Explaining Economy, Bush Shows Ignorance That Astounds and Frightens

When I heard President Bush's first words on the tube, I was so stunned that I immediately turned away from the care-giving task that should have demanded my full attention.

Fortunately the object of my interrupted care giving survived without any pain, trauma or -- for that matter -- any awareness that my mind had wandered to the idiot on the screen.

I wish I could say the same for the country, that it has not suffered because of the idiocy of this president who I used to think was pretending when he sounded like an uneducated spurner of things wise or well phrased.

Here's Bush introducing his remarks about his planned ka-billion dollar bail-out of the money bundlers, telling us why he decided to "act and act boldly."

Brace yourselves:

"It turns out that there's a lot of interlinks throughout the financial system. The system had grown to a point where a lot of people were dependent upon each other. And that the collapse of one part of the system wouldn't just affect a part of the financial markets. It would affect the average citizen."

I heard this and was stunned that the leader of the free world could sound so uninformed and simple minded, like a Candide whose stupidity by its very boldness can wreak havoc on millions around the globe.

Countless Americans who consider themselves weak on the basics of the economy would be embarrassed to give remarks like that; they would do anything -- sacrifice all sleep and comfort -- to study and consult and think, in order to avoid sounding so sophomoric and, really, moronic.

I shudder as I ponder the implications of the reality that underlies all this: that this man was voted into his high office by a majority of the American people.

Well, you know what I mean.

[photo is by AP's Pablo Martinez Monsivais.]

Comments

[Payday Loan Advocate]

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[Payday Loan Advocate]

If there are no problems, no solution is necessary. When it comes to the payday loan industry and the valuable assistance that they provide, there aren’t very many problems, if any at all. Many customers have nothing but good things to say, due to the fact that, if used properly, these loans provide a valuable service, and help a person out when they are in trouble. However, many of the people in high places don’t see the value behind short term loans, and want to fix what isn’t broken. Some bipartisan fronts have outlawed the industry outright in several states, and even candidate Barack Obama wants to take a shot as well. We aren’t going to tell you how to vote, but remember that you have to make the right choice for the people’s right to financial independence.

Post Courtesy of Personal Money Store
Professional Blogging Team
Feed Back: 1-866-641-3406
Home: http://personalmoneystore.com/NoFaxPaydayLoans.html
Blog: http://personalmoneystore.com/moneyblog/

[johnrager]

“Regeanomics” is the term created to refer to a set of economic ideas that began to be pushed during the Presidency of Ronald Reagen. Perhaps the key theory, although the term “notion” might be a better descriptor, has the delightful name of “the trickle down effect”. However this does not refer to a zen fountain gently lulling you into a relaxed state from a near-by window ledge. No, it is rather the simplistic notion that, if we allow the very, very rich to pursue the further development of their wealth, then their economic activity will create a very positive economic atmosphere for those just below them on the wealth ladder. If this second group then pursues the development of their wealth, then the effect continues to trickle down to the next level, and so on, and so on until even the poorest among us would ultimately benefit. It does not immediately seem unreasonable when one considers that entrepreneurial activity does create jobs when wealth is pursued by providing useful services or turning raw materials into products, both of which depend on people doing real things.

Unfortunately, the capitalist market system has succeeded in turning money into both “a service” and “material”, thereby making it an end rather than a means. Once again, if increasing wealth is the engine of this sort of economic model, then getting money is the obvious goal. The reasons for treating money this way are also not unreasonable. Since money, capital, is needed for any entrepreneurial enterprise, the service of moving money has become commodified; that is, entrepreneurial thinkers have found ways of making profits purely on buying and selling the movement of monies across time. This in itself is a sort of grand abstraction of a bond. The relative value of a bond has to do with the real fluctuations in the interest rate. A bond promising a 5% return is valuable, and therefore attractive, when the fiscal growth rate is below 5% and less valuable when this rate is above 5%. It is a sort of futures market of money.

