The long-lasting, negative legacy of the Bush Administration

[Chase]

In my short features over the past ten days, I’ve tried to lead you along a trail that isn’t too clear at times. There’s definitely no shortage of ground clutter in these here parts. I pointed out that the stock market's stage was set to have a major setback immediately before the *911 Attack*. The attack served as an effective distraction and made it easy to blame Islamic terrorists rather than face and deal with weaknesses that had availed themselves through the summer of 2001. The Bush Administration responded by encouraging us to spend our way out of a looming recession. It was a risky action, an option that could be exercised only once. The Federal Reserve Board lowered the prime interest rate to record lows and exhorted eager banks to lend, lend, lend! Property values over-inflated in a manner comparable to the *Dot Com Frenzy* and were doomed to a similar crash or “market adjustment”. In a nutshell, we wouldn’t be in such a world of financial hurt right now if there had been more rigid mortgage regulations in place, and just as importantly – better exercise of business judgment, common sense and restraint. Foolhardy banking and business practices aplenty undermined the market – speculative loans to risky borrowers; loans that funded 110% (or more) of the actual market value of a home; and then there were the seconds … thirds … and any other loans the lenders thought they could pile on in order to get a piece of the mortgage industry's explosive action. The failure of Indy Mac and other banks proved to be just the leading edge of the coming economic storm. Troubles loomed large as Freddie Mac teetered perilously close to the brink of a bankruptcy abyss and things weren’t much better at Fannie Mae. This discussion doesn’t even begin to cover the creditworthiness of other common loans including auto loans, credit cards, business loans, and student loans – to name just a few. In short, government leaders were forced to step in to prevent a catastrophic worldwide economic meltdown. Although Wall Street investors were comforted by the intervention from places on high, we are a long way from finding our way out of the dangers of this economic jungle. The strength of our financial institutions is tremendously dependant on our ability to pay what we owe. If our jobs have disappeared, or if our utilities and/or fuel costs soar to extremes that we can’t afford to pay … we pay what we can. As for the rest of what we owe, it is all hit and miss -- and therein lies the ongoing peril in the health of our current economy. I hate to be the bearer of bad news, but I’m not the only one coming to this conclusion -- things are going to get worse before they get better. The sour economy is going to be a long-lasting, negative legacy of the Bush Administration and it will straddle the best of intentions of the President we elect on November 4th. For the immediate future, watch for massive layoffs and the numbers of the unemployed. If those numbers remain steady, the economy may not falter badly but it will be uncomfortably stale. Watch the retail numbers as well. Are we going out and buying more than just the bare necessities in groceries? If we stock up on clothing, shoes, electronics and other goodies ... and if we have a healthy holiday season, we may have dodged another recessionary bullet. One thing that would be helpful for the ailing economy during the coming months is a dramatic drop in fuel prices. The money we pay at the pump and to the utility companies is money that isn’t spent at retailers and paying down other obligations. If the price of a barrel of oil was reduced to somewhere between $50 and $60 per barrel, it could be just what the doctor ordered in they way of an economic recovery. Unfortunately, there are still plenty of sinister forces at work in the world … and there may be the *Mother of All October Surprises* sitting on our doorsteps. More on that – next time.