Regulation

Bush: Don't Panic! At Least Not This Week, Anyway

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From President George W. Bush's speech today about the economy:

Over the past few days, we have witnessed a startling drop in the stock market—much of it driven by uncertainty and fear…. This uncertainty has led to anxiety among our people. And that is understandable—that anxiety can feed anxiety

Gee, I wonder why Americans are feeling anxious just a couple of weeks after THE PRESIDENT OF THE UNITED STATES TOLD THEM WE'RE HEADING FOR "A LONG AND PAINFUL RECESSION"????

More from Bush:

[T]he decline in the housing market has left many Americans struggling to meet their mortgages and are concerned about losing their homes. My administration has launched two initiatives to help responsible borrowers keep their homes. One is called HOPE NOW, and it brings together homeowners and lenders and mortgage servicers, and others to find ways to prevent foreclosure. The other initiative is aimed at making it easier for responsible homeowners to refinance into affordable mortgages insured by the Federal Housing Administration. So far, these programs have helped more than 2 million Americans stay in their home. And the point is this: If you are struggling to meet your mortgage, there are ways that you can get help.

Why does HOPE NOW leave me feeling so HOPELESS? Why is a chunk of my personal income going to bail out people who chose to refinance–not buy an initial mortgage necessarily, but leverage it into an even bigger ATM machine–at the top of an insane housing market? When do I finally get rewarded (through the market correction of prices), not punished (through taxation to artificially prop up those prices), for choosing to rent rather than buy into a bubble?

With these actions to help to prevent foreclosures, we're addressing a key problem in the housing market: The supply of homes now exceeds demand. And as a result, home values have declined. Once supply and demand balance out, our housing market will be able to recover—and that will help our broader economy begin to grow.

Note this explicit justification for government action. It's now an urgent federal priority to make sure asset prices appreciate forever. Even though housing prices in real terms, even after a two-year plunge, are still up 40 percent since the beginning of 1997.

[W]e're working closely with partners around the world to ensure that our actions are coordinated and effective. Tomorrow, I'll meet with the finance ministers from our partners in the G7 and the heads of the International Monetary Fund and World Bank. Secretary Paulson will also meet with finance ministers from the world's 20 leading economies. Through these efforts, the world is sending an unmistakable signal: We're in this together, and we'll come through this together. […]

And as we act, we will do it in a way that is effective. […]

The plan we are executing is aggressive. It is the right plan. It will take time to have its full impact. It is flexible enough to adapt as the situation changes. And it is big enough to work.

A score of central governments working in concert to coordinate industrial policy on a perhaps-unprecedented scale? What ever could go wrong!

Exasperated sarcasm aside, I have two questions for the assembled:

1) Is this indeed The End of American Capitalism as we know it?

2) Am I the only tightwad in the world who has always thought it a way-too-risky idea to put any more than, say, 10 percent of your savings into equities markets? Seriously, I'm starting to feel like a jerk here, but when did "retirement" come to = "massive over-exposure into stock-index funds"?

David Zucker, back when he was still funny, predicted Bush's calming ways three decades ago: 

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  1. The quote forgot to mention how he stumbled on the word “executing.”

  2. Am I the only tightwad in the world who has always thought it a way-too-risky idea to put any more than, say, 10 percent of your savings into equities markets?

    pfffft Did you live through the first Great Depression? Long term investing requires substantial equities holdings. It’s the only way to keep ahead of inflation. Once you reach retirement and you’re depending on your nest egg to support you in your golden years, then a very conservative strategy of as little as 50% may be appropriate.

    Who was it that was saying the president need to shut the fuck up?

  3. Over the past few days, we have witnessed a startling drop in the stock market — much of it driven by uncertainty and fear…. This uncertainty has led to anxiety among our people. And that is understandable — that anxiety can feed anxiety

    Fear leads to anger. Anger leads to hate. Hate leads to the dark side.

