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."
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.
This post originally appeared on Common Dreams and is cross-posted from New Deal 2.0.
Robert Reich: America's Two Economies, and Why One Is Recovering and the Other Isn't
Obama had to have been up to speed on the problem and how those same bankers had planned it all along,,,,,,,,,,,,,, This is the modern day American govt,,, for the ppl,,, by the ppl....
How in the world does anyone ever trust the American govt for anything anymore?
The elections mean nothing...
On Nov. 2 we saw the biggest switch of seats in the House in an off-year election since 1938. Is it any wonder? Well, it's nice to see someone has reason to be thankful this month, even if it is only bankers and their shareholders. FDRoosevelt managed to win re-election in 1940 to a third term. Care to guess if BObama does?
I hope Obama reads it.
If we daily put kids in jail for a stealing a few thousand, maybe for several years,
then why haven't we put Wall St. and other white collar crooks in prison
for an easy 5-10 years ? Sure there's Madoff but not many more
than that, or even taken to court...?!?!
With hundreds of Billions if not Trillions illegally speculated with or lost
where are the Fed's, you'd think an easy 50-200 of them
must be vulnerable to charges. And if they throw
money at the GOP then why not go after them ?!
We need to do away with the privately own FEDERAL RESERVE!
Go back to the American green back and take back our RIGHTS!
This country is now ran by the ABOVE THE LAW Bankers that control everything that happen's in this country!
Until this happen's the American People are DOOMED! to the MONEY CHANGERS!
I will not be voting for Obama in 2012. I am no flaming liberal, professional liberal or any other derogatory term Obama's own people call us. I am a Recovering Republican (Reagan did me in) who stocked her family home with goods made in the USA. Now, we are a bunch of empty factories and there are no jobs. Obama, like Tom Friedman thinks the world is flat. We are dying here and what is he doing? Making deals with India to ship more jobs overseas for a few airplanes. Sheesh
YES
It's called - destroying your future to improve your present which is ultimately what the American people want - short-term fixes to long term problems.
We're going bankrupt because the very basic concepts of what money is, how credit works and debt servicing are being thrown out the window in favor of - let's make TODAY as great as we can and to heck with tomorrow.
Tomorrow is coming.
Count on it.
Wrong about green energy, big big big waste of dough (and I am a participant in the industry!).
Wrong about debt, it is a ticking bomb, Obama & Co are going to try and inflate us away from the problem, China will go berserk, prepare yourself for REALLY bad times acomin'
The ONLY way spending can get someone out of a debt problem is IF (HUGE if) there is an EXPONENTIALLY larger source of future revenue.
If you pay your rent with a credit card - you now owe DOUBLE plus interest. You should ONLY do this if you KNOW you will somehow be able to pay DOUBLE the rent PLUS interest in the near future.
If not - ALL you have done is bring yourself one step close to BANKRUPTCY.
And since .gov is what feeds and houses everyone on Social, food stamps, unemployment etc. - bankruptcy is not just bad - it's TERMINAL.