A Not-So-Ready For Prime-Time Player

Monday night I watched President Obama's first prime-time press briefing. I came away from it concerned. I'll make a couple of general observations first, then dig into the details. Sorry this is a bit long-winded, but then, so was he.

First, while President Obama is an excellent speaker, he needs a script to really shine. Chris Matthews' man-crush fawning notwithstanding, the President's answers were rambling, and in one instance (the Iran question), he seemed at a total loss.

Second, is it just me, or does Helen Thomas remind you of Aunt Bethany from "Christmas Vacation?" As she kept trying to ask follow-up questions, I kept waiting for Bill Hickey to shout, "Good grief, Bethany, shuddup already!"

On to the meat. The President started out with an eight-minute speech, then took questions. I'll address highlights of the speech, then dissect each Q&A.

"I took a trip to Elkhart, Indiana today ... In one year, the unemployment rate (there) went from 4.7% to 15.3%. Companies that have sustained this community for years are shedding jobs at an alarming speed."

I'm very familiar with Elkhart; my brother lived in nearby Goshen for 30 years. Elkhart is the RV manufacturing capital of America. Last summer, gas prices went up to more than $4 a gallon. Gee ... could there be some correlation there? Using Elkhart as the poster child for the credit crisis is like using Tim Geithner as the poster child for taxpayer responsibility.

"... the food banks (in Elkhart) don't have enough to meet the demand."

I'd have loved it if the President had taken this opportunity to ask people to pitch in and help, like he said we all should do when he was campaigning - maybe even post the address of the Elkhart food bank. Instead, he wants the good people of Elkhart and the rest of America to become addicted to government largess, like so many crack addicts. I'd be happy to send a check to an Elkhart food bank. In fact, I think I will. You can, too - go to www.feedindiana.org. You can donate online. I wonder if the President left a check before he got back on Air Force One, or if he was content to just use the community as a political prop to sell his agenda.

"... (the spending bill) will save or create up to 4 million jobs."

We've heard this for a while now, and I promise to address the myth in an upcoming post. Though he did say "up to," so it could create one job and he'd be right. This claim is a classic example of being long on goals, and short on the "how."

"... the federal government is the only entity left with the resources to jolt our economy back to life."

Um, excuse me, Mr. President, but America's broke. Our national debt is approaching GDP, our deficit is going to be a record percent of GDP, and our "resources" are going to have to increasingly come from China.

"It is only the government that can break the vicious cycle where lost jobs lead to people spending less money, which leads to even more layoffs."

Really? How? Are you going to repeat President Bush's post-9/11 urge to "do your business, all over the country?" Are you going to send the National Guard to my house to drag me to the mall and MAKE me spend? People spending too much money created this debacle, sir.

And how about the vicious cycle where deficit spending leads to more debt issuance, which leads to higher interest rates and taxes, which reduces spending and borrowing, which leads to more layoffs, which leads to more deficit spending? That's a little more dangerous, methinks.

"These steps will put more money in the pockets of those Americans who are most likely to spend it."

First, sir, you should incent savings, not spending. And second, do you really think the people lower on the economic totem pole are going to spend their money? In many instances, they're the ones most vulnerable to job loss, they lack the savings to cover themselves in a crisis, and they would have the most difficulty paying their bills if something happened to their jobs. They're far more likely to hoard whatever largess they receive than to spend it, and rightly so.

"... tax cuts alone can't solve all of our economic problems ... We have tried that strategy, time and time again. And it's only helped lead us to the crisis we face right now."

Mr. President, while I'll grant you that tax cuts alone won't solve all economic problems, if you truly believe that tax cuts have led us to the crisis we face now, you really don't understand this crisis at all, with all due respect. The Tax Reform Act of 1986 had the greatest impact on this crisis of any tax action, and that was only in an ancillary way, when it created the mortgage-backed bond structure known as the REMIC, which allowed for much greater securitization of mortgages, packaged into much more risky securities. But that wasn't really a tax cut, per se.

"More than 90% of the jobs created by this plan will be in the private sector. They're not going to be make-work jobs but jobs doing the work that America desperately needs done, jobs rebuilding our crumbling roads and bridges, repairing our dangerously deficient dams and levees, so that we don't face another Katrina."

