cup. The Celtics repeat. (These are huge guesses).
  • The Yankees win the division, but flame out in the first round of the playoffs. Girardi is fired by the end of October. The Angels get to the World Series and play the Dodgers in an all-SoCal World Series. Angels win. My beloved Cards come in 3rd place in the NL Central division, which the Brewers win.

So should anyone listen to me? Probably not. My track record this year for predicting events was so-so. I was generally dead-on with economic trends, as I have been very negative for over a year now. On February 11, before I started blogging, I wrote an email to Jim Cramer, stating that we are heading into a ‘severe economic downturn that will last longer than most people are predicting,’ adding:

We are still in the early throes of this current crisis. We still haven’t seen any bankruptcies. Foreclosures and defaults have been at a minimum. The job market has only just begun to show signs of strain. The pain will of course spread to the rest of the world, which is wallowing in our debt and weak dollar, causing a global slowdown. Much more damage will be done, many more shoes will drop.

In a July post on pessimism, I predicted 50% odds for a multiyear recession, and 10% chance for a depression, fairly bold but probably not high enough odds for either. When the Lehman bankruptcy occurred on Sept. 14, I warned this wouldn’t be the end of the story and a systemic collapse was possible. When the Treasury first presented its bailout plan, I said there would be bumps along the way and that other industries would quickly be lining up for money, including the car manufacturers.

When it came to the financial markets, the record was much more mixed. I probably made my best call of the year on July 4, calling oil a bubble about to pop on the exact day it hit its high price for the year ($140+). Despite talk of new rules against speculation and for offshore drilling, I also correctly pointed out that the main reason for oil’s fall would be a rapidly weakening global economy. However, in that same piece, I said there’d likely be one more big run higher and that oil was not going to be heading to $50 anytime soon (It’s now in the $30s. Oops).

My calls for short-term bottoms and tops in the stock market were generally correct, but often early by a matter of days or even weeks, which makes a huge difference if you actually wanted to trade on the information (which I would NEVER recommend, as you have probably realized by now I like to talk out my ass a lot).

For instance, on Oct. 8, I called for a short-term bottom in the market, but it didn’t start happening until the next week. In a follow-up post on the 13th, I thought the rally could have some legs (somewhat true) with the Dow possibly hitting 11,000 (way untrue), but that we would revisit our earlier lows ‘in the next few months, if not sooner’ (true) and that we’d hover around the Dow 8K-9K for a year or more (to be determined).

I didn’t make many political calls, but wasn’t so impressive here either. In July, I predicted an Obama victory and said ageism would prove to have a bigger impact than racism (hard to judge the latter call, but I think it was a pretty good one).

On Sept. 3rd, I said McCain’s Palin could backfire but was the only thing he could to generate even a trace of the excitement of the Obama campaign.

On Sept. 24th, I called McCain’s announcement that he was postponing his campaign to focus on the economy as ‘just silly’ and ‘annoyingly hyperbolic.’

When the bailout was being debated and strongly questioned in Congress, I said it would surely pass; It was vetoed. To be fair, after the bill was vetoed, I did correctly predict a new bailout proposal ‘very similar’ to the rejected one would pass.

And in sports, the only prediction I made was a hopeful and ultimately correct one that St. Louis Rams Head Coach Scott Linehan would be fired after the bye week. Unfortunately, Linehan’s firing didn’t lead to ‘watchable football’ as I had hoped.

OK, now it’s YOUR turn. Go out on a limb. Make some calls. Trust me, if you’re right, you’ll look like a genius, a seer, a visionary. And if you’re wrong, no one will remember (at least not ’til I revisit these predictions next year)

What goes up, must go down …

I believe in balance. In yin and yang. I believe in cycles. In symmetry. I believe big wild parties end with big, nasty hangovers. I believe that what goes up, must come down.

Unfortunately, our government does not agree.

I have railed time and time again on this blog about the scattershot and shortsighted nature of our economic response so far to the current financial crisis. In short, and with few exceptions, said strategy has consisted of spending as much money as possible to bailout and stimulate every sick, depressed segment of our economy, with a particular focus on those segments that cater to the rich and connected.

The policies of the incoming Obama team will only accelerate this process, albeit with a more tilted and welcomed focus on some of the not-as-rich-or-connected folks. There is talk of a new $1 trillion stimulus package being created early in the Obama presidency.

