Sick of Hyperbolic Rubish

I have to say that I'm growing weary and tired of the maturity level of the conversations related to the economy, business and politics. Because as of late it seems like people just take in a piece of information, add some hyperbole, spin it to fit their own political belief system, and then run round screaming it from the rooftops as if it's the gospel.

It's not so much the Chicken Little syndrome as it is the "running round like a recently beheaded" chicken syndrome.

For instance:

Obama and the Markets

While it's no secret that I'm no fan of some of the administration's recent moves around economic policy, it doesn't change the fact that anyone blaming the market's recent travails on policies that haven't even been fully enacted yet is a fool. A fool because the markets were falling for over a year before the man took office, and are continuing to fall because of some very real problems within the economy, the financial sector and various other companies. The only way you can blame a budget proposal for the markets falling is if you mistaken believed the markets and the economy were fine until Obama took office, and that his policies caused all of the companies economic and financial issues to appear out of thin air after the inauguration.

On the flip side perhaps some people believed that Obama would magically make all of their problems go away once he too office, these people are fools too.

Either way it's an immature approach, and anyone spouting such nonsense should be summarily dismissed as either a partisan shill or the village idiot, or both.

If you want to blame the state of the economy on Obama you need to wait at least a year if not 2-3, because that's how long it's going to take for anything he does to have an affect on anything. For now Obama (just like the rest of us) is just dealing with the economic situation that was handed to him by the previous administration.

Borrowers and Responsibility

I'm not sure when this happened, but it's becoming readily apparent that there are millions of people in this country who think that homeowners/consumers/people who aren't rich don't have to take responsibility for their own actions. Because if anyone speaks out against the foreclosure rescue plan, brings up irresponsible borrowers, etc., the argument is that they're heartless, didn't care when AIG and the rest got funds from the government, only care about the rich, the banks, etc., etc.

The problem with this line of thinking is that it ignores the fact that many of these borrowers were irresponsible and should have to face the consequences of their actions. Furthermore, it conveniently ignores the many very logical arguments around why the plans won't work, will only delay the inevitable and may even make things worse. In my view the focal points of the conversation should be: will foreclosure rescue work, will it bring bad consequences, should we help the irresponsible, and is this even the best thing for the borrower?

As opposed to merely making it a question of either being for homeowners or against them, or "why can't the homeowners get money if AIG did?" , as that approach is way too simplistic and ignores the many very real issues that need to be discussed.

You can't have it both ways: you can't say that only the lender was irresponsible and then paint the borrower as an innocent victim who needs our assistance.

The other issue is that funds being received by corporate bailout recipients have to be paid back, have resulted in the government taking significant ownership stakes, and in many cases required regular interest payments to be made soon after the funds were received. At the end of the day the last thing companies want is the government meddling in their affairs, so they're going to want to pay back that money as soon as possible. Whereas mortgage rescue is handing homeowners thousands of dollars in potential benefits on top of subsidizing homes they can't afford, with no provisions for the taxpayer receiving any of that money back even after the person sells the house.

The media really needs to learn to differentiate between a loan and a handout.

Wall St. vs. Detroit

This fatuous argument was trotted out time and time again when Detroit was asking for money after Wall St. had already begun to receive TARP funds. The idea was that the White Collar bankers were favored by Congress, while the blue collar workers of the Midwest were being looked down upon and ignored.

Here is the problem with that argument: the debate really should've been about the viability of Detroit and whether or not the requested loans were going to be enough to save the company. Because at the end of the day Wall St. mismanaged a model that works once you take out the stupidity and bad risk management, whilst Detroit was asking the taxpayer to subsidize a completely broken model that needs to be revamped from the ground up.

There is a significant difference between the two.

It wasn't an issue of classism it was an issue of whether or not certain companies had a realistic chance of survival if provided with government assistance.

At the end of the day if our nation is going to move forward from the current crisis we need objective, rational and calm discussions of the issues at hand. We have to face the realities we may not like, accept problems as they are and deploy the appropriate solutions. As long as we're mired in conversations that revolve around hyperbolic rubbish, we're going to have a hard time moving forward.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[Justafish:]

A question about Wall Street business model. Does the "securitization" model work?

Mar 08 02:17 PM

[2222:]

You sir are a boob if for one minute you believe that the banking industry is anything but a broken model than you shouldn't be writing publically. The banks and the likes of Madof and other corporate bafoons (AIG) got us into this mess with horrible loan practices. Congress didn't bother to ask them for a viabiloity plan they just sent them money and lots of it no questions asked. Meanwhile Detroit has to cowtow to and answer a bunch of questions simpletons who mostly have never run a company, have outdated data and already purchased and drive foriegn cars. If you ask me you are the one adding hyperbole to the same old garbage. We better figure out how to make stuff in this country again and soon before we are a third world country....
I say when the times are tough we better band together and support the home team vefore its too late.

Mar 08 02:29 PM

[random walking:]

It may be time to back off the rhetoric, but it is too early to stop the hard questioning. Moving toxic debt from one set of hands to another without a transparent, open market place is pandering to insider self interest, is an endorsement of central planning and undermines the marketplace. Why hasn't a single CDO been segmented into its various components and been marketed in a transparent public exchange (internet based)? Loan servicers obviously are willing to work with an assortment of owners. If mortgage notes have been lost, and the chances of some form of recovery are nil, it is time to mark to zero now.
Central planners need only the resolve and some consensus from a large segment of their paid constituency and foreign lenders who are needed to fund our "revenue shortfall" in order to decree the unsecurization of CDOs in the hands of insolvent parties. Right now the parties key to a consensus can't even agree on calling a zombie a zombie. This process of resolving so-called illiquid assets is dragging out because we have not learned how to ask the right questions yet, and because the battle of the titans on how to grab their welfare check continues unresolved in the background. It is not rhetoric to acknowledge that welfare has been transferred from the public housing single mom to those who pay for elections of our elected officials. It is also telling to see who has been on the receiving end of money given to AIG and funneled through the financial system. Sick of rubbish, yes. But are we ready for the truth? No.

