ECONOMIC STIMULUS: RUSHING FORWARD TO DISASTER
Wrong from day one?
I do not even know what is contained in President-elect Barack Obama’s stimulus package and I know that we are rushing toward another Bush-style fiscal disaster.
One, according to Nancy Pelosi, every effort will be made to get the broad guidelines from Obama’s economic advisers so that the democrats can begin crafting the language of the bill as soon as possible. According to Pelosi and members of the Obama contingent, it is desired that this legislation be signed into law as soon as practical after Obama’s swearing in ceremony.
Two, it is unlikely that this bill is going to be crafted with a bi-partisan team and will most likely be drafted in secret.
Three, it is unlikely that this bill will go through the committee process as does most other legislation. This shortens the time that legislators have to re-think and re-work the actual language of the legislation.
Four, it is likely to be presented to the Senate and the House as a fait accompli, with little time for legislators to read and really study the impact of the legislation.
Five, the legislation is likely to contain broad-brush concepts and ideas rather than specific details regarding implementation, including financial controls, reporting methods and deadlines. But most of all, I am willing to bet that there are no significant penalties for missing reporting deadlines and actually conforming to the legislative guidelines.
Six, it is likely that there will be “special interest” accommodations for the unions and others who have supported the democrat push towards the presidency. These accommodations may not be blatant, but they will be in the form of requiring “union wage scales” rather than “prevailing wages” when letting contracts. It is likely that these conditions will come in the second round of implementing legislation, technical corrections or the rules and regulations promoted by democrat-led Agencies.
And seven, any outcome will be hailed as a great success as the politicos will claim to have “averted a financial major crisis,” or moderated the “Bush-caused” financial crisis.
“Trust me” legislation …
How do I know what will happen before it happens? Rest assured, I am not a psychic with a crystal ball, just someone who has observed over the years what politicians tend to produce under “emergency” conditions.
Or more recently, watching the Republicans completely cave in to a so-called recovery package that was larded with democrat pork to insure passage, had absolutely no controls or penalties for non-compliance; and worst of all, ceded enormous power to the Treasury Secretary with little or no accountability. The very essence of “trust me” legislation. Only to subsequently find that the Treasury Secretary admitted that the program, as originally envisioned, did not work and was seeking to re-purpose the remaining available funds.
Even the amount of the recovery bill, $700 BILLION, was a wild-eyed estimate with absolutely no basis in fact. And if one really counts the monies disbursed by the Treasury Department and other government agencies, added to those funds disbursed by the Federal Reserve and guaranteed by the government –- we are already in the TRILLIONS. Or as they say on Wall Street where so much of the money went – BILLIONS are the new MILLIONS.
Why I am not comfortable with an unchallenged democrat proposal …
Considering the corruption and malfeasance that has swirled around democrat-controlled cities and states, I am worried that the pervasive culture of corruption and special interest deals will override any public interest.
One need only look at the current scandals involving democrat fundraising, possibly even that linked to Barack Obama, to know that democrats and money do not mix without stringent oversight – and even then they often manage to corrupt the system.
Too little time …
According to the Washington Post …
Sources said Obama and Pelosi will discuss the scope and timing of the economic recovery package, which Obama has said will be his first priority upon being sworn into office. Pelosi has said her goal is to have the legislation on the new president's desk and ready to be signed on Jan. 20.
Assuming work starts on legislation when the Congress convenes on January 5th, there is not enough time to correctly draft, debate and codify such massive legislation.
Too much money …
“But that schedule appears increasingly likely to slip, as Republicans and conservative Democrats are raising concerns about the impact on the federal deficit of spending hundreds of billions on an array of projects with little vetting by Congress. Lawmakers now expect a spending package of between $675 billion and $775 billion.”
One must ask, another number pulled out of thin air – with a tolerance of $100 BILLION dollars? These are the type guesstimates which produce very rich special interests and corrupt politicians.
'The timeline is even worse than previously thought …
“And a top congressional aide said yesterday that Democratic leaders in the House are still waiting for a detailed proposal to be delivered by Obama's economic advisers before lawmakers can begin the process of turning it into legislation.”
