Can a Brother Get Some Stimulus?
What the Obama Plan Means for Joe Average
2009-02-11
By Eric Easter

A down-on-his-luck brother in front of the Starbucks on 53rd Street asked me this morning if he could “get some stimulus” to get a cup of coffee and an overpriced pastry. A good joke will get you my spare change any day. Except that I’m not sure he was joking. He and a whole lot of other people are hoping that President Obama’s new stimulus package is something akin to reparations. Those people will probably be disappointed in the reality. But that doesn’t mean we shouldn’t support it.

The president’s prime time press conference made us all feel confident that the new guy is light years smarter than the old guy, but provided few details. On the website www.financialstability.gov, you can read a detailed fact sheet of the package point by point. But after reading seven pages of words like “mitigation” and “legacy assets”, the average guy won’t feel particularly stimulated. Stupid maybe, but not stimulated.

Unfortunately, this not the kind of immediate impact stimulus that will make you call a doctor after four hours of over-stimulation. This stimulus is more emotional than practical for people like you and me. If you got fired from your accounting job today, you will not be rebuilding a levee tomorrow. Still the Viagra analogy is not entirely off base. The people with the money still have money, but they’re afraid if they whip it out, it won’t perform for them. The stimulus bill is about their confidence first, yours will come later. Monetary risk, like sex, is all in the mind.

Most of the bill works on a broad macro level. Greater transparency doesn’t put money in anyone’s pockets, but it might make you feel better about where your taxes are going.  It won’t stop the bleeding, but it might stop your bitching. Ditto for the Public-Private Investment Fund, the Comprehensive Stress Test for Banks, Dividend Limitation and Limits on CEO Compensation. Those are all feel-good elements. Essential for the national mood but they will do little for your purse strings.

Still there are at least two points in the stimulus package that will trickle down to the average American household faster than others. Here’s a breakdown of those:

The Affordable Housing Support and Foreclosure Prevention Plan

If it works, this provision will force lenders to play ball with you when you’re in danger of losing your home and set a list of standards to follow for developing alternative plans to keep you in your home. That’s good for you personally if you’re in trouble, and good for you personally if your neighbor (and by extension the value of your home) is in trouble. Unstable neighborhoods begat a rash of spiraling problems that threaten American economic health. Stability and security are synonymous with stimulus.

On the other hand, those very same guidelines may also force banks to more closely scrutinize the people they play ball with. If you didn’t have the proper assets to afford your home in the first place, chances are the stimulus package won’t be as generous about that stain on your credit rating this time around.

The Consumer & Business Lending Initiative

For the average household, this is the part that matters to you most.

In plain English, this means more credit for the people who pay your paycheck. The reason behind many of the layoffs raining down on workers from month to month has less to do with shrinking profits than with cash flow. Nothing keeps a business owner up at night more than the specter of a bounced payroll check. To avoid this, most businesses would rather fire you than suffer that emarrassment. If your company is confident that it can get its hands on enough cash to pay you, chances are they’ll keep you and find other more productive and efficient ways to cut costs and ride out the economy until a turnaround.
 
More importantly, flowing credit means that those eternally faithful people who still believe that the “real” in  ‘real estate” makes houses a sound investment will actually be able to get loans to pay the unreasonable amount of money you think your property is worth.  Since most of us are only as confident financially as the perceived value of our homes, even a slight reduction in the time it takes to sell will do more to spark the economy than anything else in the plan.

The same goes for loans for cars, home repairs and new lawn mowers. The engine of our economy is fueled by the degree of psychological freedom we have to pursue our dreams, even if those dreams lead us into deeper debt.

So for that brother outside the Starbucks, you aren’t any more broke than you were six months ago when I gave you money for coffee, you’re just less confident. Stimulus is all in your mind. And as soon as I’m more confident, I’ll spot you the whole breakfast.

Eric Easter is Chief of Digital Strategy for Johnson Publishing, Inc. He writes about politics, culture and technology for ebonyjet.com