Thursday, September 25, 2008

Pres. Bush on Economic Crisis

The current economic issues in America are so complicated and intertwined, that I won’t even pretend to have an analysis. But, as I’m sure most readers did, I listened to Bush speak last night. After all it is Bush and his administration that has to deal with this issue now, as McCain and Obama are merely senators in the short term.

Two quotes jumped out at me, and hopefully someone can post a comment to help me understand the rational behind them.

“Eventually, the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell, and this created a problem.”

Nice that he attempted to throw a bit to the economists, but the last part is where I have an issue. Why is this a problem? The market will go back to equilibrium. Yes, people will suffer, but that is because they either overpaid for a house or signed a mortgage that was above their means. Why should taxpayers have to pay? The government getting involved will merely add to more distortions.

“The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal.
And when that happens, money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back.”

Now this made me wonder, why would the American Government be the only place with the patience and resources to buy this? I know the Chinese Sovereign Wealth Fund has some cash, as well as some other Oil producing nations. Certainly other countries have a more balanced budget, supplying them with resources.

This does not even consider the private sector, which is willing to purchase assets that will “return to normal”. The fact is that the private market does not see these as investment worthy, so please do not try to convince us that the Treasury is doing this to break even.
Secondly, if we are buying at “current low prices” and the market for them will “return to normal” why not just say that the Treasury will make a profit, instead of just being “paid back”? Does Bush consider that to much of a stretch to pull off?

This plan that Bush is supporting comes from Paulson who declared in April 2007 that
"All the signs I look at" show "the housing market is at or near the bottom," Paulson said. The U.S. economy is "very healthy" and "robust,"

Not sure I would take his word to predict that these securities will be worth holding for a long period of time. If he truly believe this I'm all for him using his savings to make a fortune, but please don't use the Taxpayers.

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