Barry Ritholtz « TheCenterLane.com

Obama Backpedals To Save His Presidency

November 10th, 2011 Posted in Uncategorized

Nov, 10 2011

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President Obama’s demotion of his Chief of Staff, Bill Daley, has drawn quite a bit of attention – despite efforts by the White House to downplay the significance of that event. The demotion of Daley is significant because it indicates that Obama is now trying to back away from his original strategy of helping Wall Street at the expense of Main Street. This move appears to be an attempt by Obama to re-cast himself as a populist, in response to the widespread success of the Occupy Wall Street movement.

In September of 2010, I wrote a piece entitled, “Where Obama Went Wrong”. Despite the subsequent spin by right-wing pundits, to the effect that voters had been enamored with the Tea Party’s emphasis on smaller government, the true reasons for the mid-term disaster for the Democrats had become obvious:

During the past week, we’ve been bombarded with explanations from across the political spectrum, concerning how President Obama has gone from wildly-popular cult hero to radioactive force on the 2010 campaign trail. For many Democrats facing re-election bids in November, the presence of Obama at one of their campaign rallies could be reminiscent of the appearance of William Macy’s character from the movie, The Cooler. Wikipedia’s discussion of the film provided this definition:

In gambling parlance, a “cooler” is an unlucky individual whose presence at the tables results in a streak of bad luck for the other players.

* * *

The American people are hurting because their President sold them out immediately after he was elected. When faced with the choice of bailing out the zombie banks or putting those banks through temporary receivership (the “Swedish approach” – wherein the bank shareholders and bondholders would take financial “haircuts”) Obama chose to bail out the banks at taxpayer expense. So here we are . . . in a Japanese-style “lost decade”. In case you don’t remember the debate from early 2009 – peruse this February 10, 2009 posting from the Calculated Risk website. After reading that, try not to cry after looking at this recent piece by Barry Ritholtz of The Big Picture entitled, “We Should Have Gone Swedish . . .”

Back in December of 2009, Bill Daley – a minion of The Dimon Dog at JPMorgan Chase – wrote an op-ed piece for The Washington Post, which resonated with Wall Street’s tool in the White House. Daley claimed that Obama and other Democrats were elected to office in 2008 because voters had embraced some pseudo-centrist ideas, which Daley referenced in these terms:

These independents and Republicans supported Democrats based on a message indicating that the party would be a true Big Tent — that we would welcome a diversity of views even on tough issues such as abortion, gun rights and the role of government in the economy.

* * *

All that is required for the Democratic Party to recover its political footing is to acknowledge that the agenda of the party’s most liberal supporters has not won the support of a majority of Americans — and, based on that recognition, to steer a more moderate course on the key issues of the day, from health care to the economy to the environment to Afghanistan.

Unfortunately, Obama was pre-disposed to accept this rationale, keeping his policy decisions on a trajectory which has proven as damaging to his own political future as it has been to the future of the American middle class.

On November 8, Jonathan Chait wrote a piece for New York magazine’s Daily Intel blog, wherein he explained that the demotion of Bill Daley revealed a “course correction” by Obama, in order to a pursue a strategy “in line with the realities of public opinion”. Jonathan Chait explained how the ideas espoused by Daley in his 2009 Washington Post editorial, had been a blueprint for failure:

Daley, pursuing his theory, heavily courted business leaders. He made long-term deficit reduction a top priority, and spent hours with Republican leaders, meeting them three-quarters of the way in hopes of securing a deal that would demonstrate his centrism and bipartisanship. The effort failed completely.

The effort failed because Daley’s analysis – which is also the analysis of David Brooks and Michael Bloomberg – was fatally incorrect. Americans were not itching for Obama to make peace with corporate America. Americans are in an angry, populist mood – distrustful of government, but even more distrustful of business. In the most recent NBC/The Wall Street Journal poll, 60 percent of Americans strongly agreed with the following statement:

The current economic structure of the country is out of balance and favors a very small proportion of the rich over the rest of the country. America needs to reduce the power of major banks and corporations and demand greater accountability and transparency. The government should not provide financial aid to corporations and should not provide tax breaks to the rich.

At the website of economist Brad DeLong, a number of comments were posted in response to Jonathan Chait’s essay. One can only hope that our President has the same, clear understanding of this situation as do the individuals who posted these comments:

Full Employment Hawk said:

. . . The defeat of the Democrats was due to the fact that the Obama administration did too little, not because it did too much.

Daley’s view that it was because the moderately progressive policies of the Obama administration were too far left for the center was totally wrong. And listening to Daley’s advice to further shift from job creation to deficit reduction was a major blunder that reinforced the blunder of the first two years of dropping the ball on making the economy grow fast enough for the unemployment rate to be coming down significantly by the time of the Fall election.

In reply to the comment posted by Full Employment Hawk, a reader, identified as “urban legend” said this:

Obama should have been making the point over and over and over and over that getting more money into the hands of more Americans — principally right now by creating jobs — is the most pro-business stance you can take. Continuing to let the 1% dictate everything in their favor is the most anti-business thing you can do. We are the ones who want demand to rise for the goods and services of American business. Right-wingers don’t care much about that. What they do care about is maintaining their theology against all the evidence of its massive failure.

At Politico, Jonathan Chait’s essay provoked the following comment from Ben Smith:

It is entirely possible that no staff shift, and no ideological shift, can save Obama from a bad economy. You don’t get to run controlled experiments in politics.

But it does seem worth noting that this argument pre-dates Daley: It’s the substance of the 2008 debate between Hillary Clinton and Obama, with Clinton portraying Obama as naive in his dream of bipartisan unity, and the Republicans as an implacable foe. It’s the Clinton view, the ’90s view, that has prevailed here.

Indeed, it would be nice for all of us if Obama could get a “Mulligan” for his mishandling of the economic crisis. Unfortunately, this ain’t golf.

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Dubious Reassurances

October 20th, 2011 Posted in Uncategorized

Oct, 20 2011

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There appears to be an increasing number of commentaries presented in the mainstream media lately, assuring us that “everything is just fine” or – beyond that – “things are getting better” because the Great Recession is “over”. Anyone who feels inclined to believe those comforting commentaries should take a look at the Financial Armageddon blog and peruse some truly grim reports about how bad things really are.

