October 06, 2008
RIGHT ANALYSIS WRONG CONCLUSION
Well, I knew this was coming.
My cousin Big Tom passes on this cri de coeur from his brother, Professor Mike. His analysis and lamentations are reminiscent of my post on the same subject, but he comes to a different conclusion.
Says Professor Mike:
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My cousin Big Tom passes on this cri de coeur from his brother, Professor Mike. His analysis and lamentations are reminiscent of my post on the same subject, but he comes to a different conclusion.
Says Professor Mike:
Republican administration increased spending by a greater percent than revenues! The Reagan tax cuts caused the national debt to increase from about $1 trillion to over $3trillion! The theory was that lower rates would stimulate activity and that taxes would actually go up. That obviously didn’t happen! Under Reagan, spending went up by 25% and revenues only increased by 15%. During the Clinton years, revenues increased by 35% (because of a tax increase and a booming economy) and spending only went up by 9%! Under Bush II, revenues went up by 10% but spending increased by 25%! I was a Republican through this year’s presidential primary.
The party used to stand for individual freedom and fiscal responsibility. I’m embarrassed that recent Republican administrations have demonstrated gross fiscal irresponsibility! I don’t know what the party stands for now other than fundamentalist religious values!
Our government is acting like a household living on debt-credit cards, consumer loans and ever increasing home equity loans! The greater the deficit, the deeper in a hole we get. Interest rates are still relatively low now probably because of the looming recession. They won’t stay that way. Inflation seems inevitable and rates will rise. Even without considering inevitable further increases in the national debt, the $430 billion annual interest payment we have now will increase.
It has been obvious for over five years that reckless real estate loans were occurring. Loans with “nothing downâ€, borrowers with no credit history, on properties with no appraisals seemed obviously imprudent. Deregulation allowed this process to barrel ahead unchecked. As recently as a month ago, McCain was calling for more deregulation. He assumed that the market would regulate itself. What did the regulators believe would happen? As in all pyramid schemes, somebody would be left holding the bag! Exotic securities were created with derivatives to slice and dice the various mortgage loans so no one could relate the securities to the underlying real estate loans. The only
purpose for these securities that I can see was to allow the use of huge amounts of leverage while hiding the risk of the underlying loans. This magnified the risk of the already risky mortgages many times! If the value of the underlying loans fell even a little, all equity was wiped out in the securities! When this happened, it also wiped out the equity of many financial firms. The regulators apparently made themselves not to know (until it was too late) since this is what the administration wanted. That’s why we needed the bailout. It was necessary but may not be sufficient. It remains to be seen how
effective it will be.
Republicans seem clueless. Their answer to everything is ‘tax cutâ€! Nobody likes taxes! However, unreasonable tax cuts plus reckless deregulation and unwise military adventures largely explain how we got in this mess. In the past I have tended to vote Republican. Often it has been a nose holding contest. This year my choice is easy! I’m supporting Obama. His management style is thoughtful and deliberate not impulsive. He has the most competent economic advisors including Warren Buffet (The most successful investor in history) and Paul Volker (who ended the inflation of the 70s during the Reagan administration). His grass roots fundraising tend to allow him independence from the special interests. I can’t imagine voting for McCain! He is grossly ignorant about economics and his election would put Palin one melanoma away from the presidency!
I think its time we had a smart president for a change!
Mike Dunn October 6, 2008
The party used to stand for individual freedom and fiscal responsibility. I’m embarrassed that recent Republican administrations have demonstrated gross fiscal irresponsibility! I don’t know what the party stands for now other than fundamentalist religious values!
Our government is acting like a household living on debt-credit cards, consumer loans and ever increasing home equity loans! The greater the deficit, the deeper in a hole we get. Interest rates are still relatively low now probably because of the looming recession. They won’t stay that way. Inflation seems inevitable and rates will rise. Even without considering inevitable further increases in the national debt, the $430 billion annual interest payment we have now will increase.
It has been obvious for over five years that reckless real estate loans were occurring. Loans with “nothing downâ€, borrowers with no credit history, on properties with no appraisals seemed obviously imprudent. Deregulation allowed this process to barrel ahead unchecked. As recently as a month ago, McCain was calling for more deregulation. He assumed that the market would regulate itself. What did the regulators believe would happen? As in all pyramid schemes, somebody would be left holding the bag! Exotic securities were created with derivatives to slice and dice the various mortgage loans so no one could relate the securities to the underlying real estate loans. The only
purpose for these securities that I can see was to allow the use of huge amounts of leverage while hiding the risk of the underlying loans. This magnified the risk of the already risky mortgages many times! If the value of the underlying loans fell even a little, all equity was wiped out in the securities! When this happened, it also wiped out the equity of many financial firms. The regulators apparently made themselves not to know (until it was too late) since this is what the administration wanted. That’s why we needed the bailout. It was necessary but may not be sufficient. It remains to be seen how
effective it will be.
