Nicolas Cage has gone and gotten himself in a bit of financial trouble. It might surprise you that someone who makes tens of millions of dollars per movie could be headed the way of Lehman Brothers. However, when you look at the purchases he’s made, well, the reason for his money woes becomes somewhat more understandable:

- 30 to 50 cars and 18 motorcycles including a $500,000 Lamborghini, previously owned by the Shah of Iran

- Several supposedly-haunted mansions in New Orleans

- A jet

- A castle

- Two Bahamanian islands

- Over a million dollars worth of comic books

- And my favorite, a $276,000 dinosaur skull he won in a “heated auction with Leonardo DiCaprio” (1)

Apparently, a penny saved is a penny that can’t be spent on a Bahamanian island. It’s safe to say Nicolas Cage’s spending spree makes the average American, who had a negative savings rate for most of the decade, look like our frugal grandparents who love to recite tales of the Great Depression.

This summer, the IRS rewarded Nicolas Cage for his “efforts” with a $6 million tax lien on his New Orleans properties for unpaid taxes. So the IRS, lead by tax cheat Timothy Geithner, is cracking down on Nicolas Cage for unpaid taxes. How ironic. Or perhaps, “how fitting” would be a better way to put it. After all, I think Tim Geithner, our spend-happy Congress, the Federal Reserve, George Bush and Barack Obama can give Nicolas Cage a run for his money (what little is left of it) when it comes to irresponsible spending. Honestly, look at what our government has been doing:

- $700 billion bank bailout

- $25 billion auto bailout

- Take over of Fannie Mae, Freddie Mac, GM and AIG

- $787 billion stimulus package

- $2 billion “cash for clunkers” program

- $1 trillion injection of capital from the Fed (2)

- Attempting to pass healthcare reform which is expected to cost $1 trillion over 10 years (probably a low estimate) (3)

- Attempting to pass cap and trade which could cost the United States as much as $100 to $200 billion a year (4)

Much of this was done by Bush and the Fed, but Tim Geithner, as Treasury Secretary, has certainly pulled his own weight in the Obama Administration when it comes to fiscal recklessness. The United States is going to have a $1.4 trillion deficit this year, pushing the national debt up over $12 trillion. Furthermore, we may have as much as $107 trillion in unfunded liabilities; a sort of ticking time bomb nobody wants to talk about. (5)

And yet we spend, spend and spend some more. And yes, shocking as it may sound, some of this spending is of somewhat dubious merit. Remember some of the things that were put into the stimulus bill? (And keep Nicolas Cage in mind while doing so):

- $650 million for digital TV coupons

- $44 million for repairs to U.S. Department of Agriculture

- $200 million for the National Mall ($21 million of it for sod)

- $50 million for the National Endowment of the Arts

- $1.1 billion for the Amtrak, which, by the way, is chronically broke

- $2 million for North Miami households to switch to energy-efficient light bulbs

- $500,000 for a dog park in Chula Vista, California

- $50,000 for two dog parks in Lewiston, Maine (apparently Barack and Tim like dogs)

- $33,725 for automatically flushing toilets in Sumter, South Carolina

- $886,000 for a 36-hole “disk-golf” course in Austin, Texas* (6)

Again, we can’t give all the credit to Timothy Geithner, but he is the Treasury Secretary, so I think he deserves a large share. And while he has done a very good job of spending us into oblivion, I think Nicolas Cage could do him one better. Therefore, I am proposing Timothy Geithner step down and let the master of financial incompetence replace him. And while we’re at it, I think we should nominate Mike Tyson as the next Fed Chairman, just for good measure.

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*Several of these projects were not officially in the stimulus bill, but instead were projects proposed to take place with stimulus money.

(1) Lindsey Robertson, “Nicolas Cage’s Outrageous Decades-Long Shopping Spree,” Yahoo! Movies, November 4, 2009, http://movies.yahoo.com/feature/movie-talk-nicolas-cage-spending.html
(2) Eamon Javers, “Bernanke’s trillion dollar decision,” The Politico, October 24, 2009, http://news.yahoo.com/s/politico/28677
(3) Nick Loris, “Treasury Admits Cap and Trade is a Massive Tax,” The Heritage Foundation, September 16, 2009, http://blog.heritage.org/2009/09/16/treasury-admits-cap-and-trade-is-a-massive-tax/
(4) Susan Page, “How much health care for $1 trillion?,” USA Today, July 15, 2009, http://www.usatoday.com/news/washington/2009-07-14-trillion-dollars-for-health-care_N.htm
(5) For deficit, see “Federal Budget Deficit Totals $1.4 Trillion in Fiscal Year 2009,” Congressional Budget Office, November 6, 2009, http://cboblog.cbo.gov/?p=422, For debt, see “U.S. National Debt Clock,” Brillig.com, http://www.brillig.com/debt_clock/, For unfunded liabilities, see Bob Brooks, “The 107 Trillion Dollar Problem,” Prudent Money Blog, June 25, 2009, http://www.mahalo.com/answers/economics/according-to-one-recent-estimate-the-unfunded-liability-of-social-security-plus-medicare-is-107-trillion-dollars-how-will-this-be-paid
(6) Terry Neese, “Stimulus Package Will Not Help Small Business,” Terry Neese’s Blog, February 2, 2009, http://terry-neese-blog.com/stimulus-package-will-not-help-small-business/

