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Obama And The TARP

June 2nd, 2011 Posted in Uncategorized

Jun, 02 2011

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I always enjoy it when a commentator appearing on a talk show reminds us that President Obama has become a “tool” for the Wall Street bankers. This theme is usually rebutted with the claim that the TARP bailout happened before Obama took office and that he can’t be blamed for rewarding the miscreants who destroyed our economy. Nevertheless, this claim is not entirely true. President Bush withheld distribution of one-half of the $700 billion in TARP bailout funds, deferring to his successor’s assessment of the extent to which the government should intervene in the banking crisis. As it turned out, during the final weeks of the Bush Presidency, Hank Paulson’s Treasury Department declared that there was no longer an “urgent need” for the TARP bailouts to continue. Despite that development, Obama made it clear that anyone on Capitol Hill intending to get between the banksters and that $350 billion was going to have a fight on their hands. Let’s jump into the time machine and take a look at my posting from January 19, 2009 – the day before Obama assumed office:

On January 18, Salon.com featured an article by David Sirota entitled: “Obama Sells Out to Wall Street”. Mr. Sirota expressed his concern over Obama’s accelerated push to have immediate authority to dispense the remaining $350 billion available under the TARP (Troubled Asset Relief Program) bailout:

Somehow, immediately releasing more bailout funds is being portrayed as a self-evident necessity, even though the New York Times reported this week that “the Treasury says there is no urgent need” for additional money. Somehow, forcing average $40,000-aires to keep giving their tax dollars to Manhattan millionaires is depicted as the only “serious” course of action. Somehow, few ask whether that money could better help the economy by being spent on healthcare or public infrastructure. Somehow, the burden of proof is on bailout opponents who make these points, not on those who want to cut another blank check.

Discomfort about another hasty dispersal of the remaining TARP funds was shared by a few prominent Democratic Senators who, on Thursday, voted against authorizing the immediate release of the remaining $350 billion. They included Senators Russ Feingold (Wisconsin), Jeanne Shaheen (New Hampshire), Evan Bayh (Indiana) and Maria Cantwell (Washington). The vote actually concerned a “resolution of disapproval” to block distribution of the TARP money, so that those voting in favor of the resolution were actually voting against releasing the funds. Earlier last week, Obama had threatened to veto this resolution if it passed. The resolution was defeated with 52 votes (contrasted with 42 votes in favor of it). At this juncture, Obama is engaged in a game of “trust me”, assuring those in doubt that the next $350 billion will not be squandered in the same undocumented manner as the first $350 billion. As Jeremy Pelofsky reported for Reuters on January 15:

To win approval, Obama and his team made extensive promises to Democrats and Republicans that the funds would be used to better address the deepening mortgage foreclosure crisis and that tighter accounting standards would be enforced.

“My pledge is to change the way this plan is implemented and keep faith with the American taxpayer by placing strict conditions on CEO pay and providing more loans to small businesses,” Obama said in a statement, adding there would be more transparency and “more sensible regulations.”

Of course, we all know how that worked out . . . another Obama promise bit the dust.

The new President’s efforts to enrich the Wall Street banks at taxpayer expense didn’t end with TARP. By mid-April of 2009, the administration’s “special treatment” of those “too big to fail” banks was getting plenty of criticism. As I wrote on April 16 of that year:

Criticism continues to abound concerning the plan by Turbo Tim and Larry Summers for getting the infamous “toxic assets” off the balance sheets of our nation’s banks. It’s known as the Public-Private Investment Program (a/k/a: PPIP or “pee-pip”).

* * *

One of the harshest critics of the PPIP is William Black, an Economics professor at the University of Missouri. Professor Black gained recognition during the 1980s while he was deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC).

* * *

I particularly enjoyed Black’s characterization of the PPIP’s use of government (i.e. taxpayer) money to back private purchases of the toxic assets:

It is worse than a lie. Geithner has appropriated the language of his critics and of the forthright to support dishonesty. That is what’s so appalling — numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies. He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything. He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

Although President Obama’s hunt for Osama bin Laden was a success, his decision to “punt” on the economic stimulus program – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – became Obama’s own “Tora Bora moment”, at which point he allowed economic recovery to continue on its elusive path away from us. Economist Steve Keen recently posted this video, explaining how Obama’s failure to promote an effective stimulus program has guaranteed us something worse than a “double-dip” recession: a quadruple-dip recession.

Many commentators are currently discussing efforts by Republicans to make sure that the economy is in dismal shape for the 2012 elections so that voters will blame Obama and elect the GOP alternative. If Professor Keen is correct about where our economy is headed, I can only hope there is a decent Independent candidate in the race. Otherwise, our own “lost decade” could last much longer than ten years.

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Unwanted Transparency

May 26th, 2011 Posted in Uncategorized

May, 26 2011

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Immediately after assuming office, President Obama promised to provide a greater degree of transparency from his administration:

Transparency and the rule of law will be the touchstones of this presidency.

Did you really believe that? Do you remember Jane Mayer – author of that great book, The Dark Side, which exposed the controversial “enhanced interrogation techniques”? Well, she just wrote an article for The New Yorker, discussing the Obama administration’s use of the Espionage Act of 1917 to press criminal charges in five alleged instances of national security leaks. At the outset of the article, Ms. Mayer made this observation:

Gabriel Schoenfeld, a conservative political scientist at the Hudson Institute, who, in his book “Necessary Secrets” (2010), argues for more stringent protection of classified information, says, “Ironically, Obama has presided over the most draconian crackdown on leaks in our history – even more so than Nixon.”

Meanwhile, another sort of unwanted transparency is catching up with the Obama administration: transparent motives. Many commentators are finally facing-up to the reality that Obama never gave a damn about the unemployment crisis. I have repeatedly emphasized that President Obama’s February, 2009 decision to “punt” on the economic stimulus program – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – was a mistake, similar in magnitude to that of allowing Bin Laden to escape at Tora Bora. In his own “Tora Bora moment”, President Obama decided to rely on the advice of the very people who helped cause the financial crisis, by doing more for the zombie banks of Wall Street and less for Main Street – sparing the banks from temporary receivership (also referred to as “temporary nationalization”) while spending less on financial stimulus. Obama ignored the 50 economists surveyed by Bloomberg News, who warned that an $800 billion stimulus package would be inadequate.

A recent interview with economist Tim Duy focused on the inadequacy of the Economic Recovery and Reinvestment Act of 2009:

What went wrong with stimulus? Why does unemployment remain so high?

