Wednesday, February 18, 2009

Our Ailing Economy, The Totally Predictable Burris Woes, Holder Speaks Out

The Economy is the Pits, The Government Acts, We All Hope it Works
The economy continues to struggle and there is finally some movement on the governmental front. Wall Street is not impressed, at least not yet, with the major indices now down again near their November lows, which are 40 to 50% off their highs of just 12-18 months ago. Indications are that unemployment will be up again in February, although the rate of increase may have slowed modestly from the past two months. Bottom line, it's still getting uglier out there.

On Tuesday in Denver, President Obama signed into law H.R. 1 The American Recovery and Reinvestment Act, a broad and sweeping spending and tax cut bill designed to both jump start the economy and invest in infrastructure. Conservative voices view this bill with a high degree of skepticism, to put it mildly. The President and congressional Democrats (and a small group of Republican Senators) insist it is the medicene we need.

So will it work? Nobody knows for sure. I'm not impressed with the tax cuts in the bill -- our experience last year is that in a credit crunch, tax refunds are more inclined to be spent on paying down debt than on consumer spending, which will not have a stimulative effect. The silver lining in these tax cuts is that they are fairly targeted at lower income individuals, who will likely be more inclined, out of necessity, to spend the money quickly. Regrettably, the most expensive provision, the revision of the Alternative Minimum Tax at a price tag of $70 billion, impacts mostly upper-middle class individuals and will likely have no stimulative impact.

The spending in the bill is a mix of things which may stabilize but will likely not improve the economy (direct aid to states), things which could have a very positive impact (infrastructure and alternative energy spending) and things that will not have an immediate impact (over half of the spending will take place after October.)

This bill is far better than nothing but far from perfect. By itself it is not enough, but I believe it will help some.

The second, and probably more important pillar of Obama's economic policy, his plan to stem mortgage foreclosures was unveiled by Obama himself today. Obviously, Tim Geithner has been shoved to the background after his poor performance in his first public event last week. Obama's plan invest $75 billion in aid to allow banks to renegotiate payments on troubled mortgages and restructuring underwater homes. This is a good plan and with a lot more detail than Geithner shared last week. It is also not enough -- we will need a solution to the banking crisis to deal with more than the immediate concerns.

Also back on the front-burner is the auto industry with GM and Chrysler asking for an additional $21.6 billion in federal aid and promising to layoff 50,000 workers. Does that sound like a good deal to ANYONE? I was very skeptical about the first auto bailout and I'm even more skeptical now. GM and Chrysler do not have sustainable business models, are burning through cash at a dizzying rate and keep coming to the table to ask for more money. I hate to say it, but former President Bush may have been right, an orderly bankruptcy may be the best option here. I think there are only two real options here: nationalize GM and Chrysler (Ford will likely survive on its own) or let them restructure in bankruptcy. Would it mean more unemployment if we let them go Chap 11? Yes. But it may just be pulling the band aid off quickly and dealing with what is inevitable.

Blago's Senate Pick a Perjurer? Say It Ain't So!
It appears our new friend Sen. Roland Burris (D-IL) may have lied to investigators about conversations he had with Gov. Rod Blagojevich's brother Rob about potential quid pro quos around campaign contributions in exchange for the Senate seat. You didn't really think Blago picked Burris without asking for something in return, did you?

No evidence yet that Burris agreed to such an arrangement, but it may not matter. If Burris perjured himself in such a high-profile corruption case, he should go. Blago never should have appointed President Obama's Senate replacement in the first place, although as I said earlier, once he did, there was really no constitutional choice but to seat him. If he turns out to be a felon, there will absolutely be a constitutional choice to expel him from the Senate.

Burris loudly attests his the charges to be false. We'll see.

Good ol' Blago, the gift that just keeps on giving.

Holder Speaks Out
Attorney General Eric Holder, in his first widely publicized speech commemorating Black History Month stated: "Though this nation has proudly thought of itself as an ethnic melting pot, in things racial we have always been and continue to be, in too many ways, essentially a nation of cowards."

I must admit that when I first heard these remarks, they struck me as slightly odd. We are a nation that has just elected our first African-American President by a fairly wide margin (including wins in former slaves state such as Virginia and North Carolina.) We had a profound dialogue about race just last year when the specter of Jeremiah Wright reared his ugly head. Holder stated in his speech that there is an unwillingness to openly discuss racial issues.

I disagreed with Mr. Holder when I heard his remarks.

Then I looked more broadly. Neighborhoods, schools and churches are largely still segregated in this country. There is large-scale segregation in socialization.

These facts are not true for many people -- but they ARE true for many more.

Mr. Holder's remarks don't strike me, on further reflection, as an indictment of white America. It is an indictment of our lack of dialogue, black, white and other. I don't buy Mr. Holder's worldview wholescale, but I think anything that provokes us to have this conversation is probably a good thing.

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