Click on graph for a larger, viewable version

Source: Federal Reserve Bank

The drop in the trade-weighted dollar index was led by the dollar’s 16% depreciation against the Canadian dollar, and a 12% decline against the euro. So watch for traveling Canadians towards the end of the summer; it’s getting nice and cheap for them to come visit.

Credit cards, one of the lesser publicized lines of credit under fire, is an industry just as scared as real estate lending. There’s a reason companies like American Express rushed to change their classification to “bank holding company” early this year: to gain access to the Troubled Asset Relief Program (TARP) cash. Credit cards often serve as the last lifeline for people struggling financially. This graph shows charge-off rates (when credit card companies write-off a percentage of uncollected balances as a loss) and delinquency rates.

Source: Federal Reserve Bank of Atlanta

Bank failures are still happening, and more are sure to come with real estate making up a nice portion of the typical bank’s balance sheet. 69 FDIC-insured banks have failed in 2009, through August 1st. This graph shows the asset sizes of the first 64 failed banks.

Source: Federal Reserve Bank of Atlanta

Other banks are facing extinction; those with billions of dollars of assets including Florida’s sixth-largest bank, Colonial BancGroup, with roughly $25.5 billion in assets. Colonial also has branches in Alabama, Texas, Georgia and Nevada. Troubled banks are assessing their options swiftly, in a mad scramble to gain access to TARP money, sell off branches and raise private capital.

By expanding the money supply, central banks everywhere have been able to push nominal interest rates to zero. In some countries, real interest rates have plunged into negative territories; lending at real negative returns sounds really appealing, doesn’t it? While increasing the money in circulation, troubled banks and companies like GM have been able to survive. Select industries have remained afloat, continued to employ some (although severe cutbacks have still occurred at General Motors, and they have moved thousands of jobs to places like Mexico, China and South America to take advantage of the lower wages), and banks who received TARP funds are beginning to give the money back to the Treasury.

But if the economy doesn’t turnaround in a meaningful way by the end of President Obama’s first term, what is the next move for central planners? Just when you think they’ve ran out of bullets, they pull out a golden gun. Could the next move be a nudge towards a cashless society? Whispers of such an about-face have turned into legitimate policy debates in Japan. The total shift to electronic money would be designed, and sold to the Japanese people, as a way to fight the deflationary spiral they’ve battled for a decade plus (coined “the lost decade”). Nothing scares the central bankers more than deflation. And nothing works better to push through policy than fear. Americans have learned all about fear mongering through both the Bush and Obama administrations.

Some analysts have estimated the Japanese need around -4 percent nominal interest rates to fend off further deflation. If I’ve lost you, that’s just your gut kicking in. A monetary system that requires -4 percent rates to kick-start an economy, is obviously a flawed one. The only way to achieve such low interest rates, claims the argument, is by controlling the money supply exactly down to the dollar, or yen, in this case. When central bankers use open market operations to control the money supply, they buy and sell bonds to increase or decrease money in circulation. Buying bonds increases the money supply; selling bonds decreases the money supply. A target interest rate is not hit precisely; rather, the rates jump around a range, close to the target. With a fractional reserve banking system, the money supply is even more difficult to pinpoint.

As Minority Report as it sounds, we’re oddly not that far from the cashless, central banker’s nirvana. In the United States, roughly 97% of the money supply is electronic. We use eBills, eStatements, online banking and pay for most goods with debit or credit cards.

Japanese policymakers will have a harder time convincing their cash-based, savings-oriented consumer society to use eMoney. “Only” 84% of the money supply is electronic in Japan. Six cashless payment systems exist under the Osaka sun (although only a city, the sun in Osaka reaches all corners of the country. Or, I just wanted to use the term), with growing technology that embeds the systems into mobile phones. All totaled, 120 million cashless payment chips (cards or phones) have made their way into the Japanese consumer’s routine.

