- An article from the September 5, 2011 issue of Business Week was one of the most obvious examples of government cluelessness. It revealed how two major government entities actually admitted that it did not know how to do their job. The government organizations are Fannie Mae and Freddie Mac, the two dysfunctional government housing giants that support the majority of home mortgages in this country.
As a result of their responsibilities, the Federal government now owns about one third of the country's 800,000 repossessed homes. This makes Fannie and Freddie the largest owners of foreclosed home properties and all of the property tax bills and other expenses that come with home ownership.
The obvious, desired solution is to have the government get rid of these properties as quickly and effectively as possible in order to stop using taxpayer dollars to maintain these properties. However, they apparently do not have a clue on how to reach this happy solution. This past August, Fannie, Freddie and the Federal Housing Authority issued a joint plea to ANYONE in the country who had an idea of how to get rid of these properties, basically admitting that they did not know what to do with all of these properties and hoping maybe an American citizen might have an idea.
The article reviews how everything the Obama administration has tried to date to remedy the situation has been a disappointment, probably leading to this desperate call for ideas. What do experts think about this public cry for ideas:
- Karen Shaw Petrou, managing partner of Federal Financial Analytics: "They're (Freddie and Fannie) stuck. They do not know what to do."
- Mark Wiseman, former director of Cleveland's foreclosure-prevention program: "It's almost like having the captain of the Titantic go on the public address system and say, does anybody have an idea? It's not a confidence builder."
- We have reviewed the many examples of the failing American public education system. U.S. kids always score lower than kids in dozens of other countries around the world in standardized tests. There are reports that almost 50% of U.S. kids entering community colleges have to take high school remedial courses before starting their college classes. There are reports that almost 25% of hopeful armed forces recruits cannot pass basic reading and math proficiency tests.
The latest evidence of this disgrace comes from a Washington Post article that was summarized in the September 30, 2011 issue of the The Week magazine. According to the Washington Post, the average SAT reading score of American kids who graduated in 2011 was 497. This is the lowest performance since 1972.
The Federal Department of Education was formed in the early 1980s and has spent over a trillion dollars over the past thirty years or so in support of public education. Thus, there really is no better example of D.C. cluelessness, spend a trillion dollars and get results that deteriorate to levels not seen since 1972.
- A USA Today article, that was summarized in the September 30, 2011 issue of The Week, reviewed the latest drug usage estimates from a Federal study. One of the major findings showed that the number of marijuana users in the country had grown about 20% from 2006 to 2010, going from 14.4 million users to 17.4 million users in 2010. These 17.4 million users are almost 7% of the adult population in this country.
But the Federal government continues to wage a lost war on drugs, a war that obviously includes marijuana users that choose to smoke marijuana. Would it not be a better plan to re-examine our war on drugs, at least marijuana, since users are a sizable chunk of the population, that chunk has grown steadily over the past few years, and the illicit market for marijuana is a major revenue stream for the Mexican drug cartels? Somebody in D.C. does not have a clue to see that this business-as-usual view of marijuana use is an escalating problem.
- A September 5, 2011 article in Business Week discussed how some Russian interests were trying to establish a Silicon Valley-like technology center in Russia. The article reviewed other, failed efforts to do the same thing around the world. Around the world included the state of Nevada. Senate majority leader Senator Harry Reid of Nevada wanted to create the UNLV Harry Reid Research And Technology Park which would be a place for technology entrepreneurship, similar to Silicon Valley.
Unfortunately, Mr. Reid apparently does not have a clue on how to replicate Silicon Valley since, according to the article: "In the works for six years, and with $2 million of Federal funding, the 122 acre site in Las Vegas remains an empty plot of desert with some very nice front entrance signage and landscaping." Great, first the clueless in Washington waste over half a billion dollars on the disaster that is Solyndra that creates no jobs, and now we end up paying $2 million for some flowers and an entrance sign in the middle of the Nevada desert. Clueless.
- But nowhere in Washington D.C. does cluelessness come to mind as clearly as when discussing high finance. Bloomberg News reported on September 26, 2011 that Federal Reserve Chairman Ben Bernanke is embarking on a new program to try and spark the economy. The effort is nicknamed "Operation Twist" and has not been attempted since 1961. The strategy involves the Federal Reserve buying back $400 billion worth of existing, long term Treasuries that have remaining maturities of six to 30 years. The repurhase program will be completed by June, 2012. The plan is to somehow to replace this $400 billion of long term Treasuries with $400 billion of short term Treasuries.
The intent of this switcheroo is to further drive down long term interest rates and in the process, drive down home mortgage rates. Lower rates, the logic goes, will result in more people buying homes and the increase in home purchasing will lead to a growing economy. By the way, when this was done in 1961, the mortgage rates dropped .15%, hardly a dramatic or effective way to drive down mortgage rates.
But besides the potential for only a minimal impact from this effort, the bigger issue is that the U.S. Treasury Department is about to embark on a strategy that sees it focused on selling longer term maturity Treasury bills in the near future. Treasury Secretary Tim Geithner went to this strategy so that the Treasury Department would reduce the amount of Federal government debt that the Treasury has to rollover and refinance each month to minimize the opportunity of the country bouncing up against its debt ceiling as often. This move, selling Treasuries with long maturities, has been endorsed by the 14 member Treasury Borrowing Advisory Committee.
Here we have a classic example of being clueless, also known as "the left hand does not know what the right hand is doing." The Federal Reserve will be busy buying up existing, longer term maturities of Treasuries over the next eight months in order to, hopefully, reduce home mortgage rates.
At the same time, the Treasury Department will be actively selling long term maturity Treasuries to settle down the management of the national debt. One arm of the government working hard to reduce the volume of longer term Treasuries in the market and another arm of the government working hard to increase the volume of longer term Treasuries in the market. Clueless in Washington.
But this classic gets even worse. Bloomberg News reported on September 27, 2011 that Dallas Federal Reserve Bank President Richard Fisher has publicly stated that this "Operation Twist" may prove ineffective and may actually hurt job creation, the exact opposite of what Bernanke is hoping the effort will do. His view is that this latest effort from the Fed, reducing interest rates, indicates that the government has no faith in the future of the economy and this may cause consumers and businesses to save rather than invest in the economy, in light of an expected forthcoming sour economy.
But Mr. Fisher is not alone. Kansas City Federal Reserve Bank President Thomas Hoening, who left office on October 1, 2011, has stated that "when you encourage consumption by inhibiting your interest rates from rising to their equilibrium level, you will in fact buy problems, and we have in fact bought problems." Great, the Fed Chairman is trying to reduce rates and his own support staff are criticizing the Chairman's policies as being ineffective at best, counterproductive at worse. Left hand, right hand level of cluelessness again.
"Clueless In Washington," a bad movie that never ends.
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