I don’t think anything “went wrong” with the stimulus, other than it simply wasn’t enough to fill the depth of the economic hole caused by the recession. There was simply a lack of political willpower to fully acknowledge the depth of the problem and bring to bear the appropriate resources. The result is an economy that is not bouncing back quickly enough to close the output gap and create sufficient job growth to drive the unemployment rate down lower at a faster pace.

Is the economy not weak enough to justify more stimulus? Or do policy makers think that deficit spending is not able to generate more jobs?

Yes, the economy is weak enough to justify additional stimulus, and the persistently low rates of government debt should prove that current fears of deficit spending are unjustified. Some policymakers appear to believe that a commitment to fiscal austerity will in fact generate more job growth, but this is nonsensical – austerity would only aggravate the existing challenges (as it has in Greece). There is currently no constraint that prevents more fiscal stimulus from being effective in promoting additional economic growth. Longer run, yes, the US federal budget does need to be addressed, but letting growth stagnate now will only intensify that challenge in the future. Policymakers, however, appear enamoured with the idea that these challenges need to be addressed now, and this attitude poses another risk to the recovery.

I want to focus on what Professor Duy described as a “lack of willpower”. That lack of willpower was rooted in a lack of authenticity. President Obama was never concerned about what most of us would consider “economic recovery” – reducing unemployment to just below five percent. Obama’s goal was to do just enough to avoid another Great Depression. Once that goal was accomplished, it was time to move on to other things. My cynicism on this subject was validated in a recent essay by Mark Provost for Truthout, entitled, “Why the Rich Love High Unemployment”. In fact, Provost’s article was met with such widespread enthusiasm that it was republished in its entirety on the following websites: Naked Capitalism, Angry Bear and The Economic Populist. Here are some key points from the piece:

Obama’s advisers often congratulate themselves for avoiding another Great Depression – an assertion not amenable to serious analysis or debate. A better way to evaluate their claims is to compare the US economy to other rich countries over the last few years.

On the basis of sustaining economic growth, the United States is doing better than nearly all advanced economies.

*   *   *

But when it comes to jobs, US policymakers fall short of their rosy self-evaluations.

*   *   *

The gap between economic growth and job creation reflects three separate but mutually reinforcing factors: US corporate governance, Obama’s economic policies and the deregulation of US labor markets.

*   *   *

Obama’s lopsided recovery also reflects lopsided government intervention. Apart from all the talk about jobs, the Obama administration never supported a concrete employment plan. The stimulus provided relief, but it was too small and did not focus on job creation.

The administration’s problem is not a question of economics, but a matter of values and priorities.

Mark Provost’s essay featured this infamous quote from a Washington Post article written by Steven Rattner (Obama’s “car czar” during 2009 – whose task force was overseen by “Turbo” Tim Geithner and Larry Summers):

Perversely, the nagging high jobless rate reflects two of the most promising attributes of the American economy: its flexibility and its productivity. Eliminating jobs – with all the wrenching human costs – raises productivity and, thereby, competitiveness (the president’s new favorite word). In the long run, increasing productivity is the only route to superior competitiveness.

* * *

That kind of efficiency is perhaps our most precious economic asset. However tempting it may be, we need to resist tinkering with the labor market. Policy proposals aimed too directly at raising employment may well collaterally end up dragging on productivity. And weak productivity would exacerbate the downward pressure on wages that caused the last decade to be the first in our history in which wages (after adjustment for inflation) declined.

In other words, productivity is more important than those pesky “wrenching human costs”. Too bad there just isn’t some kind of spray or ointment for those things! This attitude exemplified what Chris Hedges discussed in his book, Death of the Liberal Class. In a recent article for Truthdig, Chris Hedges emphasized how the liberal class “abandoned the human values that should have remained at the core of its activism”:

The liberal class, despite becoming an object of widespread public scorn, prefers the choreographed charade. It will decry the wars in Iraq and Afghanistan or call for universal health care, but continue to defend and support a Democratic Party that has no intention of disrupting the corporate machine. As long as the charade is played, the liberal class can hold itself up as the conscience of the nation without having to act. It can maintain its privileged economic status. It can continue to live in an imaginary world where democratic reform and responsible government exist. It can pretend it has a voice and influence in the corridors of power. But the uselessness and irrelevancy of the liberal class are not lost on the tens of millions of Americans who suffer the indignities of the corporate state. And this is why liberals are rightly despised by the working class and the poor.

To repeat an important statement from Mark Provost’s essay:

The administration’s problem is not a question of economics, but a matter of values and priorities.

The unemployment crisis is destined to continue for several years – thanks to the administration’s abandonment of those human values discussed by Chris Hedges.

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Our Sham Two-Party System

May 23rd, 2011 Posted in Uncategorized

May, 23 2011

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It’s becoming more obvious to people that our so-called, “two-party system” is really a just a one-party system. Last summer, I discussed how the Republi-cratic Corporatist Party is determined to steal the money American workers have paid into the Social Security program. While we’re on the subject, let’s take a look at an inconvenient law which the Beltway Vultures choose to ignore:

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.

In a recent interview conducted by Anastasia Churkina of Russia Today, investigative reporter and author, Matt Taibbi described the American political system as a “reality show sponsored by Wall Street”. Taibbi pointed out that “… the problem is Wall Street heavily sponsors both the Republican and the Democratic Parties” so that whoever gets elected President “is going to be a creature of Wall Street”. After noting that Goldman Sachs was Obama’s number one source of private campaign contributions during the 2008 election cycle, Taibbi faced a question about the possibility that a third party could become a significant factor in American politics. His response was: “Seriously, I don’t see it.” Taibbi went on to express his belief that the “average American” is:

… seduced and mesmerized by this phony, media-created, division between blue and red – and left and right, Democrats and Republicans, and people are conditioned to believe that there are enormous, profound differences between these two parties. Whereas, the reality is: their differences are mostly superficial and on the important questions of how the economy is run and how to regulate the economy – they’re exactly the same – but I don’t think ordinary people know that.

At this point, the question is whether there can be any hope that “ordinary people” will ever realize that our “two-party system” is actually a farce.

The type of disappointment expressed by Matt Taibbi in his discussion of Barack Obama during the Russia Today interview, has become a familiar subject. I was motivated to characterize the new President as “Disappointer-In-Chief” during his third month in office. An increasing number of commentators have begun to admit that Hillary Clinton’s campaign-theme question, “Who is Barack Obama?” was never really answered until after the man took office. One person who got an answer “the hard way” was Professor Cornel West of Princeton University.

In a recent article for Truthdig, Chris Hedges discussed how Professor West made 65 appearances for Candidate Obama on the campaign trail. Nevertheless, Professor West never received an invitation to Obama’s Inaugural. Although he traveled to Washington for that historic occasion, Professor West ended up watching the event on a hotel room television with his family. As an adversary of Obama’s financial mentor, Larry Summers, Professor West quickly found himself thrown under the bus.