I’m not expert enough to explain why anybody would lend money at negative interest rates; or, pay the government for the privilege of holding their debt. Practically, negative nominal rates are impossible. But negative real interest rates are already here. A nominal rate of zero, plus whatever the inflation rate currently sits at, puts us at negative real interest. The increase in food and gas prices is probably enough to get most baskets of goods and services to a higher inflation rate than last quarter.

As Milton Friedman said:

“I have been fascinated by the fact that in country after country you have a paradox: you have what is supposed to be a government of the majority; you have a representative government. And yet that government repeatedly does things that a majority of the people oppose. You go around in the United States, for example, where I know the situation best, and you will find that a majority of the people in the United States think government is spending too much, imposing taxes that are too high and would like to see government cut back. At the same time, the representatives of the people…through the…Congress…follow policies that lead to those results that the majority deplore. The reason for that, I believe, is we have a defect in our government institutions. What we have is a situation in which minorities, special interest minorities, are able to exercise undo influence. In my opinion…our solution to that is going to be through public action, which will lead to Constitutional provisions, setting narrower limits on government. That was a device that was adopted in the 18th century by the founders of our country in the original Constitution, and we need to reinforce that…by using the Constitution to set narrower limits on the scope of government.”

Without cash, every transaction we make will be recorded, and traced back to us directly. It will be even easier for the Federal Reserve, a non-government entity with zero transparency, to manipulate the money supply (thus changing the value of money). Currently, when Federal Reserve Chair Ben Bernanke doesn’t want to answer a question on Capitol Hill, he claims “banker’s privilege.” For an institution moving around trillions of dollars, not to mention holding the ominous power of creating new money, how long can this arrangement stand? A cashless society also brings us closer to the possibility of all financial, if not personal, information like social security numbers, compiled in one place; perhaps a government card, or for the New World Order folks, a scan-able chip implanted in the back of the hand.

The good news is, a computer’s voice will be able to tell me which pants I might like, as I stroll into the Gap.

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Negative nominal interest rates do occur in everyday life. Usually they are special cases, and not suitable for overarching monetary policy. For practical examples of negative nominal interest, check out an article by Alex J. Pollock:

Why Not Negative Interest Rates?

Notable czars living large:

Bank bailout czar
Energy czar
Drug czar
U.S. border czar
Urban czar
Regulatory czar
Stimulus accountability czar
Iran czar
Middle East czar
Af-Pak czar (for both Afghanistan and Pakistan)
Cyber czar

And now, without further ado: a pay czar!

With news of a pay czar coming down the shoot, this makes upward of 20 such top officials who answer directly, and only, to President Obama. These people may claim executive privilege, while simultaneously working free from the checks and balances of the legislative and judicial branches of government. In addition, it adds to a growing pool of unelected officials in Washington, who have no reason to be accountable to citizens.

The pay czar will also go by the nickname, “special master”, which prompts the question: who comes up with these spooky designations? For the record, we can credit the “czar” moniker to Nixon, who, among others, appointed the first drug czar.

Treasury Secretary Tim Geithner assures us that the administration only wants to cap pay for companies that take Troubled Assets Relief Program (TARP) money. According to Geithner, these will be the only firms subject to stringent compensation guidelines, set to be released soon. In addition, the regulation will apply to the top 100 paid employees of companies that take exceptional TARP funds, not only executives.

All other companies across the board, who were not forced to take TARP funds due to insolvency or being bullied by the Treasury, will have to answer to their shareholders regarding executive pay. Known as “say on pay” legislation, shareholders would take a non-binding vote on compensation.

In a statement released by the Treasury, Geithner explained his intentions:

“We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive. Instead, we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives.”

While accountability to the shareholder makes sense, the U.S. Treasury is the largest shareholder in many of the financial institutions that took TARP money. Until the Treasury issues stock directly to the taxpayers from its growing portfolio, what’s the difference in pay legislation between companies who received bailout funds and those that didn’t? In the end, it’s all “say on pay” by shareholders. Except, the government wields substantially more power as they decide who gets bailed out in the first place and with how much taxpayer money. Then, the Treasury becomes a majority stockholder and proceeds to dictate employee pay. Sounds like “say on pay” to me – on steroids.

Ten of America’s largest banks have been approved by the Treasury to repay $68 billion in TARP funds, plus about $2 billion from smaller banks. What will happen to that money? Will it be used to pay down unprecedented, astronomical public debt? How about issued back to the taxpayer as a check? No and no. As predicted on a previous post, Geithner said he will use those funds as bailout money again, if needed. The law allows TARP investment of $700 billion, at any one time, until the rescue authority ends, which Geithner can extend to October 2010. And as banks have paid billions of dollars in interest to the Treasury, since taking the TARP funds in October 2008, where has all of that money gone?

With enough uproar, I’m sure we can get a czar on the case.

Akin to Fannie Mae: We make home possible...until the first notice of default. Catchy slogan.

