Obama's Problem Simply Defined: It was the Banks
by James K. Galbraith - new deal 2.0
Obama must break his devil’s pact with the banks in order to succeed.
Bruce Bartlett says it was a failure to focus. Paul Krugman says it was a failure of nerve. Nancy Pelosi says it was the economy’s failure. Barack Obama says it was his own failure — to explain that he was, in fact, focused on the economy.
As Krugman rightly stipulates, Monday-morning quarterbacks should say exactly what different play they would have called. Paul’s answer is that the stimulus package should have been bigger. No disagreement: I was one voice calling for a much larger program back when. Yet this answer is not sufficient.
The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.
Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail — with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.
But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.
Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”
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The banks threw a party. Reported profits soared, as did bonuses. With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed — until the fact came out that they’d so neglected basic mortgage paperwork, as to be unable to foreclose in many cases, without the help of forged documents and perjured affidavits.
But new loans? The big banks had given up on that. They no longer did real underwriting. And anyway, who could qualify? Businesses mostly had no investment plans. And homeowners were, to an increasing degree, upside-down on their mortgages and therefore unqualified to refinance.
These facts were obvious to everybody, fueling rage at “bailouts.” They also underlie the economy’s failure to create jobs. What usually happens (and did, for example, in 1994 - 2000) is that credit growth takes over from Keynesian fiscal expansion. Armed with credit, businesses expand, and with higher incomes, public deficits decline. This cannot happen if the financial sector isn’t working.
Geithner, Summers and Bernanke should have known this. One can be fairly sure that they did know it. But Geithner and Bernanke had cast their lots, with continuity and coverup. And Summers, with his own record of deregulation, could hardly have complained.
To counter calls for more action, Team Obama produced sunny forecasts. Their program was right-sized, because anyway unemployment would peak at 8 percent in 2009. So Larry Summers said. In making that forecast, the Obama White House took responsibility for the entire excess of joblessness above eight percent. They made it impossible to blame the ongoing disaster on George W. Bush. If this wasn’t rank incompetence, it was sabotage.
This is why, in a crisis, you need new people. You must be able to attack past administrations, and override old decisions, without directly crossing those who made them.
President Obama didn’t see this. Or perhaps, he didn’t want to see it. His presidential campaign was, after all, from the beginning financed from Wall Street. He chose his team, knowing exactly who they were. And this tells us what we need to know, about who he really is.
James K. Galbraith is the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. He teaches at The University of Texas at Austin.
*This post originally appeared at Common Cause.
Read the entire article here
9 COMMENTS:
Buying $600 Billion in Debt with Debt
By James West
MidasLetter.com
November 5, 2010
Here is the glaring hole in the United States Federal Reserve’s approach to what it calls stimulus, and what history will one day categorize as fraud: You can’t use your own debt to purchase more debt when you can’t repay the original debt. The crime is compounded when you know you’re never going to repay the debt. It amounts to treason to intentionally destroy the integrity of the nation’s money. The Federal Reserve’s ability to “purchase” U.S. Treasury Bills is completely dependent on the fact that there is no overseer above the Board of Governors of the U.S. Federal Reserve to call an end to such self-destructive, immoral, and just plain criminal behavior.
That stock markets rise in reaction to the news is no surprise: that $600 billion will find its way into the pockets of major financial institutions, and will go nowhere near the vast majority of bank accounts owned by people who are out on the street thanks to the collusion, or rather, the subjugation of the government of the United States to the Financial Service Industry. The rise will be temporary, and as this most recent mutation of the disease engulfing certain nations right now, debt addiction is going to suffocate future generations for decades.
The motivation for anointing the Federal Reserve with all the autonomy, secrecy and criminal immunity is completely understandable at this juncture of the collapse of the United States as the leader of the free world. It becomes possible to divorce the culpability of such a group from the history of the nation when such a status is enjoyed. At least, that’s the delusion under which the United States elite seem to operate, given the unilateral destruction and callous disregard for integrity of the world’s financial system emblematic of their conduct.
I feel compassion, to some degree, for the families of such master fraudsters as Ben Bernanke, Larry Summers, Robert Rubin, Timothy Geithner, Hank Paulson, and the rest of the perennial button men who surround them and aid and abet the defrauding of Americans and everybody they do business with through the offices of the Financial Services and Insurance industries. The actions of these criminals will taint the names of their families for many generations as well. The problem with crime on such a huge scale is that it destroys so many lives across generations.
The question is not whether a Republican or Democrat can lead the U.S. out of economic penury. The question is, “who will have the temerity and force of character and intellect to identify the fraud as such, incarcerate the fraudsters, and rebuild the system from the ground up?
Why, even Bill Gross, who heads the world’s largest bond fund, Pimco, has suggested that the United States government is running a ‘Ponzi’ scheme.
“Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a Ponzi-like characteristic,” he said in his November correspondence to investors.
(A succinct definition and history of the term ‘Ponzi Scheme’ is here http://en.wikipedia.org/wiki/Ponzi_scheme.)