The Fed is fully aboard the stimulus party as well, yesterday slashing the fed funds target rate to basically zero and committing to buying mortgage assets to ensure long-term borrowing rates move lower in an attempt to stabilize and boost the housing market. There is even talk that the government will FIX interest rates at a certain level to ensure they accomplish that goal, though for now it appears the mortgage market is responding to the unprecedented stimuli.

Look, no one likes to see suffering. People out of work, going bankrupt. Home prices falling. Factories closing. Cities failing. It’s nasty, nasty stuff. For politicians, it tends to lead their own unemployment. And for economists, it’s a scary scenario as well, because it almost always results in deflation, a pernicious problem that tends to have long, strong roots once it sets in.

But did the Fed or government do anything when times were so good, when the price of housing was soaring to the moon and consumers were levering up to the hilt and taking on dangerous levels of debt???? Aside from nominal increases in interest rates, I don’t remember any concerted effort, and certainly nothing approaching the desperation we’ve seen recently, to try and tame the animal spirits and gently guide the economy into a soft landing.

In my opinion, you can’t have it both ways. You can’t have bubbles without crash landings. We have stemmed the worst of the credit crunch and liquidity crisis – interest rates have fallen, banks are lending a bit again (at least to each other). It is now time to let the market work its way through this mess and find its equilibrium level. Yes, it will likely overshoot on the downside, just like it did on the way up. Yes, it may take longer to find that equilibrium level than we’d like. But you gotta take the yin with the yang.

I’m not saying we should sit on our hands and watch helplessly as the economy craters. By all means, spend money to reinvest in our roads and infrastructure; on new technologies, including alternative energy; on education, including the retraining of displaced workers; on strengthening the country’s safety net to ensure that those hit hardest from the economic collateral damage don’t suffer unduly.

But realize that all this profligacy will have consequences down the road. We are already staring down the barrel of the worst demographic situation in decades – as the baby boomer generation is getting ready to retire en masse, placing a huge burden on this country’s resources as they move from being net producers to net consumers.

When times were better and tax revenues were flush, our government did nothing to reduce our budget deficit in any meaningful way or address long-term systemic issues threatening the economic health of our nation, like Social Security and Medicare. Yet it now has no problem dramatically increasing our country’s burdens and obligations in order to try and avoid the bad end of the business cycle.

The only thing all this spending will do is take away the oomph from any subsequent recovery. We’ll see a weaker dollar, higher inflation, bigger deficits, and higher taxes down the road. At least some, and maybe a lot of this money will be misplaced, leading to bubbles and wasted investments in other unforeseen areas.

But frankly, the prospect that most of this stimulus will be wasted, a misguided attempt to set an artificial floor on the economy, is actually not the worst-case scenario (though it is the most likely). My biggest concern is that the stimulus works too well and our animal spirits are revived before they’ve had a sufficient chance to reset. If that happens, we’d only be setting ourselves up for a bigger, more painful crash down the road.

Dealing out a bunch of hooey and driving me mad …

It’s bad enough the government will soon be doling out billions and billions of taxpayer dollars to bail out the bloated, mismanaged U.S. auto industry.

But please, please, do not give any of that money to the nation’s car dealers.

According to a Yahoo story, an auto bailout package is likely to pass in large part because of pressure from the American auto dealership lobby. Even worse, a spokesman for the National Automobile Dealers Association says he wants dealers to get some of that money.

“That legislation needs to operate to ensure the presence and the viability of the dealer network. The two go hand-in-hand. You can’t have one without the other,” the spokesman said. Another industry lobbyist said dealers are bringing a ‘lot of heat’ on legislators to get a deal passed.

Ugh. I can’t stand the car dealership lobby. There are thousands of car dealerships in the U.S., in almost every district in the nation. They have a ton of money and yield far too much influence in our political system. The automobile dealer network is an inefficient, outdated business model which has only continued to thrive because of its successful political wrangling.

You want to know why you can’t go on the Internet today and buy a car directly from a manufacturer (or even from a dealer)? Because in most states, the auto dealer lobby has made sure that direct selling of cars is illegal. The best you can do is go to a site and ask for a quote from your local dealer, who will undoubtedly try and upsell you a whole bunch of stuff you don’t need as soon as you get to her lot.

I’ve only had to go through the car purchase process once but I remember it being about as unpleasant as can be, as I was quite sure I was being screwed in a thousand different ways. The Internet has helped level the information playing field somewhat, but it could have done so much more if car dealers hadn’t successfully resisted almost all efforts at innovation.

