Republicans Reject Stimulus, Prefer to Gamble

Here we sit at the beginning of time. President Obama and Congress have passed their stimulus package, the Treasury has outlined its bailout plans (with various levels of clarity), and now we begin the truly interesting experiment. If all this spending and tax cutting and backstopping actually takes hold, we should see the hard times bottom out later in the year. Probably much later. But if all of this is spitting into a ferocious wind, where economic discpline will impose its own plan, then we are truly headed for times inconceivable to a population largely spoiled by comfort and ease.

This same population, and appealed to by a duplicitous group of Republicans in office, remains largely ignorant of the details of what has happened, and unable to determine whether something is working, beyond their own crude yardsticks of employment and gas prices. Hence they don't know how tight the credits markets became back in November and December of 2008, or that previous efforts by the government may have served to ease corporate strains to a degree.

This bill, newly passed but yet to be clarified and refined by both house of Congress, received little to no Republican support. In other words, Republicans either felt it would be better to do nothing at all, or, they were working on the assumption that whatever benefits the bills provide will trickle down to their home states, while allowing them plausible deniability for any future suffering, and as though none of this arose from rather laissez faire Republican policy to begin with. It's a bold and stupid gamble, cynical and hypocritical, and we can only hope that America actually benefits from those politicians willing to do something.

Let's be clear. These problems did not begin with Obama, though Republicans will be looking each day to portray any future difficulties as his doing. Even today in the Wall Street Journal, one particularly vapid opinion piece mocks Obama for not having solved our international problems; mind you, these are problems of Republican policy creation, and problems unsolvable in a mere three weeks on the job in the middle of financial meltdown. It's also a piece that dismisses the positive words from difficult nations (whether Iran or Russia), while outright dismissing the heightened respect from allies as being meaningless. If the author had a truly worthy point, we might link and name him, but ideological fools are best left to jest in their own courts.

Of course in mocking Obama as a messiah, the Republicans can then pose the question of how that messiah is failing. No thinking person or voter for Obama actually saw him as such, but Republicans right now are playing for political mileage, and for ideological purity, rather than for the sake and safety of American prosperity. En masse they have sacrificed credibility, opting to do nothing and yet will still reap whatever rewards fall to their plates.

Hypocrites, and hypocrisy.

And here, from Time Magazine, the Republican Party's multiple personalities:

When President Barack Obama took his stimulus road show into Florida on Tuesday, Governor Charlie Crist was waiting, tapping his foot. Crist, a Republican, is actually six months ahead of Washington in the stimulus game: in August, in response to his state's economic implosion, he launched Accelerate Florida, which is pouring out more than $28 billion in stored-up state funds for the kind of infrastructure and school-construction projects that are still being debated inside the Beltway. (See pictures from the historic Election Day.)
At the time Crist announced Accelerate Florida, few if any fellow Republicans seemed to condemn the idea. And that makes it all the more curious to Crist and other moderate Republicans that now, when states' budget crises are even worse, conservative Republican governors in states like Texas, Mississippi, Louisiana and Alaska are following GOP leaders on Capitol Hill in adamant opposition to Obama's federal stimulus package.

"I see this package as a pragmatic, commonsense opportunity to move forward," Crist, who appeared with Obama in economically beleaguered Fort Myers today to tout the stimulus, told TIME on Monday night. "I didn't campaign for Obama, we don't agree on everything, but he's my President, and my job is to help Florida stay in the black." Introducing Obama at the town-hall meeting, Crist said it was not just important "that we support this stimulus package" but that "we do it in a bipartisan way ... It's about rising above" partisanship.

Crist's puzzlement at his colleagues' opposition reflects a fundamental divide in his party. If the stimulus debate has solidified Republican ideology in Washington, it has further exposed the party's fault lines at the state level — where many believe the GOP's future direction will be decided after the electoral disaster of 2008. For Crist and other moderate, bipartisan governors like California's Arnold Schwarzenegger and Vermont's Jim Douglas, backing the $800 billion recovery bill taking shape in Congress isn't just an act of economic self-interest; it also lets them showcase a less ideological conservatism that they insist voters want in the 21st century.

Something Darwin, Something New: Traders Migrate

Sometimes people have a hard time understanding why some workers in financial services get paid such high salaries. How could they possibly be worth it, when banks have lost so much?  Obama's action to cram down salaries on those taking Federal funds is his attempt to satisfy critics and get the average man to support the various bailout and stimulus efforts.