    Maybe they should print up little cards with the Litany Against Fear on them.

  4. Am I the only tightwad in the world who has always thought it a way-too-risky idea to put any more than, say, 10 percent of your savings into equities markets? Seriously, I’m starting to feel like a jerk here, but when did “retirement” come to = “massive over-exposure into stock-index funds”?

    No, you arent the only one, but you seem way too conservative. Of course, it depends upon your age, but high rewards come from high risk. If having your investments lose 50% or their value bothers you, you arent thinking long term enough and probably shouldnt be invested that heavily in equities. Myself, its just a number on a sheet of paper. Ive got over 20 years until Im 59.5, I cant begin to touch my retirement accounts for a long time, it will be back.

    A few years back, I lost about 60k one year in one tech stock. My response, other than beating myself up for not getting out, was “Eh, I still had a really nice return from the time I bought it in the mid 90s. Ignoring the missed upside, it was still a smart investment”.

  5. Seriously, I’m starting to feel like a jerk here, but when did “retirement” come to = “massive over-exposure into stock-index funds”

    Not that I totally disagree, but what were people supposed to do with there money when interest rates were 1%? I may be totally ignorant of the subject, but that’s what I think of the matter.

  6. when did “retirement” come to = “massive over-exposure into stock-index funds”?

    January 2005? Oh, wait, no, they killed that proposal.

  7. but what were people supposed to do with there money when interest rates were 1%?

    That depends. Did you need that money immediately? In 5 years? 10 years? 30 years?

  8. joe,

    Private accounts dont make stock index funds manditory. My mother, for example, has a significant chunk of her IRA in CDs. She lets me Dad’s IRA do the risky investing.

    Her IRA does better than social security, with little risk.

  9. robc,

    Private investing doesn’t make stock index funds mandatory, either. So?

    Anyway, if your mom has an IRA that can pay for a retiree’s benefits today AND still compound enough interest for her own retirement, I need her broker’s phone number. Because if it doesn’t do that first part, then no, it doesn’t do better than social security.

  10. 10% of savings? Maybe only 10% of INCOME.

  11. Tomorrow, I’ll meet with the finance ministers from our partners in the G7 and the heads of the International Monetary Fund and World Bank. Secretary Paulson will also meet with finance ministers from the world’s 20 leading economies.

    Therefore, Spain–the nation with the eighth-largest nominal GDP and the 11th-largest PPP-based GDP in the world–will be left out of both meetings–like with last weekend’s meeting in Paris of Europe’s “leading economies”. (Paulson’s meeting is with the G20.) Granted, the end result likely doesn’t matter too much, but if I were Prime Minister Zapatero, I’d consider it a snub.

  12. pfffft Did you live through the first Great Depression? Long term investing requires substantial equities holdings. It’s the only way to keep ahead of inflation. Once you reach retirement and you’re depending on your nest egg to support you in your golden years, then a very conservative strategy of as little as 50% may be appropriate.

    Actually, when you get close to retirement you should be in majority fixed income. A combination of corporates and federal bonds is good. The old rule of thumb is take 100 and subtract your age for the percent of your retirement to put in equities. I think it’s too conservative for people

  13. What are we, fucking al Qaeda?!?

  14. Damn you Dow, dip below 8,000! Stop teasing me!

  15. Am I the only tightwad in the world who has always thought it a way-too-risky idea to put any more than, say, 10 percent of your savings into equities markets? Seriously, I’m starting to feel like a jerk here, but when did “retirement” come to = “massive over-exposure into stock-index funds”?

    In the long-term , equities markets are the way to go; the market is higher than it was twenty years ago, let alone forty years ago.

    Someone who invested one thousand dollars in the stock market on the eve of the 1929 crash would be ahead fifty years later.

  16. What are we, fucking al Qaeda?!?

    Por que no te callas, Jose?

