Mental Recession Becomes Physical Recession

So now we have an official start to the recession - the third quarter of this year, when consumer spending finally fell off the cliff. Consumers stopped spending because they stopped borrowing, and in many ways that's a direct result of the housing crisis. The loss of HELOCs (home equity line of credit) meant that people couldn't cash in on their houses anymore. Credit cards are the second option, but people already carry a lot of debt on their credit cards, and with the job losses mounting and economic uncertainty everywhere, consumers are less likely to put so much on credit, which I believe is more real than a HELOC.

So what now? Well, there's finally talk today of a homeowner rescue package, yet another example of the Bush Administration following the lead of the Democrats. In an economic crisis of this magnitude, we're all liberals.

Senior Bush administration officials are discussing a plan that could help up to three million homeowners struggling to pay their mortgages to stay in their homes, three people briefed on the proposal said Wednesday.

The initiative could be the most sweeping government effort directed at mortgage borrowers since the financial crisis began last year. Under the plan, the government would agree to shoulder half of the losses on home loans if mortgage companies agreed to lower borrowers’ monthly payments for at least five years, according to the people briefed on the plan who asked not to be named because details were still being negotiated.

Officials from the Treasury Department and the Federal Deposit Insurance Corporation are working on the proposal and an announcement may come soon. Sheila C. Bair, the chairwoman of the F.D.I.C., has been the leading proponent of the plan and first discussed the idea publicly a week ago.

This would be a good start and a fair use of some of that bailout money. The fact that banks who have been partially rescued are going to use substantial amounts of that cash to pay off dividends is repugnant. Henry Waxman is attacking these giveaways from the banking industry today, which is hugely inefficient because it takes money out of the greater economy.

Rep. Henry A. Waxman (D-Calif.), chairman of the House Committee on Oversight and Government Reform, noted that before the infusion, the banks had spent or allocated $108 billion on employee compensation and bonuses for the first nine months of 2008, nearly the same amount as last year.

"I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record," Waxman wrote in a letter to the banks.

Lawmakers across the political spectrum want to ensure that the government's bailout program results in increased lending, not bigger paydays for executives.

Though White House officials are defending the bailout, it's clearly being mismanaged to the point of being a handout from the Treasury to rich bankers. Or maybe the better word is "managed." Not a bug, but a feature.

A real plan for homeowners and a second stimulus that addresses needs in local governments, the poor and infrastructure would be key to helping us sail through expected rough waters. Or, we could lay hands on the bull statue in front of Merrill Lynch and hope for the best.

Did you know that some Christian dingbat has dubbed today the “Day of Prayer for the World’s Economies?” Well here they are, at the Wall Street bull statue thing, praying to Jesus for money. The dingbat has explained, “We are going to intercede at the site of the statue of the bull on Wall Street to ask God to begin a shift from the bull and bear markets to what we feel will be the ‘Lion’s Market,’ or God’s control over the economic systems.”

Sheesh. Stuff like this makes me wonder if I should just move to China, where they're adapting and innovating and understanding instead of praying and wishing and hoping.