Friday, February 27, 2009

No FDR Here

Ultimately, all recessions and depressions resolve themselves into crises of confidence. The instant, global, 24/7 communications of today make them ever more so. President Obama, in his pursuit of liberal big-government spending, has totally neglected the role of the president of the United States in reversing global panic. To the contrary, his every remark and the constant preoccupation of his Cabinet is to heighten the sense of crisis and to escalate the predictions of doom if we do not do as they tell us and raise spending now and taxes later...Instead of being a firewall, reassuring Main Street even as Wall Street crashed, he has become a conduit of panic, spreading the mood of desperation from the stock exchange floor to kitchen tables across the world....It's Obama Spreading Panic, Dick Morris, 3/27/2009, The Hill

Maybe it started thirty years ago when parents began to see satanic elements in children's fairy tales and replaced them with the print version of reality TV. Kids no longer got the good stuff, such as the writer's favorite about Chicken Little.

Last fall, that fairy tale seemed to be playing in the media, a widescreen, 5-channel, Dolby version of Chicken Little played out for months before the national election. Every hour, panicky commentators and politicians shrieked about the financial sky falling. The effect in politics was to completely derail any plans for rational discussion of issues in the Presidential race. Instead, we had a lot of shouting and posturing about the financial sky is falling, the financial sky is falling....

Six months later, in the second month of the Obama Administration, in office in no small thanks to that highly orchestrated, widescreen, 5-channel, Dolby version of Chicken Little, the President and his band of advisors from Citibank and other "distressed" institutions are still shouting the same message, as Dick Morris notes with considerable disgust in his article. Is the financial sky falling?

The federal government may be getting ready to nationalize one or more of America's major banks...Are our banks really in such dire shape? You might be surprised to discover that the answer is no...Roughly 90% of America's banks are in decent shape...Overall lending at U.S. commercial banks was up 5.7% in January from last year to $9.85 trillion, a record. Since 1990, average annualized monthly lending growth has been 7.3%...just below normal...Commercial and industrial loans...were up 8.4% in January — though down from the roaring 20%-plus growth rate of early last year. Consumer loans rose 10.1%...In short, bank lending is at record levels. That's a data-based fact...So why all the talk of nationalization?...The U.S. banking system's five regulatory agencies — the U.S. Treasury, the Federal Deposit Insurance Corp., the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve — had this to say after they met on Monday....Down at the bottom of the regulators' release came this revealing statement: "Currently, the major banking institutions have capital in excess of the amounts required to be considered well-capitalized.",Don't Nationalize Our Banks, Investor's Business Daily, Editorial, 2/24/2009

What? Better read that again. Overall lending is up, both private and commercial, and capitalization is adequate. What? Better read that again. And further...

One reason we're in better shape than we thought is that last year the Federal Reserve moved quickly to make sure banks had enough liquidity, injecting hundreds of billions of dollars into the system and cutting interest rates to stimulate loan demand...Yes, banks have become more selective. But people feel that things are worse than they are because they judge the current strict lending environment against the excessively lax one of just a few years ago....It might be argued that banks are now doing what they should have been doing all along. So why all the panic?...(Don't Nationalize Our Banks, IBD, cont'd)

Of course there are some bad banks, but who is benefiting by bailing out such a catastrophically managed dinosaurs like Citicorp? It sure as hell isn't Americans not employed by Citibank.

The use of panic is, of course, nothing new in American politics. The senior historian Richard Hofstadter had a phrase for it, "the paranoid style in American politics" in a famous Harper's essay of 1964 (read at your leisure). He knew of what he spoke. A good example had occurred not long before the essay was written.

In 1960, Massachusetts Senator John Kennedy's major media message had to do with "the missile gap." We were, this message said, in such danger from the excess of missiles in the Soviet Union that, unless we elected Sen. Kennedy and his party (Democrats) to fix the problem, America would have to either surrender without conditions, or endure a catastrophic, world-ending war. Well, it turned out that the Russians had about six working ICBMs and a few hundred bombers that the then robust US Air Force could have shot down without much more than an interruption in their lunch breaks. President Eisenhower's administration, in the previous five years, had fielded several hundred Minuteman I's and Atlases, all of them deadly, hydrogen-bomb-carrying ICBMs. In a nuclear war, then, or in the Cuban Missile "crisis" two yeras later, Russia would have been burned to a crisp. The "missile gap" was a "sky is falling" shriek by a weak candidate who, but for thousands of Chicago voters whose registration addresses were in cemetaries, would never have been elected.

Deja vu, anyone?


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