On a daily basis, we are being told not to worry about Europe’s sovereign debt crisis because of the heroic efforts to keep it under control. On the other hand, I was more impressed by the newest Weekly Market Comment by economist John Hussman of the Hussman Funds. Be sure to read the entire essay. Here are some of Dr. Hussman’s key points:

From my perspective, Wall Street’s “relief” about the economy, and its willingness to set aside recession concerns, is a mistake born of confusion between leading indicators and lagging ones. Leading evidence is not only clear, but on a statistical basis is essentially certain that the U.S. economy, and indeed, the global economy, faces an oncoming recession. As Lakshman Achuthan notes on the basis of ECRI’s own (and historically reliable) set of indicators, “We’ve entered a vicious cycle, and it’s too late: a recession can’t be averted.” Likewise, lagging evidence is largely clear that the economy was not yet in a recession as of, say, August or September. The error that investors are inviting here is to treat lagging indicators as if they are leading ones.

The simple fact is that the measures that we use to identify recession risk tend to operate with a lead of a few months. Those few months are often critical, in the sense that the markets can often suffer deep and abrupt losses before coincident and lagging evidence demonstrates actual economic weakness. As a result, there is sometimes a “denial” phase between the point where the leading evidence locks onto a recession track, and the point where the coincident evidence confirms it. We saw exactly that sort of pattern prior to the last recession. While the recession evidence was in by November 2007 (see Expecting A Recession ), the economy enjoyed two additional months of payroll job growth, and new claims for unemployment trended higher in a choppy and indecisive way until well into 2008. Even after Bear Stearns failed in March 2008, the market briefly staged a rally that put it within about 10% of its bull market high.

At present, the S&P 500 is again just 10% below the high it set before the recent market downturn began. In my view, the likelihood is very thin that the economy will avoid a recession, that Greece will avoid default, or that Europe will deal seamlessly with the financial strains of a banking system that is more than twice as leveraged as the U.S. banking system was before the 2008-2009 crisis.

* * *

A few weeks ago, I noted that Greece was likely to be promised a small amount of relief funding, essentially to buy Europe more time to prepare its banking system for a Greek default, and observed “While it’s possible that the equity markets will mount a relief rally in the event of new funding to Greece, it will be important to recognize that handing out a bit more relief would be preparatory to a default, and that would probably be reflected in a failure of Greek yields to retreat significantly on that news.”

As of Friday, the yield on 1-year Greek debt has soared to 169%. Greece will default. Europe is buying time to reduce the fallout.

As of this writing, the yield on 1-year Greek debt is now 189.82%. How could it be possible to pay almost 200% interest on a one-year loan?

Despite all of the “good news” about America’s zombie megabanks, which were bailed out during the financial crisis (and for a while afterward) Yves Smith of Naked Capitalism has been keeping an ongoing “Bank of America Deathwatch”. The story has gone from grim to downright creepy:

If you have any doubt that Bank of America is in trouble, this development should settle it. I’m late to this important story broken this morning by Bob Ivry of Bloomberg, but both Bill Black (who I interviewed just now) and I see this as a desperate (or at the very best, remarkably inept) move by Bank of America’s management.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

* * *

This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. This move is Machiavellian, and just plain evil.

It is the aggregate outrage caused by the rampant malefaction throughout American finance, which has motivated the protesters involved in the Occupy Wall Street movement. Those demonstrators have found it difficult to articulate their demands because any comprehensive list of grievances they could assemble would be unwieldy. Most important among their complaints is the notion that the failure to enforce prohibitions against financial wrongdoing will prevent restoration of a healthy economy. The best example of this is the fact that our government continues to allow financial institutions to remain “too big to fail” – since their potential failure would be remedied by a taxpayer-funded bailout.

Hedge fund manager Barry Ritholtz articulated those objections quite well, in a recent piece supporting the State Attorneys General who are resisting the efforts by the Justice Department to coerce settlement of the States’ “fraudclosure” cases against Bank of America and others – on very generous terms:

The Rule of Law is yet another bedrock foundation of this nation. It seems to get ignored when the criminals involved received billions in bipartisan bailout monies.

The line of bullshit being used on State AGs is that we risk an economic crisis if we prosecute these folks.

The people who claim that fail to realize that the opposite is true – the protest at Occupy Wall Street, the negative sentiment, the general economic angst – traces itself to the belief that there is no justice, that senior bankers have gotten away with economic murder, and that we have a two-tiered criminal system, one for the rich and one for the poor.

Today’s NYT notes the gloom that has descended over consumers, and they suggest it may be home prices. I think they are wrong – in my experience, the sort of generalized rage and frustration comes about when people realize the institutions they have trusted have betrayed them. Humans deal with financial losses in a very specific way – and it’s not fury. This is about a fundamental breakdown of the role of government, courts, and leadership in the nation. And it all traces back to the bailouts of reckless bankers, and the refusal to hold them in any way accountable.

There will not be a fundamental economic recovery until that is recognized.

In the mean time, the quality of life for the American middle class continues to deteriorate. We need to do more than simply hope that the misery will “trickle” upward.

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From Disappointing To Creepy

August 25th, 2011 Posted in Uncategorized

Aug, 25 2011

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It was during Barack Obama’s third month in the White House, when I realized he had become the “Disappointer-In-Chief”. Since that time, the disappointment felt by many of us has progressed into a bad case of the creeps.

Gretchen Morgenson of The New York Times has been widely praised for her recent report, exposing the Obama administration’s vilification of New York State Attorney General Eric Schneiderman for his refusal to play along with Team Obama’s efforts to insulate the fraud-closure banks from the criminal prosecution they deserve. The administration is attempting to pressure each Attorney General from every state to consent to a settlement of any and all claims against the banksters arising from their fraudulent foreclosure practices. Each state is being asked to release the banks from criminal and civil liability in return for a share of the $20 billion settlement package. The $20 billion is to be used for loan modifications. Leading the charge on behalf of the administration are Shaun Donovan, the Secretary of Housing and Urban Development, as well as a number of high-ranking officials from the Justice Department, led by Attorney General Eric Hold-harmless. Here are some highlights from Ms. Morgenson’s article:

Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

* * *

Mr. Schneiderman has also come under criticism for objecting to a settlement proposed by Bank of New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing Countrywide Financial loans that investors say were mischaracterized when they were sold.

The deal would require Bank of America to pay $8.5 billion to investors holding the securities; the unpaid principal amount of the mortgages remaining in the pools totals $174 billion.

* * *

This month, Mr. Schneiderman sued to block that deal, which had been negotiated by Bank of New York Mellon as trustee for the holders of the securities.

The passage from Gretchen Morgenson’s report which drew the most attention concerned a statement made to Schneiderman by Kathryn Wylde. Ms. Wylde is a “Class C” Director of the Federal Reserve Bank of New York. The role of a Class C Director is to represent the interests of the public on the New York Fed board. Barry Ritholtz provided this reaction to Ms. Wylde’s encounter with Mr. Schneiderman:

If the Times report is accurate, and the quote below represents Ms. Wylde’s comments, than that position is a laughable mockery, and Ms. Wylde should resign effective immediately.