I've been to the Gulf twice to do hurricane relief work, and I saw considerable damage that was totally unrelated to the levees. And I would never use that unfortunate catastrophe in a political sales pitch. I think it's as shameful to do that as to use Elkhart for the same purpose.

But, as for these much-needed jobs - then what? When the roads and bridges and dams and levees are repaired, what happens to those jobs? And I'm wary when you tell us that these are going to be private-sector jobs, because that means the government is going to contract them out. And we all know what spectacular bargains the government gets when it hands out contracts, right? Remember the $600 toilet seats? We'll get millions of dollars worth of good out of billions of dollars of spending.

"They'll be jobs creating ... 21st century classrooms, libraries and labs for millions of children across America."

Like in Milwaukee, which is slated to get some $80 million to build new schools. Never mind that enrollments are down, and the school district there has 15 vacant schools already. Sure, some money could be spent upgrading or rebuilding existing schools there. But $80 million? Again, on government contract?

"What it does not contain, however, is a single pet project, not a single earmark ..."

Riiiight. Like that polar bear exhibit at the zoo in Providence, Rhode Island, whose Senator said it was an absolute necessity.

"I can't tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis ..."

Well, sir, "hope" is not a plan. And if you don't know it will work, how do you know the crisis won't deepen anyway? You sure didn't convince the stock market.

"... all countries are watching and waiting for us to lead."

Yes, and if you read the comments from world leaders attending the summit in Davos recently, you know that they are extremely concerned about the massive deficit spending we're undertaking, and about our record debt issuance to fund it crowding out the rest of the world's access to capital.

"It's a responsibility that this generation did not ask for, but one that we must accept for the future of our children and our grandchildren."

Well, by borrowing massive amounts of money to throw at the items in this bill - 90% of which will do little, if anything, to stimulate the economy - we are not taking responsibility at all, and we are mortgaging the future of our children and our grandchildren.

On to the questions, of which I'm just including the salient points.

"Earlier today in Indiana you said something striking. You said that this nation could end up in a crisis, without action, that we would be unable to reverse. Can you talk about what you know or what you're hearing that would lead you to say that our recession might be permanent when others in our history have not?"

This was a great question, as it caught the President red-handed at fear-mongering.

"No, no, no, no. I think that what I've said is what other economists have said ... that if you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of."

No, no, no, no, Mr. President, you actually said that without action, we would be unable to reverse the crisis we'd find ourselves in.

"We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough, and as a consequence they suffered what was called the "lost decade," where essentially for the entire '90s, they did not see any significant economic growth."

Japan didn't act boldly or swiftly enough? Well, perhaps. They cut their overnight lending rate to zero within 17 months after their housing bubble burst, and they took a cautious, piece-meal approach to bailing out their banks. We cut our rate to zero in December of last year, nearly two years after year-over-year home price appreciation went negative, because our Fed Chairman thought the housing collapsed could be "contained." And our approach to the banks has been cautious and piece-meal, and Mr. Geithner's lack of clarity yesterday indicated that approach is not changing - and again, the market reaction should tell us something.

"... we focus on housing and how are we going to help homeowners ... who are still making their mortgage payments but are seeing their property values decline."

Yes, Mr. President - just how are we going to stop property values from declining further? This one puzzles me every time I hear a politician bang the table and say, "We've got to put a floor under home prices!" How do you legislate an asset value? As a student of economics, I'll be most interested in the answer.

Next question: "What is your strategy for engaging Iran?"

Honestly, as he stammered his way through this one, I kept waiting for him to say "Iran is near the Iraq, or something." He looked like he wanted to use his Phone-A-Friend, and call Joe Biden. I don't think foreign policy is going to prove to be his long suit.

Next was the bipartisanship question, where he was basically asked if he was surprised by the lack of bipartisan support for the spending bill.

"... there have been a lot of bad habits built up here in Washington."

Indeed - habits that you yourself had, as a US Senator. Didn't you make a big deal of how often Sen. McCain voted with President Bush, and how often you voted against him? I'm as sick of partisanship as anyone, but I'm not sure you're the guy to end those bad habits.

He went on to cite the three Republicans he appointed to his cabinet, "something that is unprecedented." Well, let's put an asterisk by that last one: he had originally tipped Bill Richardson for Commerce, but there was this little scandal Gov. Richardson had to deal with. So he appointed a Republican Senator from a state with a Democrat Governor, who will likely appoint another Democrat as the replacement, strengthening the Democrats' majority in the Senate. Crafty move, that. But bipartisan? Not so much. Nor was the infamous "I won" comment, for that matter.

