Managing our economy is a monumental task

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February 26, 2009

Responses follow the article.


Capitalism is a core American value that from time to time fails us. We forget that an economic system is for the benefit of the people, not the other way around.  Capitalism is not so sacred that it cannot be modified.


The entire financial sector of our economy is the lynch pin of capitalism. If it fails, we all fail. That’s why it is so important for this sector of our economy to run smoothly with safeguards and protection for all of us. Unfortunately during the last 28 years under both Republican and Democratic leadership we have seen just the opposite happening. Banking and securities were allowed to operate without much regard for oversight.

Banks were encouraged to offer sub prime mortgages in order to expand home ownership. Many lenders were imprudent in their practices and so were consumers with the result that many people had mortgages not suitable to their financial situation.

An apology added to the March column: In her on-line response to my February column,  Kathryn was right in  wondering why banks here are seeking customers if they are all so bad. Well, I made the mistake of generalizing about banks when I really meant only those connected with Wall Street and their unethical business practices. So I apologize to our local financial institutions.


            Investment bankers then decided to bundle these mortgages and other debt instruments and sell them to people like you and me. One problem is that they did not know how to evaluate the legality and risk of these investments. It opened the door to such people as Bernie Madoff who bilked his clients of $50 billion in allegedly fraudulent securities.

            According to BBC News, when the whistleblower Harry Markopolos told the Securities and Exchange Commission (SEC) about Bernie Madoff in 2000, the SEC chose not to investigate (1). When the SEC finally investigated Madoff’s scheme in 2006 it could find nothing illegal or unethical. Apparently even the SEC regulators did not understand these investments. Fifty billion dollars by the way is the equivalent of $16 million for every Midland household.


As a result of the crisis in the financial sector banks are closing the door on credit but that does not solve the problem. In fact it has a ripple effect on stable corporations which are relying on credit to operate their businesses. It also limits you and me in our buying of cars and other items on credit. Home equity loans have dried up to 2% of the number just two years ago.

Adam Smith

            One of the foundational documents of capitalism is The Wealth of Nations by Adam Smith. Underlying Smith’s entire discussion of capitalism was an ethical code. Smith was very critical of business owners when he wrote, “They say nothing concerning the bad effects of high profits;  they are silent with regard to

the pernicious effects of their own gains; they complain only of those of

other people.” That sounds like it could have been written today about corporate executives and pro-business people and politicians.


Nearly a trillion dollars was injected into the economy during 2008 to stave off the ill effects of a looming recession, but that money did little good. The economy kept getting worse. The first tactic in 2008 was to give rebates to taxpayers (remember that?). Then the government injected money into AIG and other financial firms to offset their lousy management and investing.

Now we have a stimulus package to jump start jobs in energy, the arts, health care, roads, schools, and other infrastructure – spending that will go to working people. Our National Parks are falling into disrepair and neglect because of a lack of adequate funding. Money for energy will go a long way in providing an impetus towards alternative energy. Social programs, such as food stamps and other welfare benefits including unemployment compensation will enhance the economy because the recipients will spend that money rather than save it. 

Tax cuts are also included in the recovery package but tax cuts for the wealthy are part of the reason we are in such a mess. Tax cuts in 1983, 2001 and 2003 have created the wealthiest class since the 1920’s. The top 1% of earners in the US take home 20% of the national income.

Proper tax increases actually boosted the economy in 1993.  Even President Reagan realized this. After his huge tax reduction there came the largest tax increase since World War II. Trickle down economics has been proven a failure and it is time to move on. There is too much political partisan posturing on both sides.

As Jack Telfer wrote in his column on February 8, “we should have faith in the promise of what’s to come, because … that faith is what gives us power in the present.”


(1) “Madoff whistle-blower attacks SEC”, BBC News, February 5, 2009.



Responses on the Midland Daily News website. Reprinted with permission.

Stan wrote on Feb 26, 2009 1:09 PM:


" Mr. Bufka,


Afraid I have to disagree with you on several points. starting off with your headline. It sounds as though you assume it is the government's "job" to manage the economy. It is not. The more they try, the worse things get.


Banking - it was oversight and too much central planning that created the mortgage crisis (see: Community Reinvestment Act, Carter, Clinton). The banks were perfectly happy not lending money to people the banks knew were financially unstable.


Recovery - So last year a trillion dollars that was stolen from fellow Americans and "injected into the economy" was a bad idea, but this year it's a good idea? Please, at least be consistent.


Taxes - You mention the top 1% of earners take home the top 20% of the income, yet you fail to balance that with the fact that the top 5% of earners also pay 50% of all the taxes. Tax cuts always increase government revenues.

As JFK so perfectly pointed out, a rising tide lifts all ships.


You cannot use the thievery and cowardice of the political class (that means Ds AND Rs) that wants to spend more and more every year as an excuse to raise taxes. "


Patty wrote on Feb 26, 2009 4:32 PM:


" I am so angry that I trusted an investment company...that I trusted leaving my money where it was.


In the past year, my teensy 401(k) from a previous employer has lost 50% of it’s value. I’m so angry that when I withdraw it (before it totally disappears from sight), I will be penalized another 20% because I’m not 59.5! During the last two weeks, my funds dropped another $100.


Our government is losing our money with no recompence, no responsibility, no breaks to those who wish to use the money before it’s gone.


This is so outrageous!


People!!! Think! Once your investment is gone…there is NO getting it back! There will not be any reimbursement of funds that have been lost. "


Chris Riffert wrote on Feb 26, 2009 11:40 PM:


" I was lucky enough to have been educated about our economic situation by one of the presidential candidates. They didn't let him talk much because the truth needed to be kept under wraps....well, it is here...surprise!!! In fact they laughed at him when he spoke of this...


I do not blindly follow anyone--but he definitely has at least my attention from here on out. "


Kathryn wrote on Feb 27, 2009 6:32 AM:


" And, uh, just WHO encouraged the banks to lend money to people with little to no hope of paying it back? The Federal government and their minions in ACORN maybe?


And if the banks are closing the door on credit, why is my credit card company begging me to use their "credit card checks"? Why do I keep seeing signs on the local banks and credit unions to come in an borrow money? Credit has not dried up for those who have the collateral to back it up. Good business do NOT rely on credit for operation.


And if saving is such a bad thing, who needs banks?


The economy is not just some institution, a building or place you go to. Rather it is the collective decisions and activity of ALL of us (even the couch patatoes!) going about our business of putting food on the table, clothes on our backs, and a roof over our heads (among other things). It is NOT something anyone can manage UNLESS of course, you start using force to boss people about, like the government does. The more freedom we loose and the higher taxes we pay, the worse things will ultimately get. "


Chris Riffert wrote on Feb 27, 2009 12:26 PM:


" Yet again I agree with you Kathryn. Great points. "


My comments (not online):

Kathryn raised an excellent point about banks in the area  seeking customers. I will apologize in my next column to the local financial institutions who have followed good business practices. They are not responsible for our current mess, but only those institutions conected with Wall Street.


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