Banks and the stock market have traditionally carried out this important aspect of the capitalist market system. The stocks and bonds market is the fastest way for an emerging business to get needed capital by selling either shares in future profits (stocks) or promises of attractive interest from future profits (bonds). Banks take our money, promise some savings interest (less and less these days), and also provide people with useful services, such as checking, credit cards and safe storage and access to our salaries. In turn, banks then lend our money to businesses (invest) or to people at-large (personal loans and mortgages) at interest rates that give them a profitable return.

The other key aspect of Reaganomics has been the steady pressure to ease up on regulations and sound fiscal policies that made sure that banks operated safely and that the stock market traded fairly. The rationale is simple and again not entirely unreasonable, especially if you are at the top few rungs of the wealth ladder. Regulations and fiscal oversight is a bunch of red tape that merely gets in the way of the creativity of entrepreneurial people. If we do away with red tape and “bloated bureaucracies”, and who woundn’t want to do that, then the very, very wealthy can get down to what they do best – pursue the creation of more wealth. If we already believe the premise of the trickle down effect, then this is a no-brainer for happy days for all of us.
This is why under a succession of Republican presidents we saw the deregulation of so many once regulated enterprises. Banks had to compete with Savings and Loans businesses that could spring up with little to no track record and influence local or regional economic markets. Profits were made by a few people with no real interest in creating a “financial institution”, like a bank, but rather getting wealth (money) fast even if the business itself was not in a stable economic situation. This resulted in the necissity of a similar buy-out with tax-payers money. The stock market crash in 1927 came about in the same sort of atmosphere. That is why regulations and policies were later created to make sure it would not happen again.

Once we play with the future value of anything, including a monetary instrument like a bond or a mortgage, it is a little like playing hot potato. For a while the potato pays off because the promise of future value makes it appear to be attractive. I buy any potato for one dollar and sell it to you for $1.10. With potential buyers excited by how the potato has gone up 10%, you find a willing buyer at $1.20. Now the potato has a track record of 10% and is becoming even more attractive, so you have no trouble in selling it for $1.30. However, the potato has a certain intrinsic value, something that market economists do not like to think about and day traders are in denial about, and ultimately no one wants to pay more than $1.30. The potato is now cooled off and the longer it doesn’t move, the cooler it gets. Ultimately, the potato might sink well below the $1.00 I paid for it. In fact, paying the dollar at first is not a bad marketing ploy to begin some buzz about its future value. The fact that the American housinh market was being similarly inflated made for a very dangerous combination since the attractiveness of the subprime mortgages was fueled by the inflated rate of house values.

This, in a nutshell, is what happened to all those subprime (highly risky) mortgages. Interest rates were low and the value of real estate was steadily climbing. People bought houses that were more than they could afford because the equity in that house promised to be a quick profit against which they could borrow more money. No bank would have loaned money to a business start-up with a financial plan like that. However mortgages became an “attractive” commodity in the atmosphere of groupthink stimulated by the Reaganomics of quick wealth through unregulated entrepreneurial (risky) activity.

Mid-level managers were rewarded with huge bonuses for being so creative; that is, for coming up with schemes that promised quick and painless money. This atmosphere encourages short-term thinking and narrow focus, which we can call “greed”, which in itself is simply unalloyed immediate self-interest - next year’s bonus for the managers, the next quarterly report for CEOs and a stirring buzz for investors. These mortgages were like Bre-ex stock. The basic promise was nonsense, or worse dishonest, and yet the rest of the factors could still operate.

It might be a stretch to try to find one culprit or even one set of culpable and related factors. However there is no doubt that not everyone loses in these situations. The hundreds of billions of dollars that the government will use to buy up these bad investments represents hundreds of billions of dollars that were moved around as many people profited. When the hot potato cooled off, it was in the hands of large underwriting investment banks, which, had they failed, would have a serious effect on our entire economic order. The regulations that would have prevented this would have also prevented those that did profit from making those profits.

As my father once told me, “When looking at any complicated situation with complex causes and effects, follow the money and it will all make sense.”