You could argue I suppose that the Great Depression was all Calvin Coolidge’s fault. When the stock market crashed and burned in October 1929, Hoover had not been in office even a year. He was just caught with the fallout, but it is what he did with that fallout that has so tied his name and depression together. Hoover was not a bad man. He was not a stupid man. But in the face of massive panic in the country he did far less than was needed. Even as demand contracted, his Fed reduced the money supply and he raised taxes. The results were catastrophic. And they persisted because Hoover followed the Conventional Wisdom of his times and persisted in the policies that produced them.
Today we have an economic crisis that has been called the worst since the Great Depression. We have a newly elected President with a marked tendency to listen to the advice of his Establishment. This time around we have a Fed that has greatly increased the money supply to no avail. We have much talk about the dangers of running large deficits. We have again a financial industry that has run amok. Speculation based on easy credit has blown up as it did 70 years ago. As then, we have entered into a spiral of debt deflation. The banks don’t want to lend to each other or really anyone. Despite the enormous shocks to the financial system, the banks and those who head them remain the same. They may be battered but they are unbowed. Their speculative philosophy is unchanged.
What has President Obama’s response been? Well, pre-election he backed Paulson’s $700 billion bank bailout program and his chief economic advisor was Robert Rubin, one of the architects of financial deregulation with connections to both Citigroup and Goldman Sachs. As Rubin’s star dimmed with the declining fortunes of Citi, two of his protégés Larry Summers and Tim Geithner took up the slack. The personnel changed but the ideas remained the same. Just as with Hoover, the overarching idea with them is that the financial industry is sound and will sort itself out.
Hoover was more consistent in that accepting that the financial system was basically OK, he took more of a hands off approach. He encouraged good behavior from institutions but he did not demand it. The Obama-Bernanke-Summers-Geithner team say the system is solid and then use this contention as a justification for massive intervention in the financial industry. Their goal is not to reform the industry in any meaningful way but to bring it back to where it was before the meltdown. You can see this in how they give little or no attention to the fundamental problems which produced the meltdown in the first place. We see a $75 billion program for homeowners and a $787 billion stimulus, but then we see a $1 trillion public private investment program (PPIP) and a $1 trillion term asset backed securities loan program (TALF). The point of both of these last two programs is to buy up the bad assets of banks at inflated prices. Indeed even the much smaller homeowner program (presented without cramdowns) can be seen as a means of supporting the price of these otherwise bad assets. In any case, the emphasis is very much on helping banks deal with these bad assets and not how they acquired them in the first place.
Today we heard the last component of the Obama Administration’s plan to deal with the financial meltdown: regulation. Geithner rolled out a program that was long on oversight, but noticeably weak on regulation and enforcement. Yes, he wanted the authority to take over any company that posed a “systemic” risk, but why did he want such power? He already has Prompt Corrective Action authority through the FDIC:
Each appropriate Federal banking agency and the Corporation (acting in the Corporation’s capacity as the insurer of depository institutions under this chapter) shall carry out the purpose of this section by taking prompt corrective action to resolve the problems of insured depository institutions.
Title 12, Chapter 15, §1831o, a(2)
This is power that the government has over banks that it could use but has not used. Why would Geithner wish to extend this power? For AIG? If you notice, we own 79.9% of it and we did not so much buy it as inform AIG it was bought. So again why is Geithner wanting more power when he isn’t using the power he has?
More importantly Geithner defended the most destructive and dangerous financial instrument out there, the naked CDS. At the same time, he made no mention of Glass-Steagall, the uptick rule, reform of ratings agencies, and bankruptcy and usury laws. At most, he made only vague statements about higher reserve requirements, but nothing again about the return to the net capital rule.
It seems that the talk of increased oversight is mostly a figleaf. After all, banks not only have oversight but also are regulated. Yet 18 months after the housing bubble went bust, we still do not know the losses they suffered from it. So you really have to ask yourself how much more extending oversight to other financial players, like hedge funds, is going to get you or how it will prevent this all from happening again.
And that brings me back to Herbert Hoover because just as he did too little too late, just as he depended on the sagacity of advisers who helped create the disaster, and just as he thought the markets were far solider than they were, this is what I see playing out now with Barack Obama. Denial is not a policy. It is a recipe for disaster. And like a recipe, it can be made over and over.