Mar 08 03:05 PM

[H. E. Canada:]

Mr. Lee, IF the market looks ahead 6 months or more, then the judgement it is rendering is not favorable for the proposals and actions President Obama has offered so far. Please remember, "the market" is made up of people - not just vague "institutions" - making their call on the future of the econmy and business. Thus, I do not agree with your analysis of a year, or 2 or 3, before anything he does has "an affect on anything." No affect is an effect, and the market's response to Obama's stimulus and budget is not a happy result for many people at this time.

Mar 08 05:25 PM

[Mister Jimmy:]

The article states that "Wall St. mismanaged a model that works once you take out the stupidity and bad risk management, whilst Detroit was asking the taxpayer to subsidize a completely broken model that needs to be revamped from the ground up". An utterly baseless statement, typical of Seeking Alpha authors, and evidence of the class bias evident in all of this.

Mar 08 06:37 PM

[Cobra 1:]

Utterly baseless??? Have you lost your mind? Th B3 model is broken and nothing that "DA PRES" does is going to fix that. You can give GM 100 Billion, even if the economy gets back to 10 million cars a year, they still loss $ by the billions! What part of this are you not getting, broken, HELL yes!

Detroit has to get back to the basics, and that does not imply anti-union, it means they have to become competitive with other companies in their industry!. They cant do that as they are operated and with the way they are set up currently! This isn't rocket science, they have to be torn down and rebuilt from the ground up.

Unless we the people are willing to spend billions more to let them continue down this broken path and fund non-viable business models, they need to be left to fail.

I am all for seeing anyone of the B3 makeing it on their own if they can show viability, the only one who has proven to be able to do this is Ford and their asking for nothing, just like the rest of viable MFG's in and out of the auto sector. Its a free market, we have to let people and companies fail, deal with the pain once, get through the pain, move on to rebuild a better business and flourish!


On Mar 08 06:37 PM Mister Jimmy wrote:

> The article states that "Wall St. mismanaged a model that works once
> you take out the stupidity and bad risk management, whilst Detroit
> was asking the taxpayer to subsidize a completely broken model that
> needs to be revamped from the ground up". An utterly baseless statement,
> typical of Seeking Alpha authors, and evidence of the class bias
> evident in all of this.

Mar 08 08:29 PM

[old guy:]

CHANGE was the magic word now it is 95% TAX CUTS FOR MIDDLE CLASS AMERICANS...(how often have you heard that from BO?) what happends when the tax incentives for exploration by oil and gas gets cut...stop exploration? and get more imports? or increase prices so middle class? this means middle class pays this "hidden tax" no it will not be called a tax..... it will be the greedy energy companies raising prices...BO supporters as a CEO what would you do raise prices or stop exploring? OK lets hear from BO on this one! WOW WHAT A SNOW JOB and he will say we really hit the greed energy companies...Wake up BO supporters!

Mar 08 11:57 PM

[Stephen Met...:]

I suppose everyone will agree that the monetary side of the economy needs fixing, even BO. The auto industry aside, BO seems intent, however, on destroying the real side of the economy. That, as much as or more than the banking crisis, is pushing the market into the doldrums. I am surprised that Mr. Lee does not understand the process of discounting future expected returns.

Mar 09 09:02 AM

[Fred Voetsch:]

When it comes to politics or religion you should stick to your guns but when it comes to investing you should rely on hard data and makes sure all your facts are straight and understand that every expert will be wrong on a regular basis. If you can rise above all the emotion it is very easy to profit in this economy.

Mar 09 12:21 PM

[henarl:]

So you believe that AIG "has a realistic chance of survival if provided with government assistance"?

Mar 09 01:02 PM

[AHAvoice:]

Agree on the point that Detroit is trying to save a broken business model. As for the Wall Street, the diving engine has always been GREED. More so since 1980s and got worse in the 90s when product of CDS gained popularity. The Wall Street seems having followed the formula "bigger risk = bigger profit = bigger bonus"... and guess what, the formula is now ended with "bigger lose for small and honest working tax payers". Where were the government regulatory agencies? You failed us as you were supposed to protect taxpayers' interests. Did that ignorance also come from greed?

I have no unrealistic expectation to the new government and I understand it takes time for fiscal and monetary measures to work. On the flip side I believe everyone, rich or poor, should take responsibility to his/her own decisions including that of finance, and be ready to face the consequences. You made bad decision? Okay, stand tall and start over. While I have my sympathy to the ignorant home owners who are trapped in subprime loans and I am open to the rescue plan (not for those who have trouble to pay their investment properties though), but I also feel that other people including me are punished for being responsible. It is time such a culture die hard.

Mar 09 01:39 PM

[31October:]

I like this piece but disagree with:
"The media really needs to learn to differentiate between a loan and a handout."

IT IS A HANDOUT:
The banks end up with net gain by selling the crap they packaged to the government, while keeping the good. Then newly-solvent banks pay back the government "loans" with government cash. Meanwhile, the government owns billions in worthless MBSs and CDSs. Congress announces that they prevented catastrophe, made a profit on interest, and get re-elected.

In the case of bankruptcy, the bank sells the crap to the government, then defaults on the TARP "loan."

Mar 11 11:57 AM