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Obama Fatigue

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Since President Obama first assumed office, it hasn’t been too difficult to find harsh criticism of the new administration.  One need only tune in to the Fox News, where an awkward Presidential sneeze could be interpreted as a “secret message” to Bill Ayers or George Soros.  Nevertheless, with the passing of time, voices from across the political spectrum have joined a chorus of frustration with the Obama agenda.

On February 26, 2009 – only one month into the Obama Presidency – I voiced my suspicion about the new administration’s unwillingness to address the problem of systemic risk, inherent in allowing a privileged few banks to enjoy their “too big to fail” status:

Will Turbo Tim’s “stress tests” simply turn out to be a stamp of approval, helping insolvent banks avoid any responsible degree of reorganization, allowing them to continue their “welfare queen” existence, thus requiring continuous infusions of cash at the expense of the taxpayers?  Will the Obama administration’s “failure of nerve” –  by avoiding bank nationalization — send us into a ten-year, “Japan-style” recession?  It’s beginning to look that way.

By September of 2009, I became convinced that Mr. Obama was suffering from a degree of hubris, which could seal his fate as a single-term President:

Back on July 15, 2008 and throughout the Presidential campaign, Barack Obama promised the voters that if he were elected, there would be “no more trickle-down economics”.  Nevertheless, his administration’s continuing bailouts of the banking sector have become the worst examples of trickle-down economics in American history – not just because of their massive size and scope, but because they will probably fail to achieve their intended result.

Although the TARP bank bailout program was initiated during the final months of the Bush Presidency, the Obama administration’s stewardship of that program recently drew sharp criticism from Neil Barofsky, the retiring Special Inspector General for TARP (SIGTARP).  Beyond that, in his March 29 op-ed piece for The New York Times, Mr. Barofsky criticized the Obama administration’s failure to make good on its promises of “financial reform”:

Finally, the country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior.  This promise also appears likely to go unfulfilled.  The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever.  They reasonably assume that the government will rescue them again, if necessary.

*   *   *

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.

*   *   *

In the final analysis, it has been Treasury’s broken promises that have turned TARP – which was instrumental in saving the financial system at a relatively modest cost to taxpayers – into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that.  Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals – whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in – may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises.  This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.

Another unlikely critic of President Obama is the retired law school professor who blogs using the pseudonym, “George Washington”.  A recent posting at Washington’s Blog draws from a number of sources to ponder the question of whether President Obama (despite his Nobel Peace Prize) has become more brutal than President Bush.  The essay concludes with a review of Obama’s overall performance in The White House:

Whether or not Obama is worse than Bush, he’s just as bad.

While we had Bush’s “heck of a job” response to Katrina, we had Obama’s equally inept response and false assurances in connection with the Gulf oil spill, and Obama’s false assurances in connection with the Japanese nuclear crisis.

And Bush and Obama’s response to the financial crisis are virtually identical:  bail out the giant banks, let Wall Street do whatever it wants, and forget the little guy.

The American voters asked for change.  Instead, we got a different branch of the exact same Wall Street/military-industrial complex/Big Energy (BP, GE)/Big Pharma party.

Another commentator who has become increasingly critical of President Obama is Robert Reich, Secretary of Labor in the Clinton Administration.  Mr. Obama’s failure to push back against the corporatist politicians, who serve as “reverse Robin Hoods” enriching CEOs at the expense of American workers, resulted in this rebuke from Professor Reich:

President Obama and Democratic leaders should be standing up for the wages and benefits of ordinary Americans, standing up for unions, and decrying the lie that wage and benefit concessions are necessary to create jobs.  The President should be traveling to the Midwest – taking aim at Republican governors in the heartland who are hell bent on destroying the purchasing power of American workers.  But he’s doing nothing of the sort.

