What Obama Should Do

Is it true what some people are saying; that banks are hoarding the money they received, and not putting it out for loans and credit?

Right off the bat I cannot trust what Dr.Jacobe has to say, as the first part of his statement is "Nobody debates that while the recession started a year ago". Who is "NoBoby"? This recession started over 3 years ago as the housing market was already in a step decline in 2005. I think he meeds to do a lot more investigation.

The only thing that will fix America is if the average American changes their view on earning and spending. America is like a young kid that is living with maxed credit cards, but they still need to have that Big Screen TV.

The real issue with the housing market is people that get loans that don't pay. The same people that get their cars repossessed now borrow money for homes. When they don't pay on their homes, they get repossessed too.

We need to change our attitudes ... don't buy that big screen or that new car, or that new phone, until you can handle your Mortgage payments first.

Bailouts compare to the kid with the credit card... it is like having Mommy and Daddy pay them off for you, but in a year or two, you are right back where you were again (or worse) because you didn't learn anything from the experience... only that someone else fixes it for you, so why even try.

I think the fundamental changes in the credit markets that Dr. Jacobe mentions here will create a much slower and more shallow recovery than is being priced into the market. The reduced amount of risk banks, consumers and companies will tolerate will play out in an anemic recovery -- more like Japan's experience than our quick recoveries of the past.

"Dr. Jacobe: I think one of the lessons to be learned from this crisis is a more conservative approach to all aspects of finance. The devastation that's taken place in the financial sector is likely to have a profound effect on the way everyone in our economy looks at risk. I don't think average Americans will want to be without savings or to be without reserves available to support them if they are without a job. No small-business owner will want to depend on credit lines that can evaporate. Lenders will return to traditional loan underwriting standards so they can have confidence that they will be paid back by their borrowers. I don't think any banker or any executive will ever want to be in this situation again."

Interesting article and detailed enough all can find agreement or otherwise. My experience as one suggests bankers seem to have little, if any, institutional memory. Been here before; will be again. A perfect storm of abuse & neglect by many - the Fed who killed the dollar to prolong the inevitable, lenders-especially Freddie and Fannie who stoked the fire (and cooked the books), appraisers, rating agencies, investors, regulators, legislators -who called efforts to rein things in a little "racism" - all contributed. Until the environment is fixed those in the marketplace - where risk-takers, their partners and their bankers collaborate to create jobs and opportunities - will sit on idle. Ask, "What environment is required for me as a business owner to take additional risk?" Or, "What environment is required for me as a banker to go with this guy's idea?" Proper environment will lead to confidence...confidence to action. Idle equals malaise. That means the engine isn't working on all cylinders. Throwing money at this from the top in the form of "bailouts" isn't it. This booty will be like sprinkling water on the flower atop a dying root.

I expect to present the following presentation at the assa convention in San Francisco, January 5, 2009. Theproblems we face are directly related to the loss of value in our monetary benchmark. The point is a point of procedure, not data, so the point of view is decidedly different.

MONEY AS A BENCHMARK OF VALUE
H Doyle Smith
PO Box 9059
Canton, OH 44711-9059
Money is a medium of exchange, but must first be a benchmark of value.
A benchmark requires stability, accessibility and value.
Destruction of any of these attributes introduces chaos in an economy.
Our economy is in trouble because of the loss of value in the dollar.
Main Results
• Benchmarks are reference points that allow comparison.
• Measurement can only occur if there are benchmarks.
• Without measurement there is chaos.
• Chaos inspires alternative cures.
• Values are current and unrelated to historical cost.
• Values occur because of opportunity cost assessments.
• Values are ranges of possible prices prior to a swap.
• Prices are fixed amounts after a swap.
• Benchmarks (monies) allow quantification of values, and become mediums of exchange.
Yardsticks measure thirty-six inches, and must be the same length as all other yardsticks. If I try to buy four yards of cloth, and the seller uses a yardstick that is only thirty inches long, I do not get what I expect. Use of different measurements prohibits me from buying from that seller again.
The yard is the distance from King Edward’s nose to the tip of his finger. Even though King Edward is dead, the measurement is based on a benchmark that is accepted, and has been carried forward from his time.
Money is as valuable as what I can buy with it, no more, but if I can buy a Cadillac with a dollar, and you cannot buy breakfast, you throw the dollar away as useless to you.
A dollar’s value must relate to a commonly accepted standard that is available to you. Since that standard is to be used as reference for value the standard must have value itself.
History shows many defacto benchmarks: Tobacco in colonial Virginia, oil from 1870 to 1900 in America, wheat in Somalia, prior to the introduction of free wheat, etc.
When a benchmark is not accessible, valuable, and stable, it cannot be a medium of exchange. It is “disvalued,’ as opposed to “devalued”
Disvaluation creates chaos. Attempts to reestablish order take many forms, such as patron-peon relationships, feudalism, religious extremism, and tyranny.
Our country faces this.
This paper is based on personal observation, and fifty years of reading many books. Two specific references are
Keats, John, THEY FOUGHT ALONE, Lippincott, New York, 1965, Page 435ff
Hadas, Moses a HISTORY OF ROME, Doubleday Anchor, 1956, Page 176ff and 235ff

For further results from this study see
BUDGET YOUR GO

I love what Anonymous said earlier, comparing American consumers to kids with maxed-out credit cards. However, it's not just unwise consumers who are at fault here. I'd add banks to the analogy, who were like drug dealers, selling us products that are not good for us by appealing to our greedy side.

