I Object! Why I Just Cannot Get Behind the Treasury Dept. Bank Bailout Plan

In this photo: Citizens square off against police during a protest of capitalism in Denver. Is more of this coming? (Photo by MOMocrat Lawyermama.)

Wall Street may have ecstatically reacted to the Treasury plan announcement yesterday, but, as a resident of Main Street, I did not. And it appears that even Wall Street has realized that it perhaps got a little too euphoric yesterday with that brief average of 6.9% rise (Dow and NASDAQ gained 6.8% and S&P 500 gained 7.1%) and has reapplied its bear mask. While that may appear to be a minuscule rise, consider that it is the largest rise since the economy so-called crashed.

I say so-called crashed because if I am very honest, I will say I saw this coming a decade ago, and I think Wall Street might actually be learning its lesson about adrenaline rush cause+effect actions.

Am I an economic expert? Financial whiz? Wizard with magic ball?

In my own life, yes I am, and my personal financial and economic standing caused me to start asking some serious questions starting around 2000. What happened then to give rise to the questions that lead me to believe we were on the verge of a serious problem?

My husband and I both work in economically vulnerable professions. He's an architect (with an additional economics degree) and I'm a writer/editor. Both professions require degrees, and his profession requires licensure and continuing education. Both are vulnerable to economic downturns, and are often the first to tumble and the last to recover.

Both pay decently, but neither pays a high salary---certainly architects are not paid commensurate with the professional expectations of advanced degree and license. In 2009, architects earn between $39,000 and $80,000. Compare that to attorneys---a career field with similar expectations---who earn between $56,000 and $113,000 annually. Writers and editors earn an average of $45,000 annually.

Regardless, the combination of our two salaries ought to be enough to live comfortably in the middle class---which generally includes families with an income of more than $20,000 but less than $200,000 annual income, or more specifically between $38,000 and $97,000 annual income.

We knew what we thought was the middle class lifestyle: buy a modest but comfortable home, own a car, easily pay your living bills (utilities, groceries, gas, etc.), invest for retirement, and have a bit left over for fun (annual vacation, relatively inexpensive clothes, entertainment, etc.).

In 2000, we noticed this lifestyle slipping from our grasp, and we wondered why. In 2001, after househunting for three years, without finding anything in our region (Massachusetts) that we could afford using the "no more than 30% of your income" rule, we started wondering if maybe it wasn't us, but was instead the cost of living.

As it happened, we had hit on the substantive problem occurring not just in our family, but across the US on larger and larger scale.

Our solution was to take a job opportunity for my husband that moved us to Texas, which had cheaper housing and (at the time) lower cost of living. However, a few years after that "increase income, decrease expense" lifestyle change, we found ourselves back in the same boat of struggling to earn enough to cover cost of living.

What had happened?

Without making a single increase or upgrade to our lifestyle we---like many others---suddenly found it difficult to meet financial obligations while simply endeavoring to maintain our current standard of living. I turned to my trusty budget software for the reason, and by comparing 2007 to 2008, I discovered startling numbers: our basic bill for groceries had doubled in under a year, without any significant changes to my shopping habits or lists. I observed a similar trend for gas, utilities, and insurance. All included major increases, without any changes on our end.

We realized that we were living in a personal recession. When the media began calling it that, we said, "It's about time."

The big problem is not solely subprime and bad lending practices.

The real problem, the real big problem, is that cost of living increases forced that to happen.

That's the real solution that needs to happen: addressing that problem. I promise you all stimulus individuals receive will go to bills or savings until that disparate degree between cost of living and income improves, allowing "want" spending instead of just "need" spending. Just like banks, we have to have a balance sheet that is...balanced. And no matter how much lending banks do, it will go to "need" not "want" until people know and believe that they have disposable income.

That time is not now and I see no fixes on the horizon that address the real problem. Cost of living is still outpacing income.

Insurance rate increases in the state of Texas are out of control; for example, Texans pay the highest homeowners rates in the nation. We also pay the highest utility rates, despite the allegation that deregulation is supposed to make our rates so much cheaper. Health care, groceries, and so forth are also way up in cost.

