Re-Inflating the Housing Bubble-if they can

During the last few months the Federal Reserve has lowered home mortgage interest rates to under 5 percent. The Tresury Department has purchased tens of millions of dollars of long-term T-bills, and put downward pressure on long term interest rates in doing so. And Congress has passed and the president signed another bailout package to save Wall Street investors.

Obama has set his heart on raising the value of the investment bonds backed by subprime, alt-A and liar loans. That's why the government is willing to loan (at low interest rates) 85 percent of the purchase price of these bonds. Of the remaining 15 percent of their cost, the government will split the difference with the investor. In other words, the government is subsidizing rich investors to the tune of 92.5 percent of the price of these nearly worthless bonds. The cost of this program means the risks are mostly socialized and the profits largely privatized. In other words, this legislation is another entitlement program for the rich.

In 1933, President Franklin Roosevelt issued an appeal to Congress to initiate a government program whereby distressed homeowners could readjust their mortgages to reflect their current values, extend their payments and lower their interest rates. These actions would be subsidized by the U.S. Treasury. And this is precisely the kind of program the government created back then.

It would be most helpful for the economy to have such a program now, but that's not on Obama's agenda. Providing this kind of help to average Americans would undermine the prices of the bonds because the values of the homes would drop, monthly payments would fall, and both actions would cause the yield of the bonds to plummet. In other words, the value of these investor bonds would drop, and Obama has no intention of allowing this to occur.

There are two kinds of credit markets: One is where lenders such as credit unions and banks loan money to people and keep receiving interest and holding their loans on their books. That's why these institutions won't loan money to people who have bad credit ratings. This is called the old fashioned way of doing business.

The other credit market, the one favored by rich investors, is where banks and other lenders lend money so that people can buy houses, cars, boats and cheap plastic crap from China, and then the lenders sell these loans to investment entities, such as Citigroup and Goldman Sacs. And then these firms issue bonds with the homes as collateral.

The latter credit markets provide opportunities for billions of dollars of fees, and they also provide incentives for lenders to give credit to people that are unworthy of it in the old fashioned credit markets, because the old fashioned lenders kept those loans on their books and derived their income from the repayment of these loans. In other words, Obama wants to save the credit markets in which the standards for borrowers is, at times, virtually nonexistent.


This is why the federal government appears to be trying to reinflate the housing bubble; and that means government officials have no intention of dealing with the real problems the economy faces: the re-distribution of income and wealth from the lower income classes to the extreme upper class, and all of the governmental policies that have brought this about: Nafta, Cafta, The Financial Services Modernization Act, among many others.

Obviously, the United States should extract itself militarily from Iraq and Afganistan, and the government should follow the letter of the 1986 law granting illegal aliens amnesty. These three things have been nothing but big income re-distribution mechanisms in favor of the rich as they suck, and have sucked, the working people of the United States financially dry.

And this means inflating the housing bubble is short sighted policy destined to fail. It is possible this policy might cause the economy to lurch out of the recession, but unemployment will remain high without immediate real remedies to what ails us. And this suggests any positive impact of the Obama and Federal Reserve policies will fail in the short and the long term, and a recession far worse than the current debacle will soon follow, or this one will continue to get worse.

Campaign finance reform is a necessity if only because the rich and their corporate lobbyists are the only entities with enough money to purchase the favors of legislators.

Obama does not look like the next coming of Franklin Roosevelt; instead he more closely resembles the second coming of Herbert Hoover.

Obama's Problem--the Bush Tax Cuts

The Tax Issue: Why I voted for Obama

I voted for Barack Obama because of only one issue: the Bush tax cuts.

Republican presidential candidate John McCain campaigned on a promise of extending Bush's tax reductions for the rich, as well as subtracting another 80+ billion dollars from their tax bills. Obama insisted he was going to kill the Bush tax giveaways sometime after taking office, and my research showed this was the only intelligent thing to do.

The Bush tax cuts are one of the major reasons why only slightly more than 2 million private sector jobs have been created since June 2001 (less by the time you read this). On a per year average, this is the most pathetic job growth for any business expansion in United States history, no matter what criteria is used. The tax breaks are also a major reason why per capita real family income plummeted over $2,000 per year since Bush took office.

Republicans assume that if you give the rich such favors, they’ll invest their money and magically create jobs; but that’s not how most publicly traded limited liability corporations work.

When Bush slashed taxes for the investor class, he gave them billions of dollars they wouldn’t otherwise have had. CEO’s hungrily eyed the newly available cash because the stock markets had experienced large losses since the end of the Clinton years. In a time of weak demand, CEO’s needed to entice the beneficiaries of Bush’s generosity into purchasing their stocks, thereby bidding up their prices. In industry after industry, they did this by pushing up profits and dividends; and they achieved this by shipping jobs overseas, by laying people off and by cutting or holding steady real wages, salaries and benefits.

