Matt Taibbi and Paul Krugmann on the Economy

For the most part, I’ve been willing to give Obama the benefit of the doubt concerning his handling of the economy. My assumption up until now has been that he knows that, in the long run, several substantive changes need to be made to the system, but, right now, all he cares about is avoiding another Great Depression and restoring confidence in our system. So, when I hear that his administration is pumping more of our money into corrupt and failing companies, I don’t let my anger get the best of me. I just take comfort in the thought that eventually those in positions of responsibility will be brought to justice and that the system will be rebuilt with the necessary transparency and oversight. But, when I read things, like this recent column by Paul Krugman, I start to think that maybe I’m giving Obama too much credit… Here’s a clip from Krugman:

…At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached.

This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers. And that leaves it with no ability to counter crude populism.

I don’t know that I’m quite ready to give up on Obama, but, given his unwavering support of Geithner, I’m losing faith fast… And this new piece in Rolling Stone by Matt Taibbi isn’t helping matters much… Here’s a clip from that one:

…People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — “our partners in the government,” as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout…

So, all of this leaves me with two questions… When is the Obama honeymoon officially over? And when do the riots begin?

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  1. Glen S.
    Posted March 22, 2009 at 9:33 pm | Permalink

    On this issue, I think Obama is well intentioned, but that some of his key advisors — Geither and Summers in particular — are the equivalent of Wall Street foxes expected to guard the national financial chicken coop.

    This economic crisis is unlike any in American history, and solving it will require swift and unprecedented action. A chorus of respected economists, including former Labor Secretary Robert Reich and Nobel Prize-winner Paul Krugman have called for nationalizing the failing banks and insurance companies, restructuring them, and then selling off the viable assets to help offset losses.

    The alternative — continuing to borrow bilions (trillions?) of dollars from China and other countries to pour into these companies seems is unlikely to revive the economy. Meanwhile, doing so only serves to continue rewarding the people who caused this problem in the first place, and is a slap in the face to ordinary Americans who losing their jobs, homes and savings.

    Obama continues to maintain a powerful well of of support and goodwill among Americans eager for him to be successful in fixing the economy and moving the country forward on a number of fronts. However, if he continues listening to Wall Street insiders, and ignoring the very real, and very justified anger that is being generated by “reverse class war,” he risks endangering that support, and undermining his many other important and worthwhile goals.

  2. Posted March 22, 2009 at 9:49 pm | Permalink

    I would care about this a lot more if I thought that it would be possible to save the financial system. Since I believe it is not possible, the manner in which we flail about is irrelevant. It is merely a question of what kind of sideshows you want to watch, while society implodes.

    On the other hand, it would be nice if we devoted more resources to things such as CSA’s, farmer’s markets, soil and water conservation, water and sewage plant upgrades, and renewable energy. Schools and community health clinics would be good, too.

  3. Brackinald Achery
    Posted March 22, 2009 at 10:17 pm | Permalink

    Regulators get bought or otherwise controlled by the people they’re supposed to be regulating. Then everybody loses their natural buyer-beware instincts because they trust the regulators to look out for them. Then everybody makes unwise decisions. Then everybody gets screwed.

    I basically agree with you Glen, but I’m afraid nationalizing the banks would give those same types of people even more power to screw everyone over, but with the force of law and heavily armed cops to back it up, so you can’t even chose to opt out of whatever current scam they’re running.

    Remember, the Federal Reserve is already our central bank — it only has the power over money and interest rates that it has because Government legislation has given it that monopoly, and denied Americans the ability to choose other currencies as legal tender besides Federal Reserve notes. So if we want to buy or sell anything, we’re their bitches and are at their mercy by force of Federal law. We can’t demand payment in, say, gold or silver, for selling a house; it has to be in Federal Reserve Notes, the value of which is manipulated by these same Wall Street psychopaths in the Fed to their advantage and our detriment. Doing away with the Fed would go a long way in circumnavigating the damages caused by other peoples’ bad investments, so it wouldn’t take everybody else down with them. This is what I currently believe, to the best of my research, to be the truth.

    I would definately support legislation to audit and abolish the Federal Reserve. They’re the real drug lords in this story, dealing out addictive easy credit and free money to their friends at the expense of the value of our dollars with no accountability; the rest are hired guns and petty dealers.

  4. Posted March 23, 2009 at 5:43 am | Permalink

    OK, maybe he deserves more time.

