The Feehery Theory

The World According to David Stockman

Apr1

By John Feehery

In case you didn’t see it, Ronald Reagan’s former Budget Director David Stockman just released a new book and had an excerpt in the New York Times yesterday.

Stockman basically believes that American-style capitalism is inherently corrupt, that Ben Bernanke is akin to Bernie Maddoff, that the stock market is a complete fraud, that Wall-Street is a bunch of gangsters, the housing market is built on quicksand and that Washington politicians are all to blame.

We live in a bubble-world and the bubble is going to burst.

He blames Richard Nixon and Milton Friedman and Alan Greenspan, and of course, George Bush and Henry Paulson, and don’t forget about the big banks.

It is an impressive jeremiad.   It reminds me of the sermons of Jonathan Edwards and other old-time preachers who tell us that the end is near.

And our monetary system has much in common with old time religion.  So much of it is built on faith. And at times, religion and money become confused in people’s minds.  Preachers care too much about money.  And money becomes all too often the object of idolatry for the money-obsessed.

Stockman believes that we all started going down the tubes when we went off the Gold Standard.  Having a floating exchange rate was like when the Catholic Church stopped doing the Latin Rite after Vatican 2.   It all about the mystery.  And when the mystery is gone, well, that is when we see the Oz behind the curtain.

It is probably no coincidence that both Vatican 2 and Nixon’s decision to depart the Gold Standard happened in the same decade.  The 1960′s was the decade when everything started going to Hell in a handbasket.  The Kennedys were shot, Martin Luther King was shot, crime went up, drugs, sex and rock and roll ruled the universe.  Of course, some of that rock and roll was exceptional, and important strides were made in civil rights and gender equality.

On a side-note, a new season of Mad Men is premiering next week.  That will give you a real sense of how fun the 1960′s could really be.

But I digress.

Mr. Stockman, the Budget director who lied about the budget during the Reagan years, now promotes himself as the only man who is telling us the truth about our economy today.   He believes the economic lives we are all living is a gigantic fraud, perpetrated by the high and mighty at the expense of the low and humble.

For the life of me, I don’t know how a tight monetary policy would help the poor get out of poverty.  Usually, when central banks constrict the money supply, it is the poor that get hit the hardest.

But that is what Stockman wants.  To him, our current economic system is a fraud.  And when it comes to fraud, he is an expert.

Empty Votes, Dangerous Promises

Mar27

By John Feehery

It was a good thing that the Senate finally passed a budget last week.  I guess.

The Senate budget resolution was unique in that the Upper Body passed a budget resolution before the President actually proposed his own budget, probably for the first time in history.

And the fact that the Senate passed a budget seemed like a novelty because the world’s most deliberative body has been so deliberative that it hadn’t bothered to take this action required by law for almost a half a decade.

The problem with the so-called budget is what it contained.

A trillion dollars of tax increases with no hope of the budget coming into balance ever.

Think about that for a second.  The Murray budget, designed by the one single person most responsible for keeping the Senate in the hands of the Democratic majority, asks the taxpayers for a trillion dollars more of their money to pay for spending in a budget that will never, ever balance.

This proposal is stunning in its hubris.   The conceit perpetrated by the Senate Majority is that the voters simply don’t care about such things as budgets, that they don’t care that the government keeps asking for more money from the taxpayers without any accountability for where that money goes and without any hope that the Majority will hope to achieve fiscal responsibility anywhere in the next decade.

What is more stunning is that this follows a fairly huge tax increase that hit all taxpayers just three months ago, the first tax increase in close to twenty years.

Now, most observers would say that a vote on a budget doesn’t matter, that it is only a political document, that it has no force in law because it is only a resolution.

But when the Senate votes on something, it means something.  Or at least it should, unless the vote is so entirely silly that almost everybody agrees that if were implemented in law, the results could be catastrophic.

Such a vote occurred during the budget amendment process.

This is the time when every Senator tries to create the illusion of progress on an issue.  So they have a voter-rama, where almost every Senator throws up an idea or two for consideration of the entire body.

The amendments don’t really matter because the underlying piece of legislation doesn’t really matter.  And yet, because the Senate, as a body, expresses its opinions, it does kind of matter.

The Senate took a very courageous stand against the big banks (note the smirk and the heavy dose of sarcasm) when it voted to break them up into smaller banks.

Every single Senator voted for that amendment, co-authored by David Vitter and Sherrod Brown.

Now, I understand why it is good politics for a Republican Senator from Louisiana and Democratic Senator from Ohio.    Big Wall Street banks are still not popular in most parts of the country, even though they play an essential role in our economy.

Big banks are the innovators.   Big banks are the ones who provide stability to the marketplace.  Unlike small banks, big banks don’t go out of business.  Small banks go out of business all the time.

Big banks provide the loans to big companies and loans to small businesses.  You don’t really have to worry about a run on the big banks.  You do have to worry, from time to time, about runs on small banks.  Ask folks who live on Cypress about that fact.

Some big banks have big investment portfolios.  Other big banks have big mortgage portfolios.

The bigger the bank, the more regulations they have to deal with.   Dodd-Frank made certain of that.

Big banks are not subsidized by the taxpayers.    There is no subsidy, although because big banks are so big, they get better rates on their loans (and their bonds).

None of these big banks started out as big banks.   They were once small banks, and they grew organically or by buying other banks.

Some of those acquisitions were forced upon them by the government.  It seems awfully unfair to blame some of these banks for being too big when it was the former Treasury Secretary who compelled them to become that big.

And nobody has thoroughly thought through what would happen if the government did break up the big banks.  What would that do to small-business lending?  What precedent would that set for other countries to follow suit, especially countries that haven’t been particularly fond of the free-market system, places like Russia, China, Brazil, India, France?

What would that do to big corporations who need a big financial institution to do their business?  Will they do their banking in foreign banks?

When the government comes in and tells the big banks to “break up” what does that do to investors and shareholders and depositors?  Has anybody really thought this through and figured out all of the ramifications of having the Obama White House, with the consent of a Republican-led House and Democratic-led Senate,tell the banks that they are too large and they must somehow shrink?  Don’t you think that would make Walmart just a tad bit nervous.

The Senate voted 99-0 to break up the big banks, just as they voted to increase taxes by another trillion dollars in the context of a budget that never, ever balances.

Some might call that good work.  I call it very scary.