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Barack's Bailout Bonanza: Supported by Bogus Bottom lines

Submitted by Ironman on Sat, 01/10/2009 - 20:03
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When it comes to the macroeconomic/world finance stuff, I defer to folks who live and breathe it.

So when Red State's Francis Cionfrocca calls the supporting documents behind Obama's trillion dollar deficit spending scheme "a marketing piece targeted at the ignorant, rather than a serious argument."  well, I take notice.

Being a former "country banker" I do know when someone throws a "plug number" into a prospectus to make it "work". And by assuming today's bizarre climate of virtually zero interest on federal debt is sustainable, the Obama team has done just that. They also seem to assume, for whatever unstated reason, that a tax rebate in 2009 will be spent when the tax rebate in 2008 wasn't

Given at least one material aspect of the plan isn't credible, how is anything else proposed credible besides the price tag?

Perhaps they are just being irrationally exuberant about this endeavor. But funky balance sheets sorta occasioned every other fiscal fiasco of the past decade---Enron, Fannie Mae, Worldcom, Bear Stearns, AIG....

I used to deal with distressed assets in the 7-8 zero range and the owners were always coming in with deals that would "work"---yeah, if you could charge Greenwich style rents in downtown Hartford. The joke was the appraisals were "MAI" in two senses...the appraiers was "Member, Appraisal Institute" and the work product was "Made As Instructed".

Methinks we'd better read the fine print carefully on the thousand billion dollar bill of goods the new President wants to have signed off on.

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Comments

Good call

Submitted by Paleo-Skeptic on Sun, 01/11/2009 - 05:42.

Yield curve inversion for long-term debt instruments is one of the forerunners of a recession, and should never be taken as a long-term trend. 

There's a lot I don't know

Submitted by Ironman on Sun, 01/11/2009 - 07:43.

but I do know that long rates are presently at unrealistic, unsustainable low rates. On a practical level, re-fi now if you can since this window will not stay open forever. Nor will low oil prices.

That is why I've got a warm spot for Rubinomics. If you are not going to provide supply side growth incentives through the tax code, low long term interest rates are a good substitute.  The '00 bubble was when short rates got unsustainably low and people borrowed on those terms. That and believing that FHA loans, Alt-A's and subprimes were risk free---when decades of lending history would suggest just the opposite.