The following passage from Chris Hedges’ article presents an interesting narrative by Professor West about what I have previously described as Obama’s own “Tora Bora moment” (when the President “punted” on the economic stimulus bill). Professor West also lamented the failure of the Democrats to provide any alternative to the bipartisan tradition of crony corporatism:

“Can you imagine if Barack Obama had taken office and deliberately educated and taught the American people about the nature of the financial catastrophe and what greed was really taking place?” West asks. “If he had told us what kind of mechanisms of accountability needed to be in place, if he had focused on homeowners rather than investment banks for bailouts and engaged in massive job creation he could have nipped in the bud the right-wing populism of the tea party folk. The tea party folk are right when they say the government is corrupt. It is corrupt. Big business and banks have taken over government and corrupted it in deep ways.

“We have got to attempt to tell the truth, and that truth is painful,” he says. “It is a truth that is against the thick lies of the mainstream. In telling that truth we become so maladjusted to the prevailing injustice that the Democratic Party, more and more, is not just milquetoast and spineless, as it was before, but thoroughly complicitous with some of the worst things in the American empire. I don’t think in good conscience I could tell anybody to vote for Obama. If it turns out in the end that we have a crypto-fascist movement and the only thing standing between us and fascism is Barack Obama, then we have to put our foot on the brake. But we’ve got to think seriously of third-party candidates, third formations, third parties.

When one considers the vast number of disillusioned Obama supporters along with the number of people expressing their disappointment with the Republican field of Presidential hopefuls, the idea that 2012 could be the year when a third-party candidate makes it to the White House doesn’t seem so far-fetched.

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Why Au-scare-ity Still Has Traction

May 16th, 2011 Posted in Uncategorized

May, 16 2011

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Many economists have been watching Britain’s experiment with austerity for quite a while. Britain has been following a course of using cuts in government programs along with mass layoffs of public sector workers in attempt to stimulate economic growth. Back in February, economist Dean Baker made this observation:

Three months ago, I noted that the United States might benefit from the pain being suffered by the citizens of the United Kingdom. The reason was the new coalition government’s commitment to prosperity through austerity. As predicted, this looks very much like a path to pain and stagnation, not healthy growth.

That’s bad news for the citizens of the United Kingdom. They will be forced to suffer through years of unnecessarily high unemployment. They will also have to endure cutbacks in support for important public services like healthcare and education.

But the pain for the people in England could provide a useful example for the United States.

* * *

Prior to this episode, there was already a solid economic case that large public deficits were necessary to support the economy in the period following the collapse of an asset bubble. The point is simply that the private sector is not prepared to make up the demand gap, at least in the short term. Both short-term and long-term interest rates are pretty much as low as they can be.

* * *

From this side of the pond, though, the goal is simply to encourage people to pay attention. The UK might be home to 60 million people, but from the standpoint of US economic policy, it is simply exhibit A: it is the country that did what our deficit hawks want to do in the US.

The takeaway lesson should be “austerity does not work; don’t go there.” Unfortunately, in the land of faith-based economics, evidence does not count for much. The UK may pursue a disastrous austerity path and those of us in the United States may still have to follow the same road anyhow.

After discussing the above-quoted commentary by Dean Baker, economist Mark Thoma added this:

Yes — it’s not about evidence, it’s about finding an excuse to implement an ideology. The recession got in the way of those efforts until the idea that austerity is stimulative came along. Thus, “austerity is stimulative” is being used very much like “tax cuts increase revenues.” It’s a means of claiming that ideological goals are good for the economy so that supporters in Congress and elsewhere have a means of rationalizing the policies they want to put in place. It’s the idea that matters, and contrary evidence is brushed aside.

There seems to be an effort in many quarters to deny that the financial crisis ever happened. Although it will eventually become absolutely imperative to get deficits under control, most sober economists emphasize that attempting to do so before the economy begins to recover and before the unemployment crisis is even addressed – would destroy any chance of economic recovery. Barack Obama’s opponents know that the easiest route toward subverting the success of his re-election campaign involves undermining any efforts toward improving the economy to any degree by November of 2012. Beyond that, the fast-track implementation of a British-style austerity program could guarantee a double-dip recession, which could prove disastrous to Obama’s re-election hopes. As a result, the pressure is on to initiate some significant austerity measures as quickly as possible. The propaganda employed to expedite this effort involves scaring the sheeple into believing that the horrifying budget deficit is about to bite them in the ass right now. There is a rapidly increasing drumbeat to crank-up the scare factor.

Of course, the existence of this situation is the result of Obama’s own blunder. Although he did manage to defeat Osama bin Laden, President Obama’s February, 2009 decision to “punt” on the economic stimulus program – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – was a mistake, similar in magnitude to that of allowing Bin Laden to escape at Tora Bora. In his own “Tora Bora moment”, President Obama decided to rely on the advice of the very people who helped cause the financial crisis, by doing more for the zombie banks of Wall Street and less for Main Street – by sparing the banks from temporary receivership (also referred to as “temporary nationalization”) while spending less on financial stimulus. Obama ignored the 50 economists surveyed by Bloomberg News, who warned that an $800 billion stimulus package would be inadequate. In April of 2009, Obama chose to parrot the discredited “money multiplier” myth, fed to him by Larry Summers and “Turbo” Tim Geithner, in order to justify continuous corporate welfare for the megabanks. If Obama had followed the right course, by pushing a stronger, more infrastructure-based stimulus program through the Democrat-controlled Senate and House, we would be enjoying a more healthy economy right now. A significant number of the nearly fifteen million people currently unemployed could have found jobs from which they would now be paying income taxes, which reduce the deficit. But that didn’t happen. President Obama has no one else to blame for that error. His opponents are now attempting to “snowball” that mistake into a disaster that could make him a one-term President.

Former Labor Secretary Robert Reich saw this coming back in March:

House Majority Leader Eric Cantor recently stated the Republican view succinctly: “Less government spending equals more private sector jobs.”

In the past I’ve often wondered whether they’re knaves or fools. Now I’m sure. Republicans wouldn’t mind a double-dip recession between now and Election Day 2012.

They figure it’s the one sure way to unseat Obama. They know that when the economy is heading downward, voters always fire the boss. Call them knaves.

What about the Democrats? Most know how fragile the economy is but they’re afraid to say it because the White House wants to paint a more positive picture.

And most of them are afraid of calling for what must be done because it runs so counter to the dominant deficit-cutting theme in our nation’s capital that they fear being marginalized. So they’re reduced to mumbling “don’t cut so much.” Call them fools.

