Video of the Day

The Weakening Economy and the Language of Fear

One of the most crucial economic numbers in the next few months will be the consumer confidence numbers. Ultimately, this economic malaise is a crisis in confidence. Banks won't lend, business won't invest, and consumers won't spend because they believe that the future of the economy will only get worse. That's why the language of our leaders is absolutely critical. Our leaders must project confidence because one way or another the public will follow their lead. FDR famously said "the only thing we have to fear is fear itself". At the time, the economy was in much more dire straits than it is today. Yet, FDR knew full well that the public couldn't have confidence in the economy if its leader, the President himself, didn't have confidence first.

It's in this context that I want to look at two quotes. The first is from President Obama.

failure to act quickly "will turn crisis into a catastrophe and guarantee a longer recession."

Then, there is this now infamous video from Nancy Pelosi



Now, besides the extra zero that Ms. Pelosi added, she portrayed an air of crisis. Both these statements present a government terrified of the future. Now, I understand that both Speaker Pelosi and President Obama are trying to sell the urgency of their action. Yet, they should sell the merits of their legislation. Trying to sell fear is a very counter productive way to do things in these economic times?

How could banks lend, businesses invest, and consumers spend when our President and our head legislator are telling them the sky is falling economically? Such statements have a way of being self fulfilling. As a someone with experience in sales, I understand the power of fear. Certainly fear is a great way to sell something, be it a stock, a mortgage, or a bill. Yet, in this case there are much larger things to think about.

This legislation won't work at all if the public at large is convinced that they are in the beginning of an economic apocalypse. That is the way that the economy is being portrayed by our political leadership and it has a way of fulfilling itself.

The Stimulus Conundrum and Electoral Reality

The President today made a very intuitive point.

echo the very same failed economic theories that led us into this crisis in the first place: the notion that tax cuts alone will solve all our problems, that we can ignore fundamental challenges like energy independence and the high cost of health care, that we can somehow deal with this in a piecemeal fashion and still expect our economy and our country to thrive."

reject those theories. And so did the American people when they went to the polls in November and voted resoundingly for change."

He makes an interesting point. He's absolutely right that he won resoundingly in November. His policies should then be winning now, right? Which is why President Obama must be befuddled by the latest polling on this stimulus package.

Support for the economic recovery plan working its way through Congress has fallen again this week. For the first time, a plurality of voters nationwide oppose the $800-billion-plus plan. The latest Rasmussen Reports national telephone survey found that 37% favor the legislation, 43% are opposed, and 20% are not sure.

The polling for this stimulus is in free fall and it will only get worse as the debate continues. This rapid deterioration is something I predicted a week ago. That's because this is a bad bill and I could see that the drip of bad news would only continue.

So, the question must be asked. If the voters overwhelmingly approved of President Obama in November, why are they now overwhelmingly disapproving of his signature legislation. After all, is anyone really surprised that massive government spending is a part of an economic stimulus backed by President Obama? They shouldn't be and that's because he ran on such a platform proudly.

In fact, the reality is that his victory was neither an acceptance of big government spending nor was it a rejection of tax cuts. Politicians, at their own peril, believe that voters ever reject keeping more of their own money. November, was both an approval of his own soaring rhetoric and a rejection of Republican's incompetence over the last few years. Let's face it President Obama didn't run on this stimulus package. He ran on change, what works, and other soaring rhetoric.

The voters also didn't reject tax cuts per se. They voted against the way the Republicans had governed. They didn't vote for massive government spending per se. They voted for someone that symbolized change. That was the vaguest of language. Now that reality has hit, President Obama may come to realize that much of his actual policies will be rejected.

He may have won on November 4th, but he may come to realize soon that most of his policies won't necessarily be policies that the voters will accept. That's why his signature legislation is being overwhelmingly rejected. Change we may believe in, but a massive spending bill is not something the voters will support.

