Monday, February 23, 2009

Can We Handle the Truth?

After eight years of the incompetence and deception that were the hallmarks of the Bush administration, the American people are desperate for leaders who are smart and will be honest with them. That was the clear message delivered by voters in November (It Was About Stupid, Stupid - Nov. 10, 2008).

It's also the reason why Barack Obama continues to enjoy high approval ratings among more than 60 percent of Americans even as the economy and stock markets continue to deteriorate.

In his first speech to Congress and the nation, Obama was upbeat but mainly he was honest. He made it clear that there was plenty of blame to go around for the mess we're in and that it will take time to address the many challenges we face. He seemed to understand the complexities of the issues and he told us the truth.

This stood in sharp contrast to Bush--who usually came across like a sixth-grader giving a report on a book he hadn't read. Bush would routinely fall back on empty slogans and made statements that proved to be either lies or just mistakes (numerous examples available upon request). With typical acumen, he repeatedly assured us that the economy was fundamentally strong ten months after the current recession began.

The inability to know or speak the truth also is shared by most of our representatives in Washington, the news media, and the angry, judgmental comedians of Right wing talk radio. They are still addicted to misleading slogans, simplistic solutions, and the demonization of a handful of designated bad guys. They continue to be much more a part of the problem than the solution.

The pols and pundits focus on a short list of villains (Madoff, Stanford, and other assorted swindlers, the bank and investment firm CEOs who got rich while helping create this crisis, Washington, the Left, the Right). They repeatedly invoke hot phrases like "nationalization," "bad bank," "toxic assets," "stress test" and such--phrases that few people, including the speakers, really understand. In short, they spread a lot more heat than light.

Here's the truth and if it doesn't set us free it will at least let us know where we stand.

Americans have spent the last 10 years spending more money than we make. In the early 1980s, we saved 9 cents of every dollar we made. That number has dropped in a straight line for the last 25 years and recently we have had a negative savings rate. We have spent more than we have earned for many years and have made up the difference using credit cards and pulling equity our of our homes which until recently had gone straight up in value.

A whole range of businesses sprang up to accommodate our desire for stuff. Now that game is over and we're going back to a more normal environment where we spend less and save more. We will buy fewer things that we don't really need, eat out less, go on fewer vacations and get back to a much healthier financial place but it will be bad for a lot of businesses.

Our government leaders should not be encouraging us to spend more money and buy stuff we can't afford. That's how we got into this mess in the first place. They should not be encouraging the banks to lend more money to companies and people who might not be able to pay them back. That's how they got into this mess in the first place.

We need to stimulate those areas of the economy that improve infrastructure and create the technologies and jobs of the future. We should not be spending trillions to bail out the shareholders and executives of financial institutions that made wild gambles with their money and lost. We should also not keep failed industries with no future on life support just because they employ a lot of people.

All the bluster on cable news and the blogs about nationalizing banks and bailing out the auto industry is pointless. It just gets a lot of people worked up about a decision that has already been telegraphed by the financial markets. No serious investors are buying the banks or automakers. They have become gambling chips for traders who are looking for action in stocks that trade for pennies and go up or down by 20 percent a day. The markets have already accurately determined that many of these companies are hopelessly underwater and functionally bankrupt.

The financial markets are also telling us another important truth that no one seems to get yet. It is going to cost us a whole lot more to finance our national debt in the future. The borrowing costs for the U.S. government have already increased by 50 percent in recent weeks--we have to pay lenders 3 percent to loan our country money for 10 years, up from 2 percent just a couple months ago. And that is just a preview of what's to come (The Next Investment Bubble Has Begun To Pop -- Feb. 19).

The long term treasury bonds that investors have gobbled up as a "safe haven" will prove to be a disastrous investment. The stocks of companies that make great products, earn a lot of money, and have pricing power are poised to move higher now that many investors have fled the stock market entirely.

