Wednesday, February 24, 2010

An Outsider No More

Barack Obama ran for President as an outsider. One incomplete term in the Illinois State House and one incomplete term in the US Senate made that a plausible argument. It makes you wonder, but that’s not the point of this post. For all the bluster about doing things differently, offering transparency, pretending to kick special interests out of the White House, Barack Obama is unmasking himself. He is being shown to be no different than the politicians he demonized in order to win his party's nomination and this nation’s highest office.

Obama's latest plan to salvage, unsalvageable housing prices is little more than political maneuvering. $200,000 in Ivy League educations that other people paid for should provide enough knowledge to the man for him to know that the housing markets can't be saved. The laws of economics are nearly as concrete as the laws of physics. His handlers and advisors have to know this as well. The genesis of Obama's latest plan starts with how the dollar carry trade was used to prop up the equity markets. As a child, I can remember that dinner didn't start at my house until my father got to see how the Dow Jones Industrial Average closed. I can hear the chattering music and Peter Jennings reporting that the DJIA was up or down 5-10 pts, not the dozens or hundreds that it moves by today. Only then could dinner be served. I am almost 40, for my entire life, the DJIA has been the bell weather by which Americans judged how good things are, economically speaking. Sometime in the last year, things changed. The DJIA and our retirement accounts have been replaced as the harbinger of economic health. Now it’s the value of our homes which the common man uses to gauge economic health.

By cutting the prime rates to near zero, the Fed ignited a market frenzy over the last year. Using the dollar carry trade billions of dollars were pumped into the markets in 2009. For the last 12 months, the DJIA is up from 7062.93 (2/23/09) to 10,282.41. That is an increase of over 31% in 1 year. Since Feb 09, Obama's job approval rating has dropped from 64% to 51% today, and it’s been as lows as 47% in the last year, according to Gallup. Year over year, that’s a solid 20% drop, in spite of market appreciation in excess of 30%. For past President's, a soaring Dow would translate to significant job approval ratings boost.

Switching to plan B, for getting reelected, Barack Obama has put forth a $1.5 billion plan to support housing values in only 5 states; Florida, Michigan, Nevada, Arizona and California. Those 5 states represent 114 electoral votes, of which Obama won 104 in 2008. That’s 42% of what is needed to win the Presidency. Propping up housing in even one of those embattled states would provide a big boost to the Case/Shiller Housing Index.

So, rather than deal with the systemic problem in the housing markets, massive over valuation, the President is choosing to succumb to the oldest and biggest problem our representative democracy has, conflict of interest. Rather than do what’s best for his constituency, the people of the United States and fulfill the oath he took on January 20th 2009, Barack Obama has chosen to do what’s best for him, get himself reelected by playing the game which is sinking our great nation. If he hadn't already, he's certainly discrediting himself as a Beltway outsider and in doing so, he's saddling each and every American with more than $40,000 in government debt. That’s some legacy of change. That number is up 30% from a year ago mostly on the back of policies which are not meant to rectify the mistakes of George W. Bush. The statute of limitations for blaming GWB has expired. Barack Obama is giving us all change that we're going to have to live with.

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