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“Their goal is not to reform the industry in any meaningful way but to bring it back to where it was before the meltdown.” ; and screw the common folk because we’ve done it before and know they’ll rollover for a bone tossed to them.
It’s like the NJ Congressman on FDL who went on about how regulating the financial markets was very complicated. Like he never even considered that simply rolling back the changes to the law that brought us to this situation was some sort of rocket science. But that is the way of Admin’s and Congresses; can’t admit to past mistakes and let’s write some new rules so we can take credit for doing something.
Good diary; Obama definitely has the MSM on his side and I suspect is pulling the same crap as Dem’s are wont to do; speak to a base voting population with what they want to hear ,then once in ‘power’ ,bend over repeatedly to their corporate masters.
The disingenousness of his Admin can also be seen in this comment to day about a single payer healthcare system which was answered by “The problem is, is that we have what’s called a legacy, a set of institutions that aren’t that easily transformed. Let me just see a show of hands: How many people here have health insurance through your employer? Okay, so the majority of Americans, sort of — partly for historical accident. I won’t go into — FDR had imposed wage controls during war time in World War II. People were — companies were trying to figure out how to attract workers. And they said, well, maybe we’ll provide health care as a benefit.”
I’ll call bullsh*T on this re-writing of history and people-press corps,etc.- simply accepting his statement as though it was fact.
Just like his statement that Lincoln found time during the civil war to have a transcontinental railroad built. BULLSH*T.
from robert johnson:
from joseph stiglitz:
thanks hugh.
DIGG IS OPEN
Thank you, Jim, for having the courage to speak a very unpopular truth. As you say that denial is not a policy, I say unrealistic hope based on exotic theories and creative gimmics aren’t either, and will not be the answer.
As a child of the depression, the reality I knew daily cannot even be imagined by these privileged sons of sons of sons of Wall Street. They learned their methods of money manipulation from manipulators, while remembering to throw in insincere words like “protection of the taxpayers” now and then.
How many times have we been told ‘this will loosen up credit’ ? Still frozen solid…billions gone and the banksters play their little games with each other while another 600 thousand jobs are lost monthly and families are put out on the street because no job = no money.
Obama will find, as did FDR, that he will have to let the banks fail and focus on programs that put the people back to work. I hope he comes to that reality before America becomes another Zimbabwe.
Hugh, I would appreciate your evaluation of The Blackstone Group. It’s too quiet about them. They often buddy-up with the Carlyle Group in their mammoth take-overs. They only founded their firm 1985 and now are one of the main rivals of Goldman Sachs and nobody can figure out where they got their money to begin with….hmmm 1985…Reagan, Iran Contra, CIA, drug money??
Wiki has a good article on them, with lots of refs. Sounds to me like they are corporate raiders. They make money when all others are going under.
Dugg and recommended.
As always, thanks Hugh.
NYTimes has outed members of Congress on all the finance committees who took $$ from the big players, or should I say losers, in this mess.
http://dealbook.blogs.nytimes……-currency/
This is scary will America ever trust another non white as President again if Obama blows this?
The Left will be doomed for a generation the GOP hopes that this is just a business cycle and that they can run against Obama on this issue 4 years from now and that the business cycle will be over and then they can go back to the old ways of doing things.
After they say some Lefty stuff to get votes once elected they will ignore it. Scary thing is this Left stuff the GOP will say will be to the Left of Obama.
Legalise Pot to raise money, End 2 wars, National healthcare anything Obama won’t do now to attract Moderate votes will be just what the GOP will say 4 years from now to get Moderate votes.
And you know what it will work…to get the GOP elected. Not save the economy 4 years of the GOP will turn us into a fallen power.
Future Obama I trusted the experts too much I should have listened to the Lefty blogs!
I apologize for calling you Jim, Hugh…my bad. (senior moment)
The money was left over from Castle Bank, Nugan Hand, BCCI, BNL, and other financial shenanigans the intelligence cowboys have been involved in over the years.
For a nice treatment of how this happened a good read is “When Genius Failed” which covers the meltdown of Long Term Capital Management back in 1997, another “too big to fail” behemoth.
Thank you, James. I’ve read a lot about BCCI, and Nugan Hand; didn’t know of Castle Bank or BNL. The info on BCCI alone was mindboggling for me.
Thanks for the ref, “When Genius Failed”. Can’t imagine what thunderbolts it will deliver.