Professor Simon Johnson, former Chief Economist of the International Monetary Fund, recently brought the focus of the current economic debate back to where it belongs:

In the nation’s latest fiscal mood swing, the mainstream consensus has swung from “we must extend the Bush tax cuts” (in December 2010) towards “we must immediately cut the budget deficit.” The prevailing assumption, increasingly heard from both left and right, is that we already have far too much government debt – and any further significant increase will likely ruin us all.

This way of framing the debate is misleading – and very much at odds with US fiscal history. It masks the deeper and important issues here, which are much more about distribution, in particular how much are relatively wealthy Americans willing to transfer to relatively poor Americans?

* * *

The real budget debate is not about a few billion here or there – for example in the context of when the government’s “debt ceiling” will be raised. And it is not particularly about the last decade’s jump in government debt level – although this has grabbed the headlines, this is something that we can grow out of (unless the political elite decides to keep cutting taxes).

The real issue is how much relatively rich people are willing to pay and on what basis in the form of transfers to relatively poor people – and how rising healthcare costs should affect those transfers.

As the Tea Partiers flock to movie theaters to watch Atlas Shrugged, perhaps it’s time for a porno send-up, based on a steamy encounter between Ayn Rand and Gordon Gekko called, Greed Feels Good.

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Time For Another Victory Lap

May 9th, 2011 Posted in Uncategorized

May, 09 2011

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I’m no cheerleader for President Obama. Since he first became our Disappointer-In-Chief, I have vigorously voiced my complaints about his decisions. At the end of President Obama’s first month in office, I expressed concern that his following the advice of “Turbo” Tim Geithner and Larry Summers was putting the welfare (pun intended) of the Wall Street banks ahead of the livelihoods of those who voted for him. I lamented that this path would lead us to a ten-year, Japanese-style recession. By September of 2010, it was obvious that those early decisions by the new President would prove disastrous for the Democrats at the mid-term elections. At that point, I repeated my belief that Obama had been listening to the wrong people when he decided to limit spending on the economic stimulus package to approximately half of what was necessary to end the economic crisis:

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.

Last week, I was about to write a piece, describing that decision as “Obama’s Tora Bora moment”. When I sat down at my computer just after 11 p.m. on Sunday, I realized that the timing wouldn’t have been appropriate for such a metaphor. The President was about to make his historic speech, announcing that Osama Bin Laden had been killed. Just as many have criticized the Obama administration’s handling of the disaster in the Gulf of Corexit as “Obama’s Katrina Moment”, I believe that the President’s decision to “punt” on the stimulus – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – was a mistake, similar in magnitude to that of allowing Bin Laden to escape at Tora Bora. The consequences have been enormously expensive (simply adding the $600 billion cost of QE 2 alone to a better-planned stimulus program would have reduced our current unemployment level to approximately 5%). Beyond that, the advocates of “Austerian” economics have scared everyone in Washington into the belief that the British approach is somehow the right idea – despite the fact that their economy is tanking. Never mind the fact Australia’s stimulus program was successful and ended the recession in that country.

The Fox Ministry of Truth has brainwashed a good number of people into believing that Obama’s stimulus program (a/k/a the American Recovery and Reinvestment Act of 2009) was a complete failure. You will never hear the Fox Ministry of Truth admit that prominent Republican economist Keith Hennessey, the former director of the National Economic Council under President George W. Bush, pointed out that the 2009 stimulus “increased economic growth above what it otherwise would have been”. The Truth Ministry is not likely to concede that John Makin of the conservative think-tank, the American Enterprise Institute, published this statement at the AEI website:

Absent temporary fiscal stimulus and inventory rebuilding, which taken together added about 4 percentage points to U.S. growth, the economy would have contracted at about a 1 percent annual rate during the second half of 2009.

On the other hand, count me among those who are skeptical that the Federal Reserve’s monetary policy can have any impact on our current unemployment crisis (it hasn’t yet).

Many of Obama’s critics have complained that the Presidential appearance at Ground Zero was an inappropriate “victory lap” – despite the fact that George W. Bush was invited to the event (although he declined). Not only was that victory lap appropriate – Obama is actually entitled to run another. As E.J. Dionne pointed out, the controversial “nationalization” of the American auto industry (what should have been done to the Wall Street banks) has become a huge success:

The actual headlines make the point. “Demand for fuel-efficient cars helps GM to $3.2 billion profit,” declared The Washington Post. “GM Reports Earnings Tripled in First Quarter, as Revenue Jumped 15 Percent,” reported The New York Times.

* * *

“Having the federal government involved in every aspect of the private sector is very dangerous,” Rep. Dan Burton, R-Ind., told Fox News in December 2008. “In the long term it could cause us to become a quasi-socialist country.” I don’t see any evidence that we have become a “quasi-socialist country,” just big profits.

Rep. Lamar Smith, R-Texas, called the bailout “the leading edge of the Obama administration’s war on capitalism,” while other members of Congress derided the president’s auto industry task force. “Of course we know that nobody on the task force has any experience in the auto business, and we heard at the hearing many of them don’t even own cars,” declared Rep. Louie Gohmert, R-Texas, after a hearing on the bailout in May 2009. “And they’re dictating the auto industry for our future? What’s wrong with this picture?”

* * *

In the case of the car industry, allowing the market to operate without any intervention by government would have wiped out a large part of the business that is based in Midwestern states. This irreversible decision would have damaged the economy, many communities and tens of thousands of families.

And contrary to the predictions of the critics, government officials were quite capable of working with the market in restructuring the industry. Government didn’t overturn capitalism. It tempered the market at a moment when its “natural” forces were pushing toward catastrophe. Government had the resources to buy the industry time.

In fairness, President Obama has finally earned some bragging rights, after punting on health care, the stimulus and financial “reform”. He knows his Republican opponents will never criticize him for his own “Tora Bora moment” – because to do so would require an admission that a more expensive economic stimulus was necessary in 2009. As a result, it will be up to an Independent candidate or a Democratic challenger to Obama (less likely these days) to explain that the persistent economic crisis – our own “lost decade” – lingers on as a result of Obama’s “Tora Bora moment”.