“Even so, congressional Democrats are anxious to get the process started so that a vote can take place in the House as early as the week of Jan. 12. Pelosi announced yesterday that the first hearing on the plan will take place Wednesday.”
We feel the need for speed …
“In a letter to Democratic House members, she wrote that the hearing will focus on ‘the need to act with deliberate speed to safeguard as many as three million jobs by making needed investments in infrastructure, alternative energy, science and other emerging sectors and providing middle-class tax cuts to help make work pay.’"
It’s not what it seems …
“Among those scheduled to testify at a series of hearings involving several committees are Mark Zandi of Moodys.com, Harvard University professor and former labor secretary Robert Reich, Harvard economist Martin Feldstein, MIT professor Maria T. Zuber and others.”
First, the people set to testify are all well-credentialed with a liberal leftist bent.
Let’s see what Martin Feldstein had to say in the Wall Street Journal on November 8, 2008 …
“More than 12 million homeowners now have mortgage debt that exceeds the value of their homes. These negative-equity homeowners have an incentive to default because mortgages are generally ‘no recourse’ loans. That means creditors can take the property if the individual defaults, but cannot take other assets or income to make up the difference between the unpaid loan balance and the lower value of the house. As a result, mortgage default rates are now rising rapidly and are expected to go much higher.”
“The no-recourse mortgage is virtually unique to the United States. That's why falling house prices in Europe do not trigger defaults. The creditors' ability to go beyond the house to other assets or even future salary is a deterrent.”
“In an earlier article on this page I proposed a plan to prevent declines of house prices back to the pre-bubble level from pushing current positive-equity homeowners into the negative-equity group. The essential feature of that plan is to replace 20% of the homeowner's existing mortgage with a separate, full-recourse loan from the government. That ‘mortgage replacement loan’ would have a very attractive, low interest rate. Because it would be separate from the mortgage and would have full recourse, it would establish an important firewall. Even if house prices fall another 20%, all mortgages would still have positive equity. The mortgage-replacement loan would involve no actual government spending and therefore no increase in the budget deficit.”
“The key to preventing further defaults and foreclosures among current negative-equity homeowners is to shift those mortgages into loans with full recourse, allowing the creditor to take other property or a fraction of wages. But the offer of a low-interest-rate loan is not enough to induce a homeowner with substantial negative equity to forego the opportunity to default and escape the existing debt. Substituting a full-recourse loan requires the inducement of a substantial write-down in the outstanding loan balance. Creditors have an incentive to accept some write-down in exchange for the much greater security of a full-recourse loan. The government can bridge the gap between the maximum write-down that the creditor would accept and the minimum write-down that the homeowner requires to give up his current right to walk away from his debt.” <Source>
Danger, Danger
You do not need to be a genius to see that old Marty is doing a major favor for Wall Street. Precisely the same type of government favor which permits the credit card companies to change usurious rates far in excess of the cost of capital and which push consumers towards insolvency at a faster and faster rate. The type of favor which caused the re-jiggering of the current bankruptcy law to make it harder to walk away from credit card debt. Ostensibly to prevent scofflaws from stealing from the banking system – although there is overwhelming proof that most people declaring bankruptcy were forced to do so by overwhelming medical bills, loss of employment, and let us not forget the crushing burden of usurious credit card rates.
Here Marty wants to insure that you give your current lender the right to seize your car and other assets in case of a default – even your future earnings. All for a government-sponsored loan modification program which will be designed to trap those who really do not understand the game being played.
As for Robert Reich …
Reich is an extremely bright, well-credentialed liberal leftist who never met a union he didn’t like. As Clinton’s labor secretary, he advocated and implemented social programs such as the Family and Medical Leave Act, increasing the minimum wage (which mostly affects new entrants to the job market, the unskilled and illegal aliens), successfully lobbied to pass the Pension Protection Act and the School-to-Work Jobs Act, and launched a number of job training programs. At the same time, he lobbied Clinton to address bigger societal issues, and pushed for improvement of conditions for those in poverty. Reich is a Clintonista, even dating Hillary Clinton in College. <Source>
And the others …
Moody’s is one of the ratings agencies who allegedly got it all wrong and permitted securities which were based on subprime and fraudulent mortgages to be rated triple-A thus making them into “investment grade” securities that were gobbled up by pension funds, insurance companies, mutual funds – to the detriment of the entire financial community and your savings and retirement funds.