Unfortunately for the US taxpayer, it’s mostly business as usual … on their lots AND in the hallways of Congress.

Obama will mean the end of capitalism!!! (Whoops, too late) …

The day after Obama won the election, a Republican friend of mine on Facebook joined a group that planned on getting together on Inauguration Day to mourn ‘The End of Capitalism as We Know It’*.

Members of the group were waxing bitter in the message board, complaining about how Obama was a socialist who was going to destroy the U.S. economy.

I had to laugh … and cry.

Cry because these people were so caught up in their own right-wing economic philosophies (many of which I actually agree with) that they couldn’t even for one moment take the time to appreciate the historical significance of what this country’s voters had just done.

No matter what your politics, every one should be able to do what John McCain eloquently did on election night: Recognize that this country has taken a large, profound step to move past its racist beginnings (and recent history) and elected a candidate that preached unity and bipartisanship and re-engaged vast segments of the American people by inspiring a renewed sense of hope and idealism.

But many of Obama’s opponents don’t even want to give him a fighting chance. They believe he is doomed to fail and his liberal agenda will cause the collapse of the American empire and its glorious capitalist experiment … which is why I also had to laugh when I read those messages.

That experiment has already failed. The empire is already collapsing. Socialism is already here … And it all happened under a Republican administration.

Just today, Treasury Secretary Hank Paulson generously let the American people know that after careful deliberation, the $700 billion he asked for from Congress is now going to be put to a vastly different use than was originally intended.

Money that was supposed to be used to buy up bad loans and mortgages rotting away on the balance sheets of banks and gumming up our credit system is now going to be doled out  (in a command-control style, I may add) to buy stakes in troubled banks, as well as potentially help out a number of as-of-yet unspecified companies in as-of-yet unspecified non-financial industries.

(So much for the program’s name: TARP, Troubled Asset Relief Program. Calling it the Tits and Ass Relief Program would have made about as much sense).

Mark my words: The cost of this program will end up far exceeding $1 trillion (though we may eventually get some of that money back). And that’s in addition to the hundreds of billions the Fed has already spent trying to buck up our decrepit financial system.

Instead of facing the consequences of a decade-long U.S. consumer spending binge, which was encouraged and exacerbated by a housing/credit bubble caused by our government’s easy money policies, we are flailing around haphazardly, trying anything and everything to bail our way out of this mess. But all we are doing is throwing good money after bad, and leaving future generations of Americans an enormous, crippling pile of debt.

The most egregious example of this will likely be the auto industry bailout that is quickly becoming a political inevitability. Right now, the best I can hope for is that the money comes attached with some sort of regulatory plan and set of conditions. If changes aren’t made to the auto companies’ operating structure (i.e. mainly, a renegotiated contract with the labor unions), they’ll be facing the same dire situation a few months down the road because they just cannot currently compete with the lower-cost manufacturers in Japan and throughout the rest of Asia.

Do I think an auto bailout is a good idea? No way. I’d much rather see GM and Ford be allowed to go bankrupt, and work to restructure their operations through that process, while we spend the money we’ll be using in the bailout to retrain displaced workers and invest in start-ups pursuing new green energy technologies. But I understand millions of jobs are at stake. I understand that the American people would find it hard to understand why Wall Street and the fat cat elites who work there and produce nothing of tangible value got bailed out while the manufacturing engine of the country was left to wither on the vine.

The fact of the matter is, America has never been a purely capitalistic system. We came to grips some time ago that capitalism without safety nets ends up benefiting the few at the expense of the many, and will eventually destroy itself through social instability. That’s why we have Social Security, and welfare, and Medicare, and public schooling and student loan programs, etc. etc.

But it is still quite ironic that the biggest government nationalization and socialist expansion efforts in decades will be coming at the end of a Republican administration that never pursued the fiscal responsibility platform of the conservative movement and is now too afraid to deal with the nasty flip side of the free market policies it espoused.

——————————————–

*I think that was the name of the group – I can’t find it on Facebook any longer … maybe they, too, realized the insanity of their hypothesis

ENOUGH!!! …

I’ve had it.

This country has been on engorging on a cheap credit binge for the last decade, stuffing itself on the sugar highs and empty calories provided by ultra-low interest rates and fancy derivatives and zero-down mortgages. Now the chickens are coming home to roost, and everyone is looking for a way to get their butt saved.