Here's more information on organizing for the fight ahead, the fight to take back the government and make one that all deserve:
http://joeramsey.wordpress.com/2010/11/04/the-low-road-by-marge-piercy/
I think Goldman hit and ran over the American public....but their still dazed and unwilling to challenge them!
Bill Black Nails It AGAIN: Fraud Of America
http://market-ticker.org/akcs-www?singlepost=2250891
Buying $600 Billion in Debt with Debt
By James West
MidasLetter.com
November 5, 2010
Here is the glaring hole in the United States Federal Reserve’s
approach to what it calls stimulus, and what history will one day
categorize as fraud: You can’t use your own debt to purchase more debt
when you can’t repay the original debt. The crime is compounded when
you know you’re never going to repay the debt. It amounts to treason
to intentionally destroy the integrity of the nation’s money. The
Federal Reserve’s ability to “purchase” U.S. Treasury Bills is
completely dependent on the fact that there is no overseer above the
Board of Governors of the U.S. Federal Reserve to call an end to such
self-destructive, immoral, and just plain criminal behavior. (continued)...
That stock markets rise in reaction to the news is no surprise: that
$600 billion will find its way into the pockets of major financial
institutions, and will go nowhere near the vast majority of bank
accounts owned by people who are out on the street thanks to the
collusion, or rather, the subjugation of the government of the United
States to the Financial Service Industry. The rise will be temporary,
and as this most recent mutation of the disease engulfing certain
nations right now, debt addiction is going to suffocate future
generations for decades.
The motivation for anointing the Federal Reserve with all the
autonomy, secrecy and criminal immunity is completely understandable
at this juncture of the collapse of the United States as the leader of
the free world. It becomes possible to divorce the culpability of such
a group from the history of the nation when such a status is enjoyed.
At least, that’s the delusion under which the United States elite seem
to operate, given the unilateral destruction and callous disregard for
integrity of the world’s financial system emblematic of their conduct.
I feel compassion, to some degree, for the families of such master
fraudsters as Ben Bernanke, Larry Summers, Robert Rubin, Timothy
Geithner, Hank Paulson, and the rest of the perennial button men who
surround them and aid and abet the defrauding of Americans and
everybody they do business with through the offices of the Financial
Services and Insurance industries. The actions of these criminals will
taint the names of their families for many generations as well. The
problem with crime on such a huge scale is that it destroys so many
lives across generations.
The question is not whether a Republican or Democrat can lead the U.S.
out of economic penury. The question is, “who will have the temerity
and force of character and intellect to identify the fraud as such,
incarcerate the fraudsters, and rebuild the system from the ground up?
Why, even Bill Gross, who heads the world’s largest bond fund, Pimco,
has suggested that the United States government is running a ‘Ponzi’
scheme.
“Check writing in the trillions is not a bondholder’s friend; it is in
fact inflationary, and, if truth be told, somewhat of a Ponzi scheme.
Public debt, actually, has always had a Ponzi-like characteristic,” he
said in his November correspondence to investors.
That stock markets rise in reaction to the news is no surprise: that
$600 billion will find its way into the pockets of major financial
institutions, and will go nowhere near the vast majority of bank
accounts owned by people who are out on the street thanks to the
collusion, or rather, the subjugation of the government of the United
States to the Financial Service Industry. The rise will be temporary,
and as this most recent mutation of the disease engulfing certain
nations right now, debt addiction is going to suffocate future
generations for decades.
The motivation for anointing the Federal Reserve with all the
autonomy, secrecy and criminal immunity is completely understandable
at this juncture of the collapse of the United States as the leader of
the free world. It becomes possible to divorce the culpability of such
a group from the history of the nation when such a status is enjoyed.
At least, that’s the delusion under which the United States elite seem
to operate, given the unilateral destruction and callous disregard for
integrity of the world’s financial system emblematic of their conduct.
(cont'd)...
I feel compassion, to some degree, for the families of such master
fraudsters as Ben Bernanke, Larry Summers, Robert Rubin, Timothy
Geithner, Hank Paulson, and the rest of the perennial button men who
surround them and aid and abet the defrauding of Americans and
everybody they do business with through the offices of the Financial
Services and Insurance industries. The actions of these criminals will
taint the names of their families for many generations as well. The
problem with crime on such a huge scale is that it destroys so many
lives across generations.
The question is not whether a Republican or Democrat can lead the U.S.
out of economic penury. The question is, “who will have the temerity
and force of character and intellect to identify the fraud as such,
incarcerate the fraudsters, and rebuild the system from the ground up?
Why, even Bill Gross, who heads the world’s largest bond fund, Pimco,
has suggested that the United States government is running a ‘Ponzi’
scheme.
“Check writing in the trillions is not a bondholder’s friend; it is in
fact inflationary, and, if truth be told, somewhat of a Ponzi scheme.
Public debt, actually, has always had a Ponzi-like characteristic,” he
said in his November correspondence to investors.
(A succinct definition and history of the term ‘Ponzi Scheme’ is here
http://en.wikipedia.org
Thank you, Anonymous above, for that succinct description of a Ponzi scheme.
What do you think Social Security is ? Ponzi of course !!!
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