[Rhodes22-list] Politics: Pat Buchanan

Sat Sep 27 10:06:31 EDT 2008

Bill,

Buchanan is an emotional demagogue but that doesn't mean he doesn't he
isn't right on some salient points on occasion.  I agree with him that
the financial elite and political elite of both parties are at fault.
Wall Street did what Wall Street does, which is find a way to make
money off us rubes in the unwashed masses, and we play along as long
the game benefits us.  When it doesn't, they are suddenly a bunch of
greedy jackals, when in fact, they were what they were all along. Only
our perception has changed.

This is at its core a credit crisis.  While the market price of the
stocks in our 401K's may have dropped in price, the underlying value
and potential of the companies we own haven't changed with the
exception of financial institutions. Five years ago I was predicting
this situation for China because the Chinese government was hiding the
billions of bad debt owed by state owned enterprises.  They quietly
got the "bad paper" off the books (sometimes there's something to be
said for benevolent dictatorships).  We, on the other hand, might have
muddled through this until FASB 157 hit the books in November 07' and
forced a national "Come To Jesus" meeting in the credit market.

Buchanan makes a powerful argument against the Fed's loose money
supply and no doubt that was a factor, especially for individuals
getting overextended in credit cards and car debts. But again, the
primary factor that got us to this point was the encouragement of
people who didn't have the resources or discipline to own homes to
enter the market.  Many otherwise sane and rational people watched
their own homes shoot-up in value and got caught-up in the euphoria.
To borrow the phrase from Greenspan describing the DotCom bubble, it
was "irrational exuberance".

So now here we are, all of us suffering a national financial hangover.
 I understand the Republicans reluctance this week to hand over as
much as 700 Billion dollars to the Treasury. They should be applauded
for not allowing the Dems to load this bill with funding for ACORN and
other such silliness.  However, we need a bill in place before Monday.
 My gut feeling is that we'll get a substantial amount of this
"bailout" back but it will take some time.

I'm staring into my crystal ball as I type, and it tells me real
estate values will remain flat or maybe even decline some more for a
couple of years.  These "fire sale" properties are going to run the
comps down for everyone. We've got to stop this "sub-prime" lending
nonsense. Raising taxes going into a recession (and we were already in
that part of the cycle, we just picked-up speed) is foolhardy.  We
have to cut spending.  How do we do that?  Use the method we use for
aircraft performance, "measure it with a micrometer, measure it with a
grease pencil, and cut it with an axe". There will be plenty of time
to talk about how and who we'll raise taxes on and how later (and we
will) but the patient has to get off the floor first.

Is Buchanan right about the downsizing of America?  In the short-term,
yes.  But like any victim recovering from a hangover, you move slower
for a while, you take some aspirin, and then you make a decision
whether to drink in moderation or get drunk again.

Brad

On Sat, Sep 27, 2008 at 8:15 AM, Bill Effros <bill at effros.com> wrote:
> Brad,
>
> What is your answer to Pat Buchanan?
>
> Bill Effros
>
> Day of Reckoning
> by  Patrick J. Buchanan
> <http://www.humanevents.com/search.php?author_name=Patrick%20J.+Buchanan>
> 09/26/2008
>
>
>
>
>
>
>
> How did the United States of America, the richest nation on earth, whose
> economy represents 30 percent of the Global Economy, arrive at the
> precipice of a financial panic and collapse?
>
> The answer lies in the abject failure of both America's financial elite
> and the political elite of both parties -- the same elites now working
> together to determine how much of our wealth will be needed to bail the
> nation out of the crisis of their own creation.
>
> Big Government is riding to the rescue -- saddlebags full of our tax
> dollars -- to save us from the consequences of the stupidity and folly
> of Big Government. New York and Washington, the twin cities responsible
> for the crisis, are now being hailed by the media as the 7th Cavalry,
> coming to rescue a beleaguered nation.
>
> ------------------------------------------------------------------------
>
>
> Had there not been a steady and constant infusion of easy money and
> credit into the U.S. economy by the Fed, for years on end, a housing
> bubble of the magnitude of the one that has just exploded could never
> have been created.
>
> Had the politicians of both parties not coerced and pressured banks,
> S&Ls, Fannie Mae and Freddie Mac to make all those sub-prime mortgages,
> then to tie this rotten paper to good paper, convert it into securities
> and sell to banks all over the world, there would have been no global
> financial crisis.
>
> Had they seen this coming and acted sooner, the Federal Reserve and U.S.
> Treasury would not today, like Henny Penny, be crying, "The sky is
> falling!" and the end times are at hand, unless we give them 5 percent
> of our gross domestic product to buy up suspect securities backed by
> sub-prime mortgages.
>
> Consider what the "Paulson Plan" of Treasury Secretary Hank Paulson,
> against which Sen. Richard Shelby and the House Republicans rebelled,
> entails.
>
> Since Americans save nothing and have to borrow from abroad to finance
> our trade and budget deficits, wars and foreign aid, what the secretary
> proposes is this: that Congress authorize the Treasury to spend $700
> billion to buy up the toxic paper on the books not only of U.S. banks,
> but of foreign banks operating in the United States. According to The
> Washington Times, the Treasury would also be authorized to buy up
> securities backed by rotten auto loans, student loans and credit card
> debts.
>
> Thus America would be borrowing from China, Japan and the Middle East to
> tidy up the balance sheets of the banks of China, Japan and the Middle
> East. And all the rotten paper will be offloaded onto U.S. taxpayers,
> who hopefully will be able to recoup some of their losses, because some
> of the paper will be good.
>
> Why should we do this? Because otherwise there will be a financial
> panic, followed by a market collapse, wiping out pensions, 401Ks,
> portfolios and defined benefit plans of Middle America, forcing millions
> into bankruptcy and millions more to put off retirement and continue
> working until they drop.
>
> In a democracy, it is said, you get the kind of government you deserve.
> But what did the American people do to deserve this? What did they do to
> deserve the quality of financial, corporate and political leadership
> that marched them into this mess -- and that today postures as their
> rescuers?
>
> Consider what this mess has already cost taxpayers: $29 billion to buy
> the rotten paper of Bear Stearns so J.P. Morgan would buy the investment
> bank; $85 billion for 80 percent of AIG to nationalize it; $150 billion
> in a stimulus package to flood the nation with cash; perhaps $300
> billion to bail out Fannie Mae and Freddie Mac; and now $700 billion to
> begin taking the toxic paper off the hands of America's big banks.
>
> And even if this is passed, say Paulson and Fed Chairman Ben Bernanke,
> there is no guarantee this will resolve the crisis. If the $700 billion
> is not provided and the toxic paper is not pulled off the books of the
> world's banks by U.S. taxpayers, however, we face an almost certain
> collapse, surging bankruptcies, rising unemployment, a shrinkage of GDP
> and a recession, if not worse.
>
> Yet, the fellows who tell us we face a financial mushroom cloud over
> every American city if we do not act at once to provide the $700 billion
> did not see this coming and can make no guarantee that this will succeed
> and end the crisis.
>
> Nevertheless, it must be done, and done now, as collapse is imminent.
>
> Looking at all the money being ladled out by the U.S. government to
> prevent a collapse, and the diminished revenue coming in, it is hard to
> see how America avoids future deficits that reach $1 trillion a year.
> These will imperil both the dollar itself and the ability of the United
> States, which saves nothing, to borrow from the rest of the world. The
> downsizing of America is at hand.
>
> Yes, indeed, we have arrived at the Day of Reckoning for Uncle Sam.
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