Moms On Issues
with Sara and Veronica
We're two moms with different backgrounds, jobs and points of view, writing about our opinions on the political and social issues affecting working moms. We'll also keep our eye on the media and the celebrity mom world to highlight issues that are relevant to your life.
Check out our personal blogs: Veronica's Blog and Sara's Blog
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Despite my best intentions, I still don’t understand most of the things that make our economy run or stammer. When I finally took an economics course in graduate school I made my lecturer crazy because I kept questioning the reality that are economic models – which aren’t based in reality, but theory. Theory says that when demand goes up, supply goes down and price should go up. Oil usually follows this, but organic foods don’t really follow.
The past few months and especially this past week has been almost impossible to follow for the average person. Banks are failing, someone who spent only 17 days on a job gets $11M in severance, and thousands of families lose their homes each day. The US Congress is on the verge of passing a GINORMOUS bailout package for Wall Street. The talking heads from Wall Street keep saying that we, the regular person, must go along or we’ll end up in a depression.
But I can’t seem to find any sympathy or logic in spending $700B on the banking industry when we allow the President to veto a $10B increase in children’s health insurance.
But I’m trying. I really am trying to see that perhaps us average Janes will benefit from this strategy. Lynn Sweet of the Chicago Sun-Times posted a summary of the package and these points stood out to me:
• Section 103. Considerations.
In using authority under this Act, the Treasury Secretary is required to take a number of considerations into account, including the interests of taxpayers, minimizing the impact on the national debt, providing stability to the financial markets, preserving homeownership, the needs of all financial institutions regardless of size or other characteristics, and the needs of local communities.
• Section 110. Assistance to Homeowners.
Requires federal entities that hold mortgages and mortgage-backed securities, including the Federal Housing Finance Agency, the FDIC, and the Federal Reserve to develop plans to minimize foreclosures. Requires federal entities to work with servicers to encourage loan modifications, considering net present value to the taxpayer.
• Section 124. Hope for Homeowners Amendments.
Strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures.
Speaker Pelosi adds:
III. Taxpayer Protection
Taxpayers should not be expected to pay for Wall Street’s mistakes. The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. The legislation also requires the President to submit legislation that would cover any losses to taxpayers resulting from this program by charging a small, broad-based fee on all financial institutions.
Of course I have no idea who is in charge of policing the banking system other than the people who allowed this crisis to happen in the first place. I haven’t been satisfied with either Presidential campaign’s reaction to the crisis. McCain’s freak out was just laughable. Yet Obama’s soft stance is scary.
Will there be a moratorium on foreclosures? Will judges have the authority to allow homeowners to renegotiate their mortgages and keep their homes? Will someone finally address how credit card companies go after college students?
Yes, I think this is corporate welfare. As someone who is aghast that in the best country in the world we have homeless veterans, hungry children, and single moms who have to choose between paying the rent and leaving their children in unsafe caregiving conditions…I’m disgusted. But I’m open to one of you explaining it to me and anyone else who is just as confused and/or disgusted.
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Well, I haven’t had time to read anything about this at all. But the first thing that comes to my mind is all the deposits and retirement funds that are guaranteed by the government. If the government had to step up and make good on all those guarantees, how much would that cost? I suspect a lot more than $700B.
I also feel it’s extremely important to avoid a panic. Like “irrational exuberance” gets the stock market riding on a bubble from time to time, panic can create losses where none would have otherwise occurred. Hopefully we’ve learned from our mistakes in that regard, though I’m not sure, given the way some people are writing about the current situation. I mean, no matter what happens on Wall Street, it’s not going to stop the sun from shining or the rain from falling. If the majority of people are following prudent, rational principles, that creates its own momentum. Everyone should keep slack in their budget for ups and downs, and that would greatly reduce the number of people who really get devastated by this type of crisis. Now, the current trend is for everyone to say they don’t make enough money to put any aside. Whether they make $15K or $50K or $250K. People need to learn the right way to look at wants, needs, and good investments.
As for foreclosures and credit cards. On one hand, I don’t feel sorry for institutions that market to people who they know are bad credit risks. On the other hand, I don’t feel sorry for people who lie, stretch the truth, or treat hope as a hard asset when they fill out a home loan.
