PIMCO "Chump" Kashkari Rails Against Entitlement Spending After Providing Banks With $700 Billion Taxpayer Funded Blank Check

For today's dose of "he really said it" hypocrisy, we turn to recent PIMCO addition, former bearded outdoorsman, Hank Paulson whipping boy, and creator of the TARP abortion, Neel Kashkari, who apparently felt it was his duty to join his colleagues in validating the New Normal (buy our BAB bonds pleeeez) and conforming to the firm's policy of bashing deficit and entitlement spending. In a brief oped likely written by his 2nd year analyst or executive assistant, titled "The Cultural Challenges of Entitlement Reform" the bald one says "bailing out the financial system went directly against our shared beliefs in free markets and fair play." Yes, you read that right. This is the same person who singlehandedly devised the biggest taxpayer blank check bailout to banks in history (until of course Europe had to bail out its own banking system two months ago, where incidentally, everything is peachykeen once again) as captured by the following email: "We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five percent of that is $700 billion. A nice round number." In fact, let's continue: "Seven hundred billion was a number out of the air,” Kashkari recalls….”It was a political calculus. I said, ‘We don’t know how much is enough. We need as much as we can get [from Congress]. What about a trillion?’ ‘No way,’ Hank shook his head. I said, ‘Okay, what about 700 billion?’ We didn’t know if it would work. We had to project confidence, hold up the world. We couldn’t admit how scared we were, or how uncertain." Ah yes, an uncertain and scared then-35 year old bailing out the world... And now, a grizzled and veteran Kashkari, who certainly recalls his wood chopping days with joy at the PIMCO campfires, in which Build America Bond receipts are used for kindling, is encouraging the administration to cut the benefits of the same taxpayers whose money was used to prevent the insolvency of, among others, his current employer? Yes, ladies and gentlemen, we bring you today's unbridled hypocrisy courtesy of the latest and most worthless addition to the Pimco team.

The Cultural Challenges of Entitlement Reform

Neel Kashkari, Managing Director [and Executive Vice President Of The Coleman Campfire Collection]

This article was originally published on washingtonpost.com on July 26, 2010.

Click here to read Neel Kashkari's biography.

The fiscal crisis in Europe has awoken Americans to the enormous challenge we face from entitlements. The promises our country has made over the past few decades, combined with changing demographics and rising costs, have put us on a path to national insolvency. Unless we control our deficits we will face stifled economic growth and impaired standards of living, perhaps even as soon as a few years from now. Most economists agree that raising taxes cannot pay for these commitments; entitlements must be cut. Before we can embrace any reform proposals, however, we must understand the influence our culture has on our decision making.

A nation’s culture can have a profound impact on its competitiveness. Our shared beliefs in free markets, fair play and the rule of law inspire entrepreneurs to pursue their dreams and give global investors confidence to bring their money to America. These beliefs have passed from citizen to citizen, from generation to generation. They have strengthened over our history and brought an important competitive edge to the United States.

Our belief in free markets is founded on the idea that each individual acting in his or her self-interest will lead to a superior outcome for the whole. The financial crisis has reminded us that free markets are not perfect – but they do allocate capital better than any other system we know. A “me first” mentality usually makes markets more efficient.

But this “me first” mentality can also lead to shortsighted political decision making. Most Americans agree that we need more energy from clean sources, such as wind power – until someone proposes installing a transmission line near their homes. Most people are against earmarks – unless it is their representative scoring money for their district.

Cutting entitlement spending requires us to think beyond what is in our own immediate self-interest. But it also runs against our sense of fairness: We have, after all, paid for entitlements for earlier generations. Is it now fair to cut my benefits? No, it isn’t. But if we don’t focus on our collective good, all of us will suffer.

While it does not happen often, our political system is capable of making unpopular decisions that are in our collective best interest. In 2008, during the most severe financial crisis in 80 years, Republican and Democratic leaders in Washington came together to do something deeply unpopular: bail out the financial system via the Troubled Assets Relief Program. These leaders understood the consequence of inaction was economic devastation for Americans. Passing TARP was the right thing to do.

The challenge of entitlements is more difficult than the financial crisis: First, we must reach consensus to make cuts before the fiscal crisis is upon us. TARP was possible only once people could feel the crisis. The House passed that legislation only after the Dow Jones industrial Average dropped 700 points immediately after lawmakers voted it down the first time. If we wait until the bond market shuns Treasuries, the economic consequences could be dire. Virtually overnight, we could have far less money to spend on priorities such as defense, education and research. Once confidence in U.S. Treasury bonds is lost, it could take years to return.

Second, bailing out the financial system went directly against our shared beliefs in free markets and fair play. While the vast majority of Americans did not cause the financial crisis, we all had to sacrifice to stop it. Such a cultural violation has angered people nationwide, which makes cutting entitlements more difficult because it will again betray our sense of fairness.

I believe three steps are necessary for our country to embrace any meaningful proposal to cut entitlements:

  • Our economy needs to experience sustained growth, creating good jobs, so Americans feel economically secure. It is hard for anyone to think about long-term sacrifice when they are worried about how to pay their bills today.

  • The emotional bruising inflicted by the financial crisis needs to heal. Along with the passage of time we need a renewed sense that people are succeeding and failing on their own merits.

  • Our leaders need to make the case for cutting entitlement spending by tapping into our shared beliefs of sacrifice and self-reliance. They must be willing to risk their own political fortunes for the sake of our country.

This leads to important questions: Will the bond market provide our country time to heal, both economically and emotionally, in order to tackle entitlements? Or will we be forced to act by an acute fiscal crisis – at which point it may be too late?

Our leaders need to move quickly to deal with these economic and cultural issues. We don’t know how much time we have and the cost of delay could be enormous.