Wednesday, May 21, 2008

National Media Getting it Right

I don't usually do much worshiping at the altar of The New York Times or The Wall Street Journal. Frankly, I typically disagree with most writers at The Times and The WSJ is rarely local enough to suit me.

But today I stumbled across several stories that indeed are well thought out and very relevant to our local economy.

First, Wall Street Journal columnist Holman Jenkins makes the case for why congress should not get involved in bailing out residential real estate mortgagees, and by extension, the developers and banks who made poor choices. While many people instinctively oppose most bail out options -- including one proposed by Georgia Senator Johnny Isakson -- Jenkins' story puts a lot of meat on the bone. The fact is, widespread fraud was going on, according to my friends in the media. But does that fraud justify a national bail out? In my mind I still can't justify a bail out for an industry that made many of its own mistakes. The two issues have to be separated, or otherwise we wind up with a massive program that allows every person who made a poor real estate decision an exit strategy with our tax dollars. I'm sorry, but being underwater on a mortgage (or being unable to pay your mortgage) should not entitle you to a handout.

This issue is certainly relevant in Oconee, where dollars and speculation ran way ahead of reality, and now shuttered and empty subdivisions line once pastoral Hog Mountain Road and other areas. This excerpt says it all: "One sure way to guarantee bubbles without end is to institutionalize that one-way bet. That's what a bailout would end up doing for those ultimately responsible for directing a large chunk of the nation's savings into unwanted, uneconomic housing." Wow. Like I said, read the column.

Second, Tom Friedman and David Brooks at the New York Times really nail a couple of national issues in their columns (linked at their names). Friedman, one of my favorite authors and columnists, has long had my admiration due to his strong advocacy for energy independence -- and not just the "we need to drill in Alaska" type of independence currently espoused by the Sean Hannitys of the world. As I have said before, if this country can't lick its dependence on oil -- whether domestic or foreign -- we are hurting. Oil prices ripple through every part of our economy. Combine it with our debt to competitive nations, our lack of domestic manufacturing capacity, and a variety of other domestic issues, and we have major issues that ripple across the nation. Friedman's key point: the longer we wait to "unleash" American ingenuity and "energy" on the oil problem, the harder it will be to escape our addiction. See the chart for how preparation can help us overcome and plan for the rising prices of oil as supplies dwindle.

Brooks takes on another issue -- the "Christmas Tree" farm bill which bothers me the more I read about it. Legislators and big farmers love it -- "Something for everyone! Yay" -- but most good government advocates on both sides hate it. Barack Obama, despite his rhetoric about fighting special interests, supports the bill. John McCain opposes it. The more I learn about McCain, the more I like him, although I still wonder if he has a chance this fall against the charismatic senator from Illinois. Oconee farmers: what do you think about the bill? Am sure Paul "Mr. No Earmarks" Broun will oppose it. Perhaps the local media will take a look at the bill and see how or if it impacts this area.

Oconee's economy is closely tied to both cheap gas and agriculture. Not as much as other suburban counties -- which is a good thing -- but we need to take a hard look at how the oil issue in particular could impact us over time. What type of industry do we want? Is it realistic to expect people to commute to Atlanta? As food prices rise and land values decrease, should we take a harder look at crops in Oconee? Should we push harder for the brain train? Focus on industry besides real estate and growth-related industry for future jobs?

Bottom line: There are answers to all these questions, but they will require hard, courageous decisions by politicians. What usually forces politicians to make these decisions? Unfortunately, a lot of economic pain for American consumers and businesses, who then kick the bums out and force the new guys to find a solution.


Anonymous said...

Well, you're absolutely right on the first and completely wrong on the second. Let me address the latter first: without a farm bill (with most of the money going to nutrition and conservation programs and not prudcer programs, by the way), we'd be importing the majortiy of our food. And if you enjoy being hostage to foreign oil, without a farm bill you'll be hostage to foreign food too! After all, China has an incredible food safety program!!

To rail on Congress to set a 5-year farm program is ridiculous to see the vast waste that comes from the Capitol and doesn't even recieve much-deserved and needed scrutiny. The hypocrisy to question the spedning on farm programs and agriculture in general is appalling!

For instance, an article in the March 27 Wall Street Journal says that even as farm income soars, farmers have beaten back efforts to shrink the government safety net and will collect $13 billion in federal subsidies this year.

The article doesn’t mention that farm program spending will shrink in the new farm bill, compared to earlier legislation, because of higher commodity prices in 2007 and thus far in 2008. The biggest increases will be for nutrition and conservation programs, not farm payments.

That same day, the Wall Street Journal ran an article asking if the $29 billion the Federal Reserve Bank put up after a run by creditors on investment bank Bear Stearns was enough to shore up the housing and credit markets.

The Fed loaned JPMorgan Chase & Co. $29 billion to buy out the failing Bear Stearns. In the likely event the securities that back up the loan are sold at a loss, the loan doesn’t have to be repaid.

The paper doesn’t question the use of billions of taxpayer dollars to bail out a bank that sought to profit from risky home loans. In fact, its only question is, “Is it enough?”

And what is often not reported, is that the largest contributors to Congressional campaigns in the last 2 cycles have been financial lending institutions -- the same ones getting bailed out!

Agriculture is more dependent on outside factors than most other industries and deserves a safety net to ensure a safe, affordable and sustainable food supply. The cost for not doing so would make the mortgage bailout look miniscule in comparison!

Brian said...

Good feedback. I'm not an expert on the farm bill and am still learning. But adding $1 billion per year for the next five years to food stamp programs, etc. bothers me -- you said it yourself, the biggest increases are for the food programs.

I do think the point about importing food is very relevant and a good one.

All that said, I'd rather debate over the merits of the program, not just complain about other waste that comes out or scaling the dollars against the bailouts of Bear Stearns, etc. Appreciate the comments.

Anonymous said...

I wasn;t criticizing you, but othe columnists that I've read, including your AJC posted column. Getting urban members to pass a farm bill requires giving them additional funding for the food and nutrition programs -- which given this economy may be more needed than ever!

Brian said...

You've come a long way from your "Wall Street" days.

Anonymous said...

Not quite so! When everyone prospers, everyone prospers! From Wall Street to Main Street to the dirt roads. An economy like ours benefits when all sectors are humming along. It's a long term approach to sustainability. But when one sector slips, stumbles or falls for whatever reason, the others follow. In this case, the greed of Wall Street to sell cheap, unregulated adjustable mortgages to those unable to pay back once the rate adjusted, regardless of long-term consequences, is the worst of all Wall Street greed. I'm not sure if a lack of business ethics is to blame, but the possible cure of government regultion in financial markets may be worse than the disease. However, given Wall Street's lack of ethics, more government intervention may be the penalty. God help us if that's the case!