It’s bad enough that Congress already spent $150 billion earlier this year on a fiscal stimulus plan that did nothing but allow us to buy IPhones and XBoxes for a few more months. The American people now want more, and it looks like Congress is going to give it to us with another huge stimulus package. It’s money we can’t afford right now and which won’t do anything but provide another very temporary boost to an economy and consumer that needs to retrench for an extended period of time before they can begin to reflate.

But spending money one doesn’t have is the American way. Just ask the country’s beleaguered homeowners now drowning under onerous interest payments, the folks who were too busy picking out Ikea furniture to read the fine print of those adjustable-rate, no-doc mortgages they were signing.  They, too, are soon going to get plenty of help from our friends in Washington.

You see, everyone says we need housing to rebound in order for the economy to recover, so by god, we are going to make the housing market rebound, even if it means the government has to buy up all those nasty little mortgages and restructure them, as Senator John McCain has so magnanimously offered to do (and to hell with the free market and the natural laws of supply and demand).

But really, who could possibly blame the American people for wanting to be spared the pain of an economic downturn?? They’re just following the lead of our most esteemed industry and financial leaders and watching with green eyes as the government tosses around hundreds and hundreds of billions of dollars like so much loose change.

How fitting that the first ones at the government trough were the Wall Street pigs who cooked up this unhealthy smorgasbord slop and fed it to the ravenous, greedy (but mostly unsuspecting) crowd of American consumers.

Oh, it may seem unseemly that the ones largely responsible for creating this mess would be the first to come begging for help, but The Powers That Be knew the financial system that Wall Street had so cleverly manufactured was so fragile that many of these banks couldn’t fail. They knew that the pyramid scheme would have to be unraveled slowly or the entire economy would shut down.

So in order to prevent exposing the rot in the system to the public, regulators forced Bear Stearns into the hands of the relatively well-capitalized JP Morgan Chase, guaranteed the losses with a $29 billion loan and then lowered interest rates in an emergency session.

But that was just the start. You know the rest of the story. The scope of the problems became obvious, and it was clear the cancer had metastasized to every corner of our financial system. Housing in particular was a disaster, so we nationalized Fannie Mae and Freddie Mac (which should never have been privatized in the first place, as one of the only things scarier than capitalism gone mad, is capitalism with implicit government backing gone mad ).

AIG, too, needed help since it had gotten caught insuring a lot of these failing institutions, so we rescued that firm with $85 billion (and then watched as some of that promised money was immediately spent on a lovely sales retreat, replete with a $23,000 spa bill).

And yet all that government assistance still wasn’t enough, so the Treasury and the Fed went to Congress and pleaded for another $700 billion, and only after getting that pork-laden package passed have they begun figuring out exactly how they are going to use that money to save our banking system and economy.

It is all just so very frightening, but the last straw for me was reading an article about some of those poor, poor folks in the hedge fund industry who are now hoping they’ll also see some of that bailout money. Treasury Secretary Paulson insists the money is just for banks and thrifts, but that ‘plans could change’.

You’ve got to be kidding me!!

I mean, for crying out loud, it was only a decade ago when the government and a bunch of banks bailed out a hedge fund company named (ironically enough) Long-Term Capital Management.

Long-Term Capital, with its use of insane leverage (at least 25x) in highly illiquid, poorly regulated financial instruments, including some of the very same derivatives and mortgage-backed securities that are now causing us grief, was in many ways Version 1. 0 of the current Wall Street mess. And yet we ultimately learned very few lessons from that clear early warning sign (This Working Group document has some great background on the LTCM debacle as well as a number of generally ignored conclusions and recommendations).

Frankly, we missed a golden opportunity to increase supervision and disclosure requirements to help rein in some of the industry’s excesses.

Even worse, the LTCM bailout (and the subsequent lowering of interest rates by then-Fed Chairman Easy Al Greenspan) helped fan the flames and foster the environment that we now find ourselves in by encouraging more ill-advised risk taking while institutionalizing the idea that the government will always be there to cover up for our mistakes.

But there is a price to be paid for that largess. Eventually, we’re going to have to pay for this misguided philosophy. I’m just worried that it’s too late, that we’ve dug ourselves into a hole so deep it will take a generation or more to climb out of.

So it’s time to stop the capital injections and bailout plans, the incessant pumping of liquidity into the markets and the careless printing of money, the debt issuance and the interest rate cuts. We’ve done enough to unfreeze the markets and prevent a systemic collapse. It’s time to let the brutally effective corrective mechanisms of capitalism take care of the rest.