As attention begins to focus on the question of who will be the Republican nominee for the 2012 Presidential election campaign, Obama Fatigue is causing many people to appraise the President’s chances of defeat.  The excitement of bringing the promised “change” of 2008 has morphed into cynicism.  Many of the voters who elected Obama in 2008 might be too disgusted to bother with voting in 2012.  As a result, the idea of a Democratic or Independent challenger to Obama is receiving more consideration.  Rolling Stone’s Matt Taibbi recently provided this response to a letter inquiring about the possibility that Elizabeth Warren could make a run for the White House in 2012:

A few months ago I heard a vague rumor from someone who theoretically would know that such a thing was being contemplated, but I don’t know anything beyond that.  I wish she would run.  I’m not sure if it would ultimately be a good thing or a bad thing for Barack Obama – she could fatally wound his general-election chances by exposing his ties to Wall Street – but I think she’s exactly what this country needs. She’s totally literate on the finance issues and is completely on the side of human beings, as opposed to banks and oil companies and the like.  One thing I will say:  if she did run, she would have a lot more support from the press than she probably imagines, as there are a lot of reporters out there who are reaching the terminal-disappointment level with Obama ready to hop on the bandwagon of someone like Warren.

If Elizabeth Warren ultimately decides to make a run for The White House, Mr. Obama should do the right thing:  Stop selling the sky to people and step aside.


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Those First Steps Have Destroyed Mid-term Democrat Campaigns

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September 6, 2010

The steps taken by the Obama administration during its first few months have released massive, long-lasting fallout, destroying the re-election hopes of Democrats in the Senate and House.  Let’s take a look back at Obama’s missteps during that crucial period.

During the first two weeks of February, 2009 — while the debate was raging as to what should be done about the financial stimulus proposal — the new administration was also faced with making a decision on what should be done about the “zombie” Wall Street banks.  Treasury Secretary Geithner had just rolled out his now-defunct “financial stability plan” in a disastrous press conference.  Most level-headed people, including Joe Nocera of The New York Times, had been arguing in favor of putting those insolvent banks through temporary receivership – or temporary nationalization – until they could be restored to healthy, functional status.  Nevertheless, at this critical time, Obama, Geithner and Fed chair Ben Bernanke had decided to circle their wagons around the Wall Street banks.  Here’s how I discussed the situation on February 16, 2009:

Geithner’s resistance to nationalization of insolvent banks represents a stark departure from the recommendations of many economists.  While attending the World Economic Forum in Davos, Switzerland last month, Dr. Nouriel Roubini explained (during an interview on CNBC) that the cost of purchasing the toxic assets from banks will never be recouped by selling them in the open market:

At which price do you buy the assets?  If you buy them at a high price, you are having a huge fiscal cost. If you buy them at the right market price, the banks are insolvent and you have to take them over.  So I think it’s a bad idea.  It’s another form of moral hazard and putting on the taxpayers, the cost of the bailout of the financial system.

Dr. Roubini’s solution is to face up to the reality that the banks are insolvent and “do what Sweden did”:  take over the banks, clean them up by selling off the bad assets and sell them back to the private sector.  On February 15, Dr. Roubini repeated this theme in a Washington Post article he co-wrote with fellow New York University economics professor, Matthew Richardson.

Even after Geithner’s disastrous press conference, President Obama voiced a negative reaction to the Swedish approach during an interview with Terry Moran of ABC News.

Nearly a month later, on March 12, 2009 —  I discussed how the administration was still pushing back against common sense on this subject, while attempting to move forward with its grandiose, “big bang” agenda.  The administration’s unwillingness to force those zombie banks to face the consequences of their recklessness was still being discussed —  yet another month later by Bill Black and Robert Reich.  Three months into his Presidency, Obama had established himself as a guardian of the Wall Street status quo.

Even before the stimulus bill was signed into law, the administration had been warned, by way of an article in Bloomberg News, that a survey of fifty economists revealed that the proposed $787 billion stimulus package would be inadequate.  Before Obama took office, Nobel laureate, Joseph Stiglitz, pointed out for Bloomberg Television back on January 8, 2009, that the President-elect’s proposed stimulus would be inadequate to heal the ailing economy:

“It will boost it,” Stiglitz said.  “The real question is — is it large enough and is it designed to address all the problems.  The answer is almost surely it is not enough, particularly as he’s had to compromise with the Republicans.”

