Already the proposed stimulus package points to a colossal failure of nerve on the part of the Democratic messiah. Instead of boldly leading us through the Red Sea of an economic depression our anointed one is barely immersing his toe in the waters.
Contrary to what most economists purport, we do know what it takes to pull an economy out of a depression. When FDR took office in 1933 he pushed through a series of programs which for four consecutive years kept the budget in a deficit that was 5-6% of each year’s GDP. It did ameliorate horrendous conditions, bringing unemployment down from 25% to 12%, but, everyone agrees, it did not end the Great Depression; it did not lead us to the promised land of prosperity and growth.
No, it took the economic stimulus of World War II to pull us out of the Great Depression. But what about the war did the trick? Certainly not the actual killing of people, unless you think that stimulating the funeral industry provides that needed stimulus. It was putting every able-bodied person to work at high wages. Unions agreed to a no-strike clause in exchange for high wages, overtime pay, and generous pension benefits. And when my father, at 18, put on his uniform and shipped out to England in the late fall of 1943 to prepare for the Normandy invasion, he did not do that without pay! No, he and every GI received a regular paycheck as did his sister, my aunt, who was a Navy nurse.
That deficit spending for the years of 1942, 43, 44, and 45 was 25 – 30% of GDP for each of those years. At war’s end, our total national debt was 110% of the 1946 GDP! It fueled prosperity for the next 20 years, and the debt was paid down.
So we have direct experiential evidence that deficit spending of 6% of GDP for four years does not work, but that deficit spending of 25% of GDP for four years does work. 25% of our current $14 trillion GDP is $3.5 trillion; Mr. Obama’s ‘stimulus’ package requests $850 billion over two years, or approximately 2.5% of current GDP—one tenth of what we know works! No doubt about it: this spending will NOT turn the economy around.
A bold plan of change we can believe in would pinpoint a target percentage of GDP using 25% as a starting point and then factoring in the many differences between the current situation and that of the 1940’s, rather than worrying about crafting a bill that will get near unanimous congressional approval. Once that figure is established, robustly defend that reasoning to the American people and have us pressure our Congress people to pass the legislation appropriating it. And bar lobbyists from Capitol Hill. Now that would be change we can believe in!
Jonathan Fluck
Wednesday, January 28, 2009
Friday, January 2, 2009
Held Hostage
We have been held hostage. With the gun of world financial collapse at our heads and the threat of a deeper depression than that of the 1930s, Wall Street held the American population hostage until our spineless representatives (whatever happened to ‘we don’t negotiate with terrorists?’) forked over the national treasure. In the name of salvaging a decaying economic system, over 7.7 TRILLION dollars* of taxpayer money has been committed to the financial system over the last few months to keep it from literally collapsing. This is the result of merger and deregulation mania sponsored and advocated by the shining stars of Clinton’s globalization economists, and brought to its denouement by the global free-marketer cowboys of the Bush White House.
To add insult to injury, President-Elect Obama’s anointed financial team are the very architects of the system that is crumbling like the house of cards it is! The end result of unchecked greed and manipulation, misinformation and a total lack of transparency, aided by government regulatory agencies asleep on their watch.
So far the vaunted oversight board (thank you Messrs Frank & Schumer) has only asked questions. Of course (thank you again Messrs Frank & Schumer) it has no teeth to coerce answers. So once again instead of holding those responsible accountable they will not be exposed, barred from carrying on, prosecuted or even forced to personally repay the billions they’ve defrauded their costumers out of. Just like in the Continental Illinois Bank $9.5 billion bailout of 1984; just like in the Savings and Loan $293.3 billion bailout of 1989-1990; just like in the Airline industry $18.6 billion bailout in 2001, or the $200 billion Fannie Mae & Freddie Mac and the $150 billion AIG bailouts of this year. Who is held hostage and forced to bailout the rotten players? You guessed right: the American patsy.
We must never again allow any corporation or group of corporations to hold us hostage. Our anti-trust laws must be revisited and revised to mandate that any corporation that is becoming “to big to fail” regardless of the industry it dominates, be broken up and denied the ability to merge with a rival. When we, the people, are asked to bail-out a business, then we, the people, should either own it or profit handsomely from it; not like the sweet-heart deals Geitner (our future Treasury Secretary) has been ‘negotiating’ with banks and AIG.
However, the events of this past Fall direct us to take another, more fundamental, course of action. We must truly nationalize a portion of the banking system. The government should directly control enough of the banking system so that any combination of bank failures will not threaten the credit or money markets with collapse. We have seen how absolutely essential the availability of credit is in the world economy, how dependent all of us are on it, and how much of it is based on trust. This is easily accomplished simply by taking over failing banks, as the FDIC regularly does, and adding them to a National Banking System rather than merging them with existing institutions.
It might also be circumspect to prohibit the securitization or re-selling of mortgages. If the institution that has lent the money is required to see that mortgage through, it has a huge incentive to write mortgages that people can actually repay and to scrutinize customers with more diligence than has recently been the case.
Finally, we must prosecute not only the CEOs and the managers responsible for the derivatives debacle but also all those mortgage brokers responsible for the initial sale of those toxic assets along with those responsible at the rating service companies that turned leaden C assets into golden triple A’s. Their restitution should be all the pay and bonuses they received during those nefarious years along with or in exchange for jail time. Putting white collar criminals en masse in jail will have a wonderfully deterrent effect.
