PREFERRING A DEPRESSION?

[Jesse]

PREFERRING A DEPRESSION? Feb. 20, 2009.
By Sy Harding


For several weeks I've been writing about the need for the government's financial stimulus efforts to be supplemented by efforts to instill some degree of confidence in severely depressed consumers and investors.
I was thinking in terms of President Reagan's strategy upon inheriting the similar economic collapse of the 1970's. He provided financial stimulus, including huge increases in defense spending, some of it wasted, such as launching the costly but never completed 'Star Wars' anti-missile system, etc., but created jobs. He augmented the spending with upbeat assurances about the greatness of America, and how the country would soon begin to pull out of the seemingly impossible mess. Similarly President Bush provided a large stimulus package after the terrorist attacks in 2001, and supplemented it with confidence-building speeches about how Americans should get out of their terrorist-inspired fear modes and spend, "to show these terrorists who would tear down our economic system that they won't succeed." Both times the 'jaw-boning' was as important as the financial stimulus in lifting the confidence and determination of consumers and investors.
My columns along those lines resulted in an avalanche of criticism, the mildest of which asked how I could advocate that the government attempt to brainwash the population, should attempt to hide the facts of how serious the situation is. That is not what I said. What I said was that for two years consumers have been fed a steady diet of doom and gloom, are well aware of the seriousness of the situation, and it's time for the government's financial stimulus efforts to be supplemented by efforts to instill some degree of confidence in the nation's future. 
If that is brainwashing, then the problems were created in the first place by someone brainwashing people into thinking they could safely buy a house they couldn't afford because home prices would just keep rising forever. 
Meanwhile, I have been saying since the real estate bubble burst and collapsed the economy, that the economy cannot recover until the housing industry recovers.
So I was disappointed that stimulus efforts had to begin with the rescue of banks and the financial system, then moved to bailout efforts for the auto industry.
I was delighted that rescue efforts have finally begun to focus on the housing industry, where home foreclosures are accelerating, sending home prices and buyer confidence even deeper into gloom and doom, and sinking the economy even faster. But I have been surprised that rescuing the housing industry, which mostly affects the folks on Main Street, apparently has even more opposition than bailing out Wall Street and the auto-industry.
Just how unpopular the plan is was revealed by CNBC reporter Rick Santelli on Thursday.       
By now most of the country, if not the world, is aware that Santelli, noted for his daily rants from the Chicago Board of Trade about what he believes to be wrong with the country, took aim at the Administration's housing rescue bill. During his rant he shouted this question to traders on the floor of the CBT, "How many of you want to pay for your neighbor's mortgage because he can't pay the bills? Raise your hands!" Amidst yells of agreement from the traders Santelli turned to the camera and shouted "Are you listening, Mr. President?"
A landslide of approving e-mails apparently encouraged Santelli to announce that he would organize a "Chicago Tea Party" demonstration, a revolution he called it.
He surely hit a nerve with his opinion that those who are losing their homes and jobs should not be bailed out by those who are in good shape on their homes, finances, and jobs, with calls of 'Santelli for Senate', and 'Santelli for President' spreading over the Internet.
It does have its amusing aspects, given that the economic mess was created by the financial industry, in part by its creation of high-risk derivatives, including mortgage-backed securities, and the wild leverage provided to hedge funds. Santelli became a CNBC reporter in June, 1999, almost at the top of the stock market bubble, leaving his position as a vice-president at Sanwa Futures LLC, where he handled institutional trading and hedge fund accounts. Prior to that, he served as managing director of the Derivatives Products Group of Geldermann Inc.
And now he is the hero of those who feel abused by the collapse of the house of cards created by the questionable products and greed of Wall Street firms?
But of more concern to me is the apparent majority opinion that "I don't care if the value of my home keeps dropping due to foreclosures on my street. I didn't make any mistakes, and I don't want my tax money used to bail out those who are in over their heads. I don't want the banks saved with my tax dollars. Let then go bankrupt. I don't want the auto-makers bailed out. They deserve to go bankrupt. I don't care if it causes the whole country to fall into the next Great Depression."
I suppose the same argument could be made about giving blood, or contributing to food banks, unemployment insurance, cancer research, the Red Cross, education. Hey, I didn't get sick, I didn't lose my job. I've got my education.
Do they even realize how much worse a depression is than a recession?
The Bush Administration tried to get things turned around by spending a few trillion dollars of taxpayer money, and the new Administration is trying. The results of those efforts won't be known for awhile. But both administrations ran into a lot of opposition from those who would rather let those with problems (banks, auto-makers and millions of individuals) go bankrupt and see if the system can recover on its own or not. One often repeated additional reason is that it's unfair to saddle future generations with larger deficits.
If a few years from now the economy has worsened into a decades-long global depression, thanks in part to the unwillingness of even the folks on Main Street to unite in the common goal of trying to rescue the economy, because their money might go to someone less fortunate, who will they look back and blame that on? And how much worse off will their children be than if the national debt is stretched even further now?
In his rant Santelli asked, "Are you listening, Mr. President?"
I ask, "Are you listening America?"