It's the recovery, stupid
Commentary: It's time to name names
By Lou Barnes, Friday, January 22, 2010.
Flickr photo by Duchamp.It has been a big week. Since last summer, economic policy and markets have been frozen in anticipation of recovery. This period of apparent stability has been an illusion, with tension building, and markets and politics have begun disorderly moves to catch up.
Stocks have cracked, which should have helped mortgage rates, but the aid has been intercepted by onrushing Treasury borrowing. Mortgages are stuck above 5 percent.
The economics of the moment are the easy part. There is no recovery worthy of the name, especially in jobs. Housing in half the country is in deep trouble. We are living on Treasury borrowing that must slow, but we dare not. The administration has no functioning plan for economic recovery, and average citizens are mightily annoyed.
The political consequences ... holy smokes. First the ricochets and collateral damage, then one bright light of effective action -- at the Federal Housing Administration of all places.
Coverage of the Massachusetts upset has focused on partisan triumph and consequences to health care reform. Wrong and wrong. Voters for Republican Senator-elect Scott Brown were asked: Was the economy the key to your vote for Brown? Yes. Nine to one.
During the last many immobile months in the White House a quiet coup took place. The do-nothing Larry Summers-Tim Geithner axis has been replaced by the David Axelrod-Paul Volcker populist-and-punish front.
At first I thought this week's announcements of taxes on banks and break-'em-up plans were political ploys to get out in front of national anger and health care failure.
No such luck. The White House thinks the plans are good policy. Warren Buffet denounced the tax plan within hours as the idiocy that it is. Banks already pay heavy fees to replenish the Federal Deposit Insurance Corp. after their fellows' disasters; yanking more capital would mean fewer loans, and we must have loans to get out of this.
Volcker was easily the most punishing Fed chairman ever (he created the worst post-war recession previous to this to break the back of inflation), but his world is long gone. This whole "too-big-to-fail" argument is mistaken.
If all of America's top 20 banks were half their 2007 size, nothing in this disaster would have been different. We suffered a systemic failure. In dominoes, size doesn't matter. ...CONTINUED
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Submitted by Bob Brennaman Jr. on January 22, 2010 - 2:23pm.
Good article. If the people that voted for Obama knew what a Jimmy Carter he was going to be, they wouldnt have voted for him. He is socialist and a 1 termer, thank god.
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Submitted by Biz Savings on January 22, 2010 - 2:47pm.
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Submitted by John Rakoci on January 22, 2010 - 3:00pm.
The political losses of NJ and VA did not sink in to the DEMs until the huge loss in MA. The shine on obama has diminished. Those running this November see 3 of 3 obama campaigned for lost. Today, 2 Dems spoke of re-newing theBush tax cuts. Yes, it is about the economy. The economy will not turn without housing and housing will not turn without jobs. obama says he 'saved or created' 340,000 jobs with the stimulus, but there are over 4 million fewer jobs now than when he took office. obama wants the banks to lend while threatening to break them apart and banking regulators are telling them to get their balance sheets in order or be taken over. The voters may now be awake and realize the 'hope & change' is not working. It is long past time to curtail spending on new programs that there is no way to pay for except by printing more money and adding debt to our children and grandchildren.
I was talking to a friend that is extremely excited about the daughter that will be coming int the world in a couple weeks. I wonder how happy she would be if she knew she was $38,000 in debt the day she is born.
Submitted by Ruthmarie Hicks on January 24, 2010 - 8:37pm.
Where did all this come from? It came from 8 miserable years of irresponsible leadership - or lack of same. It came from a cowboy like mentality towards markets. Did anyone seriously expect an administration to solve the near collapse of our entire financial system in ONE YEAR?
Stepping on the brakes in the name of the deficit is a recipe for total disaster. The lessons of the Great Depression should be clear to all. What caused the Great Depression was the refusal to stimulate. Bernanke knows that.
The dems are down, but don't count us out. The only thing we have learned from this is that we have to play as dirty as the republicans did to get things done.
Submitted by SueEllen Lawton on January 24, 2010 - 9:35pm.
I couldn't have said it better Ruthmarie.