On January 19, 2009, financier George Soros contended that even an $850 billion stimulus would not be enough:

“The economies of the world are falling off a cliff.  This is a situation that is comparable to the1930s.  And once you recognize it, you have to recognize the size of the problem is much bigger,” he said.

On February 26, 2009, Economics Professor James Galbarith pointed out in an interview that the stimulus plan was inadequate.  Two months earlier, Paul Krugman had pointed out on Face the Nation, that the proposed stimulus package of $775 billion would fall short.

More recently, on September 5, 2010, a CNN poll revealed that only 40 percent of those surveyed voiced approval of the way President Obama has handled the economy.  Meanwhile, economist Richard Duncan is making the case for another stimulus package “to back forward-looking technologies that will help the U.S. compete and to shift away from the nation’s dependency on industries vulnerable to being outsourced to low-wage centers abroad”.  Chris Oliver of MarketWatch provided us with this glimpse into Duncan’s thinking:

The U.S. is already on track to run up trillion-dollar-plus annual deficits through the next decade, according to estimates by the Congressional Budget Office.

“If the government doesn’t spend this money, we are going to collapse into a depression,” Duncan says.  “They are probably going to spend it.   . . . It would be much wiser to realize the opportunities that exist to spend the money in a concerted way to advance the goals of our civilization.”

Making the case for more stimulus, Paul Krugman took a look back at the debate concerning Obama’s first stimulus package, to address the inevitable objections against any further stimulus plans:

Those who said the stimulus was too big predicted sharply rising (interest) rates.  When rates rose in early 2009, The Wall Street Journal published an editorial titled “The Bond Vigilantes:  The disciplinarians of U.S. policy makers return.”   The editorial declared that it was all about fear of deficits, and concluded, “When in doubt, bet on the markets.”

But those who said the stimulus was too small argued that temporary deficits weren’t a problem as long as the economy remained depressed; we were awash in savings with nowhere to go.  Interest rates, we said, would fluctuate with optimism or pessimism about future growth, not with government borrowing.

When in doubt, bet on the markets.  The 10-year bond rate was over 3.7 percent when The Journal published that editorial;  it’s under 2.7 percent now.

What about inflation?  Amid the inflation hysteria of early 2009, the inadequate-stimulus critics pointed out that inflation always falls during sustained periods of high unemployment, and that this time should be no different.  Sure enough, key measures of inflation have fallen from more than 2 percent before the economic crisis to 1 percent or less now, and Japanese-style deflation is looking like a real possibility.

Meanwhile, the timing of recent economic growth strongly supports the notion that stimulus does, indeed, boost the economy:  growth accelerated last year, as the stimulus reached its predicted peak impact, but has fallen off  — just as some of us feared — as the stimulus has faded.

I believe that Professor Krugman would agree with my contention that if President Obama had done the stimulus right the first time – not only would any further such proposals be unnecessary – but we would likely be enjoying a healthy economy with significant job growth.  Nevertheless, the important thing to remember is that President Obama didn’t do the stimulus adequately in early 2009.  As a result, his fellow Democrats will be paying the price in November.




The Second Stimulus

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July 9, 2009

It’s a subject that many people are talking about, but not many politicians want to discuss.  It appears as though a second economic stimulus package will be necessary to save our sinking economy and get people back to work.  Because of the huge deficits already incurred in responding to the financial meltdown, along with the $787 billion price tag for the first stimulus package and because of the President’s promise to get healthcare reform enacted, there aren’t many in Congress who are willing to touch this subject right now, although some are.  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.”

As Victoria McGrane reported for Politico, other Democrats are a bit uncomfortable with this subject:

Democrats are all over the map on the stimulus and the possibility of a sequel, and it’s not hard to see why:  When it comes to a second stimulus, they may be damned if they do and damned if they don’t.

