On Boosting Congressional Financial Literacy
Steven Pearlstein, a business columnist for the Washington Post writes a scathing column asking for a Personal Financial Trainer for every Representative and Senator in Congress. Pearlstein isn’t concerned about overheated rhetoric — he is pointing out the real deficiencies in knowledge here, deficiencies (no matter the policy differences) are actually pretty scary. He finds bipartisan abuses:
(In response to Senator Johanns trying to distinguish between spending and stimulus) Johanns was too busy yesterday to explain this radical departure from standard theory and practice. Where does the senator think the $800 billion will go? Down a rabbit hole? Even if the entire sum were to be stolen by federal employees and spent entirely on fast cars, fancy homes, gambling junkets and fancy clothes, it would still be an $800 billion increase in the demand for goods and services — a pretty good working definition for economic stimulus. The only question is whether spending it on other things would create more long-term value, which it almost certainly would.
(Discussing Senator Nelson’s claim that $1.1B dollars isn’t effective stimulus)…Maybe the senator could use that opportunity to explain why a dollar spent by the government, or government contractor, to hire doctors, statisticians and software programmers is less stimulative than a dollar spent on hiring civil engineers and bulldozer operators and guys waving orange flags to build highways, which is what the senator says he prefers.
Pearlstein’s excellent rant ends up with what I’m guessing is the real target of the piece — Republicans. If only because they were able to suck up alot of the media space over the past few weeks, they’ve had many chances to show off their real ignorance:
“What is most striking is how much ‘stimulus’ money is being spent on the government’s own infrastructure,” wrote Henninger. “This bill isn’t economic stimulus. It’s self-stimulus.”
Actually, what’s striking is that supposedly intelligent people are horrified at the thought that, during a deep recession, government might try to help the economy by buying up-to-date equipment for the people who protect us from epidemics and infectious diseases, by hiring people to repair environmental damage on federal lands and by contracting with private companies to make federal buildings more energy-efficient.
What really irks so many Republicans, of course, is that all the stimulus money isn’t being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending.
Read the whole thing. It is worth is to just see how a worthy rant gets done. And worth it to finally see someone in the media challenge these people on their ungrounded and unfounded criticisms of the recovery package. Which isn’t to say that are no criticisms of the package to be made — there certainly are — but our R friends have decided that putting their ignorance on display is far preferable than doing the work to get more substantive criticism into the discussion.
Tags: American Recovery and Reinvestment Plan, Republican Bamboozlement
Why does what Pearlstein is saying remind me of this?
http://delawareliberal.net//2009/02/07/verizon-math-fail/
Well a financial coach might help, but you’d also have to find brain donors for the Republicans.
why not just drop the cash from airplanes then?
“We have tried spending money. We are spending more than we have ever spent before and it does not work … After eight years of this Administration we have just as much unemployment as when we started … And an enormous debt to boot!”
— Franklin Delano Roosevelt’s Secretary of the Treasury Henry Morgenthau, commenting on the failures of the New Deal after two terms of FDR
Some of our politicians are an embarrassment. I can’t believe our country is run by so many idiots.
Anyone who wants to see how Talking Points work, should cut and paste annoi’s “quote” into Google and look at the results.
Not only is this being repeated all over the wingnut-o-sphere, none of them fill in the ellipses, where the intended meaning of this set of sentences probably resides.
ps. Apparently we need to get annoni a Personal Financial Trainer too.
Treasury Secretary Timothy Geithner and the 2 Ton Elephant in the Room
In effect, the US government (taxpayers) will be bearing the loss if things don’t go as intended. The growing concern is that these losses will materialize with defaults and re-defaults. There is also concern about the 2nd Wave of Foreclosures involving the “Toxic” Mortgages and the projected 8 million foreclosures expected over the next four years.
There is a lack of confidence on the part of the banks to be willing to lend to consumers and small businesses, and there is a lack of confidence in consumers and small businesses that they will be able to pay it back. Everyone is ignoring the “2 Ton Elephant in the Room” which is “Financial Ignorance”.
Consumers, borrowers, and small business owners lack the ability to make sound and informed financial decisions. It can be argued that the borrower’s lack of knowledge in financial management was the primary cause of the Subprime Mortgage Crisis which precipitated the Credit Crunch and our current economic woes.
It seems that the key to a solution of this crisis IS THE BORROWER!
Many recognize that the contributing factor to most of our economic problems is the consumer’s lack of financial understanding. He is like a “Boat without a Paddle” when it comes to managing money and making money choices. Everyone is betting that the borrower will default and foreclosures will follow. The high rate of foreclosure and Re-Default should have been expected because the borrower has no concept of managing money.
Loan modifications or any other form of bailout will not save these borrowers. These measures will fail because the borrower is still financially ignorant. Note that even with loan mods the Re-default rate is 60% within 6-8 months.
Let’s finally address the real issue which requires developing a program of “Immediate and Specific Financial Guidance” to help the Borrower understand how to manage his financial affairs.