  17. My whole approach to money that I’m not spending is to make sure I don’t lose it. But then, I always believed Stevie Wonder’s maxim that if you believe in things you don’t understand then you suffer….

    Luckily, I *do* understand currency arbitrage pretty well, which I’ve used to strong advantage this past decade….

  18. [T]he decline in the housing market has left many Americans struggling to meet their mortgages

    More gibberish; a decline in the market price of your home has nothing to do with your ability to make the payment. If you’re trying to sell it in order to pay off the balance of the loan, that’s a different matter.

  19. Oh, come on, George Bush can’t be ignorant about the economy and finance; he has an MBA.

  20. [T]he decline in the housing market has left many Americans struggling to meet their mortgages and are concerned about losing their homes.

    Bullshit. The current market value of your house has exactly nothing to do with whether you are, or can, make your mortgage payments and keep your home.

    My administration has launched two initiatives to help responsible borrowers keep their homes.

    Responsible borrowers don’t need any help to keep their homes, because they didn’t borrow more than they can afford.

  21. Damn you, P Brooks. Damn your quick fingers to hell.

  22. First “Change”, now “Hope”. Looks like the GOP respects Obama’s marketing, if nothing else.

  23. Luckily, I *do* understand currency arbitrage pretty well, which I’ve used to strong advantage this past decade….

    You think the stock market is too risky but play the forex?

    Or are you an international smuggler? (which don’t get me wrong, is a perfectly respectable profession)

  24. Mo,
    I still say that anyone who doesn’t require round the clock care, should be holding at least half their portfolio in equities. However, the ‘one hundred minus your age’ strategy is endorsed by a number of level headed investment advisers. So if you’re of a fretful nature, that would be acceptable, but anything more conservative is paranoia or OCD.

  25. 1) Yes.

    2) Due to the answer to #1, it doesn’t matter.

  26. And I am a “no” on the “end of American Capitalism as we know it” question. A little fat busting out of the seams, but everything will be back to the way it was after the surge subsides. At least, that’s the way it has worked since forever. Greed and human nature don’t change.

  27. I’m starting to wonder if Directive 10-289 wouldn’t have been better received by industrialists if only it were called something like HOPE NOW.

  28. This is America, Episiarch. Talk American.

    Goddammit. I shouldn’t have to push one for American.

  29. “Over the past few days, we have witnessed a startling drop in the stock market — much of it driven by uncertainty and fear”

    The drop in the stock market could also be characterized as being driven logic. We were all told that for a long time the US economy was being propped up by the housing market (which from March of ’03 on took the place of the dot-com boom and led the Dow on a non-stop trajectory upwards), which was being propped up by the ease of securing a mortage due to low interest rates. Now we’ve come to realize that all this did was create inflation and unreasonable and unsustainable home prices. Now we are dealing with the logical consequences of trends that could only end up doing what they are doing now, which is why the DOW is now about where it wa when this housing boom took hold. It seems that this is a crisis if everyone was planning on retiring next month, but I’m at a loss to understand why there’s talk suggesting bread lines and images of the Joad family wandering from place to place.

  30. What gmatts says is what I’ve been saying for a while. I’ve got 401k and other stocks that have plummeted, but I wasn’t planning on selling for a long time anyway.

    Ditto my house – doesn’t matter what it’s worth, the mortgage paperwork in my file cabinet still has all the same numbers on it*, nobody’s gone over them with whiteout because of the house’s market value so I’m still making the same payment every month.

    *Of course, silly me, I asked questions when I was signing all the paperwork. I even read some of it.

  31. But then, I always believed Stevie Wonder’s maxim that if you believe in things you don’t understand then you suffer….

    Matt, I hope you were being glib there. I don’t understand the vast majority of things required to make modern life livable, but I believe in them insofar as I know they do work. Hell, I don’t understand how my microwave works for the most part. If I don’t believe in my microwave, then I *will* suffer.