Our leaders have hard decisions to make and they must make them wisely. But instead, Congressional Democrats are using the stimulus package as an excuse to fund a variety of spending programs they favor. Republicans are making a worse choice. They are following the lead of Rush Limbaugh--who has repeatedly stated that he wants Obama and the country to fail--and are saying "no" to everything except tax cuts.

Only Obama and the financial markets are telling us the truth. Not only can we handle it, most Americans are thrilled to finally have a president who is smart enough to know what's going on and honest enough to share both the good and bad news with the people who elected him.


DJHeslop said...

I've just come to your blog by way of another avid reader and I'd like to thank you for an intelligent and honest account. As painful as it will be I am thrilled at the prospect of a President who is willing to tell the truth and to seek people of intelligence interested in doing the same. Thanks for your insights and I look forward to future posts.
Best regards,
Dave (a new avid reader)

Anonymous said...

Larry-so let me get this straight, the president is truthful, but you say he put a bunch of pork (uneccessary spending, marsh mouse anyone)in the stimulus package, but he says there is no pork, so who is lying?

Also traders don't own citibank stock you do, the top 25 holders are all large mutual funds!

The gov't has spent more in the last week than the will ever pay back, the audacity to tell us to save more, but if we don't spend (2/3 of gdp is consumer driven)and or/ borrow money to buy crap we dont need or the economy wont work when they spent a trillion last week, which makes me think anyone in the financial business can't handle the truth and the government is not being exactly truthfull, say what you want, but in 2011 you'll see.

Larry Gellman said...


Thanks for your kind words. I look forward to hearing from you going forward

Anonymous said...

what nothanks for my kind words come on...I am watching you!

Larry Gellman said...


Thanks for your thoughts as well. I'm not totally clear as to what you're saying here. Obama has been left with a very challenging mess. The country and its people are swimming in debt and the economy and the financial markets are teetering. The election is over. It's time to support our new president--not keep campaigning against him. There will be time for that in three years when it matters.

Anonymous said...

dude i not compaigning against him now, but america was built on bieng able to debate and disagree and have an opinion To blindly obey becuase he said so is down right un american. And to say we need to fall inlne and support him on everything he does is foolish, but the thing that is killing me is smart people like yourself who support good organizations and pay taxes in multiples of other peoples incomes,a dn work inthe financial system don't think you are being played the fool. He is lying! Downright lying! In 2011 when youe fed rate hits 40%, and AZ state tax is 10% and you make $250k+ and you give $150k+ to the gov't (no soc security in that # fyi) You gonna wish you called him out on some this BS.

P.S. why did you downgrade usm?

Anonymous said...

sorry i can't add you gonna 125k+ away

Larry Gellman said...

No insight on the USM downgrade.

Regarding Obama, there's no shortage of open debate and that's healthy. I draw the line at Rush Limbaugh and other Republicans who openly say they want Obama (and the country) to fail.

Regarding taxes, we just have to start having a grownup conversation about paying for what we spend. For 8 years, Bush and the GOP Congress fought wars, spent trillions, and just didn't pay for any of it. That's how we got into this mess.

No one wants to pay more, but how else do you stay solvent and stop robbing from our kids?

Anonymous said...

i agree with you on failure is counter productive, and bad for everyone...but you want to pay for a war, raise the booze tax, cigarette tax, gas tax etc...things that are inherently bad make a good positive impact upon, go get all that money that the teasury sec conveniently forgot to pay and wouldn't have if not nominated...We pay enough actually the top 1% of earners pays 25% of the whole kit and kaboodle (that includes you)

Is it true or not true that under the clinton administration the regs on fannie and freddie were lowered? The entitlement and greed really got us into this mess...

Lastly you want to make it dems vs reps fine but in the end solves nothing and it doesn't mean you agree with policies ... if "less" bad is what you consider good for the country...well that actually speaks for itself, and just for kicks I am an independant! You feeling me now?

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