Kevin Hall and David Lightman reported for the McLatchy Newspapers that at least one high-ranking Democrat was keeping an open mind about the subject:

“I think we need to be open to whether we need additional action,” House Majority Leader Steny Hoyer, D-Md., said Tuesday.  “We need to continue to focus on bringing the economy back to a place where we’re not losing jobs.”

An informative article by Theo Francis and Elise Craig, in the July 7 issue of Business Week, explained the real-world difficulties in putting the original stimulus to work:

Dispensing billions of dollars, it turns out, simply takes time, particularly given government contracting rules and the fact that much of federal spending is funneled through the states. Moreover, some spending was intentionally spread out over several years, and other projects are fundamentally more long-term in nature.  “There are real constraints — physical, legal, and then just the process of how fast you can commit funds,” says George Guess, co-director of the Center for Public Finance Research at American University’s School of Public Affairs.  “It’s the way it works in a decentralized democracy, and that’s what we’re stuck with.”

Nevertheless, from the very beginning, when the stimulus was first proposed and through last spring, many economists and other commentators voiced their criticism that the $787 billion stimulus package was simply inadequate to deal with the disaster it was meant to address.  Back on December 28, Nobel laureate Paul Krugman explained on Face The Nation, that a stimulus package in the $675-775 billion range would fall short:

So you do the math and you say, you know, even these enormous numbers we’re hearing about are probably enough to mitigate but by no means to reverse the slump we’re heading into.

On July 5, Professor Krugman emphasized the need for a second stimulus:

The problem, in other words, is not that the stimulus is working more slowly than expected; it was never expected to do very much this soon.  The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted.  That — coupled with the fact that yes, stimulus takes time to work — is the reason for a second round, ASAP.

Another Nobel laureate, Joseph Stiglitz, pointed out for Bloomberg TV back on January 8, that the President-elect’s proposed stimulus would be inadequate to heal the ailing economy:

“It will boost it,” Stiglitz said.  “The real question is — is it large enough and is it designed to address all the problems.  The answer is almost surely it is not enough, particularly as he’s had to compromise with the Republicans.”

On February 26, Economics Professor James Galbarith pointed out in an interview that the stimulus plan was inadequate.

On January 19, financier George Soros contended that even an $850 billion stimulus would not be enough:

“The economies of the world are falling off a cliff.  This is a situation that is comparable to the 1930s. And once you recognize it, you have to recognize the size of the problem is much bigger,” he said.

Despite all these warnings, as well as a Bloomberg survey conducted in early February, revealing the opinions of economists that the stimulus would be inadequate to avert a two-percent economic contraction in 2009, the President stuck with the $787 billion plan.  He is now in the uncomfortable position of figuring out how and when he can roll out a second stimulus proposal.

President Obama should have done it right the first time.  His penchant for compromise — simply for the sake of compromise itself — is bound to bite him in the ass on this issue, as it surely will on health care reform — should he abandon the “public option”.  The new President made the mistake of assuming that if he established a reputation for being flexible, his opposition would be flexible in return.  The voting public will perceive this as weak leadership.  As a result, President Obama will need to re-invent this aspect of his public image before he can even consider presenting a second economic stimulus proposal.

Disappointer-In-Chief

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April 9, 2009

President Obama must feel relieved by the cartoonish attacks against him by the likes of Rep. Michelle Bachmann and Fox News character, Sean Hannity.  Bachmann’s accusations that Obama is planning “re-education camps” for young people surely brought some comic relief to the new President.  Hannity must have caused some thunderous laughter in the White House with his claim that during a speech the President gave in Strasbourg, France, we saw examples of how “Obama attacks America”.  These denigration attempts were likely received as a welcome break from criticism being voiced by commentators who are usually supportive of the Obama administration.  Take Keith Olbermann for example.  He has not been holding back on expressing outrage over the Obama administration’s claim that the Patriot Act provides sovereign immunity to the federal government in civil lawsuits brought by victims of illegal wiretapping conducted by the Bush administration.  Another example of a disillusioned Obama supporter is MSNBC’s Rachel Maddow, who has been fretting over the President’s plan to up the stakes for success in Afghanistan by increasing our troop commitment there and settling in to fight the good fight for as long as it takes.

