Confidence ... or Con Game?

From the beginning of the current financial crisis, many officials have been insisting that a big part of our problem is "confidence." Remember back when the $700 billion bailout was supposed to inject "confidence" into the financial system?

I can't help but think of another definition of "confidence" -- as in a confidence, or "con," game. When you think about it, trying to gain someone's confidence in order to grift them out of their hard-earned dollars really isn't an outlandish metaphor for our current situation.

The nationalization of spending
The parade of moves that the Treasury's Henry Paulson and the Fed's Ben Bernanke have made over the course of 2008 are dizzying in their complexity, expense, and confusion. The latest is the bailout -- basically, the nationalization -- of Citigroup (NYSE: C  ) , putting taxpayers on the hook for additional billions of dollars.

While the nationalization of corporations bothers me deeply on a philosophical level, other recent plans bother me on a more commonsense level. The Fed and the Treasury announced $800 billion extra, including a portion meant to stimulate consumer spending, including credit cards, auto loans, and student loans. Again, it has long been clear to some of us little people that the major problems our economy faces are due to way too much easy credit -- and easy credit's best accessory, short-term thinking.

The Fed and the Treasury continue to be hell-bent on doing all they can to persuade consumers -- many of whom are already far over their heads in debt -- to continue spending money they don't have. There's something downright morally reprehensible about that, but some seem to believe that's the way the economy can be "saved." We're all supposed to dig ourselves in deeper -- and of course, given the government's soaring deficit, it's doing the same thing.

Who's naive, again?
Meanwhile, some of us feel like we've gotten mugged, since the Troubled Asset Relief Program (TARP) so far has not worked according to its intended plan, which was to unfreeze credit. (I'm still wondering if the real problem is that banks realized that it is, I don't know, kind of unsustainable to lend to those who probably won't be able to pay it back.)

Henry Paulson then said it was naive to believe the TARP would work quickly. It's funny, but if I were a guy who had pushed the panic button, then repeatedly changed strategy while throwing around hundreds of billions, I don't think I'd be calling anybody naive. And of course, Paulson's insistence earlier this year that the economic problems were contained and controllable should definitely sound naive to those of us who already figured our overheated economy was due for a whopper of a recession.

I also can't forget Bernanke arguing during the bailout controversy that if we didn't get TARP there would be a recession. This seemed strange to me at the time -- I strongly suspected we were already in a recession back in April, despite so many people's assurances we were not. And just today, the National Bureau of Economic Research has announced that, guess what, we have been in a recession since this time last year.  Will wonders never cease?

Confidence vs. common sense
Call me crazy, but consumers shouldn't feel so economically confident, particularly since their wallets are stuffed with cards bearing the logos of Visa (NYSE: V  ) , MasterCard (NYSE: MA  ) , Discover Financial (NYSE: DFS  ) , and American Express (NYSE: AXP  ) -- cards which have put them into so much debt that they may not pay it off for decades.

Neither should the people who pinched, scrimped, and saved their money and are now getting no return on their savings due to aggressive interest rate slashing. (And of course, let's not forget the inflationary effects of the money printing presses working overtime.) These are the people who refused to buy into the housing bubble and now can't even buy cheap real estate, because the government is so determined to prop up housing prices for everyone who bought into the collective economic delusions that got us into this mess.

The bailouts need to end, as more and more companies line up for government help: homebuilders like Toll Brothers (NYSE: TOL  ) and automakers like General Motors (NYSE: GM  ) need to sink or swim, on their own, and consumers need to be allowed to work on fiscal responsibility. I don't see anything wrong with the market being allowed to work as it is meant to, with natural cycles that do, in fact, include recessions, which will weed out the weak and greedy players that made dangerous mistakes and sacrificed good business sense for unsustainable short-term profits.

Contemplating confidence
If anything, I think it's high time our culture takes a break from some of the misguided "confidence" it has exhibited for quite some time now. The overwhelming message seems to be that we all need to spend our economy back into growth, but if we read between the lines, it's clear that growth over at least the past decade has been artificial, fired up by debt and a "confidence" that had no grounds in realistic measures like "income."