If the US government controls costs that can be controlled, such as gas, oil, utilities, and insurance, individuals can better afford the necessities, and hopefully expenses to companies that produce will decrease, also driving down the product prices. (I know, smells like trickle down, but I assert that it is more holistic, in fact, because it requires addressing the issue from many angles, and both ends.)

When people bought homes during the bubble, and made financial commitments, they were able to meet their obligations. I assert that the rise in foreclosures is not as simple as "people being greedy and living beyond their means" plus "evil banks and bank holding companies making bad loans." I assert that it is a complicated situation that includes many factors, largely the slow down in salary increases (plus the sudden dramatic increase in unemployment) coupled with dramatic across the board cost of living increase.

3% standard living wage raise has not kept up with costs, and I mean much more than just real estate.

That's why when I look at the PPIP I get concerned about these things:

• It's a top level fix, with an expectation that this will trickle down. I smell trickle down economics, which I do not believe is the best economic model to implement. That's because I've never seen it work out long-term or quite right. 
• It includes no information about projected and accepted loss levels. Nor does it address relief to those who fall into the accepted loss categories (and I mean individuals, not failed companies such as AIG.)
• I'm unclear how FDIC oversight will ensure protection of fair deals when toxic assets are bought and renegotiated.
• My concern about debt and tax penalties is well-founded. MOMocrat economics expert Kady confirmed that "cancellation of debt" (COD) taxes are likely under this plan, and can be as much as 35% of the forgiven debt amount. Corporations are protected with a COD deferment, but this hasn't been done for individuals.
• It doesn't address the real cause behind the real problems that are behind this mess. By this I mean the fact that personal debt is 100% of GDP right now (last seen? 1929). Why so much personal debt? Once again, I have to bring up the inadequate ratio of salary to cost of living.
• It's too Wall Street-centric, which explains why the market jumped for joy briefly, without adequate provision for Main Street, other than the hope that the relief will trickle down and the real estate market bubble burst down to unrealistic lows and will recover up higher.

That's also why I also find the Republican objection to this plan political, partisan, and worst of all, disingenuous. What's to object? This is their SOP economic model! Make life comfy for big corporations, preferably of the money variety, ignore the little guy, and expect the trickle down to fix everything!

Nevertheless, I'm on board with their objection to this treasury plan, at least in principle, or rather, in general.

Lest I sound like I am ringing in with the GOP here, allow me to say I am always fiscally conservative and socially liberal. I do expect to see taxpayer money spent, but I prefer it spent to help the citizen directly, especially through social programs that uplift and assist. That's why I 100% align with the Democrats.

Except on this latest in the emergency economic stabilization plans.

I'm not saying we don't need to fix the top---with plans that stabilize our economic mainstays---but we can't ignore the bottom.

I realize this means I fall into the same camp as Nobel Prize-winning economist Paul Krugman, which seems a fairly safe bet, right? Even if we are arguing against the treasury plan for slightly different reasons...

But economist Brad DeLong says we are wrong, and explains his reasons why here.

What do you think?

Comments

[jaelithe]

I think that the first TARP money should have been better regulated, and that the terms should have included REQUIREMENTS that banks receiving federal funds release student loans, allow struggling homeowners to refinance their mortgages at reasonable rates, and cut executive salaries and perks to save funds. I frankly don't know what to do now that that horse is out of the barn. At least this plan addresses housing in a tangential sort of way, but will re-inflating home prices by creating a bad assets market solve the underlying problems in the U.S. housing sector? I don't think so.

You are right-- families are the key, not huge corporations. Working families (and individuals) are the backbone of this economy and their work and their spending together are the blood flowing through it. I, too, have noticed drastic increases in food and utility prices over the past several years that have made it much more difficult for my family to get by on a middle class income, despite the fact that we live frugally, shop wisely, use a budget and track all of our spending. I hate to think what sort of a position we would be in if we had experienced a job loss or a medical disaster in the past year.

