It’s hard to believe that we’re coming to the end of another quarter, and hence the final installment of Economics for Everyone – that is, until the coming quarter.
And like you perhaps, I am feeling a bit torn and frayed by the seemingly never ending turmoil in, and bad news coming out of, the world of finance and the economy. Just trying to keep track of the most recent machinations by the Federal government is a job in itself.
For example, you may have noticed that after it appeared the government had given up – at least for the time being – ready to simply sit back and watch the carnage proceed, they announced (another) new rescue plan, which they labeled, “term asset-backed securities loan facility” (TABSLF? Just sort of rolls off the tongue, huh?)
And just as I feel I can’t take anymore, I am heartened to see that we are swiftly approaching one of my favorite times of the year – and for two reasons: the holidays and final exams.
Yup, the time of gifts and grades. So grab a cup of eggnog, pull a chair up to the fire (or put your TV on that channel that has a fake fire burning on it), sit back and allow me to summarize the wild and crazy ride of the last few months by assigning grades and suggesting potential gifts to the sundry participants in our latest misadventures – both the victims and the perpetrators.
Keep in mind that many of the grades here are partial “Incompletes” or “works in progress” and could very likely change when all is said and done. And don’t worry; there are plenty of lumps of coal to go around.
To Treasury Secretary Henry Paulson: Now, Hammerin’ Hank’s grade practicality changes from day to day, since he seems to change his mind on what needs to be done (or not) from day to day.
Just two weeks ago, he approached the podium to announce that half of the original TARP money would not be used to buy the infamous “toxic debt” because the steps taken thus far seemed sufficient to ease things in credit markets.
A week later, he and Fed Chair Ben Bernanke introduced Plan III/2B-XY/4A (or something like that) because, “The financial markets are not working as we’d like them to work … and this is an effort to address that situation,” situation,” a quote that will undoubtedly make many year-end lists for the top ten “understatements of the year.”
Additionally, his tendency to be consistently inconsistent has simply heightened the aura of uncertainty at a time that a certain amount of certainty is essential. As of last week, I would have probably assigned him an “F.” But, based on his above admission and his deciding to once again try something new:
Grade: D+
Gift: a new dartboard; the one he’s been using to make all his recent decisions has worn out.
To Federal Reserve Chairman Ben Bernanke: Poor Ben. Apparently willing to be the Robin to Paulson’s (somewhat blundering) Batman. A victim of bad timing due to many events being beyond his control? Forever associated with the meltdown and all the attempts – at least to this point – which have proven ineffectual? Following in the “Maestro’s” stead was supposed to be a piece of cake.
Twiddle the Fed Funds rate every once in a while to tamp down inflation in times of generally rising prices or to goose economy in times of a slowdown, all the while having to fight off clamoring hordes of adoring fans on your way to the pantheon of great central bankers.
To quote another contemporary financial genius, Homer J. Simpson, “D’oh!” Nevertheless, he deserves a higher grade than Mr. Paulson. While the European central bank remained preoccupied with inflation, and hence, insisted on keeping interest rates relatively high – having recently been slashing them – Gentle Ben was well ahead of the curve (on this issue), aggressively reducing the Fed Funds rate even in the face of skyrocketing oil prices.
In addition, Prof. Bernanke has urged more aggressive responses from the government, including direct assistance for struggling homeowners.
Grade: C+/B-
Gift: his old job at Princeton College (some rumors suggest Lawrence Summers will take over the Fed Chair in 2010) and a new copy of Alan Greenspan’s autobiography (in a fit of frustration, he set fire to his autographed copy). Oh, and a piece of cake.
To FDIC Chair Sheila Bair: President-elect Barack Obama is running out posts in his economics cabinet, but if there’s anyone who has partaken in this fiasco thus far who deserves a position, it is Sheila Bair. Her persistence in calling for direct aid for troubled homeowners has been largely disregarded by the administration, which has continued to emphasize “Wall Street” over “Main Street,” as opposed to Ms. Bair’s call for the opposite.
One of the first things the FDIC did when it took the reigns of the failed SoCal bank IndyMac, was to contact financially strapped mortgage holders and work out easier terms. They’ve also extended their “insurance umbrella” in an effort to restore confidence in the banking system. Perhaps if others – Treasury, the Fed, et al. – had acted with the consistency and decisiveness of Sheila Bair and her comrades at the FDIC, we wouldn’t be quite as mired in the mess that we are.
Grade: A
Gift: a place in the Obama cabinet and a good deal of admiration.
To Congress: The House initially rejected TARP on the grounds that they were acting in the best interests of the taxpayers and “fiscal responsibility.” Oh, to laugh! What is the gross public debt at right now? ‘nough said. At least they didn’t give in to the United States auto makers, who recently had to fly back to Detroit with the tails of their private jets between their legs.
Grade: D-
Gift: a clue.
To the American Consumers: The resilient U.S. consumer; that massive sector of the economy that simply loves to “shop ’til they drop” has apparently hit the deck. Consumer spending fell for the first time in 17 years recently, and although improving a bit – due mainly to falling gas prices – sentiment hit a 28-year-low. Can you blame them (us)? Still, through the storm, the U.S. consumer has held up pretty well.
Grade: A-
Gift: a 6-9 month prescription of Zoloft (hopefully not much longer than that).
To President Bush: When you haven’t anything good to say … Actually, his “accidental Keynesianism” that helped get him into the White House the first go ’round (oh, and with a little help from the Supreme Court) – though aimed rather heavily at those with loftier incomes – did probably soften the blow of the 2001 recession. Then there’s his failure to address the soon-to-be rapidly growing problem of Social Security and his – oh, never mind, like I said … Tell you what, I’ll leave the rest up to you (feel free to e-mail me with suggestions).
Grade:___
Gift:___
To President-elect Obama: It appears that there has been a little bit of murmuring amongst the masses pertaining to his choices for his “economic cabinet,” which some are referring to as “Clinton retreads.” “What happened to change?” they ask. Well, now is not the time for neophytes.
So far, Mr. Obama has chosen a group of moderate economists (so much for the “socialist” government of Barack Obama), most with past government experience, some from the world of academia (okay, here I suppose I am somewhat biased), which include former Treasury Secretary Larry Summers, Former Fed Chair Paul Volcker and UC Berkeley academic Christina Romer.
Also, it’s quite likely that his longer-term economic platforms will be put on hold in an effort to address the short-term crisis. Though heavy on “what he will do,” we are again a bit in the dark as to how he “will do it.”
Nonetheless, I like his activism. A strong response to our problems should instill some confidence back into the economy. So far, so good.
Grade: a very incomplete A
Gift: a little time.
To my readers, my students and everyone else:
Grade: A (of course)
Gift: the last nine columns of “Economics for Everyone.” C’mon, what more do you want? I don’t g
et paid to do this, you know. (And as for my current students: no, you don’t get any “extra credit.”)
Good luck on your final exams, happy holidays everybody, and I’ll see you next year.