Saturday, August 8, 2009

Geithner Wants Higher Debt Limit

Geithner Campari Bio

Reuters is reporting that U.S. Treasury Secretary Tim Geithner formally requested that Congress raise our $12.1 trillion debt limit:

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Geithner said in a letter to Senate Majority Leader Harry Reid that was obtained by Reuters.

You’d think we could get by with less than $12.1 trillion in debt but we’re on track to surpass that figure by October. While stock-market bulls cheered at Friday’s employment numbers, our growing national debt is quite worrisome to me. It’s also disturbing that the government is encouraging more consumer debt with the Cash for Clunkers program.

I’m no Anatole Kaletsky – I do not believe governments should borrow their way out of economic problems. National and consumer balance sheets (including my own) must improve in the interest of long-term economic stability. Preparing for rainy days isn’t fun or glamorous but it’s the smart thing to do.

The government’s attitude towards recessions seems to be “throw money at it until it stops.”  But we need to hunker down, save, reduce deficits, and let the economy naturally settle at a level which allows for future growth.

Let’s not inflate a new debt bubble in the name of short-term economic growth.

Thursday, August 6, 2009

Cash For Clunkers! Please…

Government to you: Yes, we can give you $4,500 for this hunk of sh*t…

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There’s been some excitement out of there over the government’s “Cash for Clunkers” program in which people are bribed $4,500 for trading in an old car for a new one.

Sweet deal, unless you don’t need a car or don’t work in the automotive industry.

The program’s cost taxpayers about $1 billion so far, and another $2 billion in Cash for Clunkers incentives are on the way.

Why complain? After all, we’ve spent trillions of dollars on the bailout. What’s a few billion more?

That’s a good point. But consider the following:

Incentives for Japanese cars – the ones everyone’s buying with their Cash for Clunkers are already at record highs, and car dealers have already been friendly when it comes to striking a deal.

And what about the regular guy who needs to sell his used car, but doesn’t want another car? He’s screwed because used car prices are going to collapse.

CNBC’s Jim Cramer said the program is “going to put people to work” and stimulate the economy “for real.” But Cash for Clunkers is an attempt to temporarily prop up a troubled industry in the hope that the economy will turn around before the roof collapses.

And how long can any positive effects of this program possibly last? Even with the bonuses, consumers will be taking on more debt while unemployment is rising.

If you’re smart and in need of a car, I hope you consider a low-priced used model a few months down the road. Used cars are going to be dirt-cheap and good buys – so perhaps you won’t be taking on any debt to fund the purchase.

By the way, government, if you’re reading this: please institute a “Cash for Canon Camera Lenses” program. I REALLY need a bonus for my old crappy lenses so I can buy a new wide-angle lens.

Come on! It’s only 2 grand!

Tuesday, April 14, 2009

GM Recall is Symbolic of Detroit’s Demise

I guess there couldn’t be a worse time for General Motors (GM) to initiate a recall of 1.5 million vehicles due to potential fire hazards. For decades, GM has been suffering the ill effects of superior competition, powerful but misguided unions, and poor management. It took devastating economic weakness to seal its fate.

All automakers, including supposedly better-quality Japanese car-makers like Toyota (TM) and Honda (HMC) suffer from recalls and quality-control issues. When you make something with tons of moving parts and transistors, sh*t will happen no matter how careful you engineer your vehicles.

But it’s going to leave a decidedly poor taste in the American taxpayers’ mouth that just as our money is used to bail out GM - and we will be bailing out GM sooner because Michigan is a battleground state - we’re seeing an example of Detroit’s failure staring right back at us.

Is this the kind of company we want to bail out? Well, we might as well, because if we’re throwing trillions of dollars at the financial system, I’m sure we can find $50 billion for old Detroit.

I’m getting morbid here, but if GM, Ford (F), and Chrysler can make it through the next ten years, they can set themselves up for longer-term success simply because retirees will begin to die off in large numbers. (this isn’t my idea but it makes sense), taking their pension and health care costs with them.

Wednesday, April 8, 2009

Bailout: $4 Trillion and Counting

So how much is the government spending on the bailout of our financial system? According to the Congressional Oversight Panel, the government has spent, lent, or set aside more than $4 trillion via the Troubled Asset Relief Program (TARP), the Federal Reserve, and the Federal Deposit Insurance Corporation.

And what did the Panel’s head, Elizabeth Warren of Harvard Law School, say about that?

“We still have a long way to go. A very long way.”

You’d think we could accomplish just about anything with $4 trillion, but it’s turning out that it’s not so easy to overturn decades of financial excess.

So I’m scared that we get to the point that $4 trillion is just the tip of the iceberg. $4 trillion is a sizeable deficit for a nation with a GDP of about $14 trillion and falling. What if the bailout payouts hit $10 trillion? Or $20 trillion? Where will it stop?

Tuesday, April 7, 2009

William K. Black: Geithner = EPIC FAIL

William K. Black, a top regulator during the Savings & Loan Crisis, unloaded on Tim Geithner in a PBS interview from last week. Here are some highlights:

Black on why GM CEO Rick Wagoner was canned, but why the bank heads are still in place:

There are two reasons. One, they're much closer to the bankers. These are people from the banking industry. And they have a lot more sympathy. In fact, they're outright hostile to autoworkers, as you can see. They want to bash all of their contracts. But when they get to banking, they say, ‘contracts, sacred.' But the other element of your question is we don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.

Black on the issue of bank solvency:

Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine.

Black on Geithner’s subprime mortgage regulatory failures:

Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator.

Overall, this is a pretty damning interview, and we can add yet another name to the list of prominent economic experts that are speaking out against the Geithner plan.

I’m just glad to see that the truth about the financial mess is coming out, and that voices like Black’s are being heard. Contrary to the government’s spin, a lot of people saw the crash coming, and they were completely ignored. I was not aware of the FBI’s reporting of massive mortgage fraud, and it’s a shame that their work was just swept under the rug by the powers that be.

We might just see a revolution in this country. We’ve been far too tolerant of Washington/Wall Street corruption, and people are finally seeing the truth – that the United States has been one collective engine of overspending.

Whether we like or not, that’s changing quickly.

Things are slowly creeping towards the point that people will begin to readily and angrily protest against the government the way people did in the Vietnam War era.