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Dear Mr. President,
First I would like to salute you.
You've ascended to what is no doubt one of the most difficult offices...one of the most difficult jobs on the face of the Earth. Never mind being "Leader of the Free World," the office of President attracts such multitudes of baseless ire, doubt and partisan rhetoric that former Presidents have aged visibly while in office...a fact to which your newly gray hairs can surely attest.
However; you sought and accepted the position.
You campaigned and were chosen by the American people to lead our country out of the current crisis. You had over a year to consider the depth of responsibilities and challenges that would rest on your shoulders, and you assured the American people that not only were you aware of these challenges and obstacles, but you were ready to face them.
It is with knowledge of these facts that I respond to last night's speech. While it was touted as a "frank but optimistic" outlook on the U.S. economy and our eventual recovery, I found it to be quite the opposite. Granted, it was more frank than the usual ‘damage control' Americans receive from their representatives. But the optimism seemed misguided...failing to appreciate the scope of our crisis. As such it's likely to inspire pessimism in the populace and in the marketplace.
So without further adieu, I'd like to suggest some corrections - not only to promises and policy, but to the underlying perspective with which you develop a framework for recovery.
The Lending isn't Coming Back. Please Stop Hoping it Will
This is a key misunderstanding - one that is crucial to your perspective on the crisis - that must be changed if we are to avoid a protracted Depression.
Numerous times in last night's speech, you spoke of reinvigorating lenders to "get the credit flowing again." We couldn't help but ask: What for?
According to TransUnion, the average bankcard debt per borrower is US$5,710. Our National debt exceeds US$10 Trillion and is quickly approaching US$11 Trillion...working out to over US$35,000 per US citizen.
We have 19 million empty houses in the U.S. at present, and there's a StarBucks, McDonald's and Wal-Mart on every "Main Street" in the country. So what do American citizens need that credit for? To stave off personal bankruptcy? That is not the way to a real recovery.
Undoubtedly, you might respond that the focus is on reinvigorating credit for American businesses and corporations. If these parties don't have access to credit, then more jobs will be lost and prosperity will suffer further.
To that I respond bleakly; that lending simply isn't coming back the way it was before the implosion.
To understand my perspective there, you must understand the concept of the "Shadow Banking System," as popularized by Nouriel Roubini. You may recognize this term, but I regret to inform you that your stated perspective indicates a lack of understanding as to what the "Shadow Banking System" really is...or was.
Since the last overhaul of the country's regulatory system in the 1930s and 40s, banking activities have spread like wildfire. Hedge funds, Sovereign Wealth funds, and those hopelessly complicated "Structured Investment Vehicles" (SIVs) formed the backbone of this system, which credit derivatives - like CDSs and Mortgage-backed CDOs - and the process of securitization to subsume activities that had once belonged to carefully regulated and managed commercial banks - that is prior to 2004.
It's worth noting that the system developed thanks largely to the pointed deregulation’s that were touted under the guise of creating a "free market," and as such owe their existence to the government you represent...but that's neither here nor there.
The giants of commercial banking like Citigroup and JP Morgan Chase - now in the spotlight as the "too big to fail" targets of nationalization...while it's worth noting that both of these behemoths were created thanks to the aforementioned "strategic deregulation" [in 2004 by U.S. Senator Phil Graam shilling for the banking industry] - were compelled to join in and claim their share of the profits.
Ultimately, we ended up with a nigh-homogenous system, where various banking activities were engaged by various parties at various levels of regulation...until they pushed it way too far and the "bubble" burst.
Now, the leverage (or credit), which allowed the Shadow Banking System to rise to prominence, is all but swept away. Gone are the SIVs, the hedge fund profits and the securitization model. And since the system reached a level of near homogeneity, our commercial banks; the keepers of our life savings, our nest eggs and our hopes and dreams - were sucked into the void.
While these commercial banks may have constrained their lending, they haven't drawn it to the dead-stop portrayed in the media. Indeed, according to the Wall Street Journal, banks have actually increased their lending in the past few months - for mortgages - but the loans are very expensive from a standpoint of points and fees.
It's easy to see that we as Americans have the inclination to demonize the "banksters" right now, but it's not all their fault. Rather, the real pain comes from the disappearance of that superstructure... the "Shadow Banking System" that fueled misguided growth with unprecedented levels of (debt-and-credit-based) liquidity. We also need to demonize Congress for allowing the deregulation to take place and even with warnings sounded by many credible sources, not taking up the issues of regulation when it was clearly needed.