Ten banks are poised to repay TARP bailout funds next week, pending approval by the Treasury. At the top of this list is JP Morgan Chase & Co., who received $25 billion of TARP funds last year (on a side note, I’m getting nostalgic for WaMu signage; all of the WaMu banks in my city have officially swapped out for Chase signs). This is great news for the taxpayer who stepped in at a point of crisis, and shouldered great risk to backstop the country’s largest financial institutions; albeit not at our choosing. As any capitalist knows, returns on capital are necessary and the greater the risk exposure, the greater the return. So the $64,000 question is (because that’s what our money should be worth, in real terms, by the time we retrieve it): when do U.S. taxpayers get back the principal and earn our returns?

The way former Treasury Secretary Henry Paulson set up the system, returned TARP funds and interest paid on TARP funds go back into a TARP account, which is now managed by Herb Allison. As the government sells their equity stakes in banks, how will the money ever find its way back to the taxpayer? A reasonable query. A skeptic might think the government will use those funds to backstop more companies in the future, a la General Motors. A cynic would propose the government might use it to fund another stimulus package or government spending program. It doesn’t seem like the Fed’s style to send taxpayers a check funded by equity or profits. And it seems unlikely the Feds will issue private stock to taxpayers for all of the companies they’ve become majority owners in.

Either a check or individual stock ownership must occur for taxpayers to actually own these private concerns. Until then, don’t count on ever seeing the money, or any upside to these investments if any of the companies turn a profit one day. If there’s no need for oversight, or even a hearing, on a government takeover of General Motors; or a respect for contracts and debt repayments in bankruptcy law, I doubt a little savior capital will ever need to be returned safely.

“U.S. companies axed 532,000 jobs last month, though this was fewer than the revised 545,000 jobs lost in April, according to the ADP National Employment Report.”

Oh good deal, that’s a 2.4% improvement. So if we can keep that rate steady of improvement month by month, the U.S. will only lose some 11 million jobs before we begin to gain jobs again sometime around August 2012. Not too shabby. It would certainly be better than the 500 million jobs Nancy Pelosi said we would lose every month if the stimulus package didn’t pass. That would put unemployment at around, oh 167% next month. A rate that even an economy as dynamic as ours, might not be able to recover from.

Gold is also up from around $870/ounce in early April to close at $982.30 today, a rise of almost 13% in just about two months! Gold prices are a good sign of inflationary pressures. It looks like we’re going to be in for some pretty vicious price increases in the near future. I guess that’s what happens when you print money like we’re going to run out of paper.

In other news, perhaps Karl Marx had a bit of a point when he said capitalism would turn everything into a commodity. Sure, the system he envisioned got 100 million people killed when a bunch of vicious statists actually implemented it, but hey, at least he got one thing right. According to the New York Post, Natalie Dylan (not her real name) auctioned off her virginity online. The winning bid: a cool $3.8 million dollars! Unfortunately (I guess that’s the right word), the deal fell through. The “winner,” a 38 year old Australian businessman, had to back out. Shockingly, his wife wasn’t particularly pleased with his recent purchase and put some modest pressure on him to renege on his “contract” (and thus keep true to some oath he presumably took). Luckily for all you millionaires with ridiculously, creepy fetishes out there, Natalie is back on the market. Let the bidding begin!

Often, when deregulation is blamed, no specifics are given. In Barack Obama’s inauguration speech he only said, “…this crisis has reminded us that without a watchful eye, the market can spin out of control.” (1) When specifics are given, the finger is usually pointed at the Gramm-Leach-Bliley Act, which overturned much of the Glass-Steagall Act of 1933. Gramm-Leach-Bliley effectively eliminated barriers between investment banks, commercial banks and insurance companies. The idea behind keeping these institutions separate was to prevent conflicts of interest when evaluating risk. The lack of these barriers is blamed for some of the rampant speculation in the housing market.

Others point to a general lack of regulation in the mortgage industry. Most banking institutions gave what were called “stated income” loans. In essence, you told the bank how much money you made, they would take your word for it without a second thought, and give you several hundred thousand dollars to buy a home with. Since shockingly, people are not always honest, this put many homeowners in loans they could not afford. This also created the dreaded NINJA loan (No Income No Job No Assets). NINJA’s are typically bad at making their payments.

A lack of regulation is also blamed for allowing adjustable rate mortgages to become commonplace, especially in the sub-prime market. These loans would start out with a teaser rate and then, after a year or two, adjust to a much higher rate. When real estate was appreciating, this was fine, the homeowner could simply refinance. Unfortunately, once real estate began to depreciate, many homeowners found themselves unable to pay the increased mortgage payments, and without enough equity to refinance.