Certainly the government is right to force those who take taxpayer funds to manage expenses, beginning with salaries, and especially when the people asking for those funds were involved in the decay of the businesses in question. But let's not fool ourselves; when you cap income in financial services, you run the risk of losing talent. Annoy an autoworker and make the work conditions less than ideal, and he will not pack up his metal lunchbox, load up the Ram Tough pickup, and start building autos on his own with a few buddies.

But limit the potential of certain financial workers and they can pack up their gear and start their own firms (when and if they are not picked up by a competitor who can recognize talent). The fit survive in an industry with low barriers to entry.

A couple of traders from J.P. Morgan and Goldman, Sachs demonstrate part of that point.

Foster Smith, former head of power and natural gas trading at JPMorgan Chase in New York, is teaming up with Scott Mackle, a former Goldman Sachs power trader, to open a hedge fund, the energy trading news Web site SparkSpread reports.


Mr. Smith and Mr. Mackle have set up a management company based in Darien, Conn., FSM Capital, for the unnamed fund.

(N.Y. Times)
 
This does not mean you continue to give the comfortable compensation (to execs at Fed subsidized banks) under the premise that talent can be lost, but it serves as a reminder that, in fact, talent can and will be lost, and that money businesses are unique. One ought not to assume that executives or employees (investment bankers, traders) might be humbled and headed for a new world of low compensation. Reality and history suggest otherwise, as money tends to adopt to the rules and laws that exist, with those at the top still seeking or manufacturing high rewards.

Congress Wants 15,000 to Save Houses and Souls

If the early news is to be believed, we are on the verge of great stimulus, which will include giving a tax credit of 15,000 to home buyers in an effort to support the housing market. This will fail. Not just because there is a lot of pessimism floating about in our heads all the time. We are realists too. The N.Y. Times shares:

The tax break for homebuyers, which the Senate approved by voice vote without opposition, was the second amendment in two days aimed at encouraging consumers to make major purchases.


On Tuesday, the Senate approved a tax incentive for car buyers, sponsored by Senator Barbara Mikulski, Democrat of Maryland, that would allow the deduction of sales tax and loan interest on purchases made this year.

But while both of those incentives were applauded by lawmakers who said that the bill should quickly spur consumer spending , some economists said they were short-sighted and lacked the forward-thinking approach Mr. Obama has demanded.

We would agree with the "some economists" that this is indeed short-sighted, and skirts the issue. In all likelihood spending ought not to be encouraged and one can barely believe that anyone with relative sanity is inclined to spend. Oh sure there will be a buyer here, maybe there, picking up perceived bargains, but the vast majority of people will be mindful of their money, worried about employment and making sure the day to day is covered.

This daily strain and focus on the here and "now in my pocket", is evidenced by rising default rates on credit cards. The Financial Times, with eyes on American wallets, states:

Late payments on credit cards crept higher throughout 2008, said Fitch, but signs of borrower stress rose in the fourth quarter as late payments surged by 18 per cent. Charge-off rates in January were 40 per cent higher than a year ago at 7.5 per cent and were expected to approach 9 per cent during the second half of 2009.


Late payments and defaults on credit cards have been closely linked with levels of unemployment, which have risen dramatically. Non-farm employment fell 524,000 in December, contributing to the biggest decline in payrolls on a three-month moving average since 1945. The unemployment rate jumped to a 15-year high of 7.2 per cent, from 6.8 per cent in November.

It's like Congress trying to build a bridge, but starting from two distinct points on opposite shores that can't possibly intersect to suspend over the troubled waters. Try as you might, there is not enough money (real or printed) in the Treasury to re-inflate values in a manner that will make people and markets whole, or happy. Nor can you get there while simultaneously encouraging the bankers to be less stupid and less oblivious to deadbeats.

These little efforts at trying to spur demand fly in the face of a larger trend, and smart money (and one hopes people are smarter and wiser now) will not dive back in when prices are trending lower, regardless of the incentive. Those who would be so bold, and who could weather further losses before eventual future gain, are a small minority. The vast majority of the people are in over there heads in their own current situations, and that majority will not be saved by the actions of a few brave souls who decide now is the time to jump back in due to tax incentives.