Help is on the way. On Tuesday, President Bush told the American people that his Treasury Secretary, "Hank," had "good meetings" with the leadership on Capitol Hill and is "upbeat" about the possibility of getting something done to address the nation's economic problems. The President also admitted to a "very positive feeling" after a just concluded meeting with the leadership of the House and Senate in the Cabinet Room. We should all be relieved. The Fed's big honking rate cut told Wall Street what it wanted to hear Tuesday morning, preventing total freefall in the markets. But it would have all gone immediately to hell and back again if Bush had confessed to "negative" thoughts on the prospects of a fiscal stimulus package getting passed soon. Stay positive, Mr. President!
Then the President got down to business. He signed an executive order establishing "the President's Advisory Council on Financial Literacy."
The purpose of the Council:
To help keep America competitive and assist the American people in understanding and addressing financial matters, it is the policy of the Federal Government to encourage financial literacy among the American people.
In a statement announcing the executive order, the president declared that "I have asked people from the business world, the faith world, the nonprofit world to join this council in order to come up with recommendations as to how to better educate people from all walks of life about matters pertaining to their finances and their future."
(The "faith world?")
" I just wonder how many people when they bought a subprime mortgage knew what they were getting into," said President Bush.
This is a reasonable question to ask, and we've got nothing against the government encouraging financial literacy here at How the World Works. We just get the feeling that when President Bush talks about wanting people "to understand basic financial concepts and how credit cards work and how credit scores affect you, how you can benefit from a savings account or a bank account," he might be focusing his efforts on the wrong sector of the populace.
Did the mortgage brokers who fell over themselves in their haste to sell those subprime mortgages to people who could not afford them know what they were getting into?
Did the banks that packaged up those mortgages into collateralized debt obligations that they then sold like hotcakes across the globe know what they were getting into?
Did the ratings agencies who gave those CDOs AAA ratings know what they were getting into?
Did the hedge funds and other institutional investors who bought shares in the collateralized debt obligations linked to subprime mortgage securities know what they were getting into?
Did Federal Reserve chair Ben Bernanke, when he told us that the subprime contagion was "contained" know what he was getting into?
The answer, in every case, is no. If you want to blame financial illiteracy for causing the problems we face today, then you have to blame everyone equally, from the most pedigreed academic telling us that complex financial innovation has made the world a safer place all the way down to the guy with no money in his savings account thinking he can afford a half-million dollar home.
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