  32. GOP fanboys, give it your best defense.

  33. You think the stock market is too risky but play the forex?

    I am in forex whether I choose to be or not, due to my wife’s income streams. Choosing which income to spend at any given time, and where to park various currencies, and when to exchange big chunks into other flavors, can easily turn into a source of considerable gain if you time things right.

    And currencies-slash-countries are much, much easier to evaluate and predict than individual stocks or index funds, IMO.

  34. JW

    Leaving aside the wonders of microwaves and email and such, I’m still baffled that I can write out on a note on a piece of paper, write where I want it to go on the outside, put a 40 cent stamp on it, drop it off at a predetermined spot, and a series of perfect strangers will, in about 3 days, get that exact note to where I wrote I wanted it to go.
    (and with some luck the gov’t wont decide to read it!)

  35. I don’t understand the vast majority of things required to make modern life livable, but I believe in them insofar as I know they do work.

    Aha, but how can one “believe” in a stock price? Microwaves will work until they don’t; then you buy a new one. Prices aren’t meant to march steadily upward in all cases — they go up and down, based on all kinds of things that are unknowable and unpredictable. Even index funds, which are supposed to perform by at least XX% every YY years, are only *supposed* to do that; there are no guarantees there.

    How do you know your index fund isn’t too heavily weighted in sectors that will cease to exist 10 years from now? You don’t! So, I treat equities like the place to gamble house-money, but I keep my savings in places that are more knowable.

  36. One is called HOPE NOW…

    I’m putting all the money I have left into acronyms! I tell ya, they’re gonna be hot.

  37. While listening to the news I keep on thinking they are going to say “irresponsible borrowers” but then I am inevitably let down to hear once again something about “irresponsible lenders”. Seems to me that at least half of the blame has to go to the borrowers.

  38. January 2005? Oh, wait, no, they killed that proposal.

    Actually, one of the worst things about the current Social Security arrangement is that it is set up to yield piss-poor returns. For folks with retirement years away, much more of their retirement nest eggs should be invested in equities.

  39. Actually, when you get close to retirement you should be in majority fixed income.

    How old do you think Welch is?

    A combination of corporates and federal bonds is good.

    And that whole conventional investing wisdom that federal bonds are absolutely safe needs to be re-thunk.

  40. Oh, come on, George Bush can’t be ignorant about the economy and finance; he has an MBA.

    I vaguely remember someone digging up some of his old college papers during one of the Presidential campaigns. Am I misremembering?

  41. I must have missed when Obama was criticized for talking down the economy, and McCain praised for saying it was fundamentally strong.

  42. Bullshit. The current market value of your house has exactly nothing to do with whether you are, or can, make your mortgage payments and keep your home.

    In fact it works the other way. If the value of your house declines enough, it’s no longer worth it to try to make the payments. Which is one of the big factors in the current default crisis.

  43. Actually, one of the worst things about the current Social Security arrangement is that it is set up to yield piss-poor returns.

    Social Security isn’t set up to yield returns at all. It’s a pay-as-you-go system.

    If it were set up to yield returns, the money that would go to pay this year’s bills would be tied up.

  44. And that whole conventional investing wisdom that federal bonds are absolutely safe needs to be re-thunk.

    If Uncle Sam defaults every other investment vehicle has not only defaulted, but all the other backing institutions have probably ceased to exist. Remember, these guys own the printing presses.

    So, I treat equities like the place to gamble house-money, but I keep my savings in places that are more knowable.

    /agree. Bonds ftw!

  45. Wouldn’t that only be true if it was falling apart or something? Even my house’s value suddenly dropped 50% today, I could still easily come out ahead when I pay it off years (or decades) later.

  46. While listening to the news I keep on thinking they are going to say “irresponsible borrowers” but then I am inevitably let down to hear once again something about “irresponsible lenders”.

    What’s the complement of “predatory lender”? “Prey borrower”?