All of this makes a pretty compelling argument; however, it’s missing some key ingredients. First of all, there is already a lot of regulation. There’s a ridiculous amount of regulation in fact. As Austrian economist, Tom Dilorenzo clarifies,

“…we have 15 cabinet departments devoted to regulating different aspects of the economy. There are over 100 federal regulatory agencies. There are 73,000 pages of regulations in the federal register. And not to mention state and local governments that have hundreds and hundreds more regulatory agencies that regulate everything from zoning to anti-trust, to everything else.” (2)

Furthermore, the housing market was not only not deregulated, it was often regulated in the opposite direction. Many government programs (such as Fannie Mae, Freddie Mac and the Community Reinvestment Act, all to be discussed further in part 2) put as much pressure as possible on lenders to increase the availability of credit. All with the goal of creating what George Bush called, “an ownership society.”

If there still was a lot of regulation, what exactly are we blaming? What does deregulation even mean? Deregulation should mean to remove all government barriers from any given industry. However, whether they know it or not, this is not what anyone is referring to when they say “deregulation.” Unfortunately, the term “deregulation” is basically useless now. Let’s look back to the Enron debacle, which was also blamed on deregulation, to see how this misunderstanding plays out. Nobel Laureate, Paul Krugman, professed that Enron’s illegal behavior in California, which lead to rolling black outs, was caused by “…an attempt to give market forces freer rein, by deregulating the market for electricity, [which] turned into a disaster. The nature of the disaster was obscured by rigid free-market prejudices.” (3) However, what was touted as deregulation was nothing of the sort. As journalist Timothy Carney explains:

“What California tried, and Enron “gamed,” was really reregulation. It was freer than the old system, but in such a way that called for more government meddling and rules. Not only did the complex rules allow Enron to get rich, it also led to the price spikes, the energy shortages, and the blackouts that Californians suffered in 2000 and 2001.” (4)

Cato Institute Scholar, Jerry Taylor elaborates further saying, “On balance, Enron was an enemy, not an ally of free markets. Enron was more interested in rigging the marketplace with rules and regulations to advantage itself at the expense of competitors and consumers than in making money the old fashioned way.” Enron took advantage of price controls and tariffs to make a mess of California’s energy market. By definition, there can be no price controls and tariffs in a deregulated market.  By Taylor’s estimation, if Enron had been unable to take advantage of the strange new regulations, as well as other government support, “…Enron would probably still be a small-time pipeline company.” (5)

And what was true with Enron was even more true with major mortgage institutions. There was no deregulation in the lending industry. Instead, there was simply reregulation. Lending standards were loosened some, but many regulations were kept and many more were added. Deregulation was not the problem, but the regulatory framework certainly bares much of the blame. Liberal economist, Dean Baker, describes the key problem about as well as anyone:

“…Certainly most of what we’re seeing today was due to, I don’t know if I would say deregulation, I would sort of like to say misregulation of the financial sector. Because, one of the stories here is that we never really deregulated the industry fully, in the sense that the government always has been very heavily involved in the financial industry. You know, for example if you go to the bank your deposit is insured by the Federal Deposit Insurance Corporation [FDIC]. And there are many other ways in which the government is involved. The biggest way in which it is involved is what we’re seeing right now; that we have the too big to fail doctrine. That when things really go badly the government steps in and doesn’t just allow the system to collapse. And we all kind of knew that. And what is really going on is the “too big to fail” is really a form of insurance. The regulation that we put on the banks so that they don’t get involved in very speculative activities is designed, in effect, to limit the cost of that insurance. (6)

Everyone knows about the massive $700 billion dollar bailout and the second bailout built upon private-public partnerships. What is important to this discussion is not that it happened, but that everyone knew it would happen before it did. The federal government has been in the bailout business for a long time. They had already bailed out Long Term Capital Management during the Asian Financial Crisis, bondholders in Mexico and the Savings and Loans in the 1980′s. The Savings and Loans crisis was very reminiscent of what we are seeing today. Lending standards were loosened while the FDIC continued to back deposits. Thus, the Savings and Loans made riskier and riskier loans with higher payoffs. But with these riskier loans came, well, more risk. Luckily for the lenders, it didn’t matter, because when everything fell apart, the government was there for them. That’s how it’s been and that’s how it still is. Profits are privatized and risk is socialized, which leads libertarian economist, Tom Woods, to agree with Dean Baker, that “…a mixture of liberalizing banks’ risk-taking ability while maintaining a government guarantee may be the worst of both worlds.” (7)