Jamie Dimon - CEO of JP Morgan Chase - cited this in one of Barney Frank's recent hearings on the subject, "There's a huge amount of non bank lending which has disappeared which is the same thing to the consumer (as the banks)...Finance companies, car finance companies, money funds, bond funds...that withdrew money from the system (when the credit crunch took hold) making it much harder on the system. That created the crisis we now have."
So, to use a format you'll surely recognize;
NOW, THEREFORE; you should acknowledge the fact that this unregulated superstructure - the Shadow Banking System - is gone. And good riddance indeed! That system is what led us to today's crisis. Further, you must acknowledge that there is no reasonable way in which bringing back similar levels of credit will lead us to recovery. Continuing to say so will only diminish the confidence of markets and citizens in your leadership.
What you should do instead - what you must do instead in order to avoid a protracted Depression - is address the existing credit and debt issues that yours (Democrats) and the Bush administration (Republicans) have put off for the last year. That means finally coming up with a reasonable price for those "illiquid assets"...or letting the market do the job (which we would prefer). This won't make you popular with homeowners or your investment bank campaign sponsors. But if your duty truly is to the American people then this is the only course of action...political reputation be damned...
Second: Clean up Your Message and Acknowledge the "Power of One"
...Fix the Economy first, and THEN we'll Cure Cancer
This point is ancillary to the first, but it's just as crucial in terms of maintaining the kind of market confidence we'll need to get the economy growing sometime in the next few years;
What's your angle? What's the "shot"...what's your line?
Is it fixing the economy? Then talk about fixing the economy. Don't give us an hour of the same promises we've been spoon-fed by years of politicians. Alternative Energy? Gas is less than two bucks a gallon right now...people would much rather hear about how you're going to keep them working. Reforming Healthcare? Aren't we in the middle of the biggest crisis since - and perhaps even greater than - the Great Depression? Improving Education?
Harry Truman campaigned on fixing the Healthcare system in 1949. This is 2009 and no president, no party (democrats or republicans), an no Congress has yet to fix Health Care in 60 years. I think its about time someone does - not just talk about it!
Mr. Obama; you're done campaigning. You've already got the Office, and words won't fix the economy.
Third: One Swift Stroke Can Go A Long Way To Take A Big Bite Out Of The Health Care Monster
If you really want to fix Health Care, there is one thing that can be done very quickly - and that is to eliminate the 7.5% of Adjusted Gross Income “Floor” on Health Care Tax Deductions. Currently, “if” a taxpayer can itemize deductions, they still have to lay out 7.5% of their AGI before the first dime of Health Care expense can be deducted. Why not do away with this “floor” and allow all Health Care expense to be deducted as a income credit like a exemption? This would be a very simple fix and go a long way to give relief to those families paying $10,000.00 in hospitalization costs alone, with annual increases guaranteed like the our TV cable bill’s that go up twice a year, and the service gets worse.
Of course, this is a very easy concept to understand - it doesn’t require a huge bureaucracy to administer (and the huge costs that come with it) and unfortunately, it doesn’t make the lobbyists happy. But it would go a long way to help those American’s who need relief from medical and prescription costs, and its fast. After all, it was the people who elected you to take care of the people’s business. I can think of no heavier a burden than the horrible costs of Health Care today.
Moreover, last night's speech seemed to reflect the compromised and...shall I say "porky" nature of the recovery bills so far passed by a Democratic Congress. US$700 Billion to fix the banks? Yeah, let's throw another US$180 Billion in useless favors on there (like wooden arrow shafts and mining gear) so we can get the votes. Biggest spending bill in American History? Let's throw in a Maglev from Disneyland to keep Harry Reid happy.
But your speech last night - and the aforementioned recovery bills - seem to be rife with "You scratch my back..." politicking. This kind of "governing" (I use the term loosely here) won't convince the people or the markets that the water's safe to start swimming again. It will make them feel like their health and welfare hang on whether or not we've done enough "favors" for the politicians, bureaucrats and sponsors standing between them and the government actions necessary for a swift recovery.
As such, and combined with your flawed perspective on banks and lending, I do not believe that your actions since taking office are likely to enhance America's prospects for a smooth and swift recovery. And, I voted for you - believing you would be the first President in ages to keep your promises - and I was tired of the backbiting between the parties and nothing getting done except spending money like it was M&M’s. My mistake.
But it won’t happen again. As the saying goes, “fool me once...”
Sincerely yours,
TA
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