The Investors Strike Back

One of the paradoxes of the Great Recession (I do not recognize this "double dip" phrase because I never saw the first recession end) was that corporations were swimming in profits -- and stock prices were sky high. We almost grew used to seeing the Dow Jones index above 12,000 points. All of that changed in the past few days, since the debt ceiling was raised -- the Wall Street ceiling has fallen. Nobody knows when it will land.

Despite investors placing money in corporations by purchasing their stock, American employment has been stagnant -- companies didn't want to hire, despite having the cash to expand. Companies argued that markets for new goods didn't exist since, well, none of them were hiring new people.

That negative feedback loop perpetuated itself until Obama was elected, passed a historic stimulus bill that spent a few hundred billion on needed infrastructure repairs around the country, put people back to work, created markets of employed workers who would purchase more goods, and prompted private companies to start hiring again to cash in on the new prosperity.

Hah! Just kidding. Obama's "stimulus" bill spent $26 billion on highway infrastructure projects, while allotting $116 billion for a tax credit. Fat lot of fucking good that did -- Obama added that to get Republicans to vote for the stimulus deal, which none of them did. Corporations awash in investors money still didn't hire, and now investors finally realized that corporations tied to their stock portfolios weren't going to expand, so they fled.

Lesson to corporations: If you don't spend the money when you have it, then you lose it.

Lesson to Obama: Stop fucking around with Republicans on useless bullshit like deficit cutting when, right now, we need deficit spending like crazy -- and that doesn't mean spending on tax cuts. Raise those. And if you can't sell this policy to the American people, sit aside and let a candidate who will do the right thing run for president.

A Second Wave of the Housing Crisis

In a recent episode of NPR's Planet Money podcast, Jacob Goldstein explains why housing prices are set to spiral farther downwards. Goldstein used a figure that, until the broadcast, I hadn't heard of: a monthly statistic estimating the amount of time it would take to sell all the homes currently on the market.

[Flash 9 is required to listen to audio.]

Despite this months it would take to sell all homes figure being at historic lows, Goldstein says the housing market will see more glut because of a "huge, looming wave of foreclosures coming down the pipeline in the next year or two". But foreclosures of sub-prime mortgages which caused the housing crisis, and recession which followed, already happened, right? What else is there to worry about?

But there is a second wave of mortgage foreclosures coming. In December, 2008, 60 Minutes explained that mortgages riskier than sub-prime were made after the sub-prime ones. Many of these mortgages are referred to as "NINJA loans" -- no income, no job, no assests.

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Well then, no wonder the only people who think stimulus worked are Obama's wimpy Democrat brown nosers -- whose noses are too occupied with other activities to sniff a whiff of reality.

The $5.4 trillion we'll pay if the stimulus package doesn't work

A major sticking point with the bailout discussion is cost. Republicans have blared endless about just how much a trillion dollars is -- a stack of $100 totaling a trillion could reach Pluto or something, go around the globe at the equator eight zillion times, etc. One facet of the stimulus package story that nobody is discussing, though, is how much the government will pay (with our money) if the package doesn't work. A cursory glance at the details of our country's budget problems makes $1 trillion look like a bargain.

Last month, Harper's Magazine had a cover story that I wish they would make available online because the link would go viral, and you would get better pictures of the graphs in it then crappy ones I take with my cell phone camera. Anyway, the story is titled "The $10 Trillion Hangover" and it details the money added to our national debt by the Bush administration. $10 trillion is actually a conservative estimate -- the debt could balloon to $13-15 trillion. Why? Ask Freddie and Fannie.

I made a photocopy of the article (and went at it with a highlighter, which I may not have done if I knew I would post a photo of it online in the future), and to your right is a crappy picture I took showing one part of one graph in the article -- the mortgage back securities debt part. The full graph itself is called "The Bill" and it succulently details all the debt added to the government over the past eight years. Now the graph attributes $.1.6 trillion to the government taking over Fannie and Freddie, but that's a low estimate. This blurb from the article shows why the mortgage debt is a real wild card:

When the federal government took over these failing residential mortgage giants, it also assumed their $5.4 trillion in mortgage-backed securities and outstanding debt.

Cutting straight to the point, that $1.6 trillion the government is responsible for now will balloon -- potentially to $5.4 trillion -- depending on the amount of home foreclosures in the future. Those are costs the government will have to account for. And whose money will they use? You guessed it, yours.

This makes current discussions on the cost of the stimulus bill silly. $1 trillion? Pshaw! Try $5.4 trillion if the stimulus bill doesn't work. A trillion has now become pocket change.

The choice for the Obama administration is simple: get real stimulus done. If this means hopping off the bipartisan pony ride and even, if necessary, brutally bludgeoning that pony to death, do it -- or we all suffer the consequences. And what are those consequences? It could be a repeat of the 1930s... Do you want to find out? You shouldn't. I certainly don't.