Posted by Karl Denninger in Macro Economics at 06:44
Government: Yes We Can't?
Amazing stuff, really last night.
The Ticker I put up after Obama'a speech made clear the "instant knee-jerk reaction" in the futures markets, although thinly traded, among those who were listening.
It wasn't very favorable.
But the real abuses are coming in domestic spending programs, the bill authorizing which being in Obama's hands now and headed up to The Hill.
In a year in which deflation has become evident even in the government's slanted view presented in the CPI, there are truly outrageous increases in "domestic spending" programs, putting the meat around one of Obama's chief of staff Emmanual's often-cited maxims: "never waste a crisis when you can use it to advance your agenda."
A 21% increase in WIC, a popular handout program for poor women that had kids they can't afford.
A 10% increase for Section 8 housing vouchers (even though in many parts of the country both rents and home prices have fallen by nearly half!)
A 13% increase for the Agriculture department
A 10% increase in funding for Amtrak, the perennial money-loser that not only doesn't turn a profit, it also doesn't run on time nor is it particularly useful. (I don't have a particular issue with subsidizing rail, provided we do it right - which means nuclear power for the energy and electrification of the rail system, so we kill two birds with one stone - we reduce road traffic AND eliminate the fossil fuel consumed moving those people and things around)
Oh, and Congress is allocated a 10% increase in its own budget over last year.
In a year where inflation has actually turned negative and is projected to remain so or nearly so for some time, this is ridiculous. 10% increase in Congressional budgets? $4.4 billion to fund offices for the 535 fools that got us into this mess?
Oh, and despite President Obama's claim that we would be reducing foreign entanglements, the State Department and foreign aid "handout" accounts are going up by 12%.
One thing we did not hear last night was any message of reform - no "lock 'em up Danno" from either party. And that's a shame, because late in the day there was a report released by an online source (which I have yet to be able to corroborate) that claims the SEC had a special "call off the dogs" hotline number.
Thus far there are no "mainstream media" references to this story - but if true, and it gets legs, this is certain to be explosive.
The concept of a government agency having a "hotline" for this purpose is somewhat like the FBI having an number you can call to tell them to stop investigating you for money laundering - or planning a terrorist strike!
When one looks at the damage done by the Wall Street financiers to our economy over the last decade one can only conclude that Osama Bin Laden only wishes he was that effective in screwing our nation. There's little doubt - yes, he killed 3,000+ Americans and destroyed plenty of property, but this crisis has wiped out half the capital in the United States Stock market, about 15% of the value of all American homes (with more to come) and millions of American jobs.
The rhetoric coming from DC was powerful, but the reality vacuous.
MSNBC has the headline up "We failed to look beyond the next payment"; that's true. But we're still failing in that regard.
We need to:
Hold the fraudsters accountable. Trust comes from a belief that the rule of law means something. Right now there is no trust, and we must fix that if we are to restart our capital markets, especially when it comes to securitization.
Solve the CDS problem. This is not optional. Without regulating these trades the underlying "Bezzle" in the markets cannot be brought under control. Writing business you cannot cover is an inherently fraudulent act, and until we have nightly margin supervision on these trades, which can only be provided by a central counterparty such as we have for listed options and futures contracts the ticking thermonuclear weapon of systemic risk cannot be defused. Wall Street loves it this way, as it gives them the ability to claim that they're "too big to fail." The truth is that this state is intentionally created and we must cage the beast.
Get a consistent message out in front of the markets. Make your decisions and stick to them. You can't muzzle Congress (or people like Roubini) so the only way to accomplish this goal is for the Administration to determine what policy is, clearly state who, what, where when and why and then stick to it. We must focus on fairness for everyone, not showering bailouts on those who were deceitful and even committed fraud.
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