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The Wrong Playbook

March 21st, 2011 Posted in Uncategorized

Mar, 21 2011

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President Obama is still getting it wrong. Nevertheless, we keep hearing that he is such a clever politician. Count me among those who believe that the Republicans are setting Obama up for failure and a loss to whatever goofball happens to win the GOP Presidential nomination in 2012 – solely because of a deteriorating economy. Obama had the chance to really save the economy and “right the ship”. When he had the opportunity to confront the greatest economic crisis since the Great Depression, President Obama violated Rahm Emanuel’s infamous doctrine, “You never want a serious crisis to go to waste”. The new President immediately made a point of squandering the opportunity to overcome that crisis. I voiced my frustration about this on October 7, 2010:

The trouble began immediately after President Obama assumed office. I wasn’t the only one pulling out my hair in February of 2009, when our new President decided to follow the advice of Larry Summers and “Turbo” Tim Geithner. That decision resulted in a breach of Obama’s now-infamous campaign promise of “no more trickle-down economics”. Obama decided to do more for the zombie banks of Wall Street and less for Main Street – by sparing the banks from temporary receivership (also referred to as “temporary nationalization”) while spending less on financial stimulus. Obama ignored the 50 economists surveyed by Bloomberg News, who warned that an $800 billion stimulus package would be inadequate. At the Calculated Risk website, Bill McBride lamented Obama’s strident posturing in an interview conducted by Terry Moran of ABC News, when the President actually laughed off the idea of implementing the so-called “Swedish solution” of putting those insolvent banks through temporary receivership.

In September of 2009, I discussed a fantastic report by Australian economist Steve Keen, who explained how the “money multiplier” myth, fed to Obama by the very people who caused the financial crisis, was the wrong paradigm to be starting from in attempting to save the economy. The Australian professor (Steve Keen) was right and Team Obama was wrong. In analyzing Australia’s approach to the financial crisis, economist Joseph Stiglitz made this observation on August 5, 2010:

Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.

Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries.

On October 6, 2010, Michael Heath of Bloomberg BusinessWeek provided the latest chapter in the story of how America did it wrong while Australia did it right:

Australian Employers Added 49,500 Workers in September

Australian employers in September added the most workers in eight months, driving the country’s currency toward a record and bolstering the case for the central bank to resume raising interest rates.

The number of people employed rose 49,500 from August, the seventh straight gain, the statistics bureau said in Sydney today. The figure was more than double the median estimate of a 20,000 increase in a Bloomberg News survey of 25 economists. The jobless rate held at 5.1 percent.

Meanwhile, America’s jobless rate has been hovering around 9 percent and the Federal Reserve found it necessary to print-up another $600 billion for a controversial second round of quantitative easing. If that $600 billion had been used for the 2009 economic stimulus (and if the stimulus program had been more infrastructure-oriented) we would probably have enjoyed a result closer to that experienced by Australia. Instead, President Obama chose to follow Japan’s strategy of perpetual bank bailouts (by way of the Fed’s “zero interest rate policy” or ZIRP and multiple rounds of quantitative easing), sending America’s economy into our own “lost decade”.

The only member of the Clinton administration who deserves Obama’s ear is being ignored. Bill Clinton’s Secretary of Labor, Robert Reich, has been repeatedly emphasizing that President Obama is making a huge mistake by attempting to follow the Clinton playbook:

Many of President Obama’s current aides worked for Clinton and vividly recall Clinton’s own midterm shellacking in 1994 and his re-election two years later – and they think the president should follow Clinton’s script. Obama should distance himself from congressional Democrats, embrace deficit reduction and seek guidance from big business. They assume that because triangulation worked for Clinton, it will work for Obama.

They’re wrong. Clinton’s shift to the right didn’t win him re-election in 1996. He was re-elected because of the strength of the economic recovery.

By the spring of 1995, the American economy already had bounced back, averaging 200,000 new jobs per month. By early 1996, it was roaring – creating 434,000 new jobs in February alone.

Obama’s 2011 reality has us losing nearly 400,000 jobs per month. Nevertheless, there is this misguided belief that the “wealth effect” caused by inflated stock prices and the current asset bubble will somehow make the Clinton strategy relevant. It won’t. Instead, President Obama will adopt a strategy of “austerity lite”, which will send America into a second recession dip and alienate voters just in time for the 2012 elections. Professor Reich recently warned of this:

House Majority Leader Eric Cantor recently stated the Republican view succinctly: “Less government spending equals more private sector jobs.”

In the past I’ve often wondered whether they’re knaves or fools. Now I’m sure. Republicans wouldn’t mind a double-dip recession between now and Election Day 2012.

They figure it’s the one sure way to unseat Obama. They know that when the economy is heading downward, voters always fire the boss. Call them knaves.

What about the Democrats? Most know how fragile the economy is but they’re afraid to say it because the White House wants to paint a more positive picture.

And most of them are afraid of calling for what must be done because it runs so counter to the dominant deficit-cutting theme in our nation’s capital that they fear being marginalized. So they’re reduced to mumbling “don’t cut so much.” Call them fools.

If inviting a double-dip recession weren’t dumb enough – how about a second financial crisis? Just add more systemic risk and presto! The banks won’t have any problems because the Fed and the Treasury will provide another round of bailouts. Edward Harrison of Credit Writedowns recently wrote an essay focused on Treasury Secretary Geithner’s belief that we need big banks to be even bigger.

Even if the Republicans nominate a Presidential candidate who espouses a strategy of simply relying on Jesus to extinguish fires at offshore oil rigs and nuclear reactors – Obama will still lose. May God help us!

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Democrats Share The Blame

January 24th, 2011 Posted in Uncategorized

Jan, 24 2011

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January 21 brought us Episode 199 of HBO’s Real Time with Bill Maher. At the end of the program, Bill went through his popular “New Rules” segment. On this occasion, he wound it up with a rant about how the Republicans were exclusively at fault for the financial crisis. Aside from the fact that this claim was historically inaccurate, it was not at all fair to David Stockman (a guest on that night’s show) who had to sit through Maher’s diatribe without an opportunity to point out the errors. (On the other hand, I was fine with watching Stephen Moore twist in the wind as Maher went through that tirade.)

That incident underscored the obvious need for Bill Maher to invite William Black as a guest on the show in order to clarify this issue. Prior to that episode, Black had written an essay, which appeared on The Big Picture website. Although the theme of that piece was to debunk the “mantra of the Republican Party” that “regulation is a job killer”, Black emphasized that Democrats had a role in “deregulation, desupervision, and de facto decriminalization (the three ‘des’)” which created the “criminogenic environment” precipitating the financial crisis:

The Great Recession was triggered by the collapse of the real estate bubble epidemic of mortgage fraud by lenders that hyper-inflated that bubble. That epidemic could not have happened without the appointment of anti-regulators to key leadership positions. The epidemic of mortgage fraud was centered on loans that the lending industry (behind closed doors) referred to as “liar’s” loans — so any regulatory leader who was not an anti-regulatory ideologue would (as we did in the early 1990s during the first wave of liar’s loans in California) have ordered banks not to make these pervasively fraudulent loans.