The policy appears to be to do everything possible to try to keep the natural correction from occurring -- although many of us believe it must occur for our economy to be healthy again -- and insist that everybody be confident, for Pete's sake. With all the talk of confidence, one good question might be why we should feel confident in a system that is propping up bad decisions and policies and even encouraging people to repeat the mistakes that got us here.

That's when it's easy to wonder if it is one heck of a confidence game, indeed.

Discover Financial Services and American Express Company are Motley Fool Inside Value picks. The Fool owns shares of American Express Company. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (19) | Recommend This Article (138)

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  • Report this Comment On December 01, 2008, at 8:03 PM, jmt587 wrote:

    Well put.

  • Report this Comment On December 01, 2008, at 8:38 PM, captmarti wrote:

    Well put.

    When will this overspending madness and enabling cease? Those of us that are debt free don't need any loans. Those of you that are in debt do. I think it is high time to let the folks feel the brunt of their stupidity (their poor choices) for living on borrowed money they can't afford to payback. Just how rich are you now?

    Why should we (I) be penalized with lower interest rates in an effort to help those that had refused to tighten their belts and live at or below their mean? It is time for these knuckleheads to take responsibility for their decisions.Stop enabling them with their inability to delay gratification, etc.

    Also, CEOs that allowed (enabled) these loans to be given to poor credit risks should be forced to live in their cars or in a tent for a year and see what it feels like.

    Seems to me that the game of musical chairs has stopped for those playing that "let's play the float" game and there are no more seats left. Too bad so sad. Now, you all must deal with it! See you at the food bank!

  • Report this Comment On December 01, 2008, at 8:58 PM, rd80 wrote:

    I'm going to log in with my other player name just so I can rec this again.

    Alyce Lomax for Treasury Secretary!

  • Report this Comment On December 01, 2008, at 9:22 PM, OneLegged wrote:

    Right on the head. Truly.

  • Report this Comment On December 01, 2008, at 9:52 PM, SteveTheInvestor wrote:

    The government, the Corporates and Wall Street brought this upon us, with the first one allowing the last two to run the economy into the ground. Yes, the consumer has been an accomplice, but some probably just didn't know any better. Yes, they should have, but let's face facts... greed wins out most of the time and if some mortgage broker/bank and/or credit card companies tell you that it's ok to go for it, many people will do just that. The Three Enablers above definitely should have known better and have no excuse in my mind.

    The quandary is how to allow the idiots to fail, as we should, without causing an economic collapse that will greatly impact all of us. Obviously, rescuing a homebuilder is a waste of money but the answers aren't so easy when it comes to GM and Ford. Even more difficult are the financial companies. With the potential troubles that loom, I think the least of our worries is low interest rates on our savings.

  • Report this Comment On December 01, 2008, at 11:08 PM, Clint35 wrote:

    Alyce, you couldn't be more right. Right from the beginning of the talk of TARP from Paulson and the other guys, I felt like I was being conned. If anyone has ever fallen for a scam or sent money to a get rich quick scheme and later realized you should've known better. You can always remember when you look back, that something didn't quite feel right. I can admit to falling for some scams such as stuffing envelopes for loads of cash. And anytime the Con-man says things like "trust me". You shouldn't trust them. If they say things like "we have to do this, because not doing this would cause a global catastrophe, the likes of which haven't been seen since the Great Depression." Then later you find yourself asking, "Wait a minute, do they have a crystal ball? How do they know what will happen if we don't do this?" But then it's too late they've already got our money and already spent most of it. So, yes, you're right. We got conned.

  • Report this Comment On December 02, 2008, at 1:20 AM, mlaursen wrote:

    Amen, Alyce!

  • Report this Comment On December 02, 2008, at 7:42 AM, gamblegold wrote:

    Looks like Mr. Market agrees.

    And people always said I was the foolish one for pre-paying my mortgage off 12 years ago.

    Debt, properly used, is a useful financial tool. Sadly, this country -- what am i saying? -- this WORLD has bought into the idea that having capital entitles them to carry freighter loads of unsustainable debt. As long as the money keeps 'moving', we'll all be okay.

    Guess it's time for a new paradigm, huh?

    Thanks, Alice -- very insightful article!