This is precisely how the Bush tax giveaways placed downward pressure on the growth of jobs, wages, salaries and benefits. And that’s why a ballot marked for McCain was a vote for increasing joblessness during the current financial crisis.

And here is where those tax cuts especially come into play. The problem with the U.S. economy isn't the sub-prime mess. That's only a symptom of the real problem. The mal-distribution of income and wealth during the past thirty years has created the current economic meltdown (That’s another story).

Obama’s stimulus may drag the economy out of the recession sometime next year, but without repealing the tax cuts, there should be a relatively swift return to economic meltdown after a short and feeble business expansion.

That’s why the president-elect should raise capital gains and income tax rates closer to fifty percent for any income beyond $250,000. Less money would then be available to bid up stock prices, and this would relieve pressure on CEO’s to cut jobs, wages, salaries and benefits.

To see the obvious, one only has to look at what occurred when President Clinton raised the top tax rate: record job creation, middle incomes rising in real terms, and the already giant wealth and income gap began to close, however slightly.

We also can’t forget the economy boomed from 1940 through the early 1960s, despite a 91 percent top tax rate. But those tax codes gave the affluent class incentives to invest in ways that helped the middle class sustain and grow; and this allowed many millionaires to pay a real tax rate far below 91 percent.

Obama and the Democrats would be doing all citizens a favor by raising the top tax rates while giving the wealthy tax breaks if they invest their money in industries that ensure domestic job, wage, salary, and benefits growth. Ultimately, this is what an economy is for, and that’s why Obama should follow through with his pledge to immediately reverse Bush’s tax cut folly.

Obama Economically Foolish

President elect Barack Obama is not going to increase taxes on the rich, and he is being pressured by republicans to reduce capital gains and corporate taxes. He has no option: He must increase all of those taxes because doing so will increase jobs. And right now in the middle of a recession is the time to do it.

Obama seems to be heading economically center-right, with a dash of green economics thrown in as a concession to the progressives of the Democratic Party, such as Henry Waxman. But this economy needs to head hard left before it can move back to the right.

Decreasing taxes on the rich will only curtail job growth. Bush tried to do this; and from June 2001 to now less than 3 million private sector jobs were created, an all time low. If Obama wants to continue a policy of low job growth and declining family income, reducing the taxes on the rich is the way to go.

See the article below on why I voted for Obama and you will discover why tax cuts for the rich destroy jobs.

The Tax Issue: Why I Voted for Obama Over McCain--a draft

I based my vote in the recent presidential election on only one issue: taxes. That's why I voted for Barack Obama and against John McCain.

McCain wanted to continue Bush's tax cuts for the rich and then add another 80+ billion dollars in cuts to it. Obama campaigned saying he wanted to eliminate those tax reductions, and this is exactly what he needs to do if he wants to get us out of this recession.

Unfortunately, a few weeks back Obama said he may not seek to immediately eliminate those tax cuts even though they are proven job killers.

Republicans still cling to the notion that tax cuts for the rich will stimulate job growth, but reality has proven them wrong time and again. Only 2.7 million private sector jobs were created from June 2001 until now, the worst job creation on record for anywhere near that length of time.

Tax reductions for the rich result in the suppression of job growth. And this is particularly clear in the Bush case.

When publicly traded, limited liability corporations experience declining revenues, dividends and share prices, CEO's look for ways to attract investors to purchase their shares and bid up their stock prices. A tax cut for the rich presents an opportunity for CEO's to lure that newly available money to their stocks and away from their rivals since the affluent tend to invest this extra cash rather than buy stuff.

During the financially dreary Bush years, and with the economy still weak from 2001-05, CEO's needed to make their companies more attractive to investors. They did this by pushing up the bottom line: profits. They achieved this by shipping jobs overseas, by laying people off and by cutting wages, salaries and benefits.

That's why the result of the Bush tax cuts was historically anemic job growth and a $2,000+ plus drop in real family income. It's also why the rich got richer. In other words, the Bush tax cuts for the rich redistributed income upward from the middle class.

The Bush tax cuts weakened the demand sector terribly, with the result possibly the worst economic expansion since statistics have been kept (2001-2007) and the worst financial crisis since the Great Depression.

A vote for McCain was a vote for continuing this insanity by redistributing more income toward the upper classes and away from people who actually produce and purchase goods and services: otherwise known as the wealth of nations. Things would have gotten worse under McCain.

On the other hand, Obama was astute enough to declare that he wanted to allow the Bush tax cuts to expire. Whether he recognized those cuts were job destroyers or not is unimportant.

It doesn't take half a brain to figure out that the problem with the U.S. economy isn't the sub-prime mess because that's only a symptom of the real cause: the mal-distribution of income and wealth during the past thirty years.