  47. “In fact it works the other way. If the value of your house declines enough, it’s no longer worth it to try to make the payments. Which is one of the big factors in the current default crisis.”

    But is it worth it to walk away from a financial comittment, and have that follow you aound forever, just because your home isn’t temporarily worth what you’d like it to be worth at this very moment?

  48. Social Security isn’t set up to yield returns at all. It’s a pay-as-you-go system.

    Bullshit. It has a cashflow, therefore it IS a type of investment and has historic yields, and a yield that can be predicted.

  49. The complement of “predatory lender” is “imbecile without calculator”.

  50. But is it worth it to walk away from a financial comittment, and have that follow you aound forever, just because your home isn’t temporarily worth what you’d like it to be worth at this very moment?

    It wrecks your credit rating, but it may be worth it to you.

  51. If Uncle Sam defaults every other investment vehicle has not only defaulted, but all the other backing institutions have probably ceased to exist.

    I don’t think that’s true. It’s a big world and there are a lot of things you can do with your money. Besides, you’ve reinforced my assertion that federal bonds should not be considered to be absolutely safe.

  52. Wouldn’t that only be true if it was falling apart or something? Even my house’s value suddenly dropped 50% today, I could still easily come out ahead when I pay it off years (or decades) later.

    A lot would depend on how big a down payment you made. If you don’t have much equity at stake, why would you tough it out?

  53. And currencies-slash-countries are much, much easier to evaluate and predict than individual stocks…

    If you stay away from the glamorous stocks, which tend to have distorted prices, you can make pretty good predictions based on the company’s history of sales, profits, and management. Check out the NAIC (National Association of Investors Corporation) web site — it’s the absolute best place to learn about investing.

  54. It has a cashflow, therefore it IS a type of investment

    Wow.

    OK, if we’re making up new definitions, then I get a really shitty rate of return on the money I use to pay my bills on payday. I mean, the three or four hours its’ in my account doesn’t usually produce more than a nickel in interest.

  55. OK, it has a long-term cashflow, therefore it is an investment. What the hell do you think an investment is?

  56. “It wrecks your credit rating, but it may be worth it to you.”

    It may be worth it to me to do something that will make it more difficult and costly in the future to borrow money simply because the value of my home may be temporarily less than what is was just a short time ago?

    If I’m still able to make the payments, it seems to make more sense to not panic, lose a from of equity, then have to look for a place to rent(the worst way to spend money) and ruin my credit rating in the process.

  57. But it doesn’t have a long-term cashflow. The money that comes in goes out right away. That’s what makes it pay-as-you-go.

    It’s like the Pentagon – if there’s money in its budget next year, that’s because we put money in next year. There’s no accumulation, nevermind interest or earnings on that money.

  58. “That’s what makes it pay-as-you-go.”

    But if there are increases in benefits as time goes by, the system can’t truly be seen as a pay as you go type system

  59. Social Security isn’t set up to yield returns at all. It’s a pay-as-you-go system

    That’s right. The workers pay and the retirees go golfing.

  60. And currencies-slash-countries are much, much easier to evaluate and predict than individual stocks or index funds, IMO.

    I’ve seen $500/year newsletters with sales pitches not half this good.

    Bullshit. It has a cashflow, therefore it IS a type of investment and has historic yields, and a yield that can be predicted.

    Not really. Investments are property. No one owns their social security “account.” joe’s right – it is pay as you go. This year’s benefits are paid out of this year’s taxes, and next year’s benefits will be paid out of next year’s taxes.

    When the SS tax for a year no longer covers that year’s benefits, the difference will be paid out of the general fund.

    Sure, there’s some phony baloney accounting in there, but them’s the facts.

  61. Supply exceeds demand

    Easy to solve

    Lower the price
    Burn the excess supply
    Open the borders

    No charge to the government for my free advice.

