Who is smiling? Hu is smiling - Federal government borrows $170 billion from China, urges Americans to buy stuff from China and stimulate American economy. Wait...what?
Fark adds: "Stimulus plan passes. Spend your money frivolously or you hate America." And the terrorists win.
You said it. I can't believe this package got passed "as is". You correctly point out that a mere FRACTION of this handout will end up stimulating U.S. business, and the lion's share will go to China Inc.
While I'm not a big fan of huge government programs in general, if we're going to do this, the LEAST we could have done is keep the money in the U.S.A. Public works and infrastructure programs are one way to achieve this, and have the tangential benefit of something useful for the general public in addition to the jobs/spending that result.
Lessons on debt from George W. Bush
January 23, 2008
As markets lurched and crashed this week and ordinary people around the world watched big chunks of their wealth slide into the abyss and their economies veer toward recession, President George W. Bush summoned reporters to the Roosevelt room at the White House to announce a new executive order.
Flanked by members of his cabinet, the president explained that he had come to the conclusion many Americans do not understand their personal finances: "How credit cards work, and how credit scores affect you, how you can benefit from a savings account or a bank account."
So, said Bush, he had just established a blue-ribbon panel to advise him on how to further financial literacy.
It was a moment of Forrest Gump clarity in a day of deafening accusations and frightening news.
Campaigning presidential candidates were demanding emergency relief for the new needy. Experts were shouting at one another on cable networks, debating whether recession has arrived. The U.S. Federal Reserve, desperate to thwart a disaster, had just cut the key interest rate three-quarters of a percentage point — the biggest one-time cut in a quarter century. The Bank of America had become the latest financial institution to announce billions in losses, mostly due to American homeowners defaulting on mortgages in the ongoing lending crisis.
Meanwhile, in the Roosevelt room, elaborating on his new plan to educate Americans, President Bush mused: "I just wonder how many people, when they bought a subprime mortgage, knew what they were getting into."
Days of wonder
It is hard to know if Bush was serious. But the answer, anyway, is self-evident: If the millions of Americans who can't make their ballooning mortgage payments today knew that they would be hopelessly indebted and facing foreclosure after just a few years of these new arrangements, most of them, presumably, wouldn't have signed. That too many Americans are spend-happy and unable to see past the next minimum payment on their multiple credit cards is pretty obvious, too.
According to the Federal Reserve, the country's central bank, American consumers collectively owe $2.5 trillion, not including mortgages. That is about $22,500 per household in unsecured debt, roughly $8,300 of which is a credit card balance. Nearly half the people in this country spend more than they earn.
But then, it isn't as if their president or, for that matter, the other branches of government in this country has set a much higher example.
Granted, this is a country that believes more than most in keeping the dead hand of government out of the marketplace, which is one of the reasons it has attracted so much of the world's investment wealth in the first place.
But even most fiscal conservatives believe government has a regulatory role, a duty, in fact, to protect citizens and investors from market predators. And as the American housing market became gradually unmoored from reality over the past several years, precious little regulation was in evidence.
Not a penny down
Just a couple of years ago, in fact, Americans were routinely buying houses without a penny down, sometimes actually borrowing more than the purchase price and pocketing the extra cash at closing.
If the borrower was willing to pay a few more interest points, shady mortgage brokers would see to it that no proof of income or wealth was necessary. Or they would conceal huge fees and steep rate increases down the road a bit from anxious borrowers, rushing them through what amounted to a con job.
Appraisers obligingly overestimated the value of a property being purchased, the better to conceal the shakiness of the deal.
Banks and mortgage companies, collecting a nice fee, looked the other way, too, and then sold the debt to Wall Street, which would bundle it and sell it to suckers on the international securities market, many of whom had been fooled by the triple-A rating bestowed by ratings agencies on the whole mess.
What's more, it was not as though this was all done in secret. The whole time, consumer advocates and local government officials and economists were banging on desks and uttering dire warnings.
Ira Rheingold of the National Association of Consumer Advocates called the whole process "insane." Jim Rokakis, the county treasurer in Cleveland, referred to it as "fraud on an industrial scale."
They may as well have been yelling into a toilet.
A game of risk
Under the stewardship of a president who believed unstintingly in the ability of the market to discipline itself, federal regulators did virtually nothing.
State governments were no better. When, back in 2002, the cities of Cleveland, Toledo and Dayton, Ohio, passed laws cracking down on predatory lending, the free-market warriors in the state legislature immediately reversed them.
Risk is the grease of the American engine, argued the politicians. It is not for the state to protect people from their investment decisions. Caveat emptor.
And now, as a staggering 1.5 million homeowners face the prospect of foreclosure, and the bilge from all that unrestrained greed slops over onto innocent investors here and abroad, sweat is running down the backs of the country's ruling class.
"Explain to us," John Spratt, a Democratic congressman, demanded last week of Federal Reserve Chairman Ben Bernanke, "how it is that a problem so pervasive and so serious was able to crop up, or arrive under the radar without being detected sooner by the regulators?"
Bernanke stared at the budget committee chairman for a moment, and chose diplomacy. "There was a combination of factors," he replied.
The education of a president
Bernanke, his hands tied by circumstances, has really only one weapon left in his arsenal — to cut interest rates, which in effect means to print more money and make it easier for banks to lend.
He has made it clear that he will cut rates again, if necessary, to keep business solvent. Whether it will work is not clear.
Politicians, meanwhile, know an election year nightmare when they see one. Bush is promising fast action (something beyond his new education program) in the form of a stimulation package in excess of $141 billion. Congress is racing to cooperate.
But what exactly is this fix proposed by a president who says too many of his co-citizens don't understand the impact of their own financial indebtedness? Much more government borrowing.
This from an administration that has financed five years of war in Iraq by borrowing from foreign investors while cutting taxes at home. The U.S. government, thanks to Bush and six years of a compliant Republican Congress, is now into the Chinese banks the way the Americans are into the credit card companies.
In order to pacify fiscal conservatives, Bush is characterizing the proposed measure as "an economic growth package," consisting of, as he puts it, "giving American consumers back some of their own money."
Basically, though, these are cash handouts — perhaps as much as $800 to individual taxpayers, $1,600 to families, distributed in the desperate hope that consumers will follow their past pattern and immediately spend the money on something, anything, rather than put it against some of that colossal household debt.
Because Bush will not tolerate increasing taxes on the well-off, and isn't proposing spending cuts, there is only one place he can get the money, which is the same well he has gone to so many times before: "The president wants to borrow money from the international community," says James Thurber, a professor of government at American University in Washington, DC. "He doesn't state it that way, but he'll have to do it if he doesn't raise taxes or cut popular spending programs."
Bush's administration, says Thurber, "thinks it can go to heaven without dying, meaning that they can cut taxes and borrow and there will be no consequences."
As for the financial Wild West of the past few years, Thurber says: "It's a strong argument that we need government, and we need regulation, and that unrestricted laissez-faire capitalism doesn't work."
Back in the Roosevelt Room this week, Bush made no such concessions. He just talked, almost wistfully, of how he wants "America to be as hopeful a place as it can be. We want people owning assets. We want people investing. We want people owning homes.
"But oftentimes," he went on, "to be able to do so requires literacy when it comes to financial matters."
And so, by executive order, the education begins, if a tad late.
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