The Borrower is in desperate need of “Financial Guidance” in this complex economic environment that requires “informed” financial decision-making. The Subprime Mortgage Crisis, out-of-control consumer spending and credit card usage, and the spike in foreclosures and bankruptcies provide evidence of that fact.
We must develop a program of “Immediate and Specific Financial Guidance” that will help the Borrower “naturally” be able to make the monthly mortgage payment. This program is NOT the so-called Financial Literacy initiative that simply disseminates “information” and takes forever to complete, but rather it is a program that will help the Borrower “understand” how to manage money in the shortest possible time and avoid the pitfalls that have previously caused financial
distress.
As the Borrower is successfully guided to avoid default, the financial and housing markets will respond favorably. The result will be a reversal of the downward trend in the valuation of the “troubled assets”.
If we are successful, we can turn this crisis “all around” and stimulate the economy “naturally” rather than by “bailout” which does not guarantee success.
Instead of the expected losses, the US government (taxpayers) will benefit from the unexpected gains that will result as these investments grow in value.
Samuel D. Bornstein
Professor of Accounting & Taxation
Kean University, School of Business, Union, NJ
Tel: (732) 493 – 4799
Email: bornsteinsong@aol.com
out of control borrowing is what got us in this mess…
and now the Obama responce is a trillion dollars in new debt .
ps. Apparently we need to get annoni a Personal Financial Trainer too.
While I am naturally curios and alwalys open to knew learing opportunities…
My finances are in good shape.
My house is worth 2.5-3 times what I owe.
My mortgage is less than one years salary
My ten year old car was paid off 7 years ago.
( I am shopping for a replacement though)
While my industry is suffering in the downturn, I feel secure in my employment. Should that change, I have enough savings for a two year job search.
It’s good to be a Conservative.
and new spelling opportunities 🙂
It’s good to be a Conservative.
Which apparently means that you will stay willfully ignorant of the terms of the debate here.
Which is something of Pearlstein’s point.
If you’re in good shape financially, great for you. However, all Americans are being affected by the recessepression, so we are all in it together.
Ahh, finally we get the bullshit straight from the type of ass that made it.
So get this – rather than change the rules, we should just tell people not to do stupid things. A perfectly Libertarian idea that sounds fine as long as you don’t care if it works or not. From the diseased minds that banned the SEC from regulating Credit Default Swaps; the ones that think that SIV’s with fraudulent risk ratings are OK because the problem lies with the loans that were obviously going to go bad anyway. Not the loans themselves, mind you, or the people selling them, but the people buying them. The fault lies with the victim, you see – she had it coming – that is where Esteemed Professor Douchebagg is coming from.
PS annoni is just pining for the goode ole days of soda jerks, poodle skirts, and air raid drills.
See, back in his day, no one would lend to subprime borrowers, and thus “those people knew their place”. The kids these days with their long hair and their rap music, WHAT IS THE WORLD COMING TO oh no doctor said to watch my blood pressure – must go read today’s Mary Worth…
See, back in his day, no one would lend to subprime borrowers, and thus “those people knew their place”.
Mark Zandi of Moody’s:
“In some respects, this crisis has its genesis in the long-held policy objective of promoting homeownership. Since the 1930s, federal housing policy has been geared toward increasing homeownership by heavily subsidizing home purchases. Although homeownership is a worthy goal, fostering stable and successful communities, it was carried too far, producing a bubble when millions of people became homeowners who probably should not have. These people are now losing their homes in foreclosure, undermining the viability of the financial system and precipitating the recession.
http://www.economy.com/mark-zandi/documents/Economic_Stimulus_House_Plan_012109.pdf
Who’s Zandi? Only the guy providing the economic and intellectual underpinning for the stimulus package to the Obama administration….
Notice a very important word there… “precipitating”. The assassination of Archduke Franz Ferdinand precipitated World War 1. But did it cause it? Is the death of one man the cause that millions died for? No, of course not, that’s f***ing stupid. It’s just the first domino in the chain. If you went back in time and saved Ferdinand’s life, would you have prevented World War 1? Probably not, the underlying causes were bound to result in war one way or another. What can you learn from World War 1? If your answer is “Don’t assassinate archdukes”, then you’re an idiot.
Bubbles happen. They happen all the time, and then there’s a market correction, and small things that set them off are fixed. People invested in companies without sound business plans just because “the internet is teh future!”. Then they lost money, the bubble burst, and the market underwent a correction.
What we are experiencing now, the worst economic crisis since the Great Depression, is not because of a bubble, although a bubble certainly precipitated it. The house of cards that fell was built by fraudulent SIVs, unregulated credit default swaps (a $55 trillion market), and stagnant wage growth that was never addressed after the previous bubble burst. A housing downturn, no matter what the cause, is inevitable from time to time. Building banking business models on housing prices never going down is pure lunacy.