He also noted, "there seems to be a set of folks who ... believe that we should just do nothing." Not in Washington, there aren't. I've said that, but the President doesn't listen to me that I know of. Not one GOP congressperson advocated doing "nothing." They just wanted to do the right thing.

"... what I've been concerned about is some of the language that's been used suggesting that this is full of pork ... when I hear that from folks who presided over a doubling of the national debt ... I just want them not to engage in some revisionist history."

As a US Senator, did you not also preside over a doubling of the national debt, Mr. President? Did you vote against every single appropriation bill during your short tenure in the Senate? Similarly, he said, "I inherited the deficit that we have right now." Well then, sir, perhaps you shouldn't have voted for the TARP, which more than doubled it.

"... although there are some programs in there that I think are good policy, some of them aren't job creators. I think it's perfectly legitimate to say that those programs should be out of this particular recovery package, and we can deal with them later."

Fine, sir. Get out your red pen, then, because there's about $750 billion left in there that meets that definition.

Regarding the $6.7 billion dollars to make federal buildings more energy-efficient: "We're creating jobs immediately by retrofitting these buildings ... and we are saving taxpayers ... potentially $2 billion."

Again, what happens to those jobs once the retrofitting's done? And how is spending $6.7 billion to save $2 billion good fiscal policy?

"... maybe philosophically you just don't think that the federal government should be involved in energy policy. I happen to disagree with that. I think that's the reason why we find ourselves importing more foreign oil right now that we did back in the early '70s."

Or, it could be because we have more people living in this country than we did then, and more cars on the road.

Next up was Chuck Todd of NBC. When President Obama said, "Where's Chuck?" I was reminded of then-Sen. Biden's infamous "Stand up, Chuck!" Chuck asked the $800 billion question:

"In your opening remarks, you talked about that if your plan works the way you want it to work, it's going to increase consumer spending. But isn't consumer spending, or over-spending, how we got into this mess? And if people get money back into their pockets, do you not want them saving it or paying down debt first, before they start spending money?"

The response: "Well, first of all, I don't think it's accurate to say that consumer spending got us into this mess. What got us into this mess initially were banks taking exorbitant, wild risks with other people's monies, based on shaky assets."

I must admit, at this, I was yelling at the TV set. Mr. President, exactly what in the love of Pete do you think collateralized those assets that made them so "shaky," and that caused them to represent such "exorbitant, wild risks?" BAD LOANS, made to people who shouldn't have been borrowing that money to spend when they couldn't afford to pay it back in the first place.

He was either deliberately misleading the American people on this one, or woefully ignorant of the causes of the current crisis and the nature of the challenges facing our banking system. Either way, I am most worried by this response.

He went on: "Now, you are making a legitimate point, Chuck, about the fact that our savings rate has declined. And this economy has been driven by consumer spending for a very long time. And that's not going to be sustainable. You know, if all we're doing is spending ... then over time, other countries are going to get tired of lending us money. And eventually the party's going to be over. Well, in fact, the party now is over."

At this point I'm with him. The party is indeed over, as other countries are indeed tired of lending us money. But then he took an entirely irrational turn:

"And so the sequence of how we're approaching this is as follows. Our immediate job is to stop the downward spiral. And that means putting money into consumers' pockets. It means loosening up credit."

Huh? He seemed to acknowledge that we cannot sustain an economy built on no savings and borrowing to consume more, and that the party is over. Then, he advocates refilling the punch bowl by putting money in CONSUMERS' pockets (note that he made no mention of savers) and loosening up credit, so they can re-leverage. Consumer credit balances have fallen in the US for an unprecedented three consecutive months - a very good trend, given our track record. His solution, apparently, is to reverse that and go back to building the house of cards whose crumbling has led the global economy to the brink of disaster.

Not once did he mention savings. He said that "even if you're a fiscal conservative" - an apparent acknowledgement that he is not - "the biggest problem we're going to have, with our federal budget, is if we continue a situation in which there are no tax revenues, because economic growth is plummeting at the same time as we've got more demands for unemployment insurance; we've got more demands for people who've lost their health care, more demand for food stamps."