As Obama said during the most stirring moment in his Denver keynote convention speech:

‘Enough!’

How The American Dream created this American nightmare …

You hear a lot of conservatives nowadays wanting to place blame for the country’s current economic crisis on the Community Reinvestment Act of 1977, which encouraged commercial banks to lend money to borrowers in low-income areas.

The implication is that the CRA, enacted and significantly expanded under two different Democratic administrations, led to the creation and proliferation of the risky subprime mortgages that have brought the U.S. banking system to the brink of collapse.

Never mind the fact that CRA-regulated commercial banks originated less than half the total subprime mortgages or that at least as much share of the blame for how things got out of hand has to be placed on the Republican-led repeal of the Glass-Steagall Act, which allowed investment banks and other less regulated institutions to engage in similarly risky lending (and to do so without the leverage restrictions placed on commercial banks).

But conservatives do have a point (even if it’s not the one they really intend to make): This country’s myopic focus on home ownership as the be-all and end-all of The American Dream did indeed help spawn the housing and credit bubble, and the CRA is just another in a long list of government policies that have encouraged home ownership as an important component of economic development and societal stability.

OK, maybe I’m just a bitter renter who’s trying to justify his lifestyle and puny net worth, but I do wonder … is home ownership really that important?

The National Association of Realtors certainly thinks so, and some of their rationale makes sense. For society as a whole, home ownership may in fact offer some advantages, as people who buy their homes are more likely to be invested in their communities and neighborhoods than renters. However, I would think these benefits have diminished over time as the nation has developed and become more settled.

Encouraging broad home ownership probably also acts as an alternative means of reducing income inequality in a capitalist economy, and at the same time instills in citizens the importance of private property rights, both of which lead to increased stability in our society. Given that our national savings rate is negative, home ownership also encourages people to invest and save funds they might otherwise not.

But that capital comes at a cost, an opportunity cost. Homes are static entities, non-productive investments. By themselves, homes don’t create anything of tangible value.

And homes are not particularly good investments, either. Robert Shiller did a hundred-year study and found that homes increased in value about 3% a year on average, not much more than the rate of inflation, with only a couple of temporary periods of dramatic outperformance.

Another study by two professors, Roger Ibbotson and Jack Clark Francis, found that housing increased in value about 8.6% a year from 1978 to 2004. Not bad, but not as good as commercial real estate at 9.5% and well behind stocks at 13.4%. (Granted, you can’t live in a stock).

The math gets a bit better when you account for the substitution costs of renting, but a lot worse when you include the other costs associated with home ownership – and there are plenty of them, such as mortgage interest, insurance, upkeep, refurbishing and property taxes. The WSJ estimated that a $300,000 house could end up costing an owner more than $1 million over 30 years. And that excludes the costs of buying and selling a home, which can add up to as much as 10% of the transaction value and make moving to a location that better suits one’s needs or skills a much more expensive prospect than it’d otherwise be.

A good trader friend of mine, who used to live in a rented NYC apartment, described his St. Louis home as a ‘money pit’ and usually wishes he was still renting.

Unlike with stocks, where diversification is possible and laudable, owning a home often requires a person putting almost of his or her eggs in one basket. And if you bought a home in the last couple of years, that’s a much smaller basket now.

Bottom line: Obviously, every locality is a bit different, but I think owning a home can make sense for people who plan on staying in the same place for about 5-10 years, or who enjoy the responsibilities of upkeep and maintenance (I, however, recoil at the prospect of lawn mowing and do-it-yourself repair projects).

But even in the best of scenarios, home ownership is rarely the best path to getting rich. And as we’ve found out in recent months, making it a key goal for a society – at the expense of other worthwhile goals and values – can lead to a rather unwise deployment of capital and some really nasty unintended consequences.

Ok, Here’s the rally … Now what??

OK, so I was a day or two late with my short-term bottom and violent rally call, but it’s party time on Wall Street today with the markets almost up more than double digit percentages.

So where do we go from here? Well, my prediction that we could get back close to Dow 11K will likely prove far too aggressive, but it’s very likely this will have at least some legs. There’s just too many people bearish and short for it not to last a bit longer (People who are short are at least not in the market will worry that we’ve seen the bottom and will fear missing out if the rally continues).

But also remember that V-type bottoms (where we sink dramatically only to immediately recover all that ground and then some, such that the price charts resemble the letter V) are very rare beasts.

