exactly.
his speech was mostly that of an apologist for the pigmen...a couple of notable exceptions which karl points out....but my sense is the exceptions are just fodder for the proles...
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Tuesday, April 14. 2009
Posted by Karl Denninger in Politics at 12:46
Mr. President, Open The Other Eye!
Today President Obama delivered a speech that, on balance, was far better than many we have heard before on the economy and markets:
"This recession was not caused by a normal downturn in the business cycle. It was caused by a perfect storm of irresponsibility and poor decision-making that stretched from Wall Street to Washington to Main Street. "
Right. Now let's keep going a bit:
And credit agencies that are supposed to help investors determine the soundness of various investments stamped the securities with their safest rating when they should have been labeled "Buyer Beware."
That's called fraud Mr. President.
"No one really knew what the actual value of these securities were, but since the housing market was booming and prices were rising, banks and investors kept buying and selling them, always passing off the risk to someone else for a greater profit without having to take any of the responsibility. Banks took on more debt than they could handle. The government-chartered companies Fannie Mae and Freddie Mac, whose traditional mandate was to help support traditional mortgages, decided to get in on the action by buying and holding billions of dollars of these securities. AIG, the biggest insurer in the world, decided to make profits by selling billions of dollars of complicated financial instruments that supposedly insured these securities. Everybody was making record profits - except the wealth created was real only on paper. And as the bubble grew, there was almost no accountability or oversight from anyone in Washington. "
That's called FRAUD too Mr. President.
This is the situation we confronted on the day we took office. And so our most urgent task has been to clear away the wreckage, repair the immediate damage to the economy, and do everything we can to prevent a larger collapse. And since the problems we face are all working off each other to feed a vicious economic downturn, we've had no choice but to attack all fronts of our economic crisis at once.
On the contrary. You still have not taken the first step in addressing the problem, which is to call a thing what it is.
Those who flim-flammed investors, homeowners, debt buyers and others, no matter whether they were bankers, regulators, government agencies or others, committed fraud. They were well-aware of the fact that there was no investigation of credit quality or underwriting being performed but they did not care and stamped these securities and loans as "money good" when there was absolutely no basis in fact, law, or even reasonable belief for making such a claim.
Of course, there are some who argue that the government should stand back and simply let these banks fail - especially since in many cases it was their bad decisions that helped create the crisis in the first place.
I argue that fraud must not be rewarded. We need a banking system but we do not need the specific banks that were involved in this mess. Not all banks were. Some were, some were not. Those who were should be punished, not rewarded. Those investors who bought these securities believing they were "money good" but were fools should lose money. Those who were duped should sue and for those who committed an act identified in the law as a crime should be prosecuted.
Instead, your administration and the one previous both have decided to continue and promulgate policies that have amounted to looting of the Treasury and The American People.
"This is also why we're moving aggressively to unfreeze markets and jumpstart lending outside the banking system, where more than half of all lending in America actually takes place. "
You CAN'T succeed in this goal - at least not if the real, underlying goal is to bring long-term prosperity to America.
The debt in the system is too high and the marginal utility of new dollars of debt is exceedingly low - and may in fact be negative.
The math is never wrong and once the marginal GDP contribution of a new dollar of debt goes negative you enter a mathematically-certain circumstance where further forced borrowing and lending, whether by government or private enterprise puts the entire economy at grave risk of all-on collapse.
That "event horizon" is dangerously close and may have been crossed. An exact measurement of this point, and determination of where it lies, is not possible. However, we know for a fact that a new dollar of debt has generated as little as ten cents worth of GDP as recently as the last year - and this was before you committed to pump nearly $2 trillion of new debt into the economy with your current budget.
I would like to see the Government try to "prop up" the economy with new spending and temporary deficits. That would be a nice idea - if we could afford it and if the mathematics suggested that it would work.
Sadly the mathematics suggest exactly the opposite - that such a policy as you have adopted will bring extremely short-lived and fleeting "benefits", if it brings any benefit at all, and runs the severe and immediate risk of pushing the "contribution to GDP per dollar of debt" value into negative territory.
I understand the argument that we "must invest for the future."
That argument is true, standing alone.
The problem, Mr. President, is that we have squandered the ability to make that investment in the present tense, and until we force the bad debt out of the system, thereby clearing the ability for new debt to contribute to GDP instead of sink it, your program cannot succeed and bring forth the benefits you seek.
Reforming Medicare, Medicaid and Social Security must happen. But these threats are not "debts" as are the remainder of indebtedness in the economy - they are structural deficits that exist as a result of promises.
There is a tremendous difference between a promise and a debt. One has no force of law - the other does. One can be addressed through legislation - the other cannot, it can only be paid down or defaulted.
I applaud your efforts to resolve the structural issues surrounding entitlement programs. It needed to happen 20 years ago, 10 years ago, and it still must happen today. To the extent these are more than simple words, as every President in the last 20 years has mouthed, I applaud the effort and wholeheartedly support making these programs sustainable over the long term - something that was never part of their original intent or planning.
But this is orthogonal to the issues surrounding our economy in the present tense, which are bounded by actual debts, not political promises.
America must live within its means on a personal, corporate and government level. We must have manufacturing in this nation and put a stop to global wage arbitrage that results in abusive conditions for workers and unsustainable international trade imbalances.
America must not allow those who defrauded to profit, and those who were defrauded must have their day in court. Excessive debt in all parts of the economy must either be paid down or defaulted, with the latter serving as the proper and just result for a lender who makes an unsound loan, no matter whether that "lender" is someone who bought a bond or a bank that made "fog a mirror" mortgages.
The ratio of Debt to GDP must come down to sustainable levels so that the contribution that debt makes to GDP rises, avoiding the disastrous circumstance where a new dollar of debt creates a negative impact on GDP.
This means difficult choices must be faced and made in this nation and part of that foundation must be the clearing of unsustainable debt through default.
Simply put, we must avoid the event horizon of a negative GDP contribution from new debt. Should that "event horizon" be crossed we will enter an economic state where incredibly-severe economic contraction worse than the 1930s will become inevitable as further attempts to issue debt will result in an acceleration of defaults and further depression of GDP.
The laws of mathematics are not suggestions, and your advisers, along with those on both sides of the aisle with political aspirations and positions, have a tremendous vested interest in refusing to admit that their plans and policies of the last 20 years were mathematically unsound and over the longer term must inevitably lead to economic collapse.
Do not be the fool Mr. President; ask your "advisers" and those in your cabinet the following questions:
* For each dollar of debt that is taken on, what delta occurs to GDP? Show your work and document it.
* What has been the trend in this number over the previous fifty years? Has there been any interruption in that trend?
* What happens IF that number becomes negative?
* Can you prove that we are not either in that situation now, or that the course we are currently on will not result in that number becoming negative?
Think Mr. President. You're highly-intelligent, and I'm quite certain you understand mathematics at this level - no complex understanding of Calculus or differential equations is necessary.
For your advisers' (and your) benefit I am including the chart I first published many months ago (in October of last year) showing the danger you face.
Don't blow it Mr. President; there are no "do-overs" once the "zero point" is exceeded.
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