The Republicans scream about our countries record deficit which THEY created under Bush2 with his tax cuts and the wars on terror. GW inherited a budget SURPLUS, remember? Obama inherited the largest deficit our country has ever seen. Obama has taken great pains NOT TO INCREASE the deficit even with the bailouts (which I think they should simply call LOANS) and the war. Then when Obama develops a plan to ensure we get all of the money back from the banks, he is roasted for it. Well, you can bet that if we don't get all of the money back, he'll be roasted for that, too. Conservatives, can't you see? He is doing this for YOU. He respects your tax dollars and is trying to be responsible about recovering them,
Then there is the economy. You can't blame Obama for that. The ship was sinking fast when he took office. He was in a no win situation. Either stimulate the economy as much as it needed to be stimulated and drive our country MUCH further into debt OR do as much as we possibly can given our near destitute financial state and hope for the best (which he did) OR do nothing and watch every major bank in our country fail and plunge us into 25%+ unemployment and revisit the great depression.
I think our country would benefit most from a little cooperation from our conservative legislators and their supporters.
We all want a thriving economy.
No one wants to pay more taxes.
We all agree that healthcare needs major reform.
No one wants to increase our deficit or waste taxpayer dollars.
We all want our country to be safe from terrorists.
Give Obama a little credit for trying to keep the deficit down. For trying to recover our taxpayer dollars from the banks. For trying find a solution to the healthcare crisis (which is directly related to our looming even greater deficit crisis). For trying to work with you guys.
It doesn't help anyone to just criticize every move Obama makes. Come up with some solutions of your own that don't put corporate interests above voter interests.
Submitted by Ray Wood on January 25, 2010 - 1:24am.
Obama has ridden the wrong horse for a year. Now he's paying for that mistake.
I think he felt that if he staffed up with people like Geithner, Summers & friends he could put the recovery on auto pilot while he worked on health care. It obviously didn't work.
Now his ego project is a bust and he's way behind the power curve on the economic issues. It looks like he may jump on the populist bandwagon to bail himself. I hope not.
Hopefully, we are about to find out what we should have learned last spring. And that is, Wall Street engaged in nothing short of the financial equivalent of off-track betting in the form of Credit Default Swaps. They were also involved in outright fraud in packaging and selling bad Collateralized Debt Obligations.
These two activities were the accelerant and the explosives that caused the 2008 meltdown. The popular name for them has become "toxic derivatives."
Unfortunately, our industry supplied some of the ingredients of these ticking time bombs; sub-prime mortgages and inflated home prices.
The Federal Government was complicit as well. They supplied cheap money and removed some regulations to make it easier to loan money to people that couldn't pay it back. Even to the point of suggesting that they do so.
So the whole thing predictably blows up in the fall of 2008. That in turn helps sweep Obama into office.
Obama has an added problem. It's going to be difficult in the next two or three months, to hide the fact that Summers and Geithner had a role in the 2008 economic crisis.
Larry Summers was instrumental in getting legislation passed in 1999 that negated laws passed during the Great Depression. These laws would have prevented banks & insurance companies from betting on Credit Default Swaps and engaging in other risky behavior.
Tim Geithner was CEO of the NY Federal Reserve when they gave AIG $60 billion to pay off Credit Default Swaps gone bad. Then the NY Fed urged AIG to keep the names of the recipients secret. This instruction was in violation of SEC rules, making it illegal!
By coincidence the #2 beneficiary ($13 billion overpayment) of the Feds' largess with our money was none other than Goldman Sachs. That's where Geithner's chief of staff Mark Patterson just happens to come from. BTW there's are lots of people that switch hats between the white house and Goldman Sachs.
I'll bet Obama will try and appeal to populist issues like Wall Street bonuses, too-big-to-fail banks and a bank tax. He will try and hide and minimize substantive reform like banning naked Credit Default Swaps.
What he should be doing is directing the DOJ to go after the bad guys on Wall Street. The ones that sold worthless CDOs to unsuspecting pension funds and then bought Credit Default Swaps against those very securities. They pocketed the money from the sale and cashed in on the CDS when they went sour!
It would be nice to see him try and do the best thing for the country.
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