It's Not What Happened But What Didn't Happen

If you listen to our brilliant politicians in Washington, they seem to portray the 1/3 trillion dollars that was spent, last year, as a waste of money. They say that's because, somehow, they expected our economy to have just turned around and, magically, we would be instantly out of the recession.

But, they're missing both the purpose and the effect of what all that original bailout money did. Bottom line... it saved our banking system from collapse. Last year only 26 banks failed and had to be taken over by the Fed. Without the credit bailout and the increases in FDIC insurance coverage, that number could have been at least 10 times, or even a hundred times greater as bank after bank would have failed after having been run on by depositors seeking to withdraw their money. That's what happened in the Great Depression. Let's not forget that the banks were saddled with the cost of covering millions of defaulted home loans which totally reduced their asset values and their ability to raise cash.

Sometimes its what you don't see that is a positive fact. I think this is a true case in point. Sadly, some of our politicians are using the amount of the first bailout to justify spending 3 to 4 times that amount in spending by saying that the bank bailout did nothing. But, it did do something. And, unlike today's spending package, that original banking bailout was specifically targeted. What didn't happen was the secondary belief that banks would start lending again.

Granted, there was a lot of waste in what was done last year. Some now say as much as $78 billion. But anytime there is a necessity to act immediately, this is what happens. To think there won't be waste in this newest and rushed stimulus package is just being naive. There will be waste and a lot of it and that waste will make last year's look like child's play. I need only point to Boston's "Big Dig" project that was supposed to be $2.8 billion (as planned) and wound up costing $22 billion. My guess is that all these shovel-ready projects will turn out much the same way and won't be able to be completed in the 19 month time frame without billions of more dollars in cost overruns being spent and without the typical delays. There's generally two phrases that you never hear associated with any government projects: (1) on time and (2) on budget. I'm not sure, but I think wasteful spending is specified somewhere in our Constitution and it's not exclusive to any one political party. Remember, this is a government that has, in the past, wasted $50,000 for toilet seats and had as much as 10% fraud in their managing of Medicare.

Optimism or Pessimism?

More than any single poll of a few hundred people, the stock market is the best indicator going to give us an idea as to the direction of the country. It isn't just a few hundred people voicing their opinions. It's millions of investors from our country and throughout the world, who look to our stock market as a source of return on their investment. This week saw a market in turmoil. On Inauguration day, the market saw the biggest slide ever on that ceremonial day (See Full Story). This showed absolutely no hope or optimism for our economy going forward. It was almost as if a message was being sent to the President. The next day showed a positive recoil from the previous day's disaster. But, as the week progressed, it was primarily a downtrend.

The market is reacting to a lack of hope for recovery anytime soon. The plans on the table give no reason for hope. There's a lot of pork on that table. It appears that the Congress and the White House want this country to have an excessively large helping of that "other white meat" so they can payback those that voted them into office. The much-needed and targeted stimulus plan to get this country back on track just is not there. Investors know this because they are selling their stocks. And, the selling isn't going to stop over the long haul.

For awhile, I was hopeful that the new Administration would continue its middle-of-the-road track that Obama, himself took after his nomination. However, it appears that was just a tactic to get elected. In three short days of being in charge, his far left-wing views are clearly coming back out of the closet he had shoved them into once he got that nomination. We are seeing why Mr. Obama was considered one of the farthest left politicians in the Senate. He snookered those in the center who thought otherwise. I once, in this very blog, thought he would shed his left-wing views to be a great President, and to get re-elected. Now, it is clear that his past actions as an extreme liberal, even as a socialist, are showing up once again in full force. From abortion, to his stimulus plan, and to the war on terror, we are clearly living with a staunch progressive/liberal/socialist in charge. I'm disappointed, and the stock market is too.

Image of the New York Stock Exchange by riacale's photostream on Flickr with Creative Commons Licensing. Some rights retained. (Click to View Other Works).