Felicia Muftic: Hamilton’s Change 101 column begs a response
March 23, 2009
A couple weeks ago, William Hamilton’s column, “Change 101: How to stifle the economy” presented economic theories that begged a response. Since both Mr. Hamilton and I come from political science backgrounds instead of economics, I consulted my in-house economist and the most capitalistic person I know ” my son, Ted Muftic. He is the chief investment officer for a private capital investment group, a Harvard MBA, with extensive experience ranging from Wall Street to Eastern and Western Europe, and Russia.
I asked him what he thought and here is what he wrote: “Mr. Hamilton seems to be trying to draw a direct link from President Obama’s policies to: 1. The fall in the stock market, 2. The lack of credit, 3. The inherent unfairness of the corporate bailouts, 4. The “anti-corporate jet” uproar, 5. The stifling of entrepreneurial dreams, 6. The ‘eventual breakdown’ of law and order in society, 7. the tampering of our constitutional rights, and, finally, 8. The end of our capitalist system.
“He portrays a horrific and apocalyptic vision for the future – one that we should all be frightened of. Is Obama the anti-Christ? One can’t help but think that Mr. Hamilton thinks Obama is.
“Instead of trying to blame the current administration for all what ails the U.S. economy today, maybe Mr. Hamilton needs to go back to school and re-take Econ 101 to learn from history’s mistakes. I can’t remember there ever being a course called Change 101. Maybe he just forgot about the crash of ’08, or the Crash of ’29? Let’s go back and review some cliff notes for him.
“Last Fall, the U.S. financial system suffered an unprecedented and calamitous collapse, setting off a spiral of economic doom and misery that will take some time to correct. In the decade running up to the Crash, easy and plentiful credit fueled a boom in the values of almost all asset classes. Financial institutions of all stripes took advantage of this climate to place increasingly risky bets on asset values. On top of that, pay and incentive structures were designed to greatly reward risk taking and short-term profits. And finally there was little if any regulatory scrutiny. Incompetence, greed, wishful thinking, arrogance, and naïvete all combined to drive our economy to the brink.
“I am hard pressed to find one person who needs a politician to tell them to be angry about what happened. You really don’t need anyone to gin up their anger. They are mad as heck enough as it is. What you need is a leader who is wise enough to recognize this anger, channel it properly, and make sure that it doesn’t turn into something more sinister and more radical in the years ahead.
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“Today, the financial system remains on shaky ground and has not yet recovered from the Crash of ’08. One-half of the lending market is effectively paralyzed as a result of the inability of the banks to off-load troubled assets. While Mr. Hamilton believes that banks are not lending because ‘banks are waiting for bail-outs’, most bank executives I know would rather raise cash by selling bad assets than get a bailout package (they don’t like government money as much as Mr. Hamilton does not like government money).
“The Obama administration is working on a plan to solve the “troubled asset problem.” This plan cannot come soon enough. The recent enactment of the TALF programs, which thoughtfully use a mixture of private and public capital to un-freeze consumer lending, is also going to have a positive effect. But let’s also not kid ourselves. The damage done to the system was so great that it will take years for the system to recover fully, if ever. And until the system recovers, there will not be a return to anything near full-employment in the economy. And almost all economists (on the Left and on the Right) are of the view that the economy, in the meantime, will still need more stimulus in the form of lower taxes or increases in job-producing Government expenditures.
“Since neither the consumer nor the business sector is in shape to spend or invest, only the Government, either through tax reductions or increases in job-creating expenditures, has the financial wherewithal to stimulate the economy.
“This is not socialism. This is basic Econ 101 and is supported by nearly 100 years of data from past efforts to manage business cycles. In fact, what the Obama administration wants to do is to jumpstart the economy so companies like Gizmo have a chance to succeed, not to fail, and to start providing all those jobs.
“I think what we all need is a little more patience, perseverance and expert advice at this time, and a lot less empty rhetoric and useless fear mongering of the type at which Mr. Hamilton appears so artful.”