The quote in question, which was reported to have occurred at Governor Hugh Carey’s funeral (!?!) was as follows:

“It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

I do not know if Ms. Wylde understands what her proper role should be, but clearly she is somewhat confused. She appears to be far more interested in representing the banks than the public.

Robert Scheer of Truthdig provided us with some background on Obama’s HUD Secretary, Shaun Donovan, one of the administration’s arm-twisters in the settlement effort :

Donovan has good reason not to want an exploration of the origins of the housing meltdown: He has been a big-time player in the housing racket for decades. Back in the Clinton administration, when government-supported housing became a fig leaf for bundling suspect mortgages into what turned out to be toxic securities, Donovan was a deputy assistant secretary at HUD and acting Federal Housing Administration commissioner. He was up to his eyeballs in this business when the Clinton administration pushed through legislation banning any regulation of the market in derivatives based on home mortgages.

Armed with his insider connections, Donovan then went to work for the Prudential conglomerate (no surprise there), working deals with the same government housing agencies that he had helped run. As The New York Times reported in 2008 after President Barack Obama picked him to be secretary of HUD, “Mr. Donovan was a managing director at Prudential Mortgage Capital Co., in charge of its portfolio of investments in affordable housing loans, including Fannie Mae and the Federal Housing Administration debt.”

Obama has been frequently criticized for stacking his administration with people who regularly shuttle between corporations and the captured agencies responsible for regulating those same businesses. Risk management guru, Christopher Whalen lamented the consequences of Obama’s cozy relationship with the Wall Street banks – most tragically, those resulting from Obama’s unwillingness to adopt the “Swedish solution” of putting the insolvent zombie banks through temporary receivership:

The path of least resistance politically has been to temporize and talk. But by following the advice of Rubin and Summers, and avoiding tough decisions about banks and solvency, President Obama has only made the crisis more serious and steadily eroded public confidence. In political terms, Obama is morphing into Herbert Hoover, as I wrote in one of my first posts for Reuters.com, “In a new period of instability, Obama becomes Hoover.”

Whereas two or three years ago, a public-private approach to restructuring insolvent banks could have turned around the economic picture in relatively short order, today the cost to clean up the mess facing Merkel, Obama and other leaders of western European nations is far higher and the degree of unease among the public is growing. You may thank Larry Summers, Robert Rubin and the other members of the “do nothing” chorus around President Obama for this unfortunate outcome.

We are now past the point of blaming Obama’s advisors for the President’s recurrent betrayal of the public interest while advancing the goals of his corporate financiers. Yves Smith of Naked Capitalism has voiced increasingly harsh appraisals of Obama’s performance. By August 22, it became clear to Ms. Smith that the administration’s efforts to shield the fraud-closure banks from liability exposed a scandalous degree of venality:

It is high time to describe the Obama Administration by its proper name: corrupt.

Admittedly, corruption among our elites generally and in Washington in particular has become so widespread and blatant as to fall into the “dog bites man” category. But the nauseating gap between the Administration’s propaganda and the many and varied ways it sells out average Americans on behalf of its favored backers, in this case the too big to fail banks, has become so noisome that it has become impossible to ignore the fetid smell.

* * *

Team Obama bears all the hallmarks of being so close to banks and big corporations that it has lost all contact with and understanding of mainstream America.

The latest example is its heavy-handed campaign to convert New York state attorney general Eric Schneiderman to a card carrying member of the “be nice to our lords and masters the banksters” club. Schneiderman was the first to take issue with the sham of the so-called 50 state attorney general mortgage settlement. As far as the Administration is concerned, its goal is to give banks a talking point and prove to them that Team Obama is protecting their backs in a way that the chump public hopefully won’t notice.

* * *

Yet rather than address real, serious problems, senior administration officials are instead devoting time and effort to orchestrating a faux grass roots campaign to con a state AG into thinking his supporters are deserting him because he has dared challenge the supremacy of the banks.

I would include Eric Schneiderman in a group with Elizabeth Warren and Maria Cantwell as worthy challengers to Barack Obama in the 2012 Presidential Election. I wish one of them would step forward.

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Barack Oblivious

August 11th, 2011 Posted in Uncategorized

Aug, 11 2011

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As I’ve been discussing here for quite a while, commentators from across the political spectrum have been busy criticizing the job performance of President Obama. The mood of most critics seems to have progressed from disappointment to shock. The situation eventually reached the point where, regardless of what one thought about the job Obama was doing – at least the President could provide us with a good speech. That changed on Monday, August 8 – when Obama delivered his infamous “debt downgrade” speech – in the wake of the controversial decision by Standard and Poor’s to lower America’s credit rating from AAA to AA+. This reaction from Joe Nocera of The New York Times was among the more restrained:

When did President Obama become such a lousy speech-maker? His remarks on Monday afternoon, aimed at calming the markets, were flat and uninspired — as they have consistently been throughout the debt ceiling crisis. “No matter what some agency may say,” he said, ”we’ve always been and always will be a triple-A country.” Is that really the best he could do? The markets, realizing he had little or nothing to offer, continued their swoon. What is particularly frustrating is that the president seems to have so little to say on the subject of job creation, which should be his most pressing concern.

Actually, President Obama should have been concerned about job creation back in January of 2009. For some reason, this President had been pushing ahead with his own agenda, while oblivious to the concerns of America’s middle class. His focus on what eventually became an enfeebled healthcare bill caused him to ignore this country’s most serious problem: unemployment. Our economy is 70% consumer-driven. Because the twenty-five million Americans who lost their jobs since the inception of the financial crisis have remained unemployed — goods aren’t being sold. This hurts manufacturers, retailers and shipping companies. With twenty-five million Americans persistently unemployed, the tax base is diminished – meaning that there is less money available to pay down America’s debt. The people Barry Ritholtz calls the “deficit chicken hawks” (politicians who oppose any government spending programs which don’t benefit their own constituents) refuse to allow the federal government to get involved in short-term “job creation”. This “savings” depletes taxable revenue and increases government debt. President Obama — the master debater from Harvard – has refused to challenge the “deficit chicken hawks” to debate the need for any sort of short-term jobs program.

Bond guru Bill Gross of PIMCO recently lamented this administration’s obliviousness to the need for government involvement in short-term job creation:

Additionally and immediately, however, government must take a leading role in job creation. Conservative or even liberal agendas that cede responsibility for job creation to the private sector over the next few years are simply dazed or perhaps crazed. The private sector is the source of long-term job creation but in the short term, no rational observer can believe that global or even small businesses will invest here when the labor over there is so much cheaper. That is why trillions of dollars of corporate cash rest impotently on balance sheets awaiting global – non-U.S. – investment opportunities. Our labor force is too expensive and poorly educated for today’s marketplace.