Watcher's Council Submissions

Council Submissions
Mere Rhetoric - Israeli Missile Defense Group Emphasizes Need, Technological Feasibility Of Anti-Missile Systems
Right Truth - God’s Will
Joshuapundit - Obama: ” Screw Kentucky”
The Colossus of Rhodey - Lawyer: OK for prez to ditch Constitution if he’s “popular”
Bookworm Room - President Obama and Executive Power
The Razor - Musings over Forms and Schedules
Rhymes With Right - My Stimulus Proposal
The Glittering Eye - Three Thoughts About the Obama Administration
Cheat-Seeking Missiles - Calling All Conservative Attorneys!
Bookworm Room - What a cigarette will tell you about a man
Soccer Dad - The no-state solution
Non-Council Submissions
Submitted By: Mere Rhetoric - MEF Policy Forum - Obama and a Settlements Freeze
Submitted By: Right Truth - Chesler Chronicles at Pajamas Media - Octuplets: A Frankenstinian Moment in Modern Obstetrics
Submitted By: Joshuapundit - Judea Pearl, Wall Street Journal - Daniel Pearl & the Normalization of Evil
Submitted By: The Colossus of Rhodey - City Journal - The DNA of Politics
Submitted By: Bookworm Room - Wall Street Journal - Daniel Pearl and the Normalization of Evil
Submitted By: The Razor - Middle East Strategy At Harvard - Behind the Blow-out at Davos
Submitted By: Rhymes With Right - The Anchoress - More Ice Storm & More
Submitted By: The Glittering Eye - Right Wing Nut House - IF GOVERNMENT MAKES LIFE EASIER, DOES THAT MAKE IT BETTER?
Submitted By: Cheat-Seeking Missiles - Israel National News - Letter to Gaza Citizen: I Am the Soldier Who Slept in Your Home
Submitted By: Bookworm Room - Crossing the Rubicon - I am the soldier who slept in your home — must read
Submitted By: Soccer Dad - Yaacov Lozowick’s Ruminations - Generational Rage

Some Perspective and Consequences of the Republican's Plan to Offer 4.5% Mortgages

As the Democrats turn the stimulus bill into a pork barrel spending bill that appears to be nothing more than a pay off to their major constituencies, the Republicans didn't want to be outdone in proposing terrible legislation. The Republicans addition to making this stimulus bill a terrible bill is their plan to drive mortgage rates to 4.5% or even lower.

The Treasury Department's latest prescription for the ailing housing market could turn out to be more placebo than cure, and a costly placebo at that. Some economists question whether just lowering interest rates to a historically low 4.5% will be enough to boost housing sales or prices. What's more, the plan could end up costing $25 billion a year, using up valuable funds needed to fix the housing market and providing no relief to the millions of homeowners now facing foreclosure.

If this plan were ever to be put into effect it would have serious, far reaching, and long term consequences for our economy and the nature of our country.

There are only two ways to do this and both will cost an obscene amount and likely will into the trillions of Dollars. Either the Treasury will begin to buy up Fannie/Freddie bonds in order to drive rates to 4.5%, or the Treasury will simply subsidize these mortgages. Since the Feds now own both Fannie/Freddie, the Federal government can force rates below market value.

The first option is rather dicey. No matter how many bonds the Feds buy, that will only keep rates low temporarily. In order to have a real effect, these rates would have to stay low for months. As such, the Federal government would have to consistently buy billions of Dollars worth of bonds daily and continue to do it for months. Even if they did this, there is no guarantee that rates will stay down.

The second can be done but it would cost trillions and those costs would last for years. This way the Federal government would force low rates regardless of what the market dictates. In this way, the Federal government would subsidize the losses incurred by Fannie/Freddie on any bonds issued on these reduced mortgages. Normally, mortgage rates are determined based on the underlying bond rates of Fannie/Freddie bonds. In this scheme, Fannie/Freddie would buy mortgages at 4.5% or less regardless of what their bonds are selling at. As such, they would take losses on all of these bonds. The implications of this scheme are massive. First, this would cost trillions and this cost would continue for years. The mortgages last 30 years and the bonds are issued for 5 years and more as well. If Fannie/Freddie is losing money on each bond, the government will have to cover the losses.

If Fannie/Freddie are taking losses on years of mortgages, that also means that both Fannie and Freddie will have to be owned by the federal government for years. The federal government can't very well let these two loose and become private when they have now saddled them with losses that they will incur for years. What is the consequence of this? Between Fannie/Freddie and FHA, this means the federal government will be backing nearly 100% of all mortgages for the indefinite future. If this scheme goes into effect, we will effectively have socialized mortgages for the next generation.

The next consequence is that this scheme will eventually create an unnatural and sustained real estate boom. If rates are lowered artificially to 4.5% and below, millions of borrowers will take advantage. When rates settle to their normal levels, they will be that much less motivated to move from this loan. As such, millions of people will hold onto property for years longer than they would have without these artificially lower rates. As such, there will be an imbalance between buyers and sellers. Since these loans are going to be good for 30 years, we will feel some effect of this imbalance for the next generation.

