During 2008 the troubled economy treated many of us badly, with our prospects in 2009 equally unfavorable.  The near destruction of the nation’s banking system and collapse of the mortgage loan market caused massive layoffs.  An economic tsunami seems to be gathering and we may not escape the repercussions in store.

It’s unclear where the nation is going.  As we’re all aware, the federal government is struggling to address the problems.  Unfortunately, neither the $700 billion Troubled Asset Relief Program (TARP) bailout bill launched last October by the prior administration nor the $787 billion 2009 Stimulus Recovery Bill signed into law February 17 by President Obama will benefit the economy.  America cannot spend its way to prosperity, particularly inasmuch as the funds will pour into the rat holes such monies invariably go.  Enactment of the stimulus bill illustrates the worst in legislative indifference.  It received final conference committee approval at 11:00 P.M., Thursday, February 12.  Though no legislator actually read or understood the 1,071-page document, it garnered approval in both House and Senate, on a mostly party-line vote, Friday, February 13.  President Obama signed it into law Tuesday, February 17.  It was my ill fortune to observe an in-depth interview of Senators Daniel Inouye and Harry Reid and Congressman Charles Rangel on C-span several days before its passage.  Whatever these three involved legislators knew about the laws they were enacting, they divulged nothing.

How the funds authorized, now totaling almost $1½ trillion, will actually be used is frightening.  Consider, as an example, the roughly $200 billion in TARP funds doled out to the nation’s banks, intended to help the economy by making loans more readily available.  Few of those dollars found their way into mortgage loans to deserving borrowers.  They are, instead, tucked securely into the banks’ vaults, reserved for contingencies—except, of course, those sums which the financial firms’ boards of directors allocated as bonuses paid to their senior executives.  Already $18.4 billion in such bonuses are identified, much to the consternation of President Obama who on January 29 angrily branded this the “height of irresponsibility.”  I must acknowledge my understanding, however, of the reluctance of these institutions to actually make mortgage loans as originally intended.  Just as my personal mortgage lending activities stopped in August 2008, while I horde my cash for the troubled times ahead, only an imprudent banker will fail to sit on as many dollars as possible in anticipation of the coming economic maelstrom.

By the way, if you expect government to take effective action to assist us in any way, don’t hold your breath.  When it comes to passing money around, governmental officials at all levels need the revenue every bit as badly as do we.  They are not our protectors; they are our competitors.  By necessity, a bureaucracy travels on its citizens’ billfolds, and what it’s all about can be summed up in one word: taxes.  It’s true, of course, this reality is often disguised amidst the machinations.  The California legislature provided a recent illustration of this when they attempted to sidestep a two-thirds majority requirement to increase taxes by renaming certain taxes as “fees,” requiring only a simple majority for approval.  This brings to mind the following stanza of a notable poem:

Call it duty, charge or fee,

There’s no difference, wait and see.

You will shortly find the same,

tax by any other name,

     smells as sweet,

     cuts as deep.

In any event, never entertain doubts about what government expects from you.  It wants your money—all it can get.  Regardless of party affiliation or professed economic philosophy, everyone entering public service sooner or later comes to share this attitude.  In short, expect no help from Uncle Sam; he has his own fish to fry.

This gets us to a fundamental realization: How our fortunes will fare over the foreseeable future is as yet uncertain.  As a real estate investor I enjoy a few advantages not available to most investors, notably the ability to influence the performance of my holdings.  The vast majority of Americans cannot avail themselves of investments over which they posses any degree of control.  This is because their assets are relegated to America’s traditional mediocrity: the open-end investment company known as the mutual fund.  Though in theory the mutual fund meets an investor’s needs, theory and reality do not always coincide.  Irrespective of the basic soundness projected by the investment advisory profession, the overwhelming fixation of most practitioners is on these funds, often dominated by index funds.  There is no particular magic involved.  These vehicles merely rise and fall with the general fortunes of the market.  The result: an industry devoted to investment by default.  The year 2008 proved to be a disaster, with the S&P 500—the most widely followed index of large-cap American stocks—declining 38.49%.   The real misfortune is that fund holders of these securities have no way to protect themselves as nature takes its course.

An equally significant consideration as to how our fortunes will fare over the foreseeable future is the definition of “foreseeable future.”  Depending on the source, predictions of the economy’s recovery vary widely.  Extremes run from the National Association of Realtors assuring us of a rejuvenated market, and with it the opportunity to buy a home next quarter—always next quarter—or, the U.S. Treasury’s offer of a paltry 3.63% on its 30-year T-Bond, reflecting a moribund economy for several decades.  The simple fact is no one really knows.  Nonetheless the actions of government will be a factor.  Although government cannot help, it certainly is capable of harming.  Not only will indiscriminate spending of taxpayer money act as a drag on the economy, but enactment of repressive laws and regulations will stifle business, adding years to any recovery.  It’s my belief the occupant of the White House together with current congressional leaders will not hesitate to institute wage, price and rent controls if the political winds appear favorable.  The term “catastrophe,” recently uttered by President Obama, is an excellent description of this control scenario.

I’ll conclude with a final observation.  As I suggested in an earlier paragraph, I cannot envision when a bottom-out may occur, as the future is unclear.  I will, however, offer this prediction: Providing the federal, state, and local governments do not go mad in their attempts to ameliorate matters—they’re not above this possibility—and with the added presumption America does not experience a calamity of momentous magnitude, equal to or greater than 9/11, recovery might begin by about 2012.  If, however, the Obama administration’s approach is similar to that taken by Franklin Roosevelt in the mid-1930s, our miseries could drag on for a decade or more.  Let us all hope sanity prevails and, with it, a true revitalization of America.