And I am amazed that intelligent people are still saying "No one saw it coming". Really? My friends and I might not be financially sophisticated, but it was obvious to all of us that getting an interest-only loan or borrowing more than you can pay back was greedy, immature, or just plain stupid.

Commentary after commentary about how things went wrong, who is to blame, what must be done to fix the problem, how the fixers are fixing the problem the wrong way... I my opinion all this commentary is really more part of the problem than the solution. Our democracy, society, and financial markets by definition only work when there is sufficient opposing thoughts and opinions. Our problem today is a consensus crisis - we all agree that things are bad, probably getting worse, and as Dr. Jacobe points out the question is whether the crisis is deep and short or deep and long. The media played an effective role in preparing the drum roll for the crisis, virtually hammering in the point until consumers and investors alike were convinced that life as we know it is under siege...and you wonder why consumer sentiments are worsening? Investors are now so sleep deprived from financial anxiety that they are paying the US govenment to babysit their money, with some US Treasury Bill yields falling below zero. What happened to America? Where has the land of opportunity gone? Where is the entrepreneurial spirit that no matter what the situation is like - there is always opportunity - and one man's pain is another man's gain? The country, and also the western world for the most part, are in a comatose state, deprived of the one thing that makes us free individuals - freedom of opinions. Our hands are not cuffed, our mouths are not gagged - but the overpowering consensus which is closely guarded by the iron walls of the crisis-hungry media has left us incapacitated.

Our government has the responsibility to break the consesus - and Obama will need to fight the attitude towards the crisis more than anything.

I wholeheartedly agree with every word written by Anon. and Bryn. As a responsible senior, debt free except for a sensible mortgage I feel I am being penalized by the actions of others. Also of concern to me will the the "after shocks". I believe a lot of what is happening today began with the Enron debacle with that aftershock being the Sarbanes-Oxley Act which resulted in substantial costs for many companies to be in compliance. I will say that some oversight was and is still definitely needed to avoid this ever happening again, but our government never seems to use good sense and logic when responding to a crisis, just their usual "knee-jerK' reaction. Let's hope we see a different response at this time. I have decided my definition of "bailout" is to hold those in positions of authority and (lack of) responsibility ACCOUNTABLE.

I'm answering Michael Cook's question. I work in Finance, Yes it is true that they are holding onto the money and not extending credit. Actually, they've used to to buy assests, pay out dividends and to lobby for more money using our money. The bailout was Bush paying the banks off for all their support.

People keep saying that Americans don't save. Well TV, newspapers and politicians have been telling Americans to shop and use credit for over a decade. They don't show that they value individuals that save and are prudent, they reap praise on those that take the most risk. I use to get 50 letters from credit cards a month to apply for their cards. Everyone kept saying that owning a home was a good investment, but no one looked at the history of house prices in the last 100 years until the bubble burst. Turns out they are not. We have been lied to, used and abused. Whatever your government and the central bank tell you to do, do the opposite. Shop (save) Buy Cheap Imports (buy american) Invest in the Stock Market (own assets: car, home, land outright, no loans) Use Credit Cards (use cash) Bailout (say no, use common sense).

War Games in a shell game in the real game of life! Shell companies wrapped in dummy corps. in the quasi enigma of offshore accounts! $804 B budget in 2008 allocated to 6 Depts. all related to DoD; including $12M ISS space suits, and $1.4 B Stealths with fuel and 2 pilots trained for the combat missions.
You can not put 8/9 of your budget in weapons for your home, and technologies to utilize them; nor can the USA. This is a whacked out budget which is fiscally irresponsible; and the enemy doesn't give a damn about your home and equity.
The key initiative should be responsible budgets, and more pay for lower income earners with vast experiences. There is too much exploitation ongoing. People have to turn to the designed credit system because very many people are not paid enough, and the wealthy will assist them with loans, but for a very high price to the consumer. You can get a car battery at Wal*Mart with a yr. warranty for $50; or if you want real electrical power you can spend $95 to install an Interstate Micron II which will last over 5 X longer and you will have less electrical, and alternator problems in the future. Higher Quality!