Tuesday, March 03, 2009

More commenty goodness

In the past XWL once accused me of leaving most of my best stuff in the comment sections of other people's blogs. That's probably true, although it's a low bar.

Amba had a post about Obama and some of the opposition that has developed around Obama. In "Barack has met the enemy, and he is us" Amba mentions several InstaPundit items today and concludes, "It's gonna be another long four years." Naturally this led me to make my own long-winded comment about various matters.

Perhaps the most insightful bit on Instapundit was a quote he took from an Althouse commenter:
“Does anyone really think Team Obama’s focus on Limbaugh reflects their success so far in office?”
Meanwhile the Wall Street Journal notes that the market is not happy with Obama's plans. But they're not being wholly fair to Obama, and it appears they haven't fully come to grips with the problem. Look at this quote from the linked editorial:
Housing prices have fallen 27% from their Case-Shiller peak, or some two-thirds of the way back to their historical trend.
Hmm. That would suggest that housing prices still have plenty of downside before we hit bottom. And since I've already brought up Professor Shiller, I may as well drop another indicator of his that we haven't entirely hit bottom:
There were four massive stock bubbles in the 20th Century: 1901, 1929, 1966, and 2000. During each of these bubble peaks, the S&P 500 neared or exceeded 25X on professor Robert Shiller's cyclically adjusted P/E ratio.* After the first three of these peaks, the S&P 500 PE did not bottom until it hit 5X-8X. We're still in the middle of the last one.

The most recent bubble peak, 2000, was by far the most extreme we have ever experienced. In 2000, the S&P 500 by prof. Shiller's measure exceeded 40X (it had never before exceeded 30X). With the S&P 500 hitting 700 today, the PE has now fallen back to 12X.
The linked piece explains that there’s more than one way to hit bottom on this index, though. Stock prices could already have bottomed out but will stagnate for years.

And here’s another indicator of how bad things got last year, this time from the New York Times:
Last week, Fannie Mae announced that it lost $58.7 billion in 2008, more than all its net profits since 1992. Freddie Mac is also expected to reveal record losses in coming days.
Obama’s impact on the housing and financial problems prior to his election were minimal, although he seems to have supported all the wrong policies, but he was hardly alone on that front. So as I wrote elsewhere, Obama doesn’t deserve the blame for this mess. He will and does deserve blame for his actions in office, however, and some discounted share of blame for the transition period between the election and the inauguration. And here the WSJ editorial is correct when they assert:
The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy. Health-care stocks have dived on fears of new government mandates and price controls. Private lenders to students have been told they're no longer wanted. Anyone who uses carbon energy has been warned to expect a huge tax increase from cap and trade. And every risk-taker and investor now knows that another tax increase will slam the economy in 2011, unless Mr. Obama lets Speaker Nancy Pelosi impose one even earlier.

Meanwhile, Congress demands more bank lending even as it assails lenders and threatens to let judges rewrite mortgage contracts. The powers in Congress -- unrebuked by Mr. Obama -- are ridiculing and punishing the very capitalists who are essential to a sustainable recovery. The result has been a capital strike, and the return of the fear from last year that we could face a far deeper downturn. This is no way to nurture a wounded economy back to health.
They fail to mention that the government is taking over the mortgage lending market and has no intention of letting go of its newly found powers. But the NYT’s article I linked to explains exactly that, and also explains how even the people brought into Fannie Mae to fix the problems have started bailing out because of too much government interference.
In the last six weeks alone, the Obama administration has essentially transformed Fannie Mae and Freddie Mac into arms of the federal government. Regulators have ordered the companies to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.

Lawmakers have given the companies access to as much as $400 billion in taxpayer dollars, a sum more than twice as large as the pledges to Citigroup, Bank of America, JPMorgan Chase, General Motors, Wells Fargo, Goldman Sachs and Morgan Stanley combined.

Regulators defend those actions as essential to battling the economic crisis. Indeed, Fannie and Freddie are basically the only lubricants in the housing market at this point.

But those actions have caused collateral damage at the companies. On Monday, Freddie Mac’s chief executive, David M. Moffett, unexpectedly resigned less than six months after he was recruited by regulators, having chafed at low pay and the burdens of second-guessing by government officials, according to people with knowledge of the situation.

Fannie Mae has also experienced a wave of defections as people leave for better-paying and less scrutinized jobs.
I imagine that we will see another wave of political appointees to fill the empty slots at Fannie Mae, which is a part of what got us into this trouble in the first place. (Need I mention that the political appointees are likely to have little experience and less competence for their new jobs?)

Ah well, we’ve taken a bad situation and we’re making it worse. The bigger problem isn’t Obama, or the Democrats, or even our political leadership in general. The bigger problem is that the electorate has decided that government can and should take care of everything. We are the enemy. Obama, Reid, Pelosi, Bush, McConnell, Boehner, etc. are just the foot soldiers we the generals have sent to the front lines.

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