Saturday, February 02, 2008

The Never Ending Party

This article has the best breakdown I've seen so far regarding what's on the table for the $150M (or $156M) economic stimulus package, as well as where some of the congressional contention is.

Some thoughts...

Does it really address any of the systemic problems in our economy? Which is to say, does it do anything to affect the fact that artificially low interest rates and deregulation that have created an over-investment in US assets? Or that over-investment in US assets has created hyper-inflated asset values that are relative to... nothing? Or that our consumption based economy is the weakest of all possible economic structures? Or that our financial institution -- from banks to brokers, from appraisers to securities packagers, from hedge funds to financial analysts, from actuaries to risk managers -- has become one big codependent, dysfunctional family?

I am thinking not. I am thinking that the stimulus package (and recent rate cuts, which strike me as trying to put out a fire by pouring gasoline on it) addresses none of that. It is merely intended to keep the party going.

If the real purpose of the stimulus package is to bolster our financial institutions, is that smart? Do we really want to propose doubling of the current loan limits for Freddie Mac and Fannie May and FHA? Doesn't that seem like a horrible idea since it amounts to a federal bailout and leaves the taxpayers holding the bag for all of the garbage we already know is out there?

Besides the obvious taxpayer funded bailout, I hate to see these once worthy government programs -- a successful component in building the middle class that has carried this country for so long -- perverted in this manner. The original mission of Freddie and Fannie was to provide a government guarantee on modest mortgage loans for lower and middle class folks to whom banks --back in the day -- would otherwise not have bothered lending money. Modest loans. $750K does not, in my book, qualify as a modest loan. In some of the bubble markets this size of loan may be more common but why in the hell would we want to continue to support bubble prices? I am all for softening the landing but I am NOT for continuing the party. Which is why the recent rate cuts are pissing me off... it's like trying to put out a fire by pouring gasoline on it. But I digress.

If the purpose of the stimulus package is truly to stimulate consumer spending, then the Dems have it right... money should be infused at the lowest levels of our economy in order to get the biggest dollar for dollar return. Whether or not people at this level "deserve" to participate is not really the point... the objective here is to stimulate the economy. But at best it's going to be a flash in the pan... a small delay of the pain we know is coming.

If the stimulus package is intended to spur business spending... well, I think we can safely say that's a bit of a long shot. Regardless of tax breaks, business is not going to spend unless they can project a positive return on investment.

Personally, I would much rather pay the price now for realigning our economy than to spend a lot of money trying to keep the party going. Soften up the landing a little, sure, but let's admit that the consumption-based economy we've been relying on is weak. I may be the only one who thinks this, though, since the general consensus seems to be that we can still spend our way to prosperity.

The one solid item I see in the the stimulus package is the reference to funneling money back into our infrastructure. Infrastructure, grossly ignored and underfunded over the past decade (as the states have been starved in a misguided attempt at Grover Norquistian 'tough love'), is critical to our national health. Not only did the post WWII focus on infrastructure enable commerce, it also pumped money directly back into local economies, which in turn spurred real economic growth. Now that our aging infrastructure is crumbling, this is the perfect time to give it some love. It's a total win-win.

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