  • Report this Comment On December 02, 2008, at 9:08 AM, Doghair101 wrote:

    And furthermore good economics tells us that the longer the markets were artificial or pumped up as you may have said then the longer and harder the correction will be...this is the scary part because the correction is trying to happen but not allowed to happen to who it should happen too...

    Is this the man made ending of the free market system..A system that has worked so well for over 200 years?

    Your words are golden and should be on the front page of every paper especially in Wash. DC and New York...

    Doghair

  • Report this Comment On December 02, 2008, at 11:56 AM, ChannelDunlap wrote:

    Clint - One tactic you'll find often in cons which was flagrant here is the "You don't have time to think about it, you need to do it RIGHT NOW." line. Anytime I hear that from a sales guy, I immediately walk away. We should have done the same thing when Paulson was saying it. I have a feeling that in the very near future we're going to realize just how swindled we were. One last attempt at profiting by the Bush administration.

  • Report this Comment On December 02, 2008, at 5:30 PM, wintrwoman3 wrote:

    How about some suggestions on how to handle this fiasco. Think going forward...hindsight is useless right now.

  • Report this Comment On December 02, 2008, at 7:21 PM, ellecyd wrote:

    I always thought it was a little boy who said "the Emperor has no clothes"...but it was you, wasn't it, Alyce.

  • Report this Comment On December 02, 2008, at 8:18 PM, jwe3 wrote:

    So the wacky Dems had a little, no, make that BIG housing con going and the resultant fire caught the whole forest on fire, scaring everyone. And now there is no confidence? Well of course not, because there has been no one held accountable. Nope. Certainly not by Dems on Capitol Hill, who deride concerns as playing the blame game. Hey Jerks! YOU on the Hill. Yeah, YOU cost me tens of thousands of dollars, and others many more dollars in savings for retirement! But no one, including the electorate, held you accountable, so now you are going to fix it?!?! And you, on the Hill, wonder why there is a crisis of confidence?

    No Accountability, No Confidence

    Know Accountability, Know Confidence

    No Kidding.

    Good thing we have the Fool with decent advice.

  • Report this Comment On December 03, 2008, at 12:55 AM, PrincipleOf3rds wrote:

    Awesome dude! Couldn't agree more. I'm a Fool who bought into the Phoenix housing hype (six months prior tot he peak) and I know the way out...build equity and take my lumps during the sale.

  • Report this Comment On December 04, 2008, at 2:02 AM, cwrw99 wrote:

    Excuse you! Bill Clinton and the Dems and have been out of the White House and Congress during these years.

    Silly Americans, you were tricked into letting the rich control things. I am sure you believe, Joe the plumber, will buy the company where he works.

    You didn't notice how much regulation was eliminated in the past 8 years. Sucker.

    Hope that bridge you cross is stable. I hope your street is paved. The hospital you may need is open. The policeman you want/need is hired and available. I hope you can make it to the trash dump to get rid of your trash. You must pay for private school.

    The only people who don't have to worry about such things are the rich. They can afford to pay for this stuff.

    The rest of us, pool our money to pay for it. That is what I think/appreciate about government & taxes.

  • Report this Comment On December 05, 2008, at 2:06 AM, WhiteMamba wrote:

    Uhhhm, actually the Democrats have been in control of congress for a while now.

  • Report this Comment On December 05, 2008, at 12:15 PM, freedomaintfree wrote:

    So instead of confidence, we get ConFinance...

  • Report this Comment On December 05, 2008, at 4:27 PM, foolishfame wrote:

    Back to Alyce's analysis. Kudos! Let that be our jumping off point to engage our legislators to know how we feel about this, so we can urge them to repair the giant cracks in the structure of this system.

  • Report this Comment On December 07, 2008, at 3:38 AM, utahbengoshi wrote:

    Great piece. Many thanks! You know we are at the nasty precipice now that the Fed is preparing to be the major buyer of Treasuries. Imagine it, Bernanke bailing out Paulsen, Paulsen bailing out Bernanke, and all their pals on the Hill. Where's Paul Revere when you need him. Alyce, hope your horse is well fed and ready.

    One constructive avenue may be www.ourcaucus.com - a non-partisan accountability mechanism for both the demorats and republidumbs who have mortgage the future of our children and grandchildren.

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