* * *

In the near term, then, we should not rely solely on job or corporate-directed payroll tax credits because corporations may not take enough of that bait, and they’re sitting pretty as it is. Government must step up to the plate, as it should have in early 2009.

Back in July of 2009 – five months after the economic stimulus bill was passed – I pointed out how many prominent economists – including at least one of Obama’s closest advisors, had been emphasizing that the stimulus was inadequate and that we could eventually face a double-dip recession:

A July 7 report by Shamim Adam for Bloomberg News quoted Laura Tyson, an economic advisor to President Obama, as stating that last February’s $787 billion economic stimulus package was “a bit too small”. Ms. Tyson gave this explanation:

“The economy is worse than we forecast on which the stimulus program was based,” Tyson, who is a member of Obama’s Economic Recovery Advisory board, told the Nomura Equity Forum. “We probably have already 2.5 million more job losses than anticipated.”

Economist Brad DeLong recently provided us with a little background on the thinking that had been taking place within the President’s inner circle during 2009:

In the late spring of 2009, Barack Obama had five economic policy principals: Tim Geithner, who thought Obama had done enough to boost demand and needed to turn to long-run deficit reduction; Ben Bernanke, who thought that the Fed had done enough to boost demand and that the administration needed to turn to deficit reduction; Peter Orszag, who thought the administration needed to turn to deficit reduction immediately and could also use that process to pass (small) further stimulus; Larry Summers, who thought that long-run deficit reduction could wait until the recovery was well-established and that the administration needed to push for more demand stimulus; and Christina Romer, who thought that long-run deficit reduction should wait until the recovery was well-established and that the administration needed to push for much more demand stimulus.

Now Romer, Summers, and Orszag are gone. Their successors – Goolsbee, Sperling, and Lew – are extraordinary capable civil servants but are not nearly as loud policy voices and lack the substantive issue knowledge of their predecessors. The two who are left, Geithner and Bernanke, are the two who did not see the world as it was in mid-2009. And they do not seem to have recalibrated their beliefs about how the world works – they still think that they were right in mid-2009, or should have been right, or something.

I fear that they still do not see the situation as it really is.

And I do not see anyone in the American government serving as a counterbalance.

Meanwhile, the dreaded “double-dip” recession is nearly at hand. Professor DeLong recently posted a chart on his blog, depicting daily Treasury real yield curve rates under the heading, “Treasury Real Interest Rates Now Negative Out to Ten Years…” He added this comment:

If this isn’t a market prediction of a double-dip and a lost decade (or more), I don’t know what would be. At least Hoover was undertaking interventions in financial markets–and not just blathering about how cutting spending was the way to call the Confidence Fairy…

President Obama has been oblivious to our nation’s true economic predicament since 2009. Even if there were any Hope that his attentiveness to this matter might Change – at this point, it’s probably too late.

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Inviting More Trouble

June 23rd, 2011 Posted in Uncategorized

Jun, 23 2011

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I frequently revert to my unending criticism of President Obama for “punting” on the 2009 economic stimulus program. The most recent example was my June 13 posting, wherein I noted how Stephanie Kelton provided us with an interesting reminiscence of that fateful time during the first month of Obama’s Presidency, in a piece she published on William Black’s New Economic Perspectives website:

Some of us saw this coming. For example, Jamie Galbraith and Robert Reich warned, on a panel I organized in January 2009, that the stimulus package needed to be at least $1.3 trillion in order to create the conditions for a sustainable recovery. Anything shy of that, they worried, would fail to sufficiently improve the economy, making Keynesian economics the subject of ridicule and scorn.

As it turned out – that is exactly what happened. Obama’s lack of leadership and his apologetic, half-assed use of government power to fight the recession has brought us to where we are today. It may also bring Barack Obama and his family to a new address in January of 2013.

At this point, the “austerian” economists are claiming that the attenuated stimulus program’s failure to bring us more robust economic growth is “proof” that Keynesian economics “doesn’t work”. The fact that many of these economists speak the way they do as a result of conflicts of interest – arising from the fact that they are on the payrolls of private firms with vested interests in maintaining the status quo – is lost on the vast majority of Americans. Unfortunately, President Obama is not concerned with rebutting the arguments of these “hired guns”. A recent poll by Bloomberg News revealed that the American public has successfully been fooled into believing that austerity measures could somehow revive our economy:

As the public grasps for solutions, the Republican Party is breaking through in the message war on the budget and economy. A majority of Americans say job growth would best be revived with prescriptions favored by the party: cuts in government spending and taxes, the Bloomberg Poll shows. Even 40 percent of Democrats share that view.

* * *

Though Americans rate unemployment and the economy as a greater concern than the deficit and government spending, the issues are now closely connected. Sixty-five percent of respondents say they believe the size of the federal deficit is “a major reason” the jobless rate hasn’t dropped significantly.

* * *

Republican criticism of the federal budget growth has gained traction with the public. Fifty-five percent of poll respondents say cuts in spending and taxes would be more likely to bring down unemployment than would maintaining or increasing government spending, as Obama did in his 2009 stimulus package.

The voters are finally buying the corporatist propaganda that unemployment will recede if the government would just leave businesses alone. Forget about any government “hiring programs” – we actually need to fire more government employees! With those annoying regulators off their backs, corporations would be free to hire again and bring us all to Ayn Rand heaven. You are supposed to believe that anyone who disagrees with this or contends that government can play a role in job creation is a socialist.

Nevertheless, prominent individuals from the world of business and finance are making an effort to debunk these myths. Bond guru Bill Gross of PIMCO recently addressed the subject:

Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea. While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama’s long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans’ extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years.

Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, “they will come.” It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth.

* * *

Additionally and immediately, however, government must take a leading role in job creation. Conservative or even liberal agendas that cede responsibility for job creation to the private sector over the next few years are simply dazed or perhaps crazed. The private sector is the source of long-term job creation but in the short term, no rational observer can believe that global or even small businesses will invest here when the labor over there is so much cheaper. That is why trillions of dollars of corporate cash rest impotently on balance sheets awaiting global – non-U.S. – investment opportunities. Our labor force is too expensive and poorly educated for today’s marketplace.

* * *

In the near term, then, we should not rely solely on job or corporate-directed payroll tax credits because corporations may not take enough of that bait, and they’re sitting pretty as it is. Government must step up to the plate, as it should have in early 2009.

Hedge fund manager, Barry Ritholtz discussed his own ideas for “Jump Starting the U.S. Economy” on his website, The Big Picture. He concluded the piece by lamenting the fact that the federal debt/deficit debate is sucking all the air out of the room at the very time when people should be discussing job creation:

The focus on Deficits today is absurd, forcing us towards another 1938-type recession. The time to reduce the government’s economic deficit and footprint is during a robust expansion, not during (or just after) major contractions.

