Restoration of credit took center stage in President Barack Obama’s message to Congress last night. “The concern is that if we do not restart lending in this country, our recovery will be choked off before it even begins,” he said.
The president talked about consumers’ ability to finance their cars, and a “re-tooled, re-imagined auto industry that can compete and win.” He pledged to invest $15 billion to develop, among other things, more fuel-efficient cars and trucks built in America.
Obama outlined a three-pronged approach to restart the flow of credit. The first initiative is the creation of “a new lending fund that represents the largest ever effort to help provide auto loans, college loans, and small business loans to the consumers and entrepreneurs who keep this economy running.”
The second proposal deals with housing and foreclosure. And the third involves propping up banks to enable them to lend, “even in more difficult times,” Obama said.
“When we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets, and assure the continuity of a strong, viable institution that can serve our people and our economy,” he said.
The bottom line: “Slowly, but surely, confidence will return, and our economy will recover,” he said.
Hopefully, not too slowly.
To read a transcript of Obama’s speech, click here.
Let’s take the housing and foreclosure market first. I’ll bet my entire portfolio of Citicorp stock that the toxic combination of the Obama administration and the present Congress will do the exact opposite of what is needed. Under the guise of “saving people’s homes” they will prevent the orderly and systematic workouts that the market needs in order to find its bottom and rebuild with real, responsible homeowners taking out mortgages that require skin in the game from the buyers. They will selectively abrogate bankruptcy and contract laws in forcing rewrites of no-doc and “liar” loans and will set in motion at least a decade of banking stagnation a la Japan. The lasting effects of this part alone will probably never go away. This, despite evidence that the redefault rate on renegotiated mortgages is historically around 60%. They will also gloss over the fact that the vast majority of bad mortgages are on properties in just five states, four of which have large populations of “undocumented workers” and that said workers are holders of many of the delinquent mortgages. Addressing this part of the problem as it should be addressed is something they will avoid at all costs.
As for the new lending fund – who’s going to run it? Frank Raines? Tom Daschle? Or how about Marc Rich? Does this mean another banking system, running in parallel with the private system but administered by Czar Barney?
Speaking of the Czar, this reminds me of Lenin and his overall approach to ruining Russia. It was not ever his intent to take the country over and change what was there to suit his fancy. He first had to smash the entire apparatus of the state in addition to doing away with the Romanov dynasty. It seems like that’s what these Dems that now hold sway in Washington are doing now. The changes they are trying to push through or will try to push through, not only in the financial system but also in social policy, taxation, education, “climate change,” and health care – will do permanent damage to the country. They know they’ve got two years to get it set in what passes for political stone. Let’s hope that the midterm elections don’t come too late.