* * *

From roughly 1999 to the present, three administrations have displayed hostility to vigorous regulation and have appointed regulatory leaders largely on the basis of their opposition to vigorous regulation. When these administrations occasionally blundered and appointed, or inherited, regulatory leaders that believed in regulating, the administration attacked the regulators. In the financial regulatory sphere, recent examples include Arthur Levitt and William Donaldson (SEC), Brooksley Born (CFTC), and Sheila Bair (FDIC).

Similarly, the bankers used Congress to extort the Financial Accounting Standards Board (FASB) into trashing the accounting rules so that the banks no longer had to recognize their losses. The twin purposes of that bit of successful thuggery were to evade the mandate of the Prompt Corrective Action (PCA) law and to allow banks to pretend that they were solvent and profitable so that they could continue to pay enormous bonuses to their senior officials based on the fictional “income” and “net worth” produced by the scam accounting. (Not recognizing one’s losses increases dollar-for-dollar reported, but fictional, net worth and gross income.)

When members of Congress (mostly Democrats) sought to intimidate us into not taking enforcement actions against the fraudulent S&Ls we blew the whistle.

President Obama’s January 18 opinion piece for The Wall Street Journal prompted a retort from Bill Black. The President announced that he had signed an executive order requiring “a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive”. Obama’s focus on “regulations that stifle job creation” seemed to exemplify what Black had just discussed one day earlier. Accordingly, Bill Black wrote an essay for The Huffington Post on January 19, which began this way:

I get President Obama’s “regulatory review” plan, I really do. His game plan is a straight steal from President Clinton’s strategy after the Republican’s 1994 congressional triumph. Clinton’s strategy was to steal the Republican Party’s play book. I know that Clinton’s strategy was considered brilliant politics (particularly by the Clintonites), but the Republican financial playbook produces recurrent, intensifying fraud epidemics and financial crises. Rubin and Summers were Clinton’s offensive coordinators. They planned and implemented the Republican game plan on finance. Rubin and Summers were good choices for this role because they were, and remain, reflexively anti-regulatory. They led the deregulation and attack on supervision that began to create the criminogenic environment that produced the financial crisis.

Bill Clinton’s role in facilitating the financial crisis would have surely become an issue in the 2008 Presidential election campaign, had Hillary Clinton been the Democratic nominee. Instead, the Democrats got behind a “Trojan horse” candidate, disguised in the trappings of “Change” who, once elected, re-installed the very people who implemented the crucial deregulatory changes which caused the financial crisis. Bill Black provided this explanation:

The zeal, crude threats, and arrogance they displayed in leading the attacks on SEC Chair Levitt and CFTC Chair Born’s efforts to adopt regulations that would have reduced the risks of fraud and financial crises were exceptional. Just one problem — they were wrong and Levitt and Born were right. Rubin and Summers weren’t slightly wrong; they put us on the path to the Great Recession. Obama knows that Clinton’s brilliant political strategy, stealing the Republican play book, was a disaster for the nation, but he has picked politics over substance.

* * *

Obama’s proposal and the accompanying OMB releases do not mention the word or the concept of fraud. Despite an “epidemic” of fraud led by the bank CEOs (which caused the greatest crisis of his life), Obama cannot bring itself to use the “f” word. The administration wants the banks’ senior officers to fund its reelection campaign. I’ve never raised political contributions, but I’m certain that pointing out that a large number of senior bank officers were frauds would make fundraising from them awkward.

Black targeted Obama’s lame gesture toward acknowledgement of some need for regulation, encapsulated in the statement that “(w)here necessary, we won’t shy away from addressing obvious gaps …”:

Huh? The vital task is to find the non-obvious gaps. Why, two years into his presidency, has the administration failed to address “obvious gaps”? The administration does not need Republican approval to fill obvious gaps in regulation. Even when Obama finds “obvious gaps” in regulatory protection he does not promise to act. He will act only “where necessary.” We know that Summers, Rubin, and Geithner rarely believe that financial regulation is “necessary.” Even if Obama decides it is “necessary” to act he only promises to “address” “obvious gaps” — not “end” or “fill” them.

At the conclusion of his Huffington Post essay, Black provided his own list of “obvious gaps” described as the “Dirty Dozen” — “. . . obvious gaps in financial regulation which have persisted and grown during this, Obama’s first two years in office.”

Bill Black is just one of many commentators to annotate the complicity of Democrats in causing the financial crisis. Beyond that, Black has illustrated how President Obama has preserved – and possibly enhanced — the “criminogenic” milieu which could bring about another financial crisis.

The first step toward implementing “bipartisan solutions” to our nation’s ills should involve acknowledging the extent to which the fault for those problems is bipartisan.

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Jeremy Grantham And Ike

January 17th, 2011 Posted in Uncategorized

Jan, 17 2011

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As an avid reader of Jeremy Grantham’s Quarterly Letter, I was surprised when he posted a Special Topic report on January 14 — so close to release of his Fourth Quarter 2010 Letter, which is due in a couple of weeks. At a time when many commentators are focused on the 50th anniversary of John F. Kennedy’s historic Inaugural Address, Jeremy Grantham has taken the opportunity to focus on President Dwight Eisenhower’s Farwell Address of January 17, 1961. (Grantham included the full text of Ike’s Farwell Address at the conclusion of the Special Topic essay.)

One passage from Ike’s Farwell Address seemed particularly prescient in the wake of the TARP bailout (which was not a success) and the “backdoor bailouts” including the Maiden Lanes (which were never to be repaid) as well as the cost of approximately $350 billion per year to investors and savers, resulting from the Federal Reserve’s zero-interest-rate-policy (often referred to as “ZIRP”). Keep those Wall Street bailouts in mind while reading this passage from Ike’s speech:

Crises there will continue to be. In meeting them, whether foreign or domestic, great or small, there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties. A huge increase in newer elements of our defense; development of unrealistic programs to cure every ill in agriculture; a dramatic expansion in basic and applied research – these and many other possibilities, each possibly promising in itself, may be suggested as the only way to the road we wish to travel.

But each proposal must be weighed in the light of a broader consideration: the need to maintain balance in and among national programs – balance between the private and the public economy, balance between cost and hoped for advantage – balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between actions of the moment and the national welfare of the future. Good judgment seeks balance and progress; lack of it eventually finds imbalance and frustration.

