March 19, 2009
Public anger over the AIG bonus controversy has risen to the point where no politician wants to be complicit in any government action to further reward those characters, widely regarded to have helped cause the economic crisis. Worse yet, bailout fatigue is finally taking its toll on the consensual psyche. On March 18, Chairman Ben Bernanke announced the decision of the Federal Reserve’s Open Market Committee (FOMC) to print up another trillion dollars to buy back long-term Treasury bonds and to purchase some of those toxic, mortgage-backed securities. The most immediate beneficiaries of this news were the usual suspects: the banks. Citigroup saw its stock value jump over 22% on Wednesday. Bank of America made a similar gain and Wells Fargo’s stock rose over 17%. As John Dickerson reported for Slate, President Obama is walking a tightrope by resonating with the public outrage over the behavior of Wall Street’s investment banks, since too much taxpayer anger could cause him trouble down the road:
Administration aides know this outrage can go too far. If the president stokes too much outrage, he’ll have a tougher time asking for more tax money for future bailouts of banks and other industries. But, as it was explained to me by an administration adviser, it is impossible for the president not to show that he’s outraged. If he didn’t, he’d lose credibility, which would eventually hurt his ability to sell future bailouts and his budget.
Meanwhile, Treasury Secretary “Turbo” Tim Geithner continued to take heat from members of Congress, as he is increasingly perceived as the individual who failed to prevent the villains at AIG from being rewarded $165 million for their role in causing the financial meltdown. As Rick Klein reported for ABC News, two Republican Congressmen (Connie Mack of Florida and Darrell Issa of California) have called for Geithner’s resignation. Klein’s article went on to point out:
Several congressional aides said members of Congress remain unlikely to press for Geithner’s ouster in large numbers. At the very least, according to one Democratic leadership aide, members are likely to wait for Geithner to present his comprehensive bank bailout plan before passing judgment.
Once Turbo Tim does finally present “his comprehensive bank bailout plan” (a/k/a the Financial Stability Plan), he will validate his new-found reputation as a lackey for the Wall Street establishment. If you think he’s unpopular now … wait until that happens. Harold Meyerson’s March 18 op-ed piece in The Washington Post is emblematic of the criticism the new administration faces as it attempts to assimilate Geithner-ism into its economic recovery strategy:
But Geithner’s indulgence of bankers’ indulgences is fast becoming the Obama administration’s Achilles’ heel. The AIG debacle is the latest in a series of bewildering Geithner decisions that threaten to undermine the administration’s efforts to restart the economy. So long as it’s Be Kind to Bankers Week at Treasury — and we’ve had eight straight such weeks since the president was inaugurated — American banking, and the economy it is supposed to serve, will remain paralyzed. The Geithner plan to restart the banks provides huge taxpayer subsidies to hedge funds, investment banks and private equity companies to buy the banks’ toxic assets without really having to assume the risk. That’s right — the same Wall Street wizards who got us into this mess, using the same securitization techniques that built mountains of debt within a shadow financial system that remains unregulated, are the saviors whom Geithner has anointed to extricate us — with our capital, not theirs — from the mess that they created.
A more plausible solution would be for the government to assume control of those banks that are insolvent, as it routinely does when banks go under. It could then install new management, wipe out the shareholders, take the devalued assets off the banks’ books, restart lending and restore the banks to private control at a modest profit for the taxpayers. There may be reasons that Geithner’s plan makes more sense than this one, but if they exist, Geithner has failed to explain them.
Nothing could more seriously undermine President Obama’s “big bang” strategy (of simultaneously tackling the problems of energy, health care, climate change and education) than Geithner’s inept approach to solving the nation’s economic problems. In fact, it appears as though the growing “bailout fatigue” is already taking its toll. As Ben Smith and Manu Raju reported for Politico, Indiana Senator Evan Bayh’s 15-member caucus of conservative and centrist Democrats seems convinced that it will be impossible to adequately address the nation’s financial ills while pursuing such an ambitious, multi-front agenda. Worse yet, as the Politico article pointed out, if the administration is seen as mishandling the economic crisis by catering to the interests of Wall Street, the public could become unwilling to trust the new administration with such a far-reaching scheme, involving so many costly programs:
But many lawmakers made clear Tuesday their view that voters’ willingness to trust Obama on some subjects will be determined by their view of how well he handles the economic crisis. That judgment, in turn, will be shaped by whether the White House effectively responds to public outrage over large bonuses to executives at bailed-out American International Group.
