Put Down The Pitch Forks says Steven Pearlstein in WaPo OpEd

Steven Pearlstein writes in todays Washington Post about the AIG anger sweeping the country and DC and how we need to channel it into something productive. He also points out we need to take some of the blame on ourselves.

I think he has a good point. We all share in this. No, we didn't take the bonuses. But some of us did, take the mortgages AIG was doling out. I know a lot of these people say they were duped, but come on, if you go to buy a house worth $500,000 and you only make $30,000 you know you can't afford it.

Here is what he had to say:

We're angry. We're frustrated. We feel cheated and abused. We're not going to take it anymore.

But then again, we don't have much choice, do we? Sure, we can demand that a few more heads roll on Wall Street, or at the Treasury, or that a few hundred million are clawed back from financiers who never deserved it. But the reality is that no matter what we do now, tens of trillions of dollars in wealth have been lost. All that's left is simply an elaborate exercise in settling up the accounts.

At the end of the day, the thing to get outraged about is not the $440 million in bonuses at AIG or the $10 million that Citigroup is spending to redesign its shrunken executive suite. These may seem like princely sums, but they are almost insignificant compared with the real outrage: the hundreds of billion dollars of taxpayer funds that have been put at risk to keep AIG and Citi from failing and taking the whole financial system down with them. Let's keep our attention on the elephant rather than the pimples on its behind.

I realize that collective expressions of public anger can serve a useful purpose. At times like these, it feels good and is a way for a political system to let off some steam before a more dangerous explosion occurs. More importantly, it builds political momentum for sweeping reform of the regulatory apparatus while scaring the bejeezus out of people on Wall Street, who will now think long and hard the next time they get the urge to take excessive risks with other people's money.

But there's a danger in letting this outrage get to the point that it undermines the effort to contain the financial crisis. And with Congress now rushing to pass legislation taxing away the bonuses of every banker at every bank or financial institution that takes government money, that point seems to have been reached.

A few things to keep in mind.

First, as I've said in the past, this isn't about fairness. There's nothing remotely fair about using taxpayer money to rescue a free-market financial system from the mistakes of the financiers. But the reality is that we can punish the bankers or we can save the banking system, but we can't do both at the same time.

Nor is it fair, as The Great Santelli has declared on CNBC, that homeowners who have paid their bills and have been careful not to take on too much credit are now being asked to provide relief to homeowners who have not. Unfortunately, the price of righteous indignation is a wave of foreclosures, a further decline in home values and billions of dollars of additional loan losses at banks that are already on government life support. Given the financial and economic hits they have already taken, that's a price that most "innocent" homeowners and taxpayers would probably prefer not to pay.

During a financial crisis, fairness is a luxury we cannot afford. During the 1930s, bankers and financiers lost everything, but the outcome -- a decade-long depression -- was hardly fair to the ordinary American. The key question is not whether something is fair, but whether it helps get us through this mess faster and at a lower cost.

At the moment, the Treasury is working (and working and working) on ways to entice private capital back into the banking and shadow-banking system by offering government financing and guarantees against losses. Every dollar of private capital that can be attracted back into the system is a dollar that the Treasury won't have to borrow or the Federal Reserve won't have to print. And only with the return of private capital will the government be able to get back the rescue money it has committed.

But how eager do you think private equity and hedge funds will be to invest those billions of dollars if they fear that their participation will subject them to front-page accusations, congressional inquiries and public outrage over how much they might be paying for bonuses or employee travel or office decoration? Will they participate if they think that Congress, in a moment of populist pique, will try to tax back their profits if they earn more than originally expected?

As the financiers see it, there's a big difference between the government that sets tough terms for participation in its financial rescue programs and a government that is a fickle and unreliable partner, that tries to micromanage their businesses and changes the rules of the game with every zig and zag of public opinion. That may be an exaggerated view, but it is the financiers' view and one we need to be mindful of, since at this point we need their money and cooperation as much as they need ours.

A final point on outrage: We need to save some of it for ourselves. While it was Wall Street that got rich by peddling new ways for Americans to live beyond their means, the decision to do so was ours. It was we who ran up the credit card bills, we who drew down the equity in our homes and we who refused to tax ourselves for the government services we demanded. Wall Street bankers may have been the pushers, but it was we Americans who became addicted to the easy credit.

Bubba says we need to have Hope..Gives Obama an A

Yep, Bill Clinton says Pres. Obama is doing fine...he just needs to give us a little bit of his home town... Hope...lol Well, I always thought he did.. guess I get the wrong message...lol

But, Bubba as they always called him says that the President needs to start giving us more hope...other than that he gives him an A and says he is doing everything else just right.

So, keep up the good work, President Obama...you got the stamp of approval from the last two Democratic Presidents. Sorry, ABC doesn't allow the embedding of their videos so you will have to click on the link to see their interview and/or read the article with Pres. Clinton. It is good.

And for the other, probably my favorite president. Jimmy Carter. I think he is so underrated and does not get the credit he should. This is such a gentle and great man and deserves way more credit than he ever got.