Since the market was never completely deregulated, the housing bubble was not the result of a “free market.” Instead, it was the result of a market fettered with a new set of regulations, rather than the old set. The new regulatory framework reduced the oversight of lending standards (or didn’t address new issues, like adjustable rate mortgages), while continuing to back deposits, and with a wink and nod, let the banks know if anything went wrong, Uncle Sam would be there for them. All this leads Tom Woods to conclude:

“When the moral hazard of deposit insurance is combined with the “too big to fail” mentality, which will not allow large institutions to fail, the result (a conclusion compelled by common sense and bolstered by recent research) is that banks will take on considerably more risk than they would if they were subject to market pressures.” (8)

Thus lenders felt comfortable making more and more loans, to less and less suitable customers. As demand skyrocketed, housing prices soared upward in an unprecedented way. Builders took this as a sign to massively increase housing starts, thereby increasing supply. This was obviously a house of cards, and as soon as foreclosures began to spike, it all came collapsing down, creating the recession we are currently facing.

Deregulation is not the proper word, but the regulatory framework was a major contributor to the crisis. It is, however, only one factor, and not the biggest one in my humble opinion. The misregulation theory by itself leaves a few key questions unanswered. Why was it the housing sector that was hit so hard? And why was there so much credit to push into housing in the first place? Well you’ll just have to wait until part 2 to find out.

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(1) Barack Obama, Inauguration Speech, January 20th, 2009, Trascript found at http://www.nytimes.com/2009/01/20/us/politics/20text-obama.html?_r=1&pagewanted=2

(2) Thomas Dilorenzo, “The Great Depression: What We Can Learn From It Today,” The Mises Circle in Colorado, April 4th, 2009, http://www.youtube.com/watch?v=0UQUMYO9zt4

(3) Paul Krugman, The Great Unraveling, Pg. 295, Norton Books, Copyright 2004

(4) Tim Carney, The Big Ripoff, Pg. 204, John Wiley and Sons Inc., Copyright 2006

(5) Jerry Taylor, Enron Was No Friend of the Free Market, Wall Street Journal, January 21st, 2002

(6) Dean Baker, Interview with Mind Over Matters, KEXP 90.3 in Seattle, Washington, TalkingStickTv, January 3rd, 2009

(7) Thomas Woods, Meltdown, Pg. 47, Regnery Publishing Inc., Copyright 2009

(8) Ibid., Pg. 46

Courtesy http://obamiconme.pastemagazine.com/

The following is an excerpt from one of Barack Obama’s campaign speeches, paraphrased by yours truly:

“Change. Change, change, change. Hope. Change you can believe in. Hope. Hope you can believe in. Yes we can. Dreams. Hope and dreams. Change and hope. Dreams and change. Dreams you can change in. Change, hope and dreams. Hope, dreams and change you can believe in. Yes we can hope to change our dreams. Change.”

The theme of which, at least from what I have gathered, is that our current president believes we need to change a few things. Well, I agree with him. I thought President Bush was a disaster. Unfortunately, though, other than the ridiculous hero worship and cult of personality that Obama’s got going (see here, here, here, and of course Obama girl and yeah this one too, sorry, I can’t help myself), it really doesn’t seem like much of anything is changing.

Let’s start with economics. This is, after all, an economics website. Barack Obama’s big economic proposal, thus far, was the $787 billion dollar stimulus package. Just about every Republican opposed it. So obviously the previous Republican administration was fundamentally opposed to using tax payers money that was taxed away from tax payers to give back to tax payers to stimulate the economy (yeah it doesn’t make a lot of sense to me either). Oh wait, that’s right, Bush and his administration had their own $150 billion dollar stimulus package in 2007. It was much smaller, but so were our problems back then. If he was still in office during this phase of the crisis, it seems logical to conclude his next stimulus package would have been at least close to the size of Obama’s. Of course, all the Republicans would have supported it then.

But at least Obama was opposed to Bush’s massive, wealth redistributing, bailout of failed financial firms. Uhhhhh, no, Obama voted in favor of the TARP. In fact, Democrats supported that bill at almost twice the rate the Republicans did. But hey, that was before Obama got in office; he would never support such a thing now. Except TARP II has been put on the table, by none other than Obama’s Treasury Secretary, Timothy Geithner.

Looks like Obama is just MORE of the same...

George Bush ran record deficits almost every year of his administration, a fact the Democrats hammered home to prove the Republicans weren’t a party of fiscal discipline. The Democrats are absolutely correct, however, it’s about the same as Moe telling Curly that he’s stupid and relatively mistake prone. Under Obama, the United States is expected to have a $957 billion dollar deficit in just the first half of this year! Needless to say, Obama has not exactly restored fiscal discipline.

