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.
More Bad Press For Goldman Sachs
July 16, 2009
They can’t seem to get away from it, no matter how hard they try. Goldman Sachs is finding itself confronted with bad publicity on a daily basis.
It all started with Matt Taibbi’s article in Rolling Stone. As I pointed out on June 25, I liked the article as well as Matt’s other work. His blog can be found here. His article on Goldman Sachs employed a good deal of hyperbolic rhetoric which I enjoyed — especially the metaphor of Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. Nevertheless, many commentators took issue with the article, especially focusing on the subtitle’s claim that “Goldman Sachs has engineered every major market manipulation since the Great Depression”. I took that remark as hyperbole, since it would obviously require over 120 megabytes of space to document “every major market manipulation since the Great Depression” — so I wasn’t disappointed about being unable to read all that. Some of Taibbi’s critics include Megan McArdle from The Atlantic and Joe Weisenthal at Clusterstock.
On the other hand, Taibbi did get a show of support from Eliot “Socks” Spitzer during a July 14 interview on Bloomberg TV. Mr. Spitzer made some important points about Goldman’s conduct that we are now hearing from a number of other sources. Spitzer began by emphasizing that because of the bank bailouts “Goldman’s capital was driven to virtually nothing — because we as taxpayers gave them access to capital — they made a bloody fortune” (another vampire squid reference). Spitzer voiced the concern that Goldman is simply going back to proprietary trading and taking advantage of spreads, following its old business model. He argued that, a result of the bailouts:
This sentiment seems to be coming from all directions, in light of the fact that on July 14, Goldman reported second-quarter profits of 3.44 billion dollars — while on the following day, another TARP recipient, CIT Group disclosed that it would likely file for bankruptcy on July 17. On July 16, The Wall Street Journal ran an editorial entitled: “A Tale of Two Bailouts” comparing Goldman’s fate with that of CIT. The article pointed out that since Goldman’s risk is subsidized by the taxpayers, the company might be more appropriately re-branded as “Goldie Mac”:
Robert Reich voiced similar concern over the fact that “Goldman’s high-risk business model hasn’t changed one bit from what it was before the implosion of Wall Street.” He went on to explain:
At The Huffington Post, Mike Lux reminded Goldman that despite its repayment of $10 billion in TARP funds, we haven’t overlooked the fact that Goldman has not repaid the $13 billion it received for being a counterparty to AIG’s bad paper or the “unrevealed billions” it received from the Federal Reserve. This raises a serious question as to whether Goldman should be allowed to pay record bonuses to its employees, as planned. Didn’t we go through this once before? Paul Abrams is mindful of this, having issued a wake-up call to “Turbo” Tim Geithner and Congress.
As long as we keep reading the news, each passing day provides us with yet another reminder to feel outrage over the hubris of the people at Goldman Sachs.