During the de-leveraging following a credit crisis is the worst possible time to be deficit obsessed.

Don’t count on President Obama to say anything remotely similar to what you just read. You would be expecting too much.

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Morgenson Watch Continues

May 30th, 2011 Posted in Uncategorized

May, 30 2011

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I was recently reminded of the late Tanta (a/k/a Doris Dungey) of the Calculated Risk blog, who wrote the recurring “Morgenson Watch” for that site.

As soon as I saw the title of Gretchen Morgenson’s most recent article at the top of the Sunday link list at Real Clear Politics, I suspected there would be trouble: “U.S. Has Binged. Soon It’ll Be Time to Pay the Tab.” After reading as far as the first sentence of the second paragraph, my concern was validated. Here’s how the piece began:

SAY this about all the bickering over the federal debt ceiling: at least people are talking openly about our nation’s growing debt load. This $14.3 trillion issue is front and center – exactly where it should be.

Into the fray comes a thoughtful new paper by Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics, which studies economic policy.

The Peterson Institute was formerly the Institute for International Economics, founded by C. Fred Bergsten. It was subsequently taken over by the Peter G. Peterson Foundation, a foundation established and managed by Richard Nixon’s former Commerce Secretary (and co-founder of Blackstone Group), Pete Peterson. The Peterson Institute is a “think tank” (i.e. propaganda mill) most recognized for its advocacy of “economic austerity” (which usually involves protecting the interests of the wealthy at the expense of the middle class and the impoverished).

Yves Smith of Naked Capitalism, is always quick to rebut the pronouncements of those economists, acting as “hired guns” to spread the gospel of the Peterson Institute. Needless to say, once Gretchen Morgenson began to parrot the Peterson Institute dogma in her aforementioned article, Yves Smith didn’t hesitate to pounce:

I’m generally a Gretchen Morgenson fan, since she’s one of the few writers with a decent bully pulpit who regularly ferrets out misconduct in the corporate and finance arenas. But when she wanders off her regular terrain, the results are mixed, and her current piece is a prime example. She also sometimes pens articles based on a single source, which creates the risk of serving as a mouthpiece for a particular point of view.

(As an aside, a good example of this process has been Ms. Morgenson’s continuing fixation on “mortgage mania” as a cause of the financial crisis after having been upbraided by Barry Ritholtz – twice – for “pushing the Fannie-Freddie CRA meme”.)

After pointing out Morgenson’s uncritical acceptance of the economic model used in the Peterson Institute report (by Gagnon and Hinterschweiger) Yves Smith directed our attention to the very large elephant in the room: the proven fact that au-scare-ity doesn’t work in our post-financial crisis, anemic-growth milieu. Ms. Smith focused on this aspect of the Peterson Institute report:

It also stunningly shows the howler of the Eurozone showing improvements in debt to GDP ratios as a result of the austerity programs being implemented. The examples of Latvia and Ireland have demonstrated that austerity measures have worsened debt to GDP ratios, dramatically in both cases, and the same deflationary dynamics look to be kicking in for Spain.

The article repeats the hoary cliche that deficit cuts must be made to “reassure the markets” as in appease the Bond Gods. Gee, how is that working out in Europe, the Peterson Institute’s obedient student?

Ms. Smith supported her argument with this report, which appeared in Bloomberg News on May 27:

European confidence in the economic outlook weakened for a third straight month in May as the region’s worsening debt crisis and surging commodity costs clouded growth prospects.

An index of executive and consumer sentiment in the 17- member euro region slipped to 105.5 from 106.1 in April, the European Commission in Brussels said today. Economists had forecast a drop to 105.7, the median of 27 estimates in a Bloomberg survey showed. The euro-area economy is showing signs of a slowdown as governments toughen austerity measures to lower budget gaps as investors grow increasingly concerned that Greece may default, while oil-driven inflation squeezes household incomes. European manufacturing growth slowed this month….

Be sure to read Yves Smith’s entire essay, which addressed the tired canard about those phantom “bond vigilantes”, etc. Ms. Smith’s closing paragraph deserves repetition:

But the idea of government spending has become anathema in the US, despite plenty of targets (start with our crumbing infrastructure). The banks got first dibs on the “fix the economy” money in the crisis, and continue to balk at measures that would shrink a bloated and highly leveraged banking sector down to a more reasonable size. Evidence already shows the size of the banking sector is constraining growth, yet a full bore campaign is on to gut social spending out of a concern that sometime down the road the size of the government sector will serve as a drag on the economy. In addition, the banksters need to preserve their ability to go back to the well the next time they crash the markets for fun and profit. So the attack on deficits is financial services industry ideology, packaged to make it look like it’s good for the little guy. We have too many people who should know better like Morgenson enabling it.

The reader comments to Ms. Smith’s essay were quite interesting. Many of the readers who have been outraged by Smith’s ongoing rebuttals to the Peterson Institute gospel and other Austerian dogma would do well to familiarize themselves with this bit of legalese:

EXCLUSION OF SOCIAL SECURITY FROM ALL BUDGETS Pub. L. 101-508, title XIII, Sec. 13301(a), Nov. 5, 1990, 104 Stat. 1388-623, provided that: Notwithstanding any other provision of law, the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund shall not be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of – (1) the budget of the United States Government as submitted by the President, (2) the congressional budget, or (3) the Balanced Budget and Emergency Deficit Control Act of 1985.

I include myself among those who are “generally” Gretchen Morgenson fans. Nevertheless, it has become obvious that with Tanta gone, the spirit of “Morgenson Watch” shall endure for as long as the frailties of being a New York Times pundit continue to manifest themselves.

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Some Quick Takes On The Financial Crisis Inquiry Report

January 31st, 2011 Posted in Uncategorized

Jan, 31 2011

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The official Financial Crisis Inquiry Report by the Financial Crisis Inquiry Commission (FCIC) has become the subject of many turgid commentaries since its January 27 release date. The Report itself is 633 pages long. Nevertheless, if you hope to avoid all that reading by relying on reviews of the document, you could easily end up reading 633 pages of commentary about it. By that point, you might be left with enough questions or curiosity to give up and actually read the whole, damned thing. (Here it is.) If you are content with reading the 14 pages of the Commission’s Conclusions, you can find those here. What follows is my favorite passage from that section:

We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow banking system and over-the-counter derivatives markets. In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor.

In order to help save you some time and trouble, I will provide you with a brief roadmap to some of the commentary that is readily available:

Gretchen Morgenson of The New York Times introduced her own 1,257-word discourse in this way:

For those who might find the report’s 633 pages a bit daunting for a weekend read, we offer a Cliffs Notes version.