Here is his interview with KO on the 13th. Talking about the peace accords and his advice and how he thinks Pres. Obama is off to a great start also.

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So, with the pat on the back from both of these two presidents what more could he want?? He has all of us behind him, he has these two good men behind him. Who cares what Wall Street thinks, Steven Pearlstein in the Washington Post I think said it best about them by saying that until they back trailer loads of money up to Wall Street they are going to do just exactly this. And I have a feeling if that's what they are waiting on.. they may be waiting a while.

Letter to the Members of Congress from Steven Pearlstein

Here is a wonderful piece written by Steven Pearlstein in the Washington Post. He is addressing it to all the members of Congress, both in the House and the Senate.. I sure hope they read it..but I thought it was worth it for all of us to read it. So here it is:

As long as we're about to spend gazillions to stimulate the economy, I'd like to suggest we throw in another $53.5 million for a cause dear to all business journalists: economic literacy. And what better place to start than right here in Washington.

My modest proposal is that lawmakers be authorized to hire personal economic trainers over the coming year to sit by their sides as they fashion the government's response to the economic crisis and prevent them from uttering the kind of nonsense that has characterized the debate over the stimulus bill during the last two weeks.

At a minimum, we'd be creating jobs for 535 unemployed PhDs. And if we improved government economic policy by a mere 1 percent of the trillions of dollars we're dealing with, it would pay for itself many times over.

Let's review some of the more silly arguments about the stimulus bill, starting with the notion that "only" 75 percent of the money can be spent in the next two years, and the rest is therefore "wasted."

As any economist will tell you, the economy tends to be forward-looking and emotional. So if businesses and households can see immediate benefits from a program while knowing that a bit more stimulus is on the way, they are likely to feel more confident that the recovery will be sustained. That confidence, in turn, will make them more likely to take the risk of buying big-ticket items now and investing in stocks or future ventures.

Moreover, much of the money that can't be spent right away is for capital improvements such as building and maintaining schools, roads, bridges and sewer systems, or replacing equipment -- stuff we'd have to do eventually. So another way to think of this kind of spending is that we've simply moved it up to a time, to a point when doing it has important economic benefits and when the price will be less.

Equally specious is the oft-heard complaint that even some of the immediate spending is not stimulative.

"This is not a stimulus plan, it's a spending plan," Nebraska's freshman senator, Mike Johanns (R), said Wednesday in a maiden floor speech full of budget-balancing orthodoxy that would have made Herbert Hoover proud. The stimulus bill, he declared, "won't create the promised jobs. It won't activate our economy."

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.

Meanwhile, Nebraska's other senator, Ben Nelson (D), was heading up a centrist group that was determined to cut $100 billion from the stimulus bill. Among his targets: $1.1 billion for health-care research into what is cost-effective and what is not. An aide explained that, in the senator's opinion, there is "some spending that was more stimulative than other kinds of spending."

Oh really? I'm sure they'd love to have a presentation on that at the next meeting of the American Economic Association. 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.

And then there is Sen. Tom Coburn (R-Okla.), complaining in Wednesday's Wall Street Journal that of the 3 million jobs that the stimulus package might create or save, one in five will be government jobs, as if there is something inherently inferior or unsatisfactory about that. (Note to Coburn's political director: One in five workers in Oklahoma is employed by government.)

In the next day's Journal, Coburn won additional support for his theory that public-sector employment and output is less worthy than private-sector output from columnist Daniel Henninger. Henninger weighed in with his own list of horror stories from the stimulus bill, including $325 million for trail repair and remediation of abandoned mines on federal lands, $6 billion to reduce the carbon footprint of federal buildings and -- get this! -- $462 million to equip, construct and repair labs at the Centers for Disease Control and Prevention.

"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.

Many, including John McCain, lined up this week to support a proposal to make the sales tax and interest payments on any new car purchased over the next two years tax-deductible, along with a $15,000 tax credit on a home purchase. These tax credits make for great sound-bites and are music to the ears of politically active car salesmen and real estate brokers. Most economists, however, have warned that such credits will have limited impact at a time when house prices are still falling sharply and consumers are worried about their jobs and their shrinking retirement accounts. Even worse, they wind up wasting a lot of money because they give windfalls to millions of people who would have bought cars and houses anyway.

What adds insults to injury, however, is that many of the senators who supported these tax breaks then turned around and opposed as "boondoggles" much more cost-effective proposals to stimulate auto and housing sales, such as having the government replace its current fleet of cars with hybrids or giving money to local housing authorities to buy up foreclosed properties for use as low-income rental housing.

Personal economic trainers would confirm all this. Until they're on board, however, here's a little crib sheet on stimulus economics:

Spending is stimulus, no matter what it's for and who does it. The best spending is that which creates jobs and economic activity now, has big payoffs later and disappears from future budgets.

He really gives them hell, and tells it like it is. Like I said I hope some of them saw it and listened to it, but from what I heard this morning on the shows, they didn't...