Well, why not CUT THE FAT, then, and we'll have ample money for food stamps and health care and unemployment insurance. I'm too lazy to do the research on this, but I'll bet my tax bill that the pork in the federal budget - even before this massive deficit spending bill - is many times the amount we need to spend on those things.

He said that Americans are "not engaging in a lot of long-term financial planning" right now. I disagree. Facing the passage of this monster, I'm planning for double-digit interest rates and crushing tax rates in the not too distant future.

The next question, from a Bloomberg reporter, made me laugh, because she started out with, "Many experts, from Nouriel Roubini to Senator Schumer, have said that it will cost the government more than a trillion dollars to really fix the financial system."

Chuck Schumer is an economic expert on the order of Nouriel Roubini, who predicted this catastrophe? Chuck Schumer is an economic expert, period? To even mention Chuck Schumer in the same sentence as Nouriel Roubini when discussing economic expertise is akin to tossing a Pop Warner League pine-rider in with Walter Payton when discussing football prowess. Please, ma'am - Sen. Schumer's ego doesn't need inflating any more than the next asset bubble.

She went on: "During the campaign, you promised the American people that you won't just tell them what they want to hear, but what they need to hear. Won't the government need far more than the $350 billion that's remaining in the financial rescue fund to really solve the credit crisis?"

"Well, the credit crisis is real. And it's not over. I mean, we averted catastrophe by passing the TARP legislation." Really? How's Citi's stock faring? "... because of a lack of clarity and consistency in how it was applied, a lack of oversight in ... in ... in how the money went out, we didn't get as big of a bang for the buck as we should have."

True that. So again, why did you vote for it? It was rushed through in haste, with no strings attached. I said this a long time ago on this very blog: the simple fact that Hank Paulson insisted on immunity from legal action when he pushed for the TARP's passage should have been the first clue to any thinking person that it wasn't going to be applied prudently.

He went on to say that Mr. Geithner would be "coming up with the best possible plan to use this money wisely, in a way that's transparent ... But my instruction to him has been let's get this right, let's create a template in which we're restoring market confidence. And the reason that's so important is because we don't know yet whether we're going to need additional money or how much additional money we'll need until we've seen how successful we are at restoring a sense of confidence in a marketplace that the federal government and the Federal Reserve Bank and the FDIC, working in concert, know what they're doing."

Well. I'd have to say we're going to need a LOT more money, judging from the no-confidence vote the market handed Mr. Geithner yesterday. He is indeed following in the footsteps of Mr. Paulson, whose speeches launched many a bloodbath in the equity market last year. His plans are certainly transparent, though; you can see right through them, like a sheet of Glad Wrap.

The next - and final - question was a follow-up to that one, asking what metrics the American people should use to gauge the success of the administration's programs (the spending bill and the bank rescue effort). The answer:

"... my initial measure of success is creating or saving 4 million jobs." Dang it, the phonograph needle is stuck again! But that's a pretty safe metric. It will take a long time before we create or save 4 million jobs in this economy, especially since job market recovery typically lags economic recovery, sometimes by years - recall the "jobless recovery" from the '90-91 recession, when we didn't start seeing meaningful job growth until late 1992. So he's effectively saying, "Give me until then to determine whether my schemes worked," laying the groundwork for a second term.

"Step number two, are we seeing the credit markets operate effectively?" Well, again, that will have to happen long before the job market recovers, so it really ought to be step one. "Part of the problem in Elkhart that I heard about today was the fact that this is the RV capital of America. You've got a bunch of RV companies that have customers who want to purchase RVs, but even though their credit is good, they can't get the loan."

Part of THAT problem is that the definition of "good credit" has changed since the loose-credit days of the housing bubble, and that is a move in the right direction. The other part is that banks are more reluctant to make so-called "toy loans" - RVs, ATVs, motorcycles, snowmobiles - in a recession. The collateral is harder to move than a car or a house if it has to be repossessed. If those people truly do have "good credit" - not by the lax standards of 2005, but by today's return to prudent lending practices - they can certainly get a home mortgage or a car loan, assuming they make a reasonable and prudent down payment.

He made one more reference to stabilizing housing values, which again, I'm anxious to see put into practice. House prices will stabilize when we clear the current inventory glut and return to equilibrium, and not before.

I will give him credit for the candor of one of his final comments: "... this year is going to be a difficult year ..." And the passage of his massive deficit spending bill will ensure that the next several years are going to be difficult years, at best.