  62. Aha, but how can one “believe” in a stock price?

    Ya gotta have faith! No, I don’t believe in any one stock price, but I’m all good with historical averages giving me some idea of what potential outcomes will be in 30 years.

    Of course, past perfomrnace, yadda, yadda.

    How do you know your index fund isn’t too heavily weighted in sectors that will cease to exist 10 years from now? You don’t!

    No argument there, but I’m not sophisticated enough to play around in financial instruments. All I can do is educate myself enough to understand what I’m getting into and what precautions to take, hoping I won’t be fucked down the road.

    Yeah, I know, pretty shitty system. Still better than betting on politicans’ promises.

  63. But it doesn’t have a long-term cashflow. The money that comes in goes out right away. That’s what makes it pay-as-you-go.

    I don’t care how it works internally. To the consumer, i.e. me, I put money in and I’m promised a projected long-term yield. I even get a statement each year from the Social Security Administration telling me what my expected yield will be if I retire at various ages. I can compare that projected yield to other possible vehicles I can invest my money in.

    Saying that that is not an investment, that it is somehow different from and not comparable to other possible retirement investments, is one of the semantic games that has been used to sell Social Security.

  64. gmatts,

    The Pentagon budget increases every year. The farm checks get bigger over time. The money that comes in is spent on current expenses – that’s a pay-as-you-go system.

    Saying that that is not an investment, that it is somehow different from and not comparable to other possible retirement investments, is one of the semantic games that has been used to sell Social Security.

    Uh, that fact that it’s not your money makes it pretty freaking different from other investments. The fact that money is pooled and distributed without there being anything bought makes it different from other investments. The fact that the money you put in doesn’t stay there for you makes it different from other investments.

    The fact that it’s not an investment, but is a program that collects taxes and pays benefits defined by legislation makes it different from an investment. It makes it the DPW budget, except the money goes out as checks instead of pavement and striping.

  65. Uh, that fact that it’s not your money makes it pretty freaking different from other investments.

    It’s my money up to the point where it is paid in. That’s exactly like lots of other investments that make no guarantee.

    The fact that money is pooled and distributed without there being anything bought makes it different from other investments. The fact that the money you put in doesn’t stay there for you makes it different from other investments.

    Yup, that’s why it’s a bad investment.

  66. …images of the Joad family wandering from place to place…

    The Joad family had it coming.

    If all the Okies were that sack-of-hammers dumb, I don’t see how they managed to find California.

  67. I don’t care how it works internally.

    There’s the start of your problem right there, Mike – you don’t know, and don’t want to know, what’s really going on.

    To the consumer, i.e. me, I put money in and I’m promised a projected long-term yield. I even get a statement each year from the Social Security Administration telling me what my expected yield will be if I retire at various ages.

    And there’s the rest of it – you believe government propaganda about Social Security.

    I can compare that projected yield to other possible vehicles I can invest my money in.

    Two more mistakes – the money that goes into the Social Security system isn’t your money, and never was. And you can’t make any decisions to invest that money somewhere else.

    I’ve got to figure out how to get a couple hundred Mikes in a room. Would it even be wrong to fleece people this, um, misguided?

  68. Hey, R.C. I think you didn’t catch what joe and I were debating about, or which one of us was on which side of that debate.

  69. And, R.C., I agree with everything you are implying about Social Security.

  70. Watching the reactions of the market to everything the congress, the treasury, and the president have said and done over the last few weeks, I’m convinced that the best thing any of them can do is shut the fuck up.

    Of course, if Ben Bernanke, Henry Paulson, John McCain, Barack Obama and every congresscritter that voted for the bailout were hit by the proverbial bus, I would expect to see the NYSE and the NASDAQ post all-time record gains that day.

    -jcr

  71. The supply of homes now exceeds demand. And as a result, home values have declined. Once supply and demand balance out, our housing market will be able to recover

    easy solution, level every odd-numbered house. Take a wrecking ball to ’em and make ’em flat. Over-supply situation resolved…

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