Let’s begin with the Federal Reserve, the most powerful of financial regulators. The report’s most important public service comes in its recitation of how top Fed officials, both in Washington and in New York, fiddled while the financial system smoldered and then burned. It is disturbing indeed that this institution, defiantly inert and uninterested in reining in the mortgage mania, received even greater regulatory powers under the Dodd-Frank law that was supposed to reform our system.

(I find it disturbing that Ms. Morgenson is still fixated on “mortgage mania” as a cause of the crisis after having been upbraided by Barry Ritholtz – twice – for “pushing the Fannie-Freddie CRA meme”.)

At her Naked Capitalism blog, Yves Smith focused more intently on what the FCIC Report didn’t say, as opposed to what it actually said:

The FCIC has also been unduly close-lipped about their criminal referrals, refusing to say how many they made or giving a high-level description of the type of activities they encouraged prosecutors to investigate. By contrast, the Valukas report on the Lehman bankruptcy discussed in some detail whether it thought civil or criminal charges could be brought against Lehman CEO Richard Fuld and chief financial officers chiefs Chris O’Meara, Erin Callan and Ian I Lowitt, and accounting firm Ernst & Young. If a report prepared in a private sector action can discuss liability and name names, why is the public not entitled to at least some general disclosure on possible criminal actions coming out of a taxpayer funded effort? Or is it that the referrals were merely to burnish the image of the report, and are expected to die a speedy death?

At his Calculated Risk blog, Bill McBride corroborated one of the Report’s Conclusions, by recounting his own experience. After quoting some of the language supporting the point that the crisis could have been avoided if the warning signs had not been ignored, due to the “pervasive permissiveness” at the Federal Reserve, McBride recalled a specific example:

This is absolutely correct. In 2005 I was calling regulators and I was told they were very concerned – and several people told me confidentially that the political appointees were blocking all efforts to tighten standards – and one person told me “Greenspan is throwing his body in front of all efforts to tighten standards”.

The dissenting views that discount this willful lack of regulation are absurd and an embarrassment for the authors.

William Black wrote an essay criticizing the dissenters themselves – based on their experience in developing the climate of financial deregulation that facilitated the crisis:

The Commission is correct. Absent the crisis was avoidable. The scandal of the Republican commissioners’ apologia for their failed anti-regulatory policies was also avoidable. The Republican Congressional leadership should have ensured that it did not appoint individuals who would be in the impossible position of judging themselves. Even if the leadership failed to do so and proposed such appointments, the appointees to the Commission should have recognized the inherent conflict of interest and displayed the integrity to decline appointment. There were many Republicans available with expertise in, for example, investigating elite white-collar criminals regardless of party affiliation. That was the most relevant expertise needed on the Commission.

At this point, the important question is whether the efforts of the Financial Crisis Inquiry Commission will result in any changes that could help us avoid another disaster. I’m not feeling too hopeful.

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Maria Cantwell For President

November 4th, 2010 Posted in Uncategorized

Nov, 04 2010

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I was going to hold off on this and give President Obama the benefit of a doubt – at least for a few months. Nevertheless, after reading the magnificent piece by Barry Ritholtz, entitled: “The Tragedy of the Obama Administration”, I decided that it was time to start discussing leadership alternatives for the next Presidential term.

On October 30, the Associated Press published the results of a poll it conducted with Knowledge Networks. Forty-seven percent of the Democrats surveyed expressed the opinion that Obama should be challenged for the 2012 Democratic Presidential nomination. In the wake of the mid-term election massacre, I expect that more Democrats will be anxious to find a new standard-bearer for their party in 2012. The AP article concerning the AP-KN poll, mentioned the theory that the public’s opinion of Obama could change if the economy improves. Unfortunately, most American consumers will not observe any significant improvement in the economy during the next two years. There is a greater likelihood that the Chicago Cubs will win next year’s World Series.

We currently find ourselves bombarded with a wide spectrum of opinions, which purport to explain what the results of the 2010 elections really mean. The most obvious conclusion to be drawn from this event is that the voters resent being taken for chumps. Obama’s supporters were promised change they could believe in by a President and a party that sold its soul to the Wall Street megabanks at the cost of America’s future economic health. When he had the opportunity to do so in early 2009, Obama refused to put those too-big-to-fail, zombie banks through temporary receivership. As a result, we are now approaching a situation which – according to financial risk management expert Chris Whalen – will necessitate another round of bank bailouts. When President Obama had the opportunity and the public support (not to mention Democratic control over both houses of Congress) to enact an adequate stimulus program to save the economy from a decade(s) – long, Japanese-style recession, he refused to so. If an extra $600 billion had been added to the $787 billion in 2009 (as part of a better-thought-out, infrastructure-based stimulus program) we would be experiencing significant economic growth and a recovering job market right now. Australia keeps reminding us of this. (Oops! Australia just did it again!) Instead, America finds itself in a situation wherein the Fed is now appropriating that $600 billion toward another round of quantitative easing, which will serve no other purpose than to push investors into the stock market. According to economist Andy Xie, those stock investors will have an unpleasant experience when Chairman Bernanke’s latest asset bubble pops in 2012.

While many Senate Democrats (along with operatives from the Treasury Department) were busy removing all of the teeth from the financial reform bill, Maria Cantwell was fighting those efforts as one of the few advocates for the American taxpayers. Back on May 19, Arthur Delaney and Ryan Grim of The Huffington Post described how Senator Cantwell stood up to the efforts of Harry Reid to use cloture to push the financial reform bill to a vote before any further amendments could have been added to strengthen the bill. Notice how “the usual suspects” – Reid, Chuck Schumer and “Countrywide Chris” Dodd tried to close in on Cantwell and force her capitulation to the will of the kleptocracy:

There were some unusually Johnsonian moments of wrangling on the floor during the nearly hour-long vote. Reid pressed his case hard on Snowe, the lone holdout vote present, with Bob Corker and Mitch McConnell at her side. After finding Brown, he put his arm around him and shook his head, then found Cantwell seated alone at the opposite end of the floor. He and New York’s Chuck Schumer encircled her, Reid leaning over her with his right arm on the back of her chair and Schumer leaning in with his left hand on her desk. Cantwell stared straight ahead, not looking at the men even as she spoke. Schumer called in Chris Dodd, who was unable to sway her. Feingold hadn’t stuck around. Cantwell, according to a spokesman, wanted a guarantee on an amendment that would fix a gaping hole in the derivatives section of the bill, which requires the trades to be cleared, but applies no penalty to trades that aren’t, making Blanche Lincoln’s reform package little better than a list of suggestions.

* * *

“I don’t think it’s a good idea to cut off good consumer amendments because of cloture,” said Cantwell on Tuesday night.