Republicans seem clueless. Their answer to everything is ‘tax cutâ€! Nobody likes taxes! However, unreasonable tax cuts plus reckless deregulation and unwise military adventures largely explain how we got in this mess. In the past I have tended to vote Republican. Often it has been a nose holding contest. This year my choice is easy! I’m supporting Obama. His management style is thoughtful and deliberate not impulsive. He has the most competent economic advisors including Warren Buffet (The most successful investor in history) and Paul Volker (who ended the inflation of the 70s during the Reagan administration). His grass roots fundraising tend to allow him independence from the special interests. I can’t imagine voting for McCain! He is grossly ignorant about economics and his election would put Palin one melanoma away from the presidency!
I think its time we had a smart president for a change!
Mike Dunn October 6, 2008
My Dear Cousin Professor Mike Dunn (as opposed to My Dear Cousin Mike McMahon) ignores reality and the Consititution. Congress controls spending. Re-run the deficit chart against congressional majorities instead of Presidential administrations. Same correlation, but this time it's Democrat congressional majorities to spending. However, starting with the 2002-2006 budgets, with majority Republican congresses, I agree 100% with Prof. Mike - the RINOs joined the Democrats in a binge, and they deserved their Congressional losses in 2006. But things were still going up in 2006. Once Pelosi and Reid got behind the wheel, it's been all down hill, culminating in the recent head-on collision with mortgages and credit..
Let's remember that every dime that was spent was requested and approved by Democrats in Congress. In fact, the budget amounts that ultimately got to Bush for his signature were in every case a reduction in the amount Obama and his party wanted to spend. Remember all the crying about Bush and his "draconian" budget cuts? Professor Mike sounds like a drunk blaming the bartender for not cutting him off sooner, or a gambler blaming the casino for taking his bets. It's the President's fault for not preventing the spending, not the Congress for actually, you know, spending.
But I'm convinced that regardless of logic & history, Obama will be elected, and with him will come a wave of Democrat greed and corruption that will hasten the pension fund & Social Security crash that McCain as Pres would only kick down the road with fixes.
Once that crash hits, dwarfing this one, we'll finally see some real federal reform, and Obama will join Jimmy Carter in the Presidential Hall of Lame.
Oh, and by the way, Mike Dunn - your exclamation point key is stuck. May want to get it looked at.
And if you really think "deregulation" caused our current financial problems, you need to ask for your money back on your education. Democrats voted down all attempts by Bush and McCain to tighten regs on Fannie May and the Community Reinvestment Act, the primary causes of the current crisis. And remember that it was the CRA that gave Obama his first big slurp at the federal teat, and he's been latched on like a piglet ever since. Chicago - Hog butcher to the world no more - more like hog breeder. If you think Chicago and Detroit are well run fiscally, you'll love what smart, deliberate Obama and his team will do to Washington
Warren Buffet, The Sage of Omaha, who told investors earlier this year to short the dollar (how's that working out?) is not the only financial advisor Obama has. As the meltdown saga continues to unravel, we'll hear more about Obama advisors Raines and Johnson, and their roles in the feeding frenzy at Fannie Mae.
Take a second look before you vote, Professor.
Let's remember that every dime that was spent was requested and approved by Democrats in Congress. In fact, the budget amounts that ultimately got to Bush for his signature were in every case a reduction in the amount Obama and his party wanted to spend. Remember all the crying about Bush and his "draconian" budget cuts? Professor Mike sounds like a drunk blaming the bartender for not cutting him off sooner, or a gambler blaming the casino for taking his bets. It's the President's fault for not preventing the spending, not the Congress for actually, you know, spending.
But I'm convinced that regardless of logic & history, Obama will be elected, and with him will come a wave of Democrat greed and corruption that will hasten the pension fund & Social Security crash that McCain as Pres would only kick down the road with fixes.
Once that crash hits, dwarfing this one, we'll finally see some real federal reform, and Obama will join Jimmy Carter in the Presidential Hall of Lame.
Oh, and by the way, Mike Dunn - your exclamation point key is stuck. May want to get it looked at.
And if you really think "deregulation" caused our current financial problems, you need to ask for your money back on your education. Democrats voted down all attempts by Bush and McCain to tighten regs on Fannie May and the Community Reinvestment Act, the primary causes of the current crisis. And remember that it was the CRA that gave Obama his first big slurp at the federal teat, and he's been latched on like a piglet ever since. Chicago - Hog butcher to the world no more - more like hog breeder. If you think Chicago and Detroit are well run fiscally, you'll love what smart, deliberate Obama and his team will do to Washington
Warren Buffet, The Sage of Omaha, who told investors earlier this year to short the dollar (how's that working out?) is not the only financial advisor Obama has. As the meltdown saga continues to unravel, we'll hear more about Obama advisors Raines and Johnson, and their roles in the feeding frenzy at Fannie Mae.
Take a second look before you vote, Professor.
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