Know Your History, Stimulus Bill Closer to Fruition, MBAs in Trouble, TARP 2.0, Art Still Hot and More!

by Addison Wiggin & Ian Mathias

  • Ghost of stimulus past warns… government spending “does not work”
  • Obama champions bill, nevertheless… Lew Rockwell provides voice of opposition
  • Geithner unveils TALF, TARP 2.0, whatever you want to call it… another $1 trillion-plus on the line
  • Time to go back to school, right? Maybe not…. MBA recruiting at record low
  • Not all market sectors in the drink… one high-end market still showing signs of life

  “We have tried spending money,” begins our mystery politician today. “We are spending more than we have ever spent before and it does not work. I say after eight years of this administration, we have just as much unemployment as when we started…

“And an enormous debt to boot!"

The mystery man? Henry Morgenthau Jr., Treasury secretary to then-President Franklin Delano Roosevelt.

Morgenthau uttered these words in May 1939 before the House Ways and Means Committee. Despite being a chief architect of the New Deal, Morgenthau came to the House to repent… six years after the New Deal’s inception, the unemployment rate had climbed back to 20%. The New Deal failed.

Check this out, from the Heritage Foundation:

  The passing of Barack Obama’s New New Deal seems all but inevitable now. “I can tell you with complete confidence,” he hammered on the tube last night, “that a failure to act will only deepen this crisis.” How deep? “Catastrophe,” he insisted again.

It’s truly amazing. The greatest economic debate of our lifetimes has been solved with “complete confidence” by a former community organizer and civil rights attorney… a student of economics for about a year or two. He is very gifted, this man.

  “It just goes to show you,” writes Lew Rockwell in today’s Mises Institute feature article, “that the presidency is something like a drug. It makes people lose all connection to reality. Part of the reality that Obama needs to recognize is that the New Deal was a calamity far worse than the initial market downturn that began it. He needs to stop basing his policies on dumbed-down civics texts versions of events and consider the economic logic.

“With his rhetoric and policies, he has decided to demonize private enterprise, just as FDR did, as a way to present government as the great savior…

“You cannot make a country rich by looting taxpayers and paying people to pound nails into siding at public schools. These activities amount to capital consumption. They are not sources of investment. You can say that they are stupid tasks or wonderful tasks, but it is not a matter of ideology as to whether such public projects will make us all wealthier. They will not. They drain the sources of wealth from society. They represent a cost, not a blessing.

“That was also true of Bush’s dumb stimulus program. He was only bailing out his friends at our expense. The effect was to give a little longer life to institutions that were failing anyway. It’s pathetic that the Republicans ever went along with it. You will notice that the scheme didn’t actually work.

“Well, Obama is doing the same thing, though rewarding a different set of friends. This is not wealth production. This is wealth consumption. Do enough of this nonsense and you can destroy the livelihoods of an entire generation.”

  Regardless, the Senate successfully voted to close debate on the stimulus bill yesterday, one of the last hurdles needed to bring this bill to fruition. In a tear-jerking display of bipartisan support, the vote passed 61-36. Three Republicans voted yes.

“Senators from both parties,” beamed Harry Reid, “met the seriousness of the economic crisis with an earnest approach to solving this emergency.”

Now, if they’d only crack a history book together, we might get somewhere.

  The stimulus bill also magically gained $53 billion since you read The 5 yesterday. The tab now stands at $838 billion.

“Bad bets don’t get better,” Bill Bonner reminds us, “when you lend the bettor more money. They just become more expensive.”

  God forbid the government throws money at this crisis from only one department… Treasury Secretary Tim Geithner unveiled the second half of the TARP today, creatively dubbed TARP 2.0.

The New New plan has three main parts… here they are, quick and dirty:

1) The Treasury, in partnership with the FDIC and the Federal Reserve, will encourage the private sector to buy up the fabled “toxic assets.” The Treasury will make introductions and leave the price discovery to the private sector. The Fed will blow up its balance sheet and provide ultra cheap loans for these asset purchases. And the FDIC will provide some kind of backstop for investors who buy the stuff… making the FDIC a sort of secondhand “bad bank.”

The first phase program has an “initial” price tag of $250-500 billion.

2) The Fed’s existing $200 billion program to buy distressed commercial, student, auto and credit card loans will be expanded to $1 trillion.

3) The second half of the original TARP plan — $350 billion — will still be wasted on major banks.

Sounds like most of the new money will be coming from the Fed; thus, the Obama administration can side step this whole tricky process of congressional vetting and approval. And they get to use the swanky new title, too, proving how hip and down they really are. 

