Does He Really Believe What He Says?

Obama’s speech to Congress Tuesday night might be the most economically illiterate speech ever delivered by a president. I was astonished by the smug certainty with which it was delivered. Did he really believe all that he was saying?

Or, perhaps he knows he is just playing a part? At the age of 76, on his deathbed, Caesar Augustus, the first emperor of the Roman Empire, asked those gathered around his bedside, “Did you like the performance?” Augustus was referring to his career.

After Obama’s speech I told my wife that I would have to write many blog posts to cover all that I found objectionable. But let’s just focus on one thing today, namely the blatant lie he spun about his housing plan:

It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values.

Of course, he cannot deliver on his plan because his goal is impossible. Ben Bernanke told the truth Wednesday before the House Financial Services Committee:

Some borrowers presumably knew what they were getting into, but from a public policy point of view, the large amount of foreclosures are detrimental not just to the borrower and lender but to the broader system. In many of these situations, we have to trade off the moral hazard issue against the greater good.

Similarly, the head of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair said earlier this month, “I think it’s just simply impractical to try to do a forensic analysis of each and every one of these delinquent loans.”

In other words, the taxpayer will be forced—for the “greater good”—to subsidize a neighbor who bought a $700,000 house when the neighbor could only afford a $200,000 house.

Am I exaggerating? Consider the case, reported by the New York Post, of Mohammed Khoda who bought a home in Queens, New York City, for $700,000. Khoda is apparently a hard working immigrant who runs a small business; from the business he takes home a yearly income of $45,000. He rents out an apartment in his house bringing his income to $78,000 a year.

Even in good times, Khoda couldn’t afford his mortgage; but now with sales down sharply at his store, his tenant not paying his rent, and his house needing repairs, Khoda is underwater. He hasn’t paid his mortgage in a year, and he is hoping to be bailed out by Obama’s plan.

We are told we need to bailout the Khodas of the world, as well as the banks that lent them the money, for our own good. What rubbish!  The National Association of Home Builders/Wells Fargo Housing Opportunity Index says that New York City has the least affordable housing in the United States. In contrast, a well- kept home—a 3-bedroom, 2-bath, brick, ranch home on a 1/3 acre—in a good neighborhood in Indianapolis sells for about $100,000. Without a bailout, the Khodas of the world will move and inject new and vital energy into cities like Indianapolis. The bankers that lent them the money, rather than getting taxpayer supported bonuses, will be forced to make real contributions to society.  With that, suffering taxpayers can keep their money.

If you read the history of Caesar Augustus, you realize that he was indeed playing the part of emperor in the only way Romans could understand. He was brutal, as was much of the world; and Romans gladly sacrificed their freedom for the huge public works projects that Augustus championed.

We are at the close of an era—an era which will be known for our collective ignorance of the basic laws of economics. Obama and the court sycophants who surround him—Barney Frank, Timothy Geithner, Ben Bernanke—are empowered by our own ignorance. How could they play their parts any other way?

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12 Responses to Does He Really Believe What He Says?

  1. Frankvv says:

    Dr. B,
    Here, here! We are working very hard as a nation to prolong this economic downturn with our bailout mentality. GM lost $30 Billion last quarter and that “leadership team” stood in Washington last week again with their hat in hand saying “Please sir, can I have some more”! The response should be: “No sir you may not”! The organization I work for is fiscally responsible and not “eligible for any government loans. Nor are we interested in taking them. But our business is down 35% globally from the same period last year. We projected that business would be down 7 or 8%, not 35%. As a result we have made the necessary adjustments to our company to ensure that it will remain both profitable and liquid. Was this painful? You bet! We closed 1 of 3 plants here in the US and close to a third of our US staff was given pink slips last week: that is over 300 people who lives are being disrupted. Unfortunately we believe that this recession is going to be long and painful, partially because we feel that the current actions are going to prolong the pain, rather than allow the economy to run its natural course.

    I thought Ron Paul’s comments on Bill Maher’s show on Feb 20, 2009 were right on the mark. I encourage you to review the attached video clip: http://www.youtube.com/watch?v=M5lb0l3sYBo

  2. Mark T. Market says:

    Nassim Taleb spoke out in Davos about banks and the moral hazard of bailouts.

    He and Nouriel Roubini were both interviewed at CNBC recently, but soundbite journalists are incapable of handling their views sadly.

  3. Frank,

    Not to mention that your firm pays taxes to support the corporate deadbeats. Thanks for the good link. Education is critical.

