Where do we go for hope and change?
By Jack Ward
Let us review the folly that led to the current financial crisis: Foolish politicians created rules and regulations that allowed the following. Unqualified buyers were allowed to obtain mortgages that they couldn't afford and unscrupulous lenders were allowed to create loans that entrapped these unqualified and uninformed buyers into home they couldn't afford. Unscrupulous financial institutions were then allowed to break these loans into worthless derivatives like credit default swaps to mitigate investor risk, then bundle these worthless financial instruments with good loans, and sell them to unsuspecting buyers around the world.
Once commingled no one knew which loans were good loans and which ones were toxic. As a result the entire home mortgage market became suspect. But the credit market thought that there was no reason to worry because all these toxic financial instruments were backed by the full faith and credit of the U.S. Treasury and insured – many through AIG.
When loan defaults began to occur and foreclosures escalated, the financial institutions that held these worthless financial instruments began to panic and the credit market froze.
To thaw out the frozen credit market, the Federal Reserve and the U.S. Treasury threw trillions of dollars at the problem. While we choke at the magnitude of these stimulus packages and question their effectiveness, at least the attention was focused on the cause of the problem.
Barack Obama described his budget as "… a budget that leads to broad economic growth by moving from an era of borrow-and-spend to one where we save and invest." But in reality it is just the opposite, Obama's budget is a borrow-and-spend budget. With his budget we will have a deficit of about a trillion dollars a year for at least the next ten years. We have maxed out our credit cards and the U.S Treasury is having trouble selling bonds.
When questioned about his budget Obama said, "A budget is a snapshot of what we can get done right now, understanding that eight, 10 years from now we will have a whole series of new budgets." In short, Obama says his ten year budget is just a wild guess and worth nothing.
Obama said he was going to be honest with the American people and included the cost of operations in Afghanistan and Iraq in the U.S. budget. That's great, but he didn't include the cost of Social Security, Medicare, Medicaid, and other entitlements. These government off- budget programs dwarf the cost of Afghanistan and Iraq.
Before Obama took office, David Walker, the former Comptroller of the United States and head of the Government Accountability Office, has warned us that the current level of federal spending is unsustainable unless some drastic action is taken. Walker has added up all the federal government's income and compared it to all our liabilities and future obligations such as Social Security, Medicare, Medicaid, and other entitlements. Those liabilities and future obligations exceed $53 trillion. He has concluded that at the current level of spending is unsustainable and the U.S. is headed toward bankruptcy. David Walker said that President Bush was "the most fiscally irresponsible president in American history."
But the dirty little secret is that the non partisan Congressional Budget Office's (CBO) recently released estimates of deficits and debt and informed our Congress Critters that Obama's proposed budget comes up short on its estimates for spending, revenues and deficits. Obama's budget sets proposed spending at record levels and will dwarf the fiscal irresponsibility displayed by Bush. Obama has proposed a budget of almost $4 trillion and the CBO projects that the national debt will more than double.
When Obama presented his budget plan he said it would "secure and lasting prosperity," and would end the era of "reckless speculation, inflated home prices, and maxed-out credit cards" that created an "illusion of prosperity." This is illusionary poppycock. In reality the U.S. is deep in debt and you don't get out of debt by borrowing money so you can spend more.
Obama opined that the cause of the financial debacle was "reckless speculation, inflated home prices, and maxed-out credit cards" that created the financial crisis. But President Obama's long range plan to fix this economic problem is to nationalize health care, adopt draconian energy policies, and pour money down the failed government school system. This slight of hand and dismissal of reality rivals any of the performances of the Great Houdini.
Obama proposes Orwellian solutions to real economic problems. Was this the Hope and Change you wanted?
© 2009, Jack Ward