Luckily, Obama has promised to regulate the financial industry, to make up for Bush’s wild and reckless deregulations. Unfortunately, for change’s sake, as I mentioned in my first ever article, Bush was not a deregulator. The pages in the federal registry increased by an average of 76,526 pages each year under Bush’s watch, and every regulatory agency had its budget significantly increased. So adding more regulations isn’t any different. Furthermore, the main piece of deregulation blamed for our current mess was the Gramm-Leach-Bliley Act. This, however, was passed under Bill Clinton’s administration.

If Obama thought we needed to change from both George Bush and Bill Clinton, his Secretary of State nomination seems to be an interesting choice. And speaking of change in the administration, take a look at this list of former Clinton people making up his cabinet. It’s not exactly what I would call change:

• John Podesta: Co-chair of Obama-Biden Transition Team (Obama) -White House Chief of Staff (Clinton)
• Bettie Currie: Secretary to John Podesta (Obama) – Personal Secretary to the President (Clinton)
• Rahm Emanuel: White House Chief of Staff (Obama) – Senior Adviser (Clinton)
• Elena Kagan: Solicitor General (Obama) – Deputy Director of Domestic Policy Council (Clinton)
• Tom Perrelli: Associate Attorney General (Obama) – Counsel to Attorney General Janet Reno (Clinton)
• Dawn Johnson: Head of Legal Counsel, Dept. of Justice (Obama) – Office of Legal Counsel (Clinton)
• Ron Klain: Vice President Biden’s Chief of Staff (Obama) – Vice President Gore’s Chief of Staff (Clinton)
• Shaun Donovan: Secretary of Housing and Urban Development (Obama) – Dept. Assistant Secretary, Multifamily Housing HUD (Clinton)
• Greg Craig: White House Counsel (Obama) – White House Special Counsel (Clinton)
• Mona Sutphen: Deputy Chief of Staff (Obama) – Former Asst to Sandy Berger (Clinton)
• Susan Rice: Ambassador to the United Nations (Obama) – Asst. Secretary of State for African Affairs (Clinton)
• Larry Summers: Director of White House National Economic Counsel (Obama)  – Secretary of the Treasury (Clinton)
• Eric Holder: U.S. Attorney General (Obama) – US Deputy Attorney General (Clinton)
• Leon Panetta: Director of Central Intelligence Agency (Obama) – White House Chief of Staff (Clinton)
• Tim Geithner: Secretary of Treasury (Obama) – Under Secretary of Treasury for International Affairs (Clinton)
• Hillary Clinton: Secretary of State (Obama) – First Lady (Clinton)
• David Ogden: Deputy Attorney General (Obama) – Chief of Staff for Attorney General Janet Reno (Clinton) (1)

Obama even kept Bush’s appointment, Robert Gates, on as Secretary of Defense. I mean, we’re all afraid of change to one degree or another, but give me a break!

Moving outside of economics, we find even more similarities. Sure, Obama was against the War in Iraq. He didn’t vote to cut off funding or anything like that, but did give an inspiring one speech opposing the war, which apparently changed the course of history. He gave this speech from the very visible and scrutinized position of state senator. Just try to name your state senator right now. Go ahead, do it! You can’t. Anyway, his reasoning for opposing the war was:

“What I sensed, though, was that the threat Saddam posed was not imminent, the Administration’s rationales for war were flimsy and ideologically driven, and the war in Afghanistan was far from complete.” (2)

Well that’s at least something. And he should get credit for it. Unfortunately, his withdrawal plan is extremely slow and very similar to what Bush had already negotiated with the Iraqis. Obama is also willing to leave up to 50,000 troops in Iraq after the 2010 withdrawal. Our bases, and Vatican-sized embassy, are probably also there to stay. Well that’s certainly good; I mean we wouldn’t want the Iraqis to actually think we might NOT be occupying their country.

Then there’s Afghanistan, where Obama is planning to substantially increase our military presence in the near future. Apparently, we should throw a big fuss when Bush plans a surge, but when Obama gets his surge on, who cares, right?

But at least the Patriot Act is no more. Well, not quite. And by not quite, I mean not at all. Obama did fight against renewing the original version of the Patriot Act, but went ahead and voted in favor to reauthorize it in 2006, as long as it had a few provisions to prevent abuses. OK, that’s like a nickel of change. But when you base your entire campaign around the word “change,” I expect at least a couple of quarters.

Furthermore, there are reports that wire-tapping will continue, and in Jewel v. NSA, the Obama administration used the same “State Secrets” excuse the Bush administration had previously used, so to not release any government files on the subject. Obama did at least close Guantanamo Bay, or will in a year. However, he’s leaving the rendition program in place. So I guess torture is illegal in the United States now, but we can still ship suspected terrorists to some third world country and go medieval on them. I guess that’s a little different…I guess that’s technically change.

