Gee, I wonder why the Congressional Democratic leaders--Reid and Pelosi--were screaming at the top of their lungs that the package must be passed--asap. Are they not on board with their newly-elected president?
On Jan 1, 10:52 am, mike 532 <[email protected]> wrote: > Was the "Credit Crunch" a Myth Used to Sell a Trillion-Dollar Scam? > http://www.truthout.org:80/123108D > Even as the media continue to repeat the claim that credit has frozen > up, evidence has emerged suggesting the entire story is wrong. > > There is something approaching a consensus that the Paulson Plan > -- also known as the Troubled Asset Relief Program, or TARP -- was a > boondoggle of an intervention that's flailed from one approach to the > next, with little oversight and less effect on the financial > meltdown. > > But perhaps even more troubling than the ad hoc nature of its > implementation is the suspicion that has recently emerged that TARP > -- > hundreds of billions of dollars worth so far -- was sold to Congress > and the public based on a Big Lie. > > President George W. Bush, fabulist-in-chief, articulated the > rationale for the program in that trademark way of his -- as if > addressing a nation of slow-witted 12-year-olds -- on Sept. 24: > "Major > financial institutions have teetered on the edge of collapse ... > [and] > began holding onto their money, and lending dried up, and the gears > of > the American financial system began grinding to a halt." Bush said > that if Congress didn't give Treasury Secretary Hank Paulson the > trillion dollars (give or take) for which he was asking, the results > would be disastrous: "Even if you have good credit history, it would > be more difficult for you to get the loans you need to buy a car or > send your children to college. And ultimately, our country could > experience a long and painful recession." > > For the most part, the press has continued to echo Bush's central > assertion that there's a "credit crunch" preventing even qualified > borrowers -- that's the key point -- from getting loans, and it's now > part of the conventional wisdom. > > But a number of economists are questionioning the factual basis > of > the credit crunch narrative. Columnist David Sirota recently looked > at > those claims and concluded that Americans "had been punk'd" -- that > "the major claims about a credit crisis that justified Congress > cutting a trillion-dollar blank check to Wall Street were > demonstrably > false," and the threat of a systemic banking crash was used by the > Bush administration to overcome popular resistance to the "bailout." > > It's a reasonable conclusion; this is an administration that used > the threat of thousands of al-Qaida sleeper cells in the United > States > to sell Congress on the Patriot Act, the specter of mushroom clouds > rising over American cities to push through the Iraq war resolution > and the supposedly imminent crash of the Social Security system to > push for privatizing Americans' retirement savings. > > But the question comes down to what they knew and when they knew > it. The analyses that suggest the whole credit crunch narrative is > false are based on data that lagged behind the numbers that > policymakers had available, in real time, back in September. So the > question -- probably unanswerable at this point -- comes down to > whether or not they looked at the situation and in good faith > believed > that pumping hundreds of billions of dollars into the banking system > would contain the damage and save an economy teetering on the brink > of > collapse. > > What Else Could Be Happening? > > Of course, no one disputes the fact that as the economy has > tanked, the number of new loans being issued to American families and > businesses has plummeted. But is because credit has dried up for > qualified borrowers? > > Economist Dean Baker doesn't think so. He explains the situation > in simple terms: The media, he argues, "are blaming the economic > collapse on a 'credit crunch' instead of the more obvious problem > that > consumers just lost $6 trillion of housing wealth and another $8 > trillion of stock wealth." It's a commonsense argument: much of the > economic growth of the Bush era existed on paper only, built on the > rise of a massive bubble in real estate values rather than growth in > productive industries. When all that ephemeral wealth vaporized -- > and > with the economy shedding jobs like a dog with dermatitis -- > consumers > stopped buying, and businesses, anticipating a long slowdown, stopped > seeking the loans that they might have otherwise tapped to expand > their operations. > > Whether good borrowers can't get credit from banks because the > latter are hoarding cash or lending has stopped because of a drop-off > in demand for new loans is not some wonky academic debate; it's of > crucial significance. Because if lending to qualified parties has > truly frozen, then even if the specific implementation of the Paulson > Plan was deeply flawed, its broad approach -- "recapitalizing" banks > in various ways, buying up some of their crappy paper and > guaranteeing > some of their transactions -- is fundamentally sound. > > If, on the other hand, the primary problem is that people are > broke and maxed out on debt, and firms aren't looking for money to > expand, then the kind of massive stimulus package being considered by > the Obama transition team and congressional Dems -- largely designed > to stimulate demand from the bottom up, with public works projects, > tax cuts for working families, aid to tapped-out state and municipal > governments and new money for unemployment and food stamps -- is > obviously the best approach to take. > > Broadly speaking, these are the parameters of the debate in > Washington, and that means that properly diagnosing the underlying > problem is crucially important. > > Is the Credit Crunch a Big Lie? > > There's plenty of evidence that Baker's right. He points out that > even though mortgage rates have plummeted, the number of applications > for new loans has dropped to very low levels and argues it's "the > most > glaring refutation of the claim that people are unable to get > credit." > If creditworthy applicants were being denied loans by banks unable or > unwilling to lend, Baker explains, "then the ratio of mortgage > applications to home sales should be soaring" as qualified homebuyers > apply to multiple banks for a loan. "Since there is no notable > increase in this ratio, access to credit is obviously not an issue." > > Again, this is common sense. Consumer spending drives about 70 > percent of the U.S. economy, and in recent years, much of that > spending was financed by people taking chunks of home equity out of > their properties -- people might have been eating in fancy > restaurants, but they were essentially eating their living rooms to > do > so. > > That the American people don't have the appetite to go deeper > into > debt than they already are in order to make new purchases is hard to > dispute. In November, consumer prices across the board fell at a > record rate for the second month in a row. And even with mortgage > rates plummeting, so many homeowners are "underwater" -- owing more > on > their homes than they're worth -- that they're unable to refinance > because the equity isn't there. Paul Schuster, a vice president at > Marketplace Home Mortgage, told the St. Paul Pioneer Press, "What I'm > really concerned about is the job picture ... If (people) don't feel > good about their jobs, rates aren't going to matter." > > The National Federal of Independent Business' November survey of > small-business owners found no evidence of a credit crunch to date, > concluding that if "credit is going untapped, it's largely because > company operators are not choosing to pursue the credit. It's not > that > companies can't get the extra money, it's that they don't want or > need > it because of the broader slowdown in economic activity." > > The credit crunch narrative -- and the justification for creating > Paulson's $700 billion TARP honeypot -- is built on three related > assertions: 1) banks, fearing that they'll be unable to meet their > own > financial obligations, aren't lending money to one another; 2) > they're > also not lending to the public at large -- neither to firms nor > individuals; and 3) businesses are further unable to raise money > through ordinary channels because investors aren't eager to buy up > corporate debt, including commercial paper issued by companies with > decent balance sheets. > > Economists at the Federal Reserve Bank of Minnesota's research > department -- V.V. Chari and Patrick Kehoe of the University of > Minnesota, and Northwestern University's Lawrence Christiano -- > crunched the Fed's numbers in an examination of these bits of > conventional wisdom (PDF), and concluded that all three claims are > myths. > > The researchers found that "interbank lending is healthy" and > "bank credit has not declined during the financial crisis"; that > they've seen "no evidence that the financial crisis has affected > lending to non-financial businesses" and that "while commercial paper > issued by financial institutions has declined, commercial paper > issued > by non-financial institutions is essentially unchanged during the > financial crisis." The researchers called on lawmakers to "articulate > the precise nature of the market failure they see, [and] to present > hard evidence that differentiates their view of the data from other > views." > > That finding was backed up by a study issued by Celent Financial > Services, a consulting firm, again using the Treasury Department's > own > data. According to a story on the report by Reuters, Celent's > researchers concluded that the "data actually suggest world credit > markets are functioning remarkably well." Rather than a widespread > banking problem, Celent found that the rot was limited to "a few big, > vocal banks and industries --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
