Wednesday, October 1, 2008

A Matter of Trust ... and Solving the Real Problem

A training developer by profession, I can see parallels in the current economic crisis to what frequently happens in industry when something isn't working quite right. In industry, managers are quick to blame the problem on poor performance of workers and prescribe a magic bandaid of "training" to fix the problem. They never take the time to discover that there's a roadblock or a policy that get's in the way of workers being able to deliver expected performance. Instead of investigating and analyzing the problem and removing the roadblock or faulty policy, managers frequently apply that magic 'training' bandaid to a symptom. And all too frequently, that magic bandaid doesn't deliver the expected performance improvement.

Legislators appear to be doing the same thing. Instead of investigating and analyzing what's really wrong with the economy and credit markets, they've leapt to a conclusion that they just need to throw more money after bad at the top of the food chain believing that somehow, it will immediately trickle down and all will be well and good. Hello?!?! The economy is in this condition because people can no longer pay for their mortgages. To-date, 600,000 759,000 taxpayers have lost their jobs this year, and even more are expected to lose their jobs before the end of the year. And ... that 600,000 759,000 jobs number doesn't include the number of people who've lost their jobs, but who've dropped off the unemployment rolls because they're no longer eligible for unemployment assistance.

As I see it, the current problem we're facing as a nation is a liquidity crisis (a credit crunch). We've become a nation of credit-card junkies with very little in savings and far too much debt on credit cards. People who had no business buying homes (because they'd have problems financing bubble gum), financed 100% of their home purchase using multiple loans and in many cases with 'interest-only' loans, expecting that they'd just stay in that home long enough for it to rise in value and then they'd sell it making a lot of money. Now add an economic downswing with massive job losses and not only do you get minimum payments against all those credit cards, but you also get homeowner failures-to-pay or inabilities-to-pay for their mortgages. That then leads to declining home values preventing many folks from being able to refinance their home mortgage because their home is no longer worth what they purchased it for.

So getting back to my analogy, throwing money at the financial institutions and shoring up the banks with more money to lend is like throwing money at a symptom of the problem. The locus of the problem is too many homeowners' inabilities to pay. Thus, the 'banks' aren't the problem, but only a symptom affected by the 'real' problem. So, you can shore up the banks all you want, but those liquidity/credit 'symptoms' will continually recur until folks in Washington finally begin to understand and deal with the real problem driving the economy.

Instead of continually trying to make 'trickle down' economics work, why not turn that around and try a 'trickle-up' approach? If they're going to spend money on anything, why not buy mortgages directly from the taxpayers who're slated for foreclosure. The government would then be in the position of being able to renegotiate the terms of those (predatory?) mortgages, adjusting the interest rates and length of those loans and then collecting monthly payments on those renegotiated mortgages. Buying these mortgages instantly puts money back in the banks, stablizes the housing market and has a positive impact on the economy as a whole.

Personally, I don't trust the judgement of President Bush nor do I trust the cronies he placed in key governmental offices to stabilize this economy. Similarly, I don't trust Mr. McCain, who was directly involved in creating the Savings & Loan crisis as a member of the Keating Five, to come to the rescue of our failing economy. The last thing we need is a maverick who's being advised by Phil Gramm (i.e., "nation of whiners" comment and deregulation that led to the Enron debacle) and who shoots from the hip, shouts 'fire him' without thinking about the consequences that that would leave no one in a position to take needed action until a replacement could be confirmed by Congress, and who clearly doesn't understand economics (let alone the difference between tactics and strategies).

All attention is being focussed on the Paulson Plan and modifications to that plan. Excuse me, but less than a month ago, President Bush and Mr. Paulson were repeatedly saying the economy was fundamentally sound. If they didn't understand the nature of the problem then, why should we trust that either of them clearly understands the problem now?

There are a few in congress who are promoting a plan that minimizes the impact on taxpayers and that doesn't cause the national debt to balloon to twice its outrageous size over the next few months. That plan is being promoted by Rep. Marcy Kaptur (D-OH) and Rep. Peter DeFazio (D-OR). Here's a C-SPAN video with Rep. DeFazio, Rep. Kaptur and others talking about their 'no-bailout' bill approach.

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1 comment:

RockSpot said...

Got this comment from my step-son in Ohio via email:

You know what I find amusing? The only big winner over this long haul has been the schools. Their revenue from real estate taxes has tripled over the last five years because of all the falsely inflated property values ... trippled! What a windfall for them and regardless of what happens to home owners, they're still going to get their money. Foreclosures won't hurt them a bit. When the houses go to auction, the first thing that gets paid from the proceeds are back taxes.

This mess may have started with foreclosures, but now, some elderly home owners are finding it difficult to find the money to pay for just the taxes on their homes, homes that they paid off years ago. Because home values are inflated, taxes on those homes are similarly inflated ... and get this ... the schools are still screaming they need more levies. Go figure????