The Santa Claus Syndrome: Where Things Come From

Christmas at the Obama White House

        Nancy Pelosi and Harry Reid are handing out the presents and all is right with the world.  Or is it?  They are just putting the final ribbons on the biggest present, the new healthcare package, all the hundreds of pages of it.  It will take time to sort out just who gets what and what the cost will really be but it seems like if your U.S. Senators are Republican, look for switches and ashes.  If you have the other guys, the sky is the limit.

            I had not planned on a Christmas blog since my basic theme in my Santa Claus Syndrome book is that there isn’t really a fat guy in a red suit who is going to pay all our bills.  But Obama and his elves in the Congress are trying to prove me wrong.  The NY Times is reporting that deep in the bill there are lots of specific provisions inserted by Harry Reid to get the votes of specific senators.  There are reports of millions for this, hundreds of million for that.  All presents designed by senators for some specific need:  To get a vote here, a vote there to get to the magic 60.            

        Some of these benefits have very specific criteria and only fit a few circumstances.  Those who wrote these provisions may be the only ones who know the intended beneficiary.  How can anybody vote for something like this?  They seem to be just looking at the specific benefits to their own constituents and turning a blind eye to the costs to the whole government.

            Another big factor is the expected cost savings.  Like many government plans, they say they have devised ways to save money but instead of implementing the plans to see if the savings actually appear, they are going to spend the whole bundle first.  Wishful thinking is an important legislative tool.  One of the major savings they allege is by paying less to Medicare doctors.  These are the same doctors who are turning down Medicare patients now because of the low payments.  This is pure fantasy.             

            There may be a political urgency for the proponents of this plan but for those of us who might be on the paying end; a little more thought would be a big benefit.  In fact, they need to defer this plan for a year, not just for more study but to implement the cost savings schemes and see if the money really rolls in before they spend it.

            So while everybody is settling in to enjoy their new presents, remember there is a bill as big as the moon headed for somebody.    

Under Cut by the Federal Reserve

    We were once again undercut by the Federal Reserve on interest rates when the Fed announced this week that the bargains for bank borrowing will continue. When I say “we”, I mean people like me, and hopefully you, who might have a few dollars in a savings account or a money market fund or some similar cash like investment, made with the hope of actually getting paid some interest on it.  And also a little weary of the up and down stock market.

     As long as banks can get money from Mr. Bernanke and other government elements for virtually nothing, there isn’t much reason for them to pay us anything.  One thing that has allowed this in the past year is that we are worried about putting money in stocks.  After the collapse last year people have been willing to give up earnings for an assurance of preserving capital.  In the interest of salvaging principal, we have given up interest.  But this is not a natural situation and can’t continue indefinitely.  In the long run, people aren’t going to invest money just to get free storage.

    When I first had a money market account in the early 80’s, it was paying over 18%.  Now I’m only getting a quarter of a percent.  Neither extreme is good.  Rates need to be high enough to make it worthwhile to invest but low enough that borrowers have a reasonable hope of making enough money to pay the rate and have a little left over for themselves. 

    So how long can this go on?  Let’s look at a few things.  The government is putting out cheap money to stimulate the economy.  But a big part they are trying to stimulate is the building industry.  The problem in real estate is the collapse of home prices, not high interest rates, except for the ones where the rate balloons.  There is no benefit to the economy to help people refinance a mortgage from 6% to 4.8%.  This just helps the particular individual.  There is a benefit to refinance a mortgage that is in threat of foreclosure because the interest rate went up and tripled the monthly payment and the homeowners can’t make the payment.  But the current plans don’t seem to recognize this.               

    We need to find a way to remind those in power that we are still out here and we are the good guys.  There is too much emphasis on helping those who are overextended at the expense of those who have done the right thing like saving money to take care of their expenses and old age.  So write your congressional delegation and anybody else you can think of.  Sooner or later they need to come around.