There’s more of the Zandi’s causation assessment too:
Perhaps even more important has been the lack of effective regulatory oversight. The deregulation that began during the Reagan administration fostered financial innovation and increased the flow of credit to businesses and households. But deregulatory fervor went too far during the housing boom. Mortgage lenders established corporate structures to avoid oversight, while at the Federal Reserve, the nation’s most important financial regulator, there was a general distrust of regulation.
Despite all this, the panic that has roiled financial markets might have been avoided had policymakers responded more aggressively to the crisis early. Officials misjudged the severity of the situation and allowed themselves to be hung up by concerns about moral hazard and fairness. Considering the widespread loss of wealth, it is now clear they waited much too long to act, and their response to the financial failures in early September was inconsistent and ad hoc. Nationalizing Fannie Mae and Freddie Mac but letting Lehman Brothers fail confused and scared global investors. The shocking initial failure of Congress to pass the TARP legislation caused credit markets to freeze and sent stock and commodity prices crashing.
A regulatory environment that looked the other way as shadow banking systems came into being and that packaged up the risks of these loans to get them off of your books also let this get out of control.
cassandra
The rest of Zandi’s assessment is not relevant to the point I was making XStryker suggests that saying some people shouldn’t get loans for homes is somehow elitist, racist, classist, or take your pick from the other ‘ists available. That’s the clear implication of his statement unless he’d like to back off it.
Zandi disagrees. Whatever other causes Zandi attributes to the current recession, he clearly states that while home ownership is great, a lot of people got loans who shouldn’t have.
Zandi is the number-one go-to guy for Keynesian stimulus economics. How come when he says it, it’s not a bad thing, huh, X….
By the way, both your response and cassandra’s are a great way of ducking the question (the Arch-Duke Ferdinand doesn’t have shit to do with Zandi’s opinion about people who should not have gotten home mortgages and you know it).
Well I don’t see how you would know that Zandi disagrees — a lot of buyers got loans that they shouldn’t have because bankers got greedy, buyers got greedy and the regulatory framework decided to look the other way on all of it. Including the shadow banking system and the various ways to package up and pass on the ticking loans.
Zandi has a multipronged assessment of what went wrong and they interrelate. Just picking out the bit of his conclusion that suits whatever you are trying say here certainly disrespects a complicated argument.
Zandi is something of a star these days because of his assessments of the effectiveness of various types of stimulus. His table isn’t new with this report, but suddenly there is an audience in DC to at least listen to what he has to say. Oddly, he sent the campaign season as an advisor to McCain.
cassandra
Give me a break. Zandi says here, and he has said elsewhere that lots of people got mortgages they shouldn’t have. He attributes it to a massive failure of the regulatory system. XStryker, using a classic liberal talking point, attempts to say that people who didn’t want all those folks to get sub-prime mortgages in the first place were racists. XStryker is implying that not giving them mortgages is purely the result of prejudice. Zandi said giving them the mortgages was bad fiscal policy.
I was merely pointing out that you can’t have it both ways:
Not giving mortgages, bad prejudices when one group talks about it.
Not giving mortgages, sound fiscal policy when Zandi talks about it.
As for my disrespecting Zandi’s argument, that’s crap and again you know it. I’ve both read and written extensively about Zandi’s use of the Moody macroeconomic model, and the fact that virtually all of the pro-stimulus effects arguments result almost entirely from a proprietary private model that has significant predictive problems if consumers don’t act “rationally.”
What Zandi doesn’t write about often is when the Moody macroeconomic model predicted the sudden downturn in 2008 (it didn’t), or the fact that the only real historical data supporting his recession/stimulus model comes from the early 1990s, and even he admits the fit between then and now is only suggestive and not conclusive.
All of which is significant to the larger economic discussion, but none of which changes the fact that you and Xstryker have both (again and again and again) failed to challenge my original observation.
Good night.
Give me a break. Zandi says here, and he has said elsewhere that lots of people got mortgages they shouldn’t have. He attributes it to a massive failure of the regulatory system.
Well, at least you are beginning to acknowledge the complexity of Zandi’s attribution of causes.
I was merely pointing out that you can’t have it both ways:
Which is fine as far as it goes, but isn’t my argument and I’ll let Xstryker decide if it was his.
has significant predictive problems if consumers don’t act “rationally.”
Uncertainty is a fundamental problem of economics models everywhere — and, frankly, a problem for all kinds of models. So there isn’t anything earth-shaking about this observation for people accustomed to looking at models.
I haven’t seen Zandi speaking about the Moody’s macroeconomic model — the work that I’ve seen is about quantifying the effects of various types of stimulus. Zandi weighed in a year ago on what the last stimulus package should look like — and didn’t quite get there.
Zandi has been one of the voices the media turns to to speak about recessions and he has been talking about recession since last winter, at least. I don’t know if he was modeling anything — but his expectation this time last year was that we were already in recession (a thing denied by the government) and that it would be over by early summer, after the stimulus checks went out. But he was in very good company in not seeing the cliff.
And since your first paragraph here finally concedes some complexity of the meltdown source, I’d say that my challenge to that part of your observation certainly succeeded.