  5. Posted March 23, 2009 at 8:15 am | Permalink

    BA: Would it make you feel better if instead of calling it “nationalization”, it was called “bankruptcy reorganization”?

  6. Brackinald Achery
    Posted March 23, 2009 at 8:23 am | Permalink

    Yes, it would. Pardon my brevity, but I have an appointment with my cellmate for a “comprehensive prostate exam.” It’s 100% voluntary, provided I don’t try to fight it. I should be grateful, since he protects me from the bad guys.

  7. Meta
    Posted March 23, 2009 at 8:44 am | Permalink

    Will Greider in the Washington post.

    …Barack Obama can resist all this, if he chooses, but he seems conflicted. Obama’s approach so far is devoted to restoring Wall Street’s famous names, and his economic advisers tell him this is the “responsible” imperative, no matter that it might offend the unwashed public. Obama evidently agrees. He does not seem to grasp that the tone-deaf technocrats are leading him into a dead-end.

    The president needs to hear a second opinion — millions of them.

    People are angry, but they want this president to succeed. Mobilized citizens can help him to prevail. If he goes with the other side, they will bring him down.

    Read the whole article here-–_millions_of_them/

  8. Meta
    Posted March 23, 2009 at 8:47 am | Permalink

    Frank Rich’s op-ed on Sunday was also good:

  9. Brackinald Achery
    Posted March 23, 2009 at 9:41 am | Permalink

    To Obama supporters: It’s going to be hard to believe that Obama is anything but good intentioned after all the positivity, hope, and hard work everyone put into him, I imagine. If he’s not good intentioned, it feels like it would reflect on you as a person — your perceptions, your hard work, maybe a little bit of your self-worth. I know the feeling. Don’t blame the victem, these guys are professional liars with a lot of resources, experience, and power that you don’t have.

  10. Rob
    Posted March 23, 2009 at 10:52 am | Permalink

    Not to go too far off-topic, but as far as our local economy goes: RIP Ann Arbor news….

  11. Haunted Chicken Coop
    Posted March 23, 2009 at 11:15 am | Permalink

    I think I agree w/ some what Joseph j7uy5 is saying…and….a lot of the analysts are arguing that we’re still on course for actual implosion. I’d like to see a financial map or something connecting current fed action with longer-term goals.

    Not so sure about where the dollars are for the sewage and waste water treatment upgrades….But, on an encouraging front, Wash. County is seeing dollars (albeit Pfizer dollars) for farming development, and some other Mich. areas are seeing more $s go toward community health clinics and disproportionate share hospitals (low % uninsured patient population).

  12. Posted March 23, 2009 at 4:26 pm | Permalink

    You gonna organize a riot, Mark?

  13. Posted March 23, 2009 at 5:21 pm | Permalink

    Huh – the Dow is up 500 points today, should we start a parade celebrating how Obama is the best president ever?

    …Yeah, can’t believe The Ann Arbor News going down, been reading that paper since I was a kid.

    …One more thing – I heard a Shadow Art Fair promo on WEMU today with what sounded like Mark talking – very cool!

  14. Posted June 17, 2009 at 3:06 pm | Permalink

    Krugman Did Cause the Housing Bubble

    June 17, 2009 11:12 AM by Mark Thornton

    Here is Paul Krugman from his blog trying to deny that he was a persistent advocate for the housing bubble and below that are quotes from him just prior to the bubble taking off. ht Benjamin Lee
    “And I was on the grassy knoll, too”

    One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc.. The latest seems to be that I called for the creation of a housing bubble.

    Paul Krugman


    German Interview, undated

    “During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?”

    May 2, 2001

    I’ve always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly — that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.

    However, let’s give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed’s four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.

    If we succeed in avoiding recession, this will mark a big win for let- bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come.

    July 18, 2001

    “KRUGMAN: I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE).

    DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she — or I should say he and she, can they bring back this economy?

    KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know”

    August 8^th 2001

    “KRUGMAN: I’m a little depressed. You know, inventories, probably that’s over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven’t fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It’s not a happy picture.”

    August 14, 2001

    “Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn’t 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place.

    October 7, 2001

    “Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.

    In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package”

    Dec 28, 2001

    “The good news about the U.S. economy is that it fell into recession, but it didn’t fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed’s dramatic interest rate cuts helped keep housing strong even as business investment plunged.”

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