The Financial Stability Plan

Confusing, Empty Language – The Financial Stability Plan

The Financial Stability Plan is the latest proposal from the President and Congress on how best the government can intervene in the economy to get us all out of the recession. Despite the fact that every previous government intervention has, at best, done nothing and, at worst, only made matters worse, this new plan will supposedly save the nation from the damage caused by the politicians and the banks.

The fact sheet (PDF) on the new plan is a prime example of how the government distorts language and uses metaphors and fancy turns of phrase to say virtually nothing at all. The very first line of the plan states, “The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts.” This begs the question, our full arsenal of what? A war metaphor used to describe the actions the government plans to take to fix the economy is hardly reassuring, especially in the wake of how the government has handled previous acts of aggression and war like Vietnam, Afghanistan, and Iraq.

Especially if the nation “faces the most severe financial crisis since the Great Depression,” unleashing an arsenal to attack the nonexistent credit crisis seems to be a destructive path to take. But the government answers its own question of what weapons will be used to attack the crisis with even metaphors and empty phrases: “the Financial Stability Plan is designed to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem.” In other words, the government will use its tools of taxing, borrowing, and printing money to do whatever it takes to force banks to… to do what, exactly? What defines success of the program?

Well, the government answers that question with another round of empty words that readers are free to pour their own meanings into. “To be successful, we must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans.” This one sentence sounds like the central planners know exactly what they are doing and have grand ideas to spend us all back to prosperity but it also has a lot of meaning missing in it, so it should be looked at piece by piece.

“We must address the uncertainty,…” The uncertainty has been caused by banks extending loans to borrowers who could not pay the money back, and by issuing securities on packages of these loans to investors around the world. The government has done exactly the opposite of what is necessary (liquidating these bad assets) and has instead tried to prop up values or paper over the losses by printing money and trading it for bad assets. It can not keep sacrificing the value of the dollar for the value of bad mortgage assets, as this impoverishes us all and transfers uncertainty of CDO and MBS and ABS values to the value of the nation’s currency itself.

“…troubled assets…” This is what the Troubled Assets Relief Program was supposed to be about — not the Financial Stability Plan. But half of the TARP money was simply handed out to the banks with no accountability or tracking of what the funds were spent on. Of course, the original idea of having the US government buy up bad assets in exchange for newly printed money was just as bad of an idea.

Furthermore, if by troubled assets, the government means propping up the housing market, this is another mistake. Home prices rocketed upwards by double-digit percentages for years and money was so easy that even people without jobs could qualify for mortgages. The banks and government artificially pumped real estate markets full of easy money in order to score easy profits and easy property tax increases. But it was an illusion, and prices will now have to fall for buyers to be able to purchase homes at affordable prices.

“…and capital constraints of our financial institutions…” Financial institutions and the government are the two parties most responsible for the erosion of capital production in the country. People work for corporations. Corporations pay people for their work. People deposit their pay with the big banks. Big banks offer corporations loans to relocate jobs overseas. People finance their own joblessness. Governments put all of the pieces in place to facilitate this system by keeping taxes high in this country and lowering interest rates artificially to make moving overseas more profitable to corporations.

“…as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans.” The problem, of course, is that Americans already have too many loans and need to pay some of them off before they can more out. People will need to stop spending on their credit cards and begin saving again in order to facilitate a real economic recovery. The government’s idea that simply printing more money so we can borrow it and spend it and be rich is ludicrous. Also, credit markets are not frozen for people and businesses that have the ability to pay back their loans.

These are just the first two paragraphs of the fact sheet for the Financial Stability Plan, and paragraph #3 is just as loaded with vacuous inanities. The rest of the plan’s language is just as vague and nondescript as these sections have been. Once again, high-sounding fancy language is being used to cover up the government’s stunning lack of any real plan and as an excuse to take more money from Americans to hand over to banks and corporations. Or, as the government puts it, “bringing the full force and full range of financial tools available to cleaning up lingering problems in our banking system, opening up credit and beginning the process of financial recovery.”