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Posts Tagged ‘faith’

The recent disclosures that the Securities and Exchange Commission was told years ago that Bernie Madoff was running the largest Ponzi scheme in history and yet they did absolutely nothing about it does little to inspire confidence in our government.  The fact that the SEC did nothing to prevent our banking industry from infecting the entire world with toxic paper that had been touted as being of AAA quality simply reinforces the notion that the SEC is asleep at the switch.  Maybe we don’t even need the SEC after all.

President Obama said yesterday that the U.S. is facing economic catastrophe unless his stimulus bill is passed.  Apparently, present conditions, where job losses are the worst in decades is only a crisis.  Every day more people lose their jobs.  People are saving every penny they can in preparation for the bad times to come.  Businesses are laying off people in preparation for even worse sales. The banks don’t want to lend money because they have already been burned by the housing collapse and they are afraid that they could get burned again if the economy gets worse.

Many trillions of dollars of wealth have been lost worldwide. Much of this is related to property that has depreciated since it was purchased.  A lot of this is owned by banks now (those are technically known as toxic assets) and a lot is owned by individuals (those are known as underwater properties).  Everyone wants the government to reimburse their losses.  The rational question is: why should it? After all, these people made business deals and they came out on the short end. So what? That’s how business is; sometimes you win and sometimes you lose. The government (i.e. the taxpayer) is not there to bail out everyone who makes a bad business decision.  In fact, it’s the other way around.  The government never bails out people who make bad business decisions. Until now, that is.  That’s because the Bush administration couldn’t bear to see their rich folk pals lose all their money so they stampeded Congress into giving away $350 billion to the banks as a gift.

The problem is that the TARP hasn’t stimulated the economy. The banks won’t lend.  The people won’t borrow.  The economy runs on credit but people are afraid to either give or receive credit. The result of this fear is that the economy gets worse and people become even more afraid to lend or borrow. And so it spirals downward.  The question we should ask is this: will the so-called Stimulus Bill, now in Congress, actually stimulate the economy? Translated, this means will the Bill get people lending and borrowing money again? The answer is probably not, because it doesn’t directly address the problem of fear.

Remember when Franklin Roosevelt said, “All we have to fear is fear itself”? He hit the nail right on the head. When one looks very closely at the economy (at any time) it doesn’t inspire confidence.  Too many things could go wrong or are already going wrong.  Better wait until tomorrow to loan or borrow – wait and see how things go.  Everyone can tell you why the economy won’t work – depending upon whether they are Republican or Democrat the reason is different, but the rationale is always there in one way or another.  It’s like walking on water – everyone knows you can’t walk on water, and if you try you will sink.

And that is the genius of FDR – he knew that. And when you know that, you also know the answer to the problem – make the fear go away and the economy will work.  He was not asking people to believe in the economy, he was asking the people to believe in him.  Come what may, he convinced everyone, he would make the economy work – and you could take that to the bank. This is where President Obama needs to go now.  It isn’t enough to propose building roads and bridges, green energy or schools. Not everyone buys that. President Obama needs to make the people believe in the economy again, because when they do the people will start again to lend and to borrow and the economy actually will function again. So how does he convince the people? He simply tells them not to be afraid, because come Hell or high water he will not let us sink. Whatever it takes, it will be done. He needs to tell us that we can depend on him to do whatever it takes to make the economy run again and until then we’ll be OK because he will take care of whatever comes along.  Period.  Modern economies, because they are based upon credit, run on faith, not money or jobs.

Only President Obama can make us believe, not by passing a Bill or spending money or by cutting taxes, even though these things must be done.  The economy is not a machine of steel gears that can be tuned up with a little oil.  It runs on faith and what he really needs to do is say these words: “I will not let you sink.  I will save you no matter what. I will do whatever needs to be done. Do not be afraid because I will save you, and you can take that to the bank.”

Only then will our economy begin to recover.

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