You are right about the Republican hypocrisy on this issue, too. I cannot wrap my mind around the fact that certain people, like Rick Santelli's Tea Party crowd, have been acting angrier at their neighbors than they are at the giant corporations who have been raising prices and fees and giving out bad loans. And yet now when the government suggests once again focusing bailout funds on those corporations rather than on the families who have been hit hardest by this crisis, just as the GOP asked for, they say they are upset. I say to the GOP: well, if you don't like ANY plan on the table, propose a different solution. But they aren't proposing any solutions.

[cynematic]

Great points both in your post, Jules, and Jae's comment.

I think what we see here is how "fiscally conservative" parts ways with "fiscally prudent." Because I totally agree that for the GOP to disown its "trickle down" baby is the height of hypocrisy, partisanship on top of partisanship. It's time for Dems to make friends with and own "fiscally prudent."

And I continue to be dumbfounded that Democratic politicians have neither the foresight nor the wherewithal to ATTACH STRINGS TO TAXPAYER MONEY they give out. I'm not asking for instant success, or a miracle economic turnaround. I'm just asking that Congress act like it's dealing with a conniving, underhanded, sneaky entity when it deals with Wall Street. What's with the deference, the bowing and scraping? I mean, come on! Issue some effing consequences!

Gaaahhhh! All of which leaves me feeling decidedly pitchforky.

[Ron]

Great Speech last night. Had he dodged many more questions I thought he was going to start break dancing. He seemed a bit testy a couple of times being asked tough questions? Who can blame him not having a script to follow and those mean reporters FINALLY asking some of the correct questions.

And does he not get he IS the President and can stop campaigning? For Gods sake I have heard those speechs so many times I could give them for him. Hey Barrack, so ARE YOU going to sign that budget if it doesn't have Mid-class tax cuts? hahaha. MAN did he dodge that question.

Sad you folks just don't see him for the fraud he is. But maybe I don't get it, maybe you like big government and want the USA to be the next Russia.

[Melissa]

Oh Julie, I feel your pain re: utility prices. I live in Baltimore which has fairly high property tax and homeowner's insurance (to be fair, quite a number of B&Es too).

Maryland deregulated in the late 90s and in 2007 BGE became the last utility to charge "market" rates. The result? A 72% (yes, seventy-two) increase in electricity rates virtually overnight -- this translates to about $743 more per year per household.

BGE pays virtually no attention to energy efficiency policies adopted in other states (time variable pricing, etc.). You can get a smart meter with some small ($200 or less) rebates if you have AC but many families, mine included, do not.

And shopping around for electricity? Hahahaha. I manage to untwist the federal budget but the PSC was too much for me.

[Verite Parlant]

It feels like magic thinking/magic money to me. Great post. What's your opinion on DeSantis's resignation letter?
http://www.womanist-musings.com/2009/03/ebony-experiment-is-it-racist.html

[Verite Parlant]

Hah! I sent you a link that I was sending to myself by mistake. Maybe a higher power wanted you to have the Womanist Musings Ebony Experiment link.

Here's the DeSantis link, http://bigsole.blogspot.com/2009/03/dear-mr-desantis-your-resignation-from.html

And again, enjoyed your post. I don't think my brain can take much more of the economic crisis.

[Kate]

Oh Momocrats, I feel your pain too. I consider myself fiscally conservative (aka responsible) and socially liberal. Purple, yes I'm purple! :)
What's frustrating about giving (is it giving if you're REQUIRED to do it??) monies to the government to uplift and help those in need, is that traditionally for every $100 given to government, $5 gets trickled-down to the person needing assistance. It's inefficient, and in this case, who in the WORLD understands the oversight / process.

I love that you're addressing it. It's complicated. It's imperfect. Our generation and our children's generation are footing the bill. Hopefully our President and his crew will get it right.

[Ron]

So, Mr Obama campaigned hard on mid-class income cuts, but the budget he is about to sign will not include it. Which really is a BIG issue that got him many votes. I know he'll never be talked down in here, but I really wonder how many of his voters are starting to see the light. My suspicion, not many.