“Unless we can instill some trust back with the American people that these people who brought on this problem, who risked our 401K funds and hard-working people’s money, aren’t going to be able to profit from their folly, I think we are at risk of losing their trust,” said Sen. Amy Klobuchar (D-Minn.).
If Rush Limbaugh still wants to see President Obama fail in advancing the “big bang” agenda . . .
He must have a lot of love for Tim Geithner.
I Knew This Would Happen
May 27, 2010
It was almost a year ago when I predicted that President Obama would eventually announce the need for a “second stimulus”. Once the decision was made to drink the Keynesian Kool-Aid with the implementation of last year’s economic stimulus package, we were faced with the question of how much to drink. As I expected, our President took the half-assed, yet “moderate” approach of limiting the stimulus effort to less than what was admitted as the cost of the TARP program, as well as approving the waste of stimulus funds on “pork” projects, ill-suited to stimulate economic recovery. In that July 9, 2009 piece, I discussed the fact that liberal economist, Paul Krugman, was not alone in claiming that $787 billion would not be an adequate amount to jump-start the economy back to firing on all cylinders. I pointed out that a survey of economists conducted by Bloomberg News in February of 2009 revealed a consensus opinion that an $800 billion stimulus would prove to be inadequate. The February 12, 2009 Bloomberg article by Timothy Homan and Alex Tanzi revealed that:
As we now reach the mid-point of that “next year”, the unemployment rate is at 9.9 percent. Those economists were right. Beyond that, some highly-respected economists, including Robert Shiller, are discussing the risk of our experiencing a “double-dip” recession. As a result, Larry Summers, Director of the President’s National Economic Council, is advocating the passage of a new set of spending measures, referred to as the “second stimulus”. To help offset the expense, the President has asked Congress to grant him powers to cut unnecessary spending, as would be accomplished with a “line item veto”. The Financial Times described the situation this way :
Because they couldn’t get it right the first time, the President and his administration have placed themselves in the position of seeking piecemeal stimulus measures. If they had done it right, we would probably be enjoying economic recovery and a boost in the ranks of the employed at this point. As a result, this half-assed, piecemeal approach will likely prove more costly than doing it right on the first try. With mid-term elections approaching, deficit hawks have their knives sharpened for anything that can be described as an “entitlement” (unless that entitlement inures to the benefit of a favored Wall Street institution). Harold Meyerson of The Washington Post challenged the logic of the deficit hawks with this argument:
Marshall Auerback of the Roosevelt Institute picked up where Harold Meyerson left off, as this recent posting at the New Deal 2.0 website demonstrates:
The fact that we are still in the midst of a severe recession (rather than a robust economic recovery as is often claimed) accounts for the rationale asserted by Larry Summers in advocating a second stimulus amounting to approximately $200 billion in spending measures. Here’s how Summers explained the proposal in a May 24 speech at the Johns Hopkins School of Advanced International Studies:
So, here we are at the introduction of the second stimulus plan. Despite the denial by President Obama that he would seek a second stimulus, he has Larry Summers doing just that. Last year, the public and the Congress had the will – not to mention the sense of urgency – to approve such measures. This time around, it might not happen and that would be due to the leadership flaw I observed last year:
At this point, Obama’s “flexibility” is often viewed by the voting public as a lack of existential authenticity, sincerity or — worse yet — credibility. As a result, I would expect to see more articles like the recent piece by Carol Lee at Politico, entitled, “Obama: Day for ‘partnership’ passed”.
Here comes the makeover!
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