Senator Cantwell has proven herself worthy of our trust. Her nomination as the 2012 Democratic Presidential candidate will revive the excitement and voter enthusiasm witnessed during the 2008 campaign. On the other hand, if President Obama decides to seek a second term and wins the nomination, we will likely find a greater enthusiasm gap than the example of November 2. As a result, by January of 2013 we could have a new administration in the White House, espousing what economist Nouriel Roubini describes as “the economic equivalent of creationism”.

Here’s to a bright future!

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Fighting The Old War

September 30th, 2010 Posted in Uncategorized

Sep, 30 2010

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September 30, 2010

The New York Times recently ran a story about Mayor Michael Bloomberg’s efforts to support the campaigns of centrist Republicans out of concern that the election of “Tea Party” – backed candidates was pushing the Republican Party to the extreme right. The article by Michael Barbaro began this way:

In an election year when anger and mistrust have upended races across the country, toppling moderates and elevating white-hot partisans, Mayor Michael R. Bloomberg is trying to pull politics back to the middle, injecting himself into marquee contests and helping candidates fend off the Tea Party.

Although it’s nice to see Mayor Bloomberg take a stand in support of centrism, I believe he is going about it the wrong way. There are almost as many different motives driving people to the Tea Party movement as there are attendees at any given Tea Party event. Although the movement is usually described as a far-right-wing fringe phenomenon, reporters who have attended the rallies and talked to the people found a more diverse group. Consider the observations made by True Slant’s David Masciotra, who attended a Tea Party rally in Valparaiso, Indiana back on April 14:

The populist anger of the Northwest Indiana tea partiers could be moved to a left-wing protest rally without much discernible difference.

As much as the NWI Patriots seemed to hate Obama and health care reform, they also hate large corporations and the favorable treatment they are given by Washington.

* * *

They have largely legitimate concerns and grievances about the quality of their lives and future of their children’s lives that are not being addressed in Washington by either party. Their wages have stagnated, while the cost of raising a family has crushingly increased.

My pet theory is that the rise of the Tea Party movement is just the first signal indicating the demise of the so-called “two-party system”. I expect this to happen as voters begin to face up to the fact that the differences between Democratic and Republican policies are subtle when compared to the parties’ united front with lobbyists and corporations in trampling the interests of individual citizens. On July 26, I wrote a piece entitled, “The War On YOU”, discussing the battle waged by “our one-party system, controlled by the Republi-cratic Corporatist Party”. On August 30, I made note of a recent essay at the Zero Hedge website, written by Michael Krieger of KAM LP. One of Krieger’s points, which resonated with me, was the idea that whether you have a Democratic administration or a Republican administration, both parties are beholden to the financial elites, so there’s not much room for any “change you can believe in”:

. . . the election of Obama has proven to everyone watching with an unbiased eye that no matter who the President is they continue to prop up an elite at the top that has been running things into the ground for years. The appointment of Larry Summers and Tiny Turbo-Tax Timmy Geithner provided the most obvious sign that something was seriously not kosher. Then there was the reappointment of Ben Bernanke. While the Republicans like to simplify him as merely a socialist he represents something far worse.

Barry Ritholtz, publisher of The Big Picture website, recently wrote a piece focused on how the old Left vs. Right paradigm has become obsolete. He explained that the current power struggle taking place in Washington (and everywhere else) is the battle of corporations against individuals:

We now live in an era defined by increasing Corporate influence and authority over the individual. These two “interest groups” – I can barely suppress snorting derisively over that phrase – have been on a headlong collision course for decades, which came to a head with the financial collapse and bailouts. Where there are massive concentrations of wealth and influence, there will be abuse of power. The Individual has been supplanted in the political process nearly entirely by corporate money, legislative influence, campaign contributions, even free speech rights.

* *   *

For those of you who are stuck in the old Left/Right debate, you are missing the bigger picture. Consider this about the Bailouts: It was a right-winger who bailed out all of the big banks, Fannie Mae, and AIG in the first place; then his left winger successor continued to pour more money into the fire pit.

What difference did the Left/Right dynamic make? Almost none whatsoever.

*   *   *

There is some pushback already taking place against the concentration of corporate power: Mainstream corporate media has been increasingly replaced with user created content – YouTube and Blogs are increasingly important to news consumers (especially younger users). Independent voters are an increasingly larger share of the US electorate. And I suspect that much of the pushback against the Elizabeth Warren’s concept of a Financial Consumer Protection Agency plays directly into this Corporate vs. Individual fight.

But the battle lines between the two groups have barely been drawn. I expect this fight will define American politics over the next decade.

Keynes vs Hayek? Friedman vs Krugman? Those are the wrong intellectual debates. It’s you vs. Tony Hayward, BP CEO, You vs. Lloyd Blankfein, Goldman Sachs CEO.   And you are losing   . . .

Barry Ritholtz concluded with the statement:

If you see the world in terms of Left & Right, you really aren’t seeing the world at all . . .

I couldn’t agree more. Beyond that, I believe that politicians who continue to champion the old Left vs. Right war will find themselves in the dust as those leaders representing the interests of human citizens rather than corporate interests win the support and enthusiasm of the electorate. Similarly, those news and commentary outlets failing to adapt to this changing milieu will no longer have a significant following. It will be interesting to see who adjusts.

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Where Obama Went Wrong

September 27th, 2010 Posted in Uncategorized

Sep, 27 2010

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September 27, 2010

One could write an 800-page book on this subject. During the past week, we’ve been bombarded with explanations from across the political spectrum, concerning how President Obama has gone from wildly-popular cult hero to radioactive force on the 2010 campaign trail. For many Democrats facing re-election bids in November, the presence of Obama at one of their campaign rallies could be reminiscent of the appearance of William Macy’s character from the movie, The Cooler. Wikipedia’s discussion of the film provided this definition:

In gambling parlance, a “cooler” is an unlucky individual whose presence at the tables results in a streak of bad luck for the other players.

Barack Obama was elected on a wave of emotion, under the banners of “Hope” and “Change”. These days, the emotion consensus has turned against Obama as voters feel more hopeless as a result of Obama’s failure to change anything. His ardent supporters feel as though they have been duped. Instead of having been tricked into voting for a “secret Muslim”, they feel they have elected a “secret Republican”. At the Salon.com website, Glenn Greenwald has documented no less than fifteen examples of Obama’s continuation of the policies of George W. Bush, in breach of his own campaign promises.