Zuber is a well-credentialed scientist – likely to be one of the point people on global warming legislation which will produce the next set of Wall Street billionaires as they create and trade “climate-based” derivatives much as they did “mortgage-based” derivatives.
The first hearings that are likely to take place are more a media event than a substantive inquiry into legislative policies.
The first scheduled hearing on the new recovery plan is before the Steering & Policy Committee, a panel that lacks direct jurisdiction over the new spending bill. This is Nancy Pelosi’s stage – nothing less and nothing more.
Senate firewall?
Standing between the House of Representatives and President Obama is the United States Senate. As currently constituted, even with the possibility of Al Franken being the Senator from Minnesota, the democrats are 3 votes from obtaining a veto-proof majority – so that the Senate Republicans, provided they rediscover their conservative mandate and guts, can serve as a moderating force in preventing ill-crafted legislation.
The media campaign will commence …
“Obama aides said the president-elect and his team will help make an all-out push to convince Americans that the government must spend almost $1 trillion to create jobs, provide cash for spending and shore up the finances of the state governments.”
Broad strokes for privileged folks …
“Obama aides and congressional sources have said the package under development is likely to contain three broad categories: infrastructure investment, tax breaks and direct aid to states.”
Again, we face the danger clearly demonstrated by Treasury Secretary Paulson …
“Congressional aides said all the specifics of the infrastructure spending are unlikely to be spelled out in the legislation. Instead, the goal will be to provide formulas that allow states to choose projects that fit a series of broad principles laid out by the president-elect and Congress.”
A blind man can see what is about to happen at the state level. Perhaps I should remind you that many states and municipalities used voter-designated funds to purchase infrastructure items involving transportation assets – which they then sold off to investors and leased back the assets to provide service to the public. The money they received from the sale was no longer restricted and could be used for any purpose imagined by the corrupt politicians and their pointy-head advisors. We probably would have never known about this potentially illegal maneuver (although nobody will face punishment) had it not been that the revenue stream to lease the assets back was guaranteed by the insurance giant AIG – of which the United States owns 80% or more.
Tax cuts for some …
“The tax cuts being discussed are focused on reductions in payroll taxes, a top congressional aide said.”
Small businesses run by people using sole proprietorships are unlikely to see any tax reduction as they do not have payroll taxes – they pay self-employment taxes which may be unaffected. And one can hardly wait to see what earnings caps will be placed on these so-called benefits.
The proper perspective would have you remember that they are not giving the people anything – they are simply taking less of our money to spend.
“Once adopted, workers would see more money in their paychecks every week, leading -- officials hope -- to increased consumer spending.”
It is often cited that the problem with today’s consumer is that they are not saving enough – for a rainy day or retirement. But does anybody notice the irony of a government which wants to encourage spending instead of saving. When our nation turned from an industrial economy to a consumer economy, it became inevitable that we needed to spend more-and-more to keep the economy growing. Perhaps we should encourage re-industrialization and less outsourcing to grow the economy rather than simply allowing consumers to spend their government-inflated dollars to foster the illusion of economic growth.
“The aid to states is likely to come in the form of payments that could help meet the growing costs of Medicaid spending.”
Perhaps if we reduced the medical burden imposed by illegal aliens, we would have much lower costs. Oh, what was I thinking: the democrats want benefits to non-citizens to prove how companionate and understanding they are; as they continue to foster waste, fraud and corruption in government-run programs.
Bottom line: as with all government legislation the devil is in the details – of which we are privy to damn few.
What can YOU do?
Demand that you elected officials implement spending caps, frequent and transparent reporting and penalties for not achieving stated objectives.
Demand that your local and state governments spend the money for projects which produce results for the smallest amount possible. Probably unlikely with inflated union wages and benefits.
Watch how politicians handle the taxpayer’s money and be prepared to vote them out of office as soon as possible.
We need to take a stand somewhere – and this is as good a time as ever.
Be well and be safe.
-- steve
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Reference Links:
Obama, Pelosi to Discuss Scope of Economic Package - washingtonpost.com
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