    Mark,

    Thanks for the fine links. Your blog looks very interesting, I will return to it.

  4. James D. says:

    I saw a quote earlier today, where Senator Jim DeMint called Obama “the world’s best salesman of socialism”. Mike Huckabee said that “the Union of American Socialist Republics” was being born with the passing of the stimulus pacakage. I find these frighteningly prescient. After my goosebumps faded, a thought occurred to me. The gov’t dropped the ball in its oversight of the financial services industry (at least that’s what the Dems say about the Republicans of the Bush admin). Are we then to believe that the same gov’t who lead us into this mess is capable of leading us out of it? Somehow, I don’t think so.

  5. Dr. B,

    I just wanted to make a note on Khoda. You mention him moving to a different area and injecting his entreprenurial spirit. What I have learned quite well living in Hawaii for 3 years is that immigrants once cemented and successful in an area don’t like to move. He probably loves where he lives and wouldn’t want to move because I’m sure he had enough information via the internet to show he could have bought a $100k home instead of his 2-Home for $700k in NYC. The fact is he wanted to live in NYC and stay put.

    I move to find good deals even if its in population 3000 kentucky where I can buy a business and real estate for $30k to make something of it. That’s me.
    I’m moveable, most people aren’t however.

    Also regarding the markets. The stock market doesn’t like Pres. Obama. When you speak of the truth and actual facts when Fed. Bernanke spoke the market rallied, not because the markets had changed, but because he was actually telling the truth and details.

    The markets will keep falling until “details in a real plan” are giving by Obama. The markets also like all this spending. There are two sides of the sword. In your instance as a commentor noted his company is hurting while another company receives this spending money and may thrive in a year or two. Anything in detail that will make the markets roar traders are for, to make the big bucks. There still can be an equal trading ground where bad companies get booted and good get pushed ahead, but like your story of Ceasar Augustus we are all part of the performance.

  6. Jim,

    DeMint has credibility since he opposed the fall bailout and auto bailout, Huckabee has none. Clearly though Obama is simply building on what Bush began.

    Paul,

    Khoda is simply an example. Without bailouts housing prices will fall, some will migrate, bankers will seek new jobs etc. and the recovery can begin. With bailouts we are looking at many many years of suffering for all.

  7. Mike says:

    “Obama and the court sycophants who surround him—Barney Frank, Timothy Geithner, Ben Bernanke—are empowered by our own ignorance.” I would not say by our ignorance but by our fears. Capitalism is brutal and unforgiving, some socialism of basic needs lessens fears. Obama mentioned in article a few days earlier that as a country we can not have a 21 century economy with 20 century rules. This I would agree with the world is ever changing so does the way we view government and economics.

  8. Mike,

    Thanks for your comments. I would disagree with you. Capitalism is far from brutal. Think of the world for most of recorded history—most people simply worried about eating their next meal. Now, think of how much progress has occurred in the past 100 years and how much the average man has benefited by that progress. Next, ask yourself what are the sources of that progress?

  9. I have to agree with Mr. B on this one. I think capitalism is good, but it the “rules” haven’t changed. It’s still who can out do who the best (plus some well acquired connections). If we really want to change American’s need to turn into a well more educated workforce to get their jobs, industries, and new innovative technologies pushing into a new 21st century. Currently we are becoming more consumers and acting the part. I have seen no real progress. You see rich philanthrophist start mega-charitable donations, but no big changes where people are all clothes and fed.

  10. Frankvv says:

    Dr. B et al,
    I believe the following quote from Dr. Rogers sums things up wonderfully….

    “You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.”
    The late Dr. Adrian Rogers, 1931 – 2005

    Reference:
    Retrieved March 2, 2009 from: http://www.thebaptist.org/

  11. Chuck says:

    The most important thing we can do is identify leaders that believe in the American, Representative, Capitalist form of Government that made us great – and support them to the best of our abuility

  12. Damon says:

    I remember in 2004 considering refinancing with a great deal on paper from ING Direct. The refinancing scheme would start off as a fixed rate lower than current rates (subprime, you know where this is going) and then after 2 years the rate would be variable. But don’t worry interest rates have always been low, said a well-meaning friend. Then, I didn’t know anything about finance or economics. I simply knew that too much of a good thing can be bad. I stuck with my current vanilla fixed rate mortgage and avoided “the great deal”. Why didn’t other Americans do the same? Why should I pay for those who got this “great deal”?

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