It’s also true that Obama has urged reform on healthcare and climate change policy. However, this is just upping the ante on Bush. Bush, after all, pushed through the ridiculously expensive Medicare Part D. In addition, he funded Hydrogen Energy research and supported John McCain, who like Obama, was trying to push through Cap and Trade.

Oh, but Obama is so likeable. He’s smart, charming and articulate (or according to his Vice President; so fresh and so clean clean). On the other hand, Bush was just awful. I mean, come on, he was just a mean, stupid, arrogant, selfish, inarticulate, greedy, racist, sexist, intolerant, conformist, prejudiced, homophobic, ageist, classist, environment hating, warmongering, Islamophobic, anti-Semitic, xenophobic, flag waving, unpatriotic, misogynistic, misandrinistic, misanthropic, biphobic, transphobic, heterophobic, anti-intellectual, unprincipled, fundamentalist, nationalistic, America-centric America-hater. Alright, I’ll give you that. But just because one is likeable and one is not, doesn’t necessarily mean their policies are fundamentally different from each other.

So my question is simple: what exactly has Obama changed? A little bit of change here and there, on the peripheries, doesn’t matter to me and shouldn’t matter much to anyone else. In the end, I think Reason Magazine’s Michael Moynihan put it best, “…it appears that on the economy, the Obama administration will be Bush on steroids, and on the War on Terror, he’ll be Bush-Lite.” Well that’s just dandy. I guess “change you can believe in” was some sort of code for “the same old thing you’re just going to have to learn to accept. Deal with it asshole.”

________________________________________________________________________

(1) List provided by Reason TV, The Winds of Change, January 13, 2009, http://www.youtube.com/watch?v=V2hwfu9KANM and Obama Picks More Clinton Officials for DOJ, Patterico’s Pontifications, January 5, 2009, http://patterico.com/2009/01/05/obama-picks-more-clinton-officials-for-doj/

(2) Barack Obama, The Audacity of Hope, Pg. 347, Vintage Books, Copyright 2006

Read the title. By the transitive property economics is the truth. Economics, although hijacked by ideologues, is actually a science; a science of observations in its purest form. But efficient and optimal economics (if optimal is creating the most wealth) is not possible without telling the truth which builds trust. You see where I’m going with this?

A slight and brief diversion:

There is something undeniably refreshing about the truth. Unmask and pants the world and life becomes simplified. It’s an amazing circumstance to find a situation free of ulterior motives and shiftiness. It feels satisfying when another person is direct. No nonsense, hidden agendas, or selfishness has a feeling of reviving purity. The unadulterated, pants-less truth is scarce and precious.

Make no mistake: truth is more than just a virtue, an asset, and a foundation of morality. Truth is our responsibility. When a person places trust onto another it should be treated as the most crucial of investments. Some people don’t care if they return that asset to others, though. They won’t match honesty if it gets difficult or live up to responsibilities because it gets too hard.

Life is hard for everybody at times. Whether rich or poor, strong or weak, meek or selfish, life throws everyone a fair share of curve balls.

Stop whining and pants yourself.

Know the difference between focusing on yourself and never looking past yourself. Focus on your own endeavors but stop acting like the world revolves around you and take your eyes off of yourself. We reap what we sew in this world. Start with telling the truth and smiling. Pants yourself. Those that just don’t get it will run and those that offer valuable relationships will stay, pants around the ankles.

What does trust have to do with anything? Trust matters in economics. An economy is nothing more than people interacting with people. Comparative studies show GDP growth rates and capital investment are lower in economies with greater violence, government oppression, and crime. Corruption by entrepreneurs, capitalist fat cats, government officials, and everyday citizens cause the damage, usually to line their own pockets. More transactions occur in an economy of trusting human beings.


But do we really trust our leaders anymore? The same president that told us no lobbyists would be in his cabinet now has a handful working for him. Mr. Obama also said he would bring the troops home from Iraq. He set August 31, 2010 as the date to remove all troops…well, other than the 35-50,000 soldiers who will still be there helping out.

John McCain wants to get huffy and puffy about earmarks and government spending now; he’s only voted for both across three decades in Washington. This the same man who voted for the $700 billion Troubled Assets Relief Program (TARP) in the fall. Treasury Secretary Tim Geithner, a self-proclaimed tax cheat, wants to scold people for not paying their taxes. It’s all craziness.

If TurboTax were a class, Geithner would be receiving some combination of a “no pass” and “incomplete”. The former for being unable to navigate through the software correctly and the latter for failing to pay the penalty on his evaded taxes. If laws actually applied to him, he probably wouldn’t be the American money czar.

For this purpose none of these are political points; they’re points on the deterioration of trust. For good reason trust between private citizens and their leaders is gone.

And economies need trust.