Everyone knows that they are taking a risk when they buy a stock. Everyone knows they are taking a risk when they take out a mortgage. That is their choice. They passed by the less risky choices. The attitude I most often hear from the younger generations is: “I deserve it.” No you don’t. Half of the world lives in boxes, people. They don’t have one complete set of clothes for each child. Many of them work harder than many of us. So why do we deserve what we can’t afford? Look where that attitude has gotten us.
Yet another issue is that people today don’t understand the value of friendship. Developing relationships that will get us through times like this. People who will let us live in their basement for a while because we did a lot for them when they were in need.
And how much of our individual financial problems are due to our own selfishness? When you hold onto what you have, you are not spiritually nor materially open to receive more. If you give it away, you are open to gain and grow. Because we’ve somehow convinced ourselves that we don’t have as much as we “deserve” to begin with, we don’t give enough and our finances stagnate. People that start giving as soon as they have a few bucks are the ones who always seem to be OK, even prosperous. That’s my experience. If you want an objective view (from a guy who probably doesn’t vote the way I do) look up a short book by Deepak Chopra called the Seven Spiritual Laws of the Universe.
SKL | September 29th, 2008 at 12:35 pm
I just think it is interesting that many of our politicians who always harp on reducing government spending are the same voices pushing the bailout. And yes, it is good to avoid a panic… but when the language coming from Capitol Hill is essentially “we must do this or risk another Depression” how does that do anything but incite panic?
I’m disgusted too, but at least my children are young enough that I don’t have to explain to them today their futures are being bankrupted.
shriek house | September 29th, 2008 at 1:11 pm
All: here are some words of explanation and warning from your very own feminist economist.
1) Supply and demand play only an incidental role in what’s going down.
2) Thinking of the overall economy, the millions of businesses, large and small. Virtually all of these firms require short term credit on a regular basis. Why? B/c they have lots of expenses that have to be met well in advance of receiving revenue for selling the stuff they make. Granting this short term credit is absolutely totally without a doubt necessary for the economy to function.
3) with so many financial institutions (banks plus some other players) holding billions in bundled mortgages that look like they might be worth only 10% or 20% of what was paid for them, the banks are terrified of making new loans.
4) so across Main Street, thousands of businesses that have had banking relationships going back decades are not getting the short term loans they need to keep their doors open — can’t meet payroll, can’t pay utility bills, can’t pay taxes, etc.
5) if this persists much longer expect a massive tidal wave of firm shut downs. Just last week the Bureau of Labor Statistics (BLS) issued a news release reporting that in August there were 1,777 mass layoff events! An all time high in the 20 years they’ve been keeping track of this. (This = ±75,000 jobs lost).
6) As people lose jobs, they spend less. As they spend less, firms take in less revenue. Firms lay off more people. And a vicious downward economic cycle sets in. (This is the infamous depression cycle, for which Keynes recommended massive government spending as a cure).
7) If the Treasury could take some large per cent of the dubious assets out of the banking system, the banking system would have the ability to make the loans that are needed to keep businesses afloat. Thereby forestalling the crisis described above.
here’s the URL
http://www.thenation.com/doc/20081006/galbraith_black
Susan Feiner | September 30th, 2008 at 11:09 am
OK, now to explain what the Treasury will do once it takes the dubious assets off the hands of the banks.
The banks and other players are holding BUNDLES of mortgages. Each bundle has upwards of 5000 mortgages in it. Some of the mortgages are sub prime, some are just fine, some are in foreclosure, some are already foreclosed, some were written fraudulently. A big F***ing mess.
The Treasury will have to hire thousands of accountants and appraisers to go through these mortgage bundles and sort out the good, the bad and the ugly. Once that’s done the mortgages can be sold back to the banks and other financial institutions (include Freddie and Frannie) at prices that reflect the underlying value of the properties.
A big part of the problem we are facing right now is that the bundles of mortgages were basically sold under false pretenses. The rating agencies (responsible for telling buyers what the risk level is for each batch of mortgage bundles) are paid by the banks! Talk about a conflict of interest.
So banks bought these bundles thinking they were low risk, and they turned out to be “toxic.”
There’s more too this story of course.
If you’d like to hear more visit my blog
http://www.economics-she-wrote.org
and I’ll be happy to talk some more.
Regards, Susan
Susan Feiner | September 30th, 2008 at 11:24 am