Bush's Economic House of Cards Collapsing

What, me worry?
U.S. President George W. Bush Alfred E. Neuman addresses the Economic Club of New York March 14, 2008. Bush, on a drive to bolster faith in the U.S. economy amid fears of a recession, said the economy was resilient and would regain its strength despite the hard times.
REUTERS/Lucas Jackson (UNITED STATES)

Yesterday, while the cable networks tried hard to get us to believe that Barack Obama's pastor was an America-hating black separatist who would bring him down in November (Bread and Circus here! Pay no attention to the real news!), the Bush economy was collapsing.

Bush gave a classic President Pissypants speech to the Economic Club of New York, complete with shouting intonation, much face making, and the obligatory reference to 9/11 (third paragraph). (A great piece on Bush's incoherent speech in today's New York Times by Gail Collins.) Meanwhile, back at the ranch, the Fed was giving away $200 million of taxpayer money to a big bank.

Let's give that last point a separate paragraph. The Fed gave away $200,000,000 -- Two Hundred Million Dollars --to a big bank. In return, the Fed got a bunch of worthless paper.

Bear Stearns, like most large U.S. financial institutions, owns lots of subprime mortgages; Bear Stearns subprime mortgages were purchased with borrowed money, no less. Bush and Greenspan let subprime mortgages (no money down! no income verification! flip this house! etc.) mushroom over the last eight years. They're worthless as the buyers can't make the payments, and the properties weren't worth the ridiculous prices they were going for, so they're going to default and the bank is left holding the bag. But no! The Fed has picked up the bank's empty bag, in exchange for a mere $200,000,000 of our money.

You can read about the bailout in this New York Times article, but the only important line in the article is this:

[T]he Fed will ultimately bear the risk of the loan.

Basically, it's another subprime loan. No income verification, no money down, flip this federal money into your own pockets, Wall Street! Whoo-woo.

What does this mean to the rest of us?

The United States has entered a recession that could be "substantially more severe" than recent ones, former National Bureau of Economic Research President Martin Feldstein said
Friday.

"The situation is very bad, the situation is getting worse, and the risks are that it could get very bad," Feldstein said in a speech at the Futures Industry Association meeting in Boca Raton, Florida.

NBER is a private sector group that is considered the arbiter of U.S. business cycles.

It's a lot like the Bush economy that Clinton inherited in 1992 -- except it's much, much worse.

Hold on to your hats, folks. We're in for a bumpy ride.

By the way, here's Obama's response to the flap over his pastor, once again distancing himself from the statements. He also went on Fox Noise to quell the cable furor. I don't think anyone will remember this if the stock market tanks and gas is $4 a gallon in November.