Have you heard of the book published 1973, ‘The Secret Team’ by Col. Fletcher Prouty? It is now online (I’ll provide link next comment). I ordered and just received a copy. Right off the bat it tells how the briefers (he was one for many years) in DC get their info from CIA, who manipulate info toward achieving their agenda. The briefers then indoctrinate presidents, VPs, heads of DOD, etc.. So, we can see how those ‘intelligence cowboys’ have been the secret government dictating from the dark side for many, many years.
Here is the link to the online book ‘The Secret Team’ by L. Fletcher Prouty, first published by Prentiss Hall in 1973. All those books disappeared of shelves, out of bookstores, and even erased from the records of The Library of Congress, as did the first publication of the paperback.
It is amazing that this man lived.
Please sit back and relax…nothing can now go wrong and the country was saved from socialism by TARP.
Oh yeah – the Toxic Arsebackwards Rip-off Plan; just a little slow in getting started; needs an injection of another trillion or two, doncha know. (/s)
I think some people would use a failed Obama Presidency this way. But it is important to remember that the father of this economic crisis was W and its godfathers were Bill Clinton and Ronald Reagan, about as vanilla a group as you could get.
As for the Democrats, the biggest thing going for them politically is the complete implosion and moral and intellectual bankruptcy of the Republicans. I think what scares both parties shitless is the possibility of the rise of a populist backlash against them both. There doesn’t seem much evidence for one yet but that is the thing about such movements: they can appear overnight (Of course, they can disappear the same way). Political establishments hate populism. It doesn’t belong to them. They can’t control it and it challenges them in existential ways.
Thanks. I read the book before it was republished. Many of the players involved in the drug/financial dealings are familiar names to people who have been keeping score: Greenburg, Richard Armitage, John Negroponte, Ted Shackley, George Bush, Sr.(BNL/Iraqgate).
This financial meltdown will not be fixed properly because Obama is catering to his Wall Street patrons. The rest of us are going to take the hit for this and they are going to attempt to restrict Social Security benefits for future workers. Watch for it.
Hugh, I mentioned the other day that there won’t be a backlash this time because so many of us are so far removed from the deprivations of the depression. I think a backlash will happen when the next crisis hits Wall Street which will occur in my lifetime (within the next 15 years) and the people who are college-aged today, the ones who are graduating into a dead job market loaded with debts, the kids whose parents are afraid of losing their houses or who can no longer afford health insurance because a job has disappeared, I think these are the people who are going to remember how this bailout scheme, this robbery of the middle and working classes, was perpetrated against them and their parents and peers and they will be the ones to stand up and refuse to let it happen again.
At least I hope they stand up. Too many older people today don’t remember the recession of 81-82, or the financial shocks of the late 60s/early seventies. That’s why these thieves have been able to get away with this nonsense. Ask how many people remember the S&L bailout and how Bush Sr. set up the Resolution Trust Corp to help the criminals, the scheme that saddled us with debt before his idiot son got into the White House and ballooned the deficit.
Yes, American’s haven’t any sense of history and the media encourages the dumbness; ever hear the song ‘television-drug of the nation‘?
“breeding ignorance and feeding radiation’
I’m hopping you are right.
Mr. Obama’s faith in the establishment creates a dilemma. Will he make the financial elite more powerful and break the back of the middle class? Or will he challenge the elites he has spent a lifetime joining?
One thing is sure. Mr. Bush could credibly claim ignorance of almost everything. Mr. Obama cannot. As a former employee of Goldman Sachs, and one of Columbia University and Harvard Law School’s brightest graduates, he knows and can assess issues that would leave Mr. Bush thumbstruck.
Too soon but inescapably, the economic crisis has become a test of what Mr. Obama is he really about. Will he stop fighting now that he’s made it through the private club’s front door and been given the armchair by the fire? Or will he fulfill his oath as a public official and notice that sparks from his club’s drawing room fire has set the city ablaze? Will he get up and put out the fire and rebuild, or will he finish his cigar and enjoy a chat with his newfound friends?
Today he did not rail against the bankers. He had lunch with them. So I would say he has opted for cigars and conversation. But this was obvious from before. If he was going to be taking their hides off, he would not be so busy pumping trillions of dollars to them.
And what has he done for the rest of us? A weak stimulus and even weaker help for homeowners.
James, and all you pups here, you gotta see this! It will lift your spirits. It’s in the NY Times so hopefully Obama and the C-critters and banksters cannot miss it.