But what is happening instead? Financial companies already ‘too big to fail’ are being encouraged or forced to merge with other companies that are on the brink of collapse, thereby forging even larger companies. Now just guess what is going to happen if and when they teeter on the brink of collapse? And those responsible for the current fraud are still heading up or working for their companies. And have heads rolled at the SEC or the Federal Reserve or Treasury Department—those who were supposed to be monitoring the health of the financial industry? Quite the contrary. Those public servants are now heading up the rescue effort.
Of course I understand that we are neck deep in global market considerations. But this shock has struck every country in the world and now is the time to globally agree on terms that return financial institutions and corporations to national sovereignty. In other words, all those trade agreements that have facilitated the merging of capital and markets worldwide must be renegotiated to insure that the destiny of nations is held, not in closed board rooms, but in the elected deliberative body of each nation.
We must never be held hostage again.
*yes, with a ‘T’ according to the Wall Street Journal & Bloomberg News, Nov. 24, 2008: through 12 different programs the Federal Reserve has committed to insuring $4.5 trillion worth of financial assets, $1.8 trillion already have been dolled out; the Treasury Department has three programs in addition to the $700 billion TARP and the $29 billion tax breaks for banks totaling $1.1 trillion, $597 billion having been dispersed already; then we have two FDIC guarantee programs committing $1.5 trillion (only $139 billion dispersed as of yet) and then, of course the FHA $300 billion ‘Hope for Homeowners’ program and the ADDITIONAL $300 billion that went to CitiGroup. Totals? $7.7 trillion committed and $3.2 trillion dispersed.
Jonathan Fluck
To add insult to injury, President-Elect Obama’s anointed financial team are the very architects of the system that is crumbling like the house of cards it is! The end result of unchecked greed and manipulation, misinformation and a total lack of transparency, aided by government regulatory agencies asleep on their watch.
So far the vaunted oversight board (thank you Messrs Frank & Schumer) has only asked questions. Of course (thank you again Messrs Frank & Schumer) it has no teeth to coerce answers. So once again instead of holding those responsible accountable they will not be exposed, barred from carrying on, prosecuted or even forced to personally repay the billions they’ve defrauded their costumers out of. Just like in the Continental Illinois Bank $9.5 billion bailout of 1984; just like in the Savings and Loan $293.3 billion bailout of 1989-1990; just like in the Airline industry $18.6 billion bailout in 2001, or the $200 billion Fannie Mae & Freddie Mac and the $150 billion AIG bailouts of this year. Who is held hostage and forced to bailout the rotten players? You guessed right: the American patsy.
We must never again allow any corporation or group of corporations to hold us hostage. Our anti-trust laws must be revisited and revised to mandate that any corporation that is becoming “to big to fail” regardless of the industry it dominates, be broken up and denied the ability to merge with a rival. When we, the people, are asked to bail-out a business, then we, the people, should either own it or profit handsomely from it; not like the sweet-heart deals Geitner (our future Treasury Secretary) has been ‘negotiating’ with banks and AIG.
However, the events of this past Fall direct us to take another, more fundamental, course of action. We must truly nationalize a portion of the banking system. The government should directly control enough of the banking system so that any combination of bank failures will not threaten the credit or money markets with collapse. We have seen how absolutely essential the availability of credit is in the world economy, how dependent all of us are on it, and how much of it is based on trust. This is easily accomplished simply by taking over failing banks, as the FDIC regularly does, and adding them to a National Banking System rather than merging them with existing institutions.
It might also be circumspect to prohibit the securitization or re-selling of mortgages. If the institution that has lent the money is required to see that mortgage through, it has a huge incentive to write mortgages that people can actually repay and to scrutinize customers with more diligence than has recently been the case.
Finally, we must prosecute not only the CEOs and the managers responsible for the derivatives debacle but also all those mortgage brokers responsible for the initial sale of those toxic assets along with those responsible at the rating service companies that turned leaden C assets into golden triple A’s. Their restitution should be all the pay and bonuses they received during those nefarious years along with or in exchange for jail time. Putting white collar criminals en masse in jail will have a wonderfully deterrent effect.
But what is happening instead? Financial companies already ‘too big to fail’ are being encouraged or forced to merge with other companies that are on the brink of collapse, thereby forging even larger companies. Now just guess what is going to happen if and when they teeter on the brink of collapse? And those responsible for the current fraud are still heading up or working for their companies. And have heads rolled at the SEC or the Federal Reserve or Treasury Department—those who were supposed to be monitoring the health of the financial industry? Quite the contrary. Those public servants are now heading up the rescue effort.
Of course I understand that we are neck deep in global market considerations. But this shock has struck every country in the world and now is the time to globally agree on terms that return financial institutions and corporations to national sovereignty. In other words, all those trade agreements that have facilitated the merging of capital and markets worldwide must be renegotiated to insure that the destiny of nations is held, not in closed board rooms, but in the elected deliberative body of each nation.
We must never be held hostage again.
*yes, with a ‘T’ according to the Wall Street Journal & Bloomberg News, Nov. 24, 2008: through 12 different programs the Federal Reserve has committed to insuring $4.5 trillion worth of financial assets, $1.8 trillion already have been dolled out; the Treasury Department has three programs in addition to the $700 billion TARP and the $29 billion tax breaks for banks totaling $1.1 trillion, $597 billion having been dispersed already; then we have two FDIC guarantee programs committing $1.5 trillion (only $139 billion dispersed as of yet) and then, of course the FHA $300 billion ‘Hope for Homeowners’ program and the ADDITIONAL $300 billion that went to CitiGroup. Totals? $7.7 trillion committed and $3.2 trillion dispersed.
Jonathan Fluck
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