The longer this stimulus bill drags on in Congress, the more I worry that it is getting totally off-base. It’s essentially a blank check, balanced against our nation’s future (which in 10-30 years, my generation will be running), and is turning into a political proposition more than a carefully balanced and targeted shot-in-the-arm of the economy. Some recent proposals that are getting added to the Senate version of the bill make me think we’re on a dangerous slippery slop.
Step 1. Irresponsible lending and borrowing leads to a glut of bad mortgages. These get rolled into securities and sold to investment firms and banks looking for a quick, large, guaranteed profit. As was bound to happen (though few investors saw coming), a lot of these mortgages ballooned in cost, people couldn’t pay them back, and the securities became worthless.
Step 2. To avoid banks failing, the government stepped in. Congress authorized hundreds of billions of dollars so Hank Paulson could do whatever he wanted with it. He gave some of it to banks, who gave it out to their executives in the form of bonuses and kept the rest in their vast vaults. Overall, this measure, combined with massive cuts in lending rates by the Federal Reserves, failed to jumpstart the economy.
Step 3. Along with giving money to the banks, what if the government just cut a check to the American people directly? Even as I talked tough and encouraged spending, I saved my check. So did most everyone else. Once again, the economy couldn’t get back on its feet.
Step 4. Time for another stimulus package! But this time we’ll include some fancy provisions designed to really get the economy moving. Some include massive government spending on new infrastructure projects, like repairing bridges and roads. This puts people to work immediately. And they need supplies to get the job done, which puts more people to work. It seems like it could really work.
Step 5. Let’s throw in some other provisions. How about a tax credit for home buyers? That should kickstart home buying! How about cheap government mortgages? That will get everyone to refinance with cheap government money and pay back their new mortgage with a low interest rate. People save money and the government makes money. The stimulus package passes with overwhelming, bipartisan support, Obama signs it, and we wait and see.
Step 6. In six months, millions of people have bought homes to take advantage of the tax credit. In twelve months, 80% of outstanding mortgages have been refinanced. Obama claims victory.
Step 7. In 24 months, the economy is still slow. Jobs aren’t being created. People are starting to default from their loans. Congress, in its infinite wisdom, established no process for enforcing mortgage payments, like they have with student loans. Therefore, the United States government now becomes the biggest homeowner in the nation. Homes sit vacant or are filled with squatters. What’s worse, these mortgages were backed with increased national debt. As the economy stays stagnant, demand for treasury bonds weakens as China and Russia announce the final end to American dominance.
Step 8. In 44 months, Obama is debating nationalizing the banks who still refuse to lend money and are on the verge of collapse. In the meantime, Sarah Palin is the Republican nominee and is leading Obama in the polls. Her platform, “A return to tradition” is sweeping up the nation. Read Sinclair Lewis’ It Can’t Happen Here for the next steps (hint: it includes fascism!).