In his Special Topic report, Jeremy Grantham focused on the disappointing changes that caused Ike’s America to become 21st Century America. After quoting Ike’s now-famous admonition about the power of the military-industrial complex (for which the speech is frequently quoted) Grantham pointed out that the unrestricted influence of corporate power over our government has become a greater menace:

Unfortunately, the political-economic power problem has mutated away from the military, although it has left important vestiges there, toward a broader problem: the undue influence of corporate America on the government, and hence the laws, taxes, and social policies of the country. This has occurred to such a degree that there seems little real independence in Congress, with most Congressmen answering first to the desire to be reelected and the consequent need to obtain funding from, shall we say, sponsors, and the need to avoid making powerful enemies.

* * *

The financial resources of the carbon-based energy companies are particularly terrifying, and their effective management of propaganda goes back decades. They established and funded “independent” think tanks and even non-profit organizations that have mysteriously always come out in favor of policies favorable to maintaining or increasing the profits of their financial supporters. The campaign was well-organized and has been terrifyingly effective.

* * *

The financial industry, with its incestuous relationships with government agencies, runs a close second to the energy industry. In the last 10 years or so, their machine, led by the famously failed economic consultant Alan Greenspan – one of the few businessmen ever to be laughed out of business – seemed perhaps the most effective. It lacks, though, the multi-decadal attitude-changing propaganda of the oil industry. Still, in finance they had the “regulators,” deregulating up a storm, to the enormous profit of their industry.

Grantham concluded his report with a suggestion for the greatest tribute we could give Eisenhower after America ignored Ike’s warnings about the vulnerability of our government to unrestricted influences. Grantham’s proposed tribute to Ike would be our refusal to “take this 50-year slide lying down”.

To steal a slogan from the Tea Party, I suggest the voters need to “take America back” from the corporations which bought off the government. Our government has every intention of maintaining the status quo.

In the 2010 elections, voters were led to believe that they could bring about governmental reform by voting for candidates who will eventually prove themselves as protectors of the wealthy at the expense of the disappearing middle class. In the 2008 elections, Barack Obama convinced voters that he was the candidate of change they could believe in. In the real world of 2011, economist Simon Johnson explained what sort of “change” those voters received, as exemplified by the President’s appointment of his new Chief of Staff:

Let’s be honest. With the appointment of Bill Daley, the big banks have won completely this round of boom-bust-bailout. The risk inherent to our financial system is now higher than it was in the early/mid-2000s. We are set up for another illusory financial expansion and another debilitating crisis.

Bill Daley will get it done.

Just as Jeremy Grantham explained how Eisenhower’s concerns about the military-industrial complex were materialized in the form of a corporate-controlled government, another unholy alliance was discussed by Charles Ferguson, director of the documentary film, Inside Job. Ferguson recently offered an analysis of the milieu that resulted in President Obama’s appointment of Larry Summers as Director of the National Economic Council. As Larry Summers announced plans to move on from that position, Ferguson explained how Summers had been granted the opportunity to inflict his painful legacy upon us:

Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government. What few Americans realize is that the revolving door is now a three-way intersection. Summers’ career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power.

America needs new leaders who refuse to capitulate to the army of lobbyists on Capitol Hill. Where are they?

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Turning Point

November 1st, 2010 Posted in Uncategorized

Nov, 01 2010

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As we approach Election Day, many commentators are confirming an observation used as the theme of my posting from September 6:

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.

Too many people whom the President thought he could count among his supporters have become his biggest critics. One might expect that after eight years of outrage over the antics of the Bush administration, Maureen Dowd would be thrilled about the work done by the Obama White House. Nevertheless, her most recent discussion of Obama’s performance was less than flattering:

In 2008, the message was him. The promise was him. And that’s why 2010 is a referendum on him.

With his coalition and governing majority shattering around him, President Obama will have to summon political skills — starting Wednesday — that he has not yet shown he has.

* * *

With the exception of Obama, most Americans seemed to agree that the “right” thing to do until the economy recovered was to focus on jobs instead of getting the Congress mired for months in making over health insurance and energy policy. And the “right” thing to do was to come down harder on the big banks for spending on bonuses instead of lending to small businesses that don’t get bailouts.

Contrary to the President’s expectations, the voting public has not overlooked the administration’s refusal to heed the advice of Bill Black, Robert Reich, and the roster of economists that included Adam Posen and Matthew Richardson advocating the use of the so-called “Swedish solution” of putting the zombie banks through temporary receivership. To the dismay of everyone in the world (outside of Obama’s inner circle) the new President chose to follow the advice of Larry Summers and put the welfare (as in corporate welfare) of those insolvent, too-big-to-fail banks ahead of the nation’s economic health. When President Obama appeared on The Daily Show with Jon Stewart on October 27, Stewart began the discussion by asking Obama to explain the rationale underlying his appointment of Larry Summers (a retread from the Clinton administration) as director of the National Economic Council. President Obama fell back on his two-year-old claim that to follow any course other than that recommended by Summers, would have resulted in the failure of at least 100 banks. Obama’s claim that the cost of the financial crisis was less than 1% of GDP did not slip past Yves Smith of the Naked Capitalism website. Ms. Smith (who voted for Obama in 2008) didn’t pull any punches in refuting that claim:

I’m so offended by the latest Obama canard, that the financial crisis of 2007-2008 cost less than 1% of GDP, that I barely know where to begin. Not only does this Administration lie on a routine basis, it doesn’t even bother to tell credible lies. And this one came directly from the top, not via minions. It’s not that this misrepresentation is earth-shaking, but that it epitomizes why the Obama Administration is well on its way to being an abject failure.

* * *

The reason Obama makes such baldfacedly phony statements is twofold: first, his pattern of seeing PR as the preferred solution to all problems, and second, his resulting slavish devotion to smoke and mirrors over sound policy.

* * *

But Team Obama is no doubt rationalizing this chicanery: if they can keep from recognizing losses until the recovery takes place, then the ultimate damage will be lower. But Japan’s post bubble record shows that doesn’t work. You simply don’t get a recovery with a diseased financial system. You need to purge the bad assets, only then will meaningful growth resume.

Financial risk management guru, Chris Whalen, recently expressed his anguish over the administration’s unwillingness to restructure the zombie banks:

The reluctance comes partly from what truths restructuring will reveal. As a result, these same large zombie banks and the U.S. economy will continue to shrink under the weight of bad debt, public and private. Remember that the Dodd-Frank legislation was not so much about financial reform as protecting the housing GSEs.

Because President Barack Obama and the leaders of both political parties are unwilling to address the housing crisis and the wasting effects on the largest banks, there will be no growth and no net job creation in the U.S. for the next several years. And because the Obama White House is content to ignore the crisis facing millions of American homeowners, who are deep underwater and will eventually default on their loans, the efforts by the Fed to reflate the U.S. economy and particularly consumer spending will be futile.

