According to the financial prophet nicknamed the 'Cassandra of credit derivatives', Obama is aiming at the wrong remedy for the great recession which America finds itself in. She called the collapse of the derivative market right some years ago, when she warned that the bubble would burst.
Now she thinks Obama's solution is like putting the American economy on drugs – by pumping more financial meths into the economy's mainstream:
"Very little has been solved and the Federal Reserve and the Obama administration are showing few signs that they've learned anything from the credit crisis … By printing money and throwing it at consumers to encourage more spending, the Fed and the Obama team are feeding the same bad habits that got us into this mess, she said. “We have to take the pain of realizing that trying to get people to borrow and spend more as unemployment is rising is a really bad idea. What we really want them to do is to be able to save up for a decent down payment, and somehow reverse the tide of housing prices declining.” … She is sharply critical of many of the people who are now working to find a solution to the financial mess, saying they were too involved with creating the problem and are unable to push for the hard decisions that will stop the credit bubble from reforming."
Others support her view of the problem as being too much credit:
"Markets were able to avoid making the tough adjustments needed to purge bad loans and fraudulent investment because the Japanese government kept using money from solvent citizens to shield the insolvent from the pain. Sound familiar?"
But Obama does not agree – he is now arguing for patience, and appears to be arguing that the good old days of living on credit are now passed:
"Obama said the goal of his economic plan -- which includes huge planned investments in 'green' energy, infrastructure, health-care reform and education -- is to lay the foundation for "post-bubble economic growth" in the U.S. That includes a forthcoming plan for tighter regulations on Wall Street, expected within weeks. "The days when we are going to be able to grow this economy just on an overheated housing market, or people spending, maxing out on their credit cards, those days are over," he said. "What we need to do is go back to fundamentals.""
And Cassandra's remedy? Cold turkey withdrawal for the credit-hooked American consumers and governments:
"What she advocates is the financial equivalent of kicking a drug habit cold turkey. No more no-down-payment mortgages. No more encouraging consumers to resume borrowing to buy homes and cars and televisions they don't need…"
But Ms Cassandra thinks that Obama and his financial whiz kids just don't get it:
"Rather than face the grim symptoms of a withdrawal from cheap and easy debt – falling consumer spending and the attendant disaster for car companies and retailers – the Obama administration is busy coming up with more ways to hand out money… Ms. Tavakoli pointed out that new no-down-payment mortgages issued under the auspices of government programs are now going into default faster than mortgages from before the credit crunch… And as for the next big Fed plan – to funnel as much as $1-trillion (U.S.) into a program aimed at restarting the securitization market to fuel new loans to consumers – it almost leaves the voluble Ms. Tavakoli speechless. But not for long. “The financial meth labs at Wall Street firms – shutting them down would be a really good idea, but then don't create another financial meth lab at the Fed where the Fed becomes the entity that allows people to leverage up.”"
There you have it: let America (and the other countries living on future earning by borrowing today to buy today and expecting to pay for it with tomorrow's earnings) go cold turkey.
Just say No to credit.
Sounds easy, eh?
