Category: Gersh on Washington

In order to make their models work, economists must take so much for granted that academics joke about it:

Question: How does an economist open a can of soup?

Answer: He assumes a can opener.

Lately, I have noticed many an economist offering a solution to the banking crisis has taken to assuming Warren Buffett. As in, "If prices fall low enough, Warren Buffett will come in and buy up these toxic assets." Or, "The government shouldn't mess with the market or a Warren Buffett will withdraw his money.

I like Warren Buffett as much as the next man, but let's give him and his money a rest.

Google's CEO Eric Schmidt was one of the corporate leaders that met with President Obama today. After the meeting, I spoke with Schmidt on the White House lawn. Schmidt's thoughts about the meeting and the economic recovery plan aired in tonight's broadcast. But, I also took the opportunity to talk to Schmidt about the future of this industry we call media. And, I managed to sneak in a question about smart electricity grids, which were the topic of a story my colleague Dana Bate reported recently. You can watch this interview "extra" below. (You'll need Flash installed.)

Here's what President Obama had to say today when he visited Republicans on the Hill:

"We're going to have to deal with the troubled assets that many banks are still carrying and . . . that have locked up the credit system."

Folks, you have heard it from the top: We are just beginning to fight this credit crunch. What Obama has not yet said, but his advisers have, is that it will take trillions of dollars to get the job done.

Here's why gobs and gobs of money -- unfathomable amounts -- will be needed. So far, the Federal Reserve has increased its balance sheet by 1.2 trillion dollars, buying assets, pumping money into the banking system. What has that money accomplished?

Here's the deal: for about 15 to 20 years we've been living beyond our means, borrowing too much. Every possible statistic on borrowing trends tells the tale.

Now that trend has reversed itself, and we are making up for lost time. That means the savings rate could leap from basically zero to 10% of income.

Spending is falling at a pace not seen since, well, you know how this sentence ends.

Why is that a problem?

Barack Obama was born in 1961 and depending on how you count that, he is either not a baby boomer or not quite a baby boomer.

Either way, in his campaign -- in its reach among young people and its techniques -- and in his speech today, he declared boomer-ism over.

Obama's speech was austere, if not stern. He spoke not only of Wall Street's failures, but of our "collective failure to make hard choices."

Obama called us away from self-expression and self-gratification to collective action.

This Sunday I made it down to the Lincoln Memorial with 400,000 of my closest friends.

There were plenty of famous names and lofty speeches.

But for me, the real joy of the moment was to be part of the crowd. Part of something bigger than myself. 400,000 people. Friendly, helpful, hopeful.

I interviewed Mark Zandi of Moody's Economy.com and Robert Shiller of Yale for the NBR special "A Time for Change: The Obama Agenda," which we'll broadcast on Monday. Only a portion of Zandi and Shiller's analysis of Obama's economic strategy made it into the program. These are smart guys, so I thought I'd offer you more of what they said. (You'll need Flash installed to watch these clips.)

ZANDI
He's been a leading analyst of the credit crisis and was early to warn about the risks in the subprime mortgage market. He has the rare distinction of having advised John McCain and Barack Obama. I asked Mark whether he thinks the Obama stimulus plan will actually do the some.

In his address on the economic crisis, Barack Obama said that, without action, the economy could lose $1 trillion in output. Obama said that translates into more than $12,000 in lost income for a family of four.

That is a staggering figure, but the impact of the recession will actually be much worse than that.

$12,000 is an average figure. But for a family where mom and dad are laid off from the local GM plant, the impact will be closer to $80,000. There were a lot of people who worked for banks and had nothing to do with the bad loans and bad practices. If those people lose a job and are forced to take part-time "consulting" work, the hit could be $50,000 or more.

This morning I was trying to explain to my 10-year old son why fear is driving the economy right now. Here's what Ben had to say:

"You mean they took the safest economy in the world and they broke it?"

Friday we are going to get a terrible unemployment report. Dr. Mark M. Zandi, the chief economist and cofounder of Moody’s Economy.com, says we may have to get used to it.

I spoke with Zandi about the economy, specifically how the credit crunch is playing out. Here's the video clip (you need Flash installed to watch):