Thanks to Dana Perino yesterday, we now know that President Bush acknowledges that there are limits on his Presidential power. Yes, believe it or not there are some things even President Bush doesn’t believe he can do anything about. Can you guess what that might be? Well, I can tell you this, it wasn’t about his inability to attack Iran without congressional approval. That after all is part of his Commander in Chief power with which no stinking Congress has any right to interfere in a time of war! No, sadly, President Bush can go to war whenever he chooses, but he is helpless to do anything regarding the pain the American people’s people feel each time they fill up their automobiles at the gas pump:
Presidential spokeswoman Dana Perino said Tuesday on Air Force One that “there are some things we cannot do.” Her comments came as oil prices rose above $109 a barrel for the first time. They are up from $87 a barrel in January.
She said that the White House is concerned about the impact on consumers and small businesses. But she said, “It would be wrong of the president to provide false hope to people to think that we are going to be able to have an immediate impact to reduce gas prices. This is something that we’re all going to have to work through.”
Thank you Dana, for acknowledging that the President of the United States can’t or won’t do anything to help consumers and small businesses when it comes to high gas prices. Nice to know there are some realities even the Bush administration won’t try to create. But hey, that doesn’t mean they aren’t concerned about it. The President is a compassionate conservative after all:
“The price of crude oil, and therefore the price of gasoline, is very high and we know it’s impacting America’s consumers and small businesses especially. And we are very concerned about it,” White House spokeswoman Dana Perino told reporters traveling with President George W. Bush to Tennessee.
I’ll be sure to remember the President’s concern the next time I pay $4.00 a gallon for my gasoline. Which by my calculations should be sometime in the next few months, if not weeks. Because the summer driving season is just around the corner. By the way, if you’ve been wondering why oil prices are spiking so high at the moment, all the evidence suggests that the meltdown in the financial industry and the falling value of the dollar just might have something to do with it:
“Oil is being purchased because of how it looks compared to other asset classes, not because of its fundamentals,” said Antoine Halff, head of energy research at New York-based Newedge USA. “The fall of the dollar has been a very strong driver of the commodity rally this year.”
Oil in New York surged 87 percent over the past year as the Standard & Poor’s 500 Index dropped 7 percent and the Dow Jones Industrial Average declined 1.7 percent.
Of course, one step we could take would be to reinstitute the regulatory scheme for financial institutions which Republicans and their DLC Democratic allies (hint: think Bill Clinton) have dismantled over the last 20 years. The regulations that used to keep banks and securities firms from doing really stupid shit, like issuing trillions of dollars of weird ass financial instruments whose value has little or no basis in reality.
But that’s probably something else President Bush is powerless to affect. Because that would be interfering with the free market, and we all know that the free market solves all our problems if we just get out of its way, right?
Well, not exactly, as these excerpts from the FDIC Summer 2006 Outlook (caution: pdf file) so presciently made clear by citing examples from ancient and US history regarding what happens when banks get to do whatever the hell they want without any “interference” from “Big Guvmint.”
(cont.)
The U.S. residential mortgage market continues to reinvent itself. While government involvement remains extensive, private asset-backed issuers have doubled their share of the market in just the past two years. Meanwhile, the structure of U.S. mortgage loans has undergone dramatic changes—the consequences of which remain unclear. Despite strong loan performance at present, there are concerns about increased risk taking on the part of lenders and homeowners. […]
Since ancient times, credit markets have undergone
periodic booms and busts. In 594 BC, for example, the Greek state of Attica found itself under severe economic stress because of the massive debt incurred by many of its citizens. The ensuing civil disorder resulted in a handover of power to Solon, one of the “seven wise men” of Greece. Solon took radical steps to restore balance to the economy, such as canceling debts, freeing those enslaved for failing to repay their loans, and devaluing the currency by 25 percent.