  It’s so far off the rails we don’t have much to say about this “TARP 2.0,” but this reader found a nugget: “I think this survey is telling,” he writes, bringing our attention to a survey conducted by American Banker. “I guess Congress must ‘do something’ anyway.” Telling, indeed…

“What are your expectations for TARP 2.0?

It’ll take the bailout in a bold new direction: 14%
It’ll be vague and light on specifics: 21%
It’ll be a retread of Bush administration ideas: 14%
What does it matter? The government can’t fix this: 51%”

  Remember Fannie Mae and Freddie Mac? We don’t hear much from the giant mortgage enablers anymore, since they’ve taken to lumping all their losses onto Uncle Sam’s ledger. The government promised back in September to provide a $100 billion backstop for the two… surprise, surprise, today they say they need more.

Fannie Mae and Freddie Mac may need an additional $200 billion to stay afloat, Federal Housing Finance Agency Director James Lockhart said yesterday.

"When we sized the amount in September, we, obviously, looked at stress tests and what was happening in the marketplace," Lockhart said. "There’s been some significant events since then that weren’t in our forecast."

Gasp! You don’t say?

  Sign of the times… MBA recruitment activity is likely at a record low: 56% of U.S. business schools are reporting a “significant decrease” in recruiting this winter, says a survey from the MBA Career Services Council. At least 70% of respondents say recruitment is down 10% or more.
"People have been lulled into thinking you deserve to get a job in September or October and spend the rest of the year playing racquetball," a future master of the universe told The New York Times. But nowadays, "the economy chooses where you go for you.”

  While the market for high-end bankers is circling the bowl, the world of high-end art is still doing pirouettes.

Degas’ “Petite Danseuse de Quatorze Ans” fetched over $19 million at Sotheby’s recently — a record for any Degas statue.

The art world sighed collectively after the sale. At least billionaires are still willing to shell out ridiculous sums for stylized lumps of bronze. Still, the latest Sotheby’s auction was a bust. Despite the record-setting Degas, 10 of the 29 lots at the auction sold below their estimates. Four did not sell at all. Wahh.

  In the markets, stock indexes held their breath yesterday in anticipation of today’s announcement from Secretary Geithner. Most major indexes finished flat. Geithner didn’t actually announce his plan until 11 a.m. today, but his prepared statement was leaked early this morning and the Dow sank about 100 points after digesting it. Buy the rumor, sell the news, the saying goes… we don’t see how he could please the market today.

  Gold, on the other hand, took off this morning when details of Geithner’s plan began to emerge. It popped about $20 right at the New York open, and goes for $910 an ounce as we write.

  The dollar and oil together have been treading water this week — the dollar index at around 85 and oil in $39-41 a barrel range.

  “The reason why this current U.S. administration,” writes a reader, “is going all out with the fear mongering is simple: they are supplying the political cover needed for the U.S. fed and all of its member banks to inflate, inflate and inflate some more.
“If the U.S. Fed/Treasury/presidential nexus wishes to tighten the monetary spigots, you hear every poli on the Hill talking about how strong the economy is, and when this nexus wishes to loosen those same spigots, you hear the same folks use words that you have quoted above.
“Federal Reserve figures are already pointing to inflation.”

The 5: Hey, you don’t think Ben Bernanke can pull in the reigns when it’s time, as he promised Congress? C’mon, where is your faith in your appointed officials?

  “Vince Cable,” writes another, “the U.K. Liberal Democrat Shadow Chancellor of the Exchequer, raised eyebrows yesterday. When talking about bankers’ bonuses, he said bankers ‘are lucky the British have no guillotines in stock.’

“Coincidence, or is The 5 the reason Mr. Cable is widely credited for being one of the few U.K. politicians who understands what’s going down with the debt crunch? Way to go!”

The 5: Heh.

  “Any way to get a list,” asks another, “of all those Dems that went on this ‘retreat’ on the taxpayers’ dime?

“Nothing ever changes. These morons don’t care what’s happening in this country as long as they can do whatever they want and it doesn’t come out of their pockets.
“If a list were published, everyone who is incensed by this should send an e-mail, a letter, whatever, to these clowns and tell them how we feel. Maybe if they got a few million responses, they’d know what we think about them spending all these tax dollars. If they want to go on ‘retreats,’ let it come out of their own pockets. Unbelievable!”

The 5: Ummm… as far as we know, all House Democrats attended. Why not just inundate Nancy Pelosi’s inbox? Try it: . (Geez, if that’s not an arrogant e-mail address.)


Addison Wiggin
The 5 Min. Forecast

P.S. If your retirement fund took a big hit in 2008, we’ve got a great solution for you today. It’s like a retirement “plan B,” where you can tap into a steady stream of income from sources outside your portfolio. Get all the details in our latest special report, here.


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