In the short term, I think this rally could last a while but that the downtrend will remain in place and that we will revisit the lows from last week sometime in the next few months, if not sooner.

In the medium-term, if this winds up being just a normal recession, we have seen the lows and will probably start to move higher as much of the bad news and lowered profits have been discounted by the market. Remember, during your garden-variety recession, the stock market tends to do well since it begins to anticipate the recovery period.

Unfortunately, I think we are in for something far worse and we will likely meander in a range near the 8-9K level on the Dow for a year or more, and we could even end up breaching those lows from last week.

The problem is unless you’re an active trader or will need a lot of your invested money sometime in the near future, you should probably mostly sit tight and ride out the storm. I’ve said it many times, this could end up being economic Armageddon but it’s not the likeliest scenario and panicking or changing your long-term investment strategy won’t do much to help you.

Add some gold (or gold ETFs or gold stocks) to your portfolio if you’re really worried.

For an insightful, more positive take on the long-term prospects on the market, this provides some great analysis.

We need more panic, not less …

Damn, I thought I was going out on a limb when I called for a violent (though short-lived) rally to the upside. But if the press and the pundits who speak their mind in the press are any indication, that’s a very crowded limb.

I’ve been watching CNBC A LOT for the past few days, and it seems like nearly everyone is looking at this crash as a great buying opportunity, telling people not to panic, saying a bottom is at hand and a violent rally is on its way.

And sure enough, it looks like the bottom seekers are out in full force this morning, completely reversing a panicky, early 600-plus point loss on the Dow that brought us to an 8000 level we haven’t seen since 2003. It’s almost too textbook.

I understand that the press doesn’t want to be seen as fanning the flames, and a lot of the pundits have (third-degree burned) skin in the game and are engaged in some unsurprising wishful thinking. And they’re probably right – surely if you have any kind of long-term horizon, this is a better time to buy than sell – but it’s all making me nervous because lasting bottoms generally only come when no one wants to buy … when you can see the whites of their eyes, so to speak.

The complacency is unsettling … This is scary stuff. These are unprecedented events. The economy is on the brink (and whether the market bottoms here or not, Main Street is due for a long period of suffering).

What’s worse is that so many of these people have been naysaying the problems all the way down – Vince Farrell, Brian Wesbury, Erin Burnett, Larry Kudlow, the list goes on and on. I wish the pollyannas would say ‘We were wrong, so we honestly can’t now say we know what’s going to happen.’

And now that I’ve gone out on that crowded limb calling for a short-term bottom and a violent rally, I hope I don’t have to join them.

Short post on short selling and a short-term bottom …

I think we’re about to get a much-needed reminder that stock markets don’t always go down.

Could happen today, could happen tomorrow, and it may or may not happen after one last big selloff, but we’re going to get a relief rally very soon. I don’t expect it to last long, but I do expect it to be rather violent and dramatic. Maybe we get back close to 11,000 on the Dow.

My short-term optimism (and change in opinion) stems from a conversation I had with a hedge fund guy at a conference on Tuesday. He said every hedge fund guy is desperately looking for new stocks to short. ‘You can’t have enough short ideas,” he told me.

It’s counter-intuitive, but it’s actually good when investors are all bearish because that means there’s a lot fewer people with stock they want to sell. (Remember, short selling is a bet against the market in which investors sell borrowed shares of stock in hopes of buying them back at a lower price and pocketing the difference).

It’s been especially difficult for hedge funds because the government unwisely banned short-selling in more than 1,000 different stocks (the list was at first 800 stocks, and was supposed to be limited to financial companies, but the list has expanded to the point of ridiculousness both in terms of size and scope).

At first, I thought the short-selling ban was keeping the market unnaturally high, but now I think it may have had the unintended consequences of making things worse. Hedge funds who may have covered their shorts haven’t done so because they know they can’t put them back on. Some sectors like technology may have been especially hurt as hedge funds looking for shorts have had to target companies outside the financial industry.

So I think the lifting of the short-selling ban Wednesday night could prove to be a catalyst to spark that rally. The Fed could come together with the European Central Bank to lower rates in a coordinated attempt to stimulate the markets.

Again, in the long term, I don’t think anything the government does will prevent an extended, deep slowdown, the likes of which we haven’t seen for decades, if not generations. The market will probably sink much lower than where it is today.

But at this point, even a short-term rally would be most welcome.

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