The idea that Obama sees “PR as the preferred solution to all problems” surfaced again in a great piece by Peter Baker of The New York Times, which included this observation:

Rather than entertaining the possibility that the program they have pursued is genuinely and even legitimately unpopular, the White House and its allies have concluded that their political troubles amount to mainly a message and image problem.

Baker’s article focused on the most recent gripe made by Obama at another one of his highbrow fundraisers. Remember the blowback from the President’s recent diatribe at a fundraiser hosted by the appropriately-named Rich Richman? Well, something similar happened again. The setting this time was a $15,200-per-ticket affair for doctors at the home of a wealthy hospital executive in Boston. While addressing this audience, the President explained that the reason why the voters have not embraced the Democrats during this election cycle is because the voters are having trouble thinking clearly, as they are “scared”. Not surprisingly, this re-ignited the controversy focused on Obama’s elitism.

The Tea Party spokespeople aren’t the only ones who are accusing President Obama of elitism. The Progressive-oriented TruthDig website, recently published an interesting essay by Chris Hedges, author of Death of the Liberal Class. Hedges points out that elitism is exactly the problem afflicting not only Obama, but the entire group, referred to as “the liberal class”. Consider his argument:

The liberal class, which once made piecemeal and incremental reform possible, functioned traditionally as a safety valve. During the Great Depression, with the collapse of capitalism, it made possible the New Deal. During the turmoil of the 1960s, it provided legitimate channels within the system to express the discontent of African-Americans and the anti-war movement. But the liberal class, in our age of neo-feudalism, is now powerless. It offers nothing but empty rhetoric. It refuses to concede that power has been wrested so efficiently from the hands of citizens by corporations that the Constitution and its guarantees of personal liberty are irrelevant. It does not act to mitigate the suffering of tens of millions of Americans who now make up a growing and desperate permanent underclass. And the disparity between the rhetoric of liberal values and the rapacious system of inverted totalitarianism the liberal class serves makes liberal elites, including Barack Obama, a legitimate source of public ridicule. The liberal class, whether in universities, the press or the Democratic Party, insists on clinging to its privileges and comforts even if this forces it to serve as an apologist for the expanding cruelty and exploitation carried out by the corporate state.

* * *
As long as the liberal class had even limited influence, whether through the press or the legislative process, liberals were tolerated and even respected. But once the liberal class lost all influence it became a class of parasites. The liberal class, like the déclassé French aristocracy, has no real function within the power elite. And the rising right-wing populists, correctly, ask why liberals should be tolerated when their rhetoric bears no relation to reality and their presence has no influence on power.

As Maureen Dowd pointed out, Wednesday is going to be a big day. If President Obama thought he had his hands full going into this election . . . wait until the aftermath.

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We Took The Wrong Turn

October 7th, 2010 Posted in Uncategorized

Oct, 07 2010

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October 7, 2010

The ugly truth has raised its head once again. We did it wrong and Australia did it right. It was just over a year ago – on September 21, 2009 – when I wrote a piece entitled, “The Broken Promise”. I concluded that posting with this statement:

If only Mr. Obama had stuck with his campaign promise of “no more trickle-down economics”, we wouldn’t have so many people wishing they lived in Australia.

I focused that piece on a fantastic report by Australian economist Steve Keen, who explained how the “money multiplier” myth, fed to Obama by the very people who caused the financial crisis, was the wrong paradigm to be starting from in attempting to save the economy.

The trouble began immediately after President Obama assumed office. I wasn’t the only one pulling out my hair in February of 2009, when our new President decided to follow the advice of Larry Summers and “Turbo” Tim Geithner. That decision resulted in a breach of Obama’s now-infamous campaign promise of “no more trickle-down economics”. Obama decided to do more for the zombie banks of Wall Street and less for Main Street – by sparing the banks from temporary receivership (also referred to as “temporary nationalization”) while spending less on financial stimulus. Obama ignored the 50 economists surveyed by Bloomberg News, who warned that an $800 billion stimulus package would be inadequate. At the Calculated Risk website, Bill McBride lamented Obama’s strident posturing in an interview conducted by Terry Moran of ABC News, when the President actually laughed off the idea of implementing the so-called “Swedish solution” of putting those insolvent banks through temporary receivership.

With the passing of time, it has become painfully obvious that President Obama took the country down the wrong path. The Australian professor (Steve Keen) was right and Team Obama was wrong. Economist Joseph Stiglitz made this observation on August 5, 2010:

Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.

Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries.

Fast-forward to October 6, 2010. Michael Heath of Bloomberg BusinessWeek provided the latest chapter in the story of how America did it wrong while Australia did it right:

Australian Employers Added 49,500 Jobs in September

Australian employers in September added the most workers in eight months, driving the country’s currency toward a record and bolstering the case for the central bank to resume raising interest rates.

The number of people employed rose 49,500 from August, the seventh straight gain, the statistics bureau said in Sydney today. The figure was more than double the median estimate of a 20,000 increase in a Bloomberg News survey of 25 economists. The jobless rate held at 5.1 percent.

Meanwhile — back in the States — on October 6, ADP released its National Employment Report for September, 2010. It should come as no surprise that our fate is 180 degrees away from that of Australia: Private sector employment in the U.S. decreased by 39,000 from August to September on a seasonally adjusted basis, according to the ADP report. Beyond that, October 6 brought us a gloomy forecast from Jan Hatzius, chief U.S. economist for the ever-popular Goldman Sachs Group. Wes Goodman of Bloomberg News quoted Hatzius as predicting that the United States’ economy will be “fairly bad” or “very bad” over the next six to nine months:

“We see two main scenarios,” analysts led by Jan Hatzius, the New York-based chief U.S. economist at the company, wrote in an e-mail to clients. “A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10 percent, and a very bad one in which the economy returns to an outright recession.”

Aren’t we lucky! How wise of President Obama to rely on Larry Summers to the exclusion of most other economists!

Charles Ferguson, director of the new documentary film, Inside Job, recently offered this analysis of the milieu that facilitated the opportunity for Larry Summers to inflict his painful legacy upon us:

Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge of coordinating U.S. economic policy, deftly marginalizing others who challenged him. Under the stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable toward the financial sector as those of the Clinton and Bush administrations — quite a feat. Never once has Summers publicly apologized or admitted any responsibility for causing the crisis. And now Harvard is welcoming him back.

Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government. What few Americans realize is that the revolving door is now a three-way intersection. Summers’ career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power.

* * *

Now, however, as the national recovery is faltering, Summers is being eased out while Harvard is welcoming him back. How will the academic world receive him? The simple answer: Better than he deserves.

Australia is looking better than ever — especially when you consider that their spring season is just beginning right now . . .

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