Nothing has broken the spirits of Obama supporters more than his administration’s latest bank bailout scheme —  a/k/a  the Public-Private Investment Program (PPIP or “pee-pip”).  Although Treasury Secretary “Turbo” Tim Geithner has been the guy selling this plan to Congress and the public, the “man behind the curtain” who likely hatched this scam is Larry Summers.  Summers is the economist whom Obama named director of the National Economic Council.  At the time of that appointment, many commentators expressed dismay, since Summers, as Bill Clinton’s Treasury Secretary, supported repeal of the 1933 Glass-Steagall Act.  It is widely accepted that the repeal of the Glass-Steagall Act helped bring about the subprime mortgage crisis and our current economic meltdown.  On the November 25, 2008 broadcast of the program, Democracy Now, author Naomi Klein made the following remark about Obama’s appointment of Summers:  “I think this is really troubling.”  She was right.  It was recently reported by Jeff Zeleny of The New York Times that Summers earned more than $5 million last year from the hedge fund, D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money.  Many economists are now voicing opinions that the Geithner-Summers Public-Private Investment Program (PPIP) is “really troubling”, as well.  Nobel laureates Paul Krugman and Joseph Stiglitz have been vocal critics of this plan.  As James Quinn reported for London’s Telegraph:  Professor Stiglitz said that the plan is “very flawed” and “amounts to robbery of the American people.”

Obama supporter George Soros, the billionaire financier and hedge fund manager, had this to say to Saijel Kishan and Kathleen Hays of Bloomberg News about Obama’s performance so far:

“He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market,” said Soros, who has published an updated paperback version of his book “The New Paradigm for Financial Markets:  The Credit Crisis of 2008 and What It Means” (Scribe Publications, 2009).  “Unfortunately, there’s just a little bit too much continuity with the previous administration.”

The usually Obama-friendly Huffington Post has run a number of critical pieces addressing the Geithner – Summers plan.  Sam Stein pointed out how the plan is “facing a new round of withering criticism from economists”:

These critiques have produced a Washington rarity:  the re-sparking of a debate that, in the wake of positive reviews from Wall Street, had largely subsided.  Just as Geithner seemed to be finding his political footing, the spotlight has been placed right back on his cornerstone proposal, with critics calling into question both his projections and past testimony on the matter.

Jeffrey Sachs, an Economics professor at Columbia University, wrote a follow-up article for The Huffington Post on April 8, affirming earlier criticisms leveled against the bailout proposal with the added realization that “the situation is even potentially more disastrous” than previously described:

Insiders can easily game the system created by Geithner and Summers to cost up to a trillion dollars or more to the taxpayers.

Zachary Goldfarb of The Washington Post took a closer look at Treasury Secretary Geithner’s testimony before Congress last month, to ascertain the viability of some of the proposals Geithner mentioned at that hearing:

The Obama administration’s plan for a sweeping expansion of financial regulations could have unintended consequences that increase the very hazards that these changes are meant to prevent.

Financial experts say the perception that the government will backstop certain losses will actually encourage some firms to take on even greater risks and grow perilously large.  While some financial instruments will come under tighter control, others will remain only loosely regulated, creating what some experts say are new loopholes.  Still others say the regulation could drive money into questionable investments, shadowy new markets and lightly regulated corners of the globe.

If President Obama does not change course and deviate from the Geithner-Summers plan before it’s too late, his legacy will be a ten-year recession rather than a two year recession without the PPIP.  Worse yet, the toughest criticism and the most pressure against his administration are coming from people he has considered his supporters.  At least he has the people at Fox News to provide some laughable “decoy” reports to keep his hard-core adversaries otherwise occupied.