Finally, this scheme will soon lead to out of control inflation. It's very likely that such an artificial stimulus will spur the economy. It will definitely spur refinancing and it will likely spur purchases as well. The mortgage brokers, banks, appraisers, and title companies will all see a massive increase in business. It's very possible that such an artificial move will in fact stimulate the economy. As soon as it does, it will lead directly to out of control inflation. The cost of this scheme could be trillions. The more effective it is the more it will cost. As soon as the economy moves, the effects of out of control borrowing will be felt. That effect is out of control inflation. Since this scheme will also guarantee long term deficits (by subsidizing long term losses of Fannie/Freddie that the government will have to cover) the inflation will only get worse as the economy gets better. It's likely that interest rates, with mortgage rates, will shoot up into the sevens, eights, and worse.

As such, all those that didn't take advantage of these artificially low rates will in effect be financing those that did because the artificially low rates will eventually lead directly to artificially high rates caused by all the borrowing to make these rates low. As such, the winners will be all of those that took advantage of the rates or made money in real estate. The losers will be everyone else.

Analyzing Daschle's Withdrawal

In August, I wrote about how Obama's arrogance could become a fatal flaw. The recent problems with the nominations of Tim Geittner, Tom Daschle and Nancy Kellifer expose the first manifestation of the serious problem that his arrogance will cause. President Obama seems to have thought that he could get three different nominees through Congress even though each had a prior tax problem. Even as the tax problems came to light, he continued to back each and every nominee. He dismissed these problems as minor.

What's worse is that he has done all this even though he ran on a platform of somehow being different. It seems that President Obama is either oblivious of how duplicitous this looks or he simply doesn't care. Either way, this is the manifestation of serious arrogance.

Now, in the short term, he will take a political hit. Ultimately, no one is going to vote based on the failure of several nomination. Still, where this will be a problem is in the leverage he will lose in crafting the stimulus bill. Just as the stimulus bill faces its most stiff opposition, President Obama has lost serious short term political capital.

What's really troubling about it all is the pattern forming of hypocrisy and duplicitousness in this decision. These three nominations show a great hypocrisy about a President who claims that he will do things differently. Yet, he also pledged to exclude lobbyists from his administration and yet nearly twenty former lobbyists are already in his cabinet.

He lectured Americans about turning down the thermostat during the campaign, and now we find out that that President Obama is turning up the thermostat in the White House. Such consistent hypocrisy is the manifestation of a large amount of arrogance. It's as though the President believes that he can do and say just about anything and get away with it all. He can nominate three people with prior tax problems and no one will care. He can create a zero tolerance policy for lobbyists and proceed to hire more than one former lobbyist daily. He can tell people to turn down their own thermostat and then turn it up himself.

It appears that President Obama just fell in love with the message he was delivering, but is further evident that he has no intention of delivering on that message. Such is the manifestation of arrogance that ultimately becomes fatal.

Our National Security: Theory Vs. Reality II

(H/T to Little Green Footballs) President Obama recently made a remarkable and very dangerous proclamation about GITMO.

President Barack Obama said in an interview aired on Monday he worried that detainees freed from the U.S. military prison at Guantanamo, Cuba, might resume attacks on the United States.But he told NBC News that closure of the prison was a matter of upholding U.S. values and law, and that a failure to do so would ultimately make Americans less secure.

"Can we guarantee that they're not going to try to participate in another attack? No," Obama said. "But what I can guarantee is that if we don't uphold our Constitution and our values, that over time that will make us less safe. And that will be a recruitment tool for organizations like al-Qaeda."

...

I have to make the very best judgments I can make in terms of what's going to keep the American people safe and ... what's going to uphold our Constitution and our traditions of due process," Obama said. "And what I'm convinced of is -- we can balance those interests in a way that makes all of us proud but also assures that we're not attacked."

So, what President Obama is saying is that he is willing to sacrifice the real safety America will lose by releasing dangerous terrorists so that we can have the theoretical safety of "upholding our values".

There have been 62 former residents of GITMO that have wound up back on the battlefield to kill Americans. President Obama is willing to see more and even increase those numbers. The President is willing to do this because the real safety we give up by keeping these folks locked up is worth less, in his mind, than the theoretical safety we get by leading "with moral authority".

President Obama appears to have decided to fight the GWOT in the theoretical world. The President has decided that theoretical protections created by intangible concepts like "moral authority" are worth more than keeping our enemy locked up when we capture them. Unfortunately, the GWOT won't be fought in a theoretical battlefield but a real one. You cannot win a war if you don't do everything possible to eliminate the enemy. If you release those that you have captured so that they do battle with your own soldiers again, that is no way to wage a war. Moral authority or not, unless you fight a war in reality rather than in theory, you simply are not going to win.