One key area of well-deserved outrage against President Obama’s performance concerns the economy. The disappointment about this issue was widely articulated in December of 2009, as I pointed out here. At that time, Matt Taibbi had written an essay for Rolling Stone entitled, “Obama’s Big Sellout”, which inspired such commentators as Edward Harrison of Credit Writedowns to write this and this. Beyond the justified criticism, polling by Pew Research has revealed that 46% of Democrats and 50% of Republicans incorrectly believe that the TARP bank bailout was signed into law by Barack Obama rather than George W. Bush. President Obama invited this confusion with his nomination of “Turbo” Tim Geithner to the position of Treasury Secretary. As President of the Federal Reserve of New York, Geithner oversaw the $13 billion gift Goldman Sachs received by way of Maiden Lane III.

The emotional battleground of the 2010 elections provided some fun for conservative pundit, Peggy Noonan this week as a result of the highly-publicized moment at the CNBC town hall meeting on September 20. Velma Hart’s question to the President was emblematic of the plight experienced by many 2008 Obama supporters. Noonan’s article, “The Enraged vs. The Exhausted” characterized the 2010 elections as a battle between those two emotional factions. The “Velma Moment” exposed Obama’s political vulnerability as an aloof leader, lacking the ability to emotionally connect with his supporters:

The president looked relieved when she stood. Perhaps he thought she might lob a sympathetic question that would allow him to hit a reply out of the park. Instead, and in the nicest possible way, Velma Hart lobbed a hand grenade.

“I’m a mother. I’m a wife. I’m an American veteran, and I’m one of your middle-class Americans. And quite frankly I’m exhausted. I’m exhausted of defending you, defending your administration, defending the mantle of change that I voted for, and deeply disappointed with where we are.” She said, “The financial recession has taken an enormous toll on my family.” She said, “My husband and I have joked for years that we thought we were well beyond the hot-dogs-and-beans era of our lives. But, quite frankly, it is starting to knock on our door and ring true that that might be where we are headed.”

What a testimony. And this is the president’s base. He got that look public figures adopt when they know they just took one right in the chops on national TV and cannot show their dismay. He could have responded with an engagement and conviction equal to the moment. But this was our president — calm, detached, even-keeled to the point of insensate. He offered a recital of his administration’s achievements: tuition assistance, health care. It seemed so off point. Like his first two years.

Kirsten Powers of The Daily Beast provided the best analysis of how the “Velma Moment” illustrated Obama’s lack of empathy. Where Bill Clinton is The Sorcerer, Barack Obama is The Apprentice:

Does Barack Obama suffer from an “empathy deficit?” Ironically, it was Obama who used the phrase in a 2008 speech when he diagnosed the United States as suffering from the disorder. In a plea for unity, candidate Obama said lack of empathy was “the essential deficit that exists in this country.” He defined it as “an inability to recognize ourselves in one another; to understand that we are our brother’s keeper; we are our sister’s keeper; that, in the words of Dr. King, we are all tied together in a single garment of destiny.”

* * *

And at a 2008 rally in Westerville, Ohio, Obama said, “One of the values that I think men in particular have to pass on is the value of empathy. Not sympathy, empathy. And what that means is standing in somebody else’s shoes, being able to look through their eyes. You know, sometimes we get so caught up in ‘us’ that it’s hard to see that there are other people and that your behavior has an impact on them.”

Yes, President Obama, sometimes that does happen. Take a look in the mirror. Nothing brought this problem into relief like the two Obama supporters who confronted the president at a recent town hall meeting expressing total despair over their economic situation and hopelessness about the future. Rather than expressing empathy, Obama seemed annoyed and proceeded with one of his unhelpful lectures.

* * *

One former Emoter-in-Chief, Bill Clinton, told Politico last week, “[Obama’s] being criticized for being too disengaged, for not caring. So he needs to turn into it. I may be one of the few people that think it’s not bad that that lady said she was getting tired of defending him. He needs to hear it. You need to hear. Embrace people’s anger, including their disappointment at you. And just ask ‘em to not let the anger cloud their judgment. Let it concentrate their judgment. And then make your case.”

Then the kicker: “[Obama has] got to realize that, in the end, it’s not about him. It’s about the American people, and they’re hurting.”

The American people are hurting because their President sold them out immediately after he was elected. When faced with the choice of bailing out the zombie banks or putting those banks through temporary receivership (the “Swedish approach” – wherein the bank shareholders and bondholders would take financial “haircuts”) Obama chose to bail out the banks at taxpayer expense. So here we are . . . in a Japanese-style “lost decade”. In case you don’t remember the debate from early 2009 – peruse this February 10, 2009 posting from the Calculated Risk website. After reading that, try not to cry after looking at this recent piece by Barry Ritholtz of The Big Picture entitled, “We Should Have Gone Swedish . . .” :

The result of the Swedish method? They spent 4% of GDP ($18.3 billion in today’s dollars), to rescue their banks. That is far less than the $trillions we have spent — somewhere between 15-20% of GDP.

Final cost to the Swedes? Less than 2% of G.D.P. (Some officials believe it was closer to zero, depending on how certain rates of return are calculated).

In the US, the final tally is years away from being calculated — and its likely to be many times what Sweden paid in GDP % terms.

It has become apparent that the story of “Where Obama Went Wrong” began during the first month of his Presidency. Whoever undertakes the task of writing that book will be busy for a long time.

2010 campaign, aloof leader, bank bailout, banking crisis, banking lobby, Barack Obama, Barry Ritholtz, Bill Clinton, blog, Calculated Risk website, centrist, CNBC town hall meeting, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, Credit Writedowns, crony capitalism, Democrat, Democratic Party, Democrats, economic crisis, economics, economists, Edward Harrison, empathy, empathy deficit, Federal Reserve, Federal Reserve of New York, financial crisis, financial reform, George W Bush, Glenn Greenwald, Goldman Sachs, government guarantees, insolvent banks, investment banks, Japanese-style lost decade, John Burke, John T Burke Jr, Kirsten Powers, liberal, lobbyists, Maiden Lane III, Matt Taibbi, moral hazard, News, Obama Administration, Obama Presidency, Obamas Big Sellout, Opinion, Peggy Noonan, Pew Research, Political, Politico, Politics, President of the United States, recession, regulatory capture, Republican, Republican Party, Rolling Stone, Salon com, secret Muslim, secret Republican, self-dealing insiders, socialized loss and privatized gain, Swedish approach, systemic risk, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, temporary receivership, The Big Picture, the center lane, The Cooler, The Daily Beast, the economy, The Enraged vs The Exhausted, The White House, thecenterlane, Tim Geithner, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Troubled Assets Relief Program, Turbo Tim Geithner, United States Senate, United States Treasury, Velma Hart, Velma Moment, Wall Street, Wall Street lobbyists, We Should Have Gone Swedish, wealth transfer, welfare for the rich, Where Obama Went Wrong, William Macy, zombie banks

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