Although times have changed, the credit cycle and its dynamics of credit extension and retrenchment continue to affect the course and health of the economy and the banking sector.Simply put, credit cycles are fluctuations in loan quality and quantity. […]
Credit cycles may not be just a contemporaneous response to economic conditions. They can reflect reductions in underwriting standards and other ex-ante measures of loan quality motivated by times of overoptimism, heightened competition, or narrowing net
interest margins. Underwriting standards wax and wane,
and banks sometimes take on more risk than they ordinarily would for a given level of compensation. […]A great deal of blame for these financial panics was placed on banks contracting credit, as “the banks were … accused of aggravating the panic [of 1857] by their policy of calling in loans both precipitately and indiscriminately.” The Great Depression, wrote a contemporary economist, was precipitated by excessive credit creation, particularly by selling goods on installment plans, a popular financial innovation of the time. […]
Interest in the credit cycle fell off dramatically during the middle of the 20th century. Economists turned their attention to building mathematical models that contained perfectly rational, profit-maximizing borrowers and lenders. Meanwhile, the U.S. financial system was heavily regulated, with legislative prohibitions effectively acting to dampen the pace of financial activity. During this time, conservatively underwritten bank loans dominated both corporate and consumer financing options; it was the era of 20 percent down payments on houses and a free toaster with every new savings account. […]
Toward the end of the century, however, the financial
services market was substantially deregulated, leading to a wealth of new products and dramatically increased
competition. The savings and loan crisis and localized
banking problems during the 1980s and early 1990s were
the first wide-scale disruptions in the financial sector since the Great Depression, although they might have looked familiar in some respects to people who lived in the 19th century. The international financial system experienced another near-crisis in 1997 and 1998 with the successive financial collapses of several East Asian countries, a massive Russian debt default, and the abrupt demise of the large hedge fund Long-Term Capital Management. In some respects, these events resembled an old-fashioned financial panic as investors rushed to the safest, most liquid instruments available, culminating in a severe credit disruption.[Ed.: All footnotes deleted in excerpt above for convenience.]
Of course, the FDIC document then proceeded to pooh-pooh the negative effects of the deregulation of the financial industry, claiming that these days the market is so efficient we don’t need government regulation, as any good Bush era agency would have been required to do. Still, the point had been made by the historical references to past credit meltdowns and financial panics, which somehow managed to slip through into the final edit.
And now we are seeing the consequences of the failure to learn from the economic lessons of our own past. Seduced by conservative and libertarian economic theorists and their models of “perfectly rational, profit-maximizing borrowers and lenders,” we forgot that bankers and financiers are prone to doing stupid and very risky deals whenever they are given the opportunity, especially when we live in a business climate that is concerned only with the short term, one which seeks to maximize the value of assets included in each quarter’s balance sheet. This means financial managers of banks, insurance companies and securities firms (and these days they are often one and the same due to consolidation), more often than not overlook or ignore the risk of investments which appear to add asset value, and increase stated profits, without regard for the potential pitfalls that might arise in the future. In essence, they all drank the economic theorists’ Kool Aid, believing themselves immune from both credit and business cycles, being so much more clever and so much more knowledgeable than than their historical predecessors.
I saw the same mindset back during the Savings and Loan crisis when I was a workout specialist at my law firm. But that financial collapse brought on by the deregulation of the Savings and Loan industry by Ronald Reagan was small potatoes compared to the financial meltdown we are witnessing today, one that has even touched such stalwarts as Bear Stearns, Citi Corp, many other well known Wall Street firms and, believe it or not, the Carlyle Group itself, the depositary of the Bush family’s wealth, where creditors have seized the assets of it’s publicly traded affiliate, Carlyle Capital.
I don’t envy the next President. Disaster Capitalism is slowly working its way to its inevitable end, and all of us will suffer the consequences. Higher gas prices, the collapse of the housing market, a dramatic rise in mortgage foreclosures, and talk of multiple bank insolvencies are merely the first symptoms. Trust me, it will have worldwide implications and it will only get uglier.
