Obama's Problem in 1 Picture
Ezra Klein nails it with one picture.
You see, the American public, given a few months, and a subject that holds their interest, even tangentially, and they begin to tease truth from fiction, and as a group, come to understand what is going on.
It's the Delphi Method writ large.
We saw it during Bill Clinton's impeachment, when the public came to realize over a period of months that this was not the end of the world, it was some guy lying about cheating on his wife, and the Republicans attempting a coup as a result.
So, here we are, 8 months into the Obama administration, and a year into the financial crisis, and the American public gets it: No one is the least bit interested in doing anything to help them.
They are bailing out banks and automakers, and CEOs are still getting obscene pay packages, and the, as taxpayers are paying for it.
You see, this is not a problem that can be solved with an Obama speech, because there is nothing to explain here. That great vampire squid wrapped around the face of humanity,* Goldman Sachs, has captured treasury, insurance has captured healthcare, and real-estate has captured....well...Everything.
The Obama administration, and much of the Democratic Party has been captured by the Finance, Insurance, and Real-Estate (FIRE) sectors, and so is attempting to support the phony products of this sector, as opposed to produce something useful.
The Republican party has been captured by FIRE too, but this doesn't matter, because they are remarkably honest about this, and their platform is not to protect the little guy, but rather to hate those defined as "the other", so they are neither hypocrites, nor are they likely to lose much support.
That being said, much as in 1994, when people looked at the Democrats in Congress, and said, "If they are both going to f$#@ me over with NAFTA, I might as well vote for someone who hates f*gg*ts and n*gg*rs too," Obama and the Dems are in real trouble.
As Harry S Truman said, "Given the choice between a Republican and someone who acts like a Republican, people will vote for the real Republican all the time.
Absent actions that involve most of the senior staffs of Goldman Sachs, J.P. Morgan, Citi, Bank of America (Especially Ken Lewis), and the ratings agencies (S&P, Moody's, etc) frog marched out of their places of work in handcuffs, this is the reality we have, not the reality we'd like to have.
*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.
Cross posted from 40 Years in the Desert.
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Folks in the White House during Clinton's terms kept talking about, "trying to to be Eisenhower Republicans."
Obama is trying the same thing, I think that it a deep part of his makeup, only now is the wrong time for Ike.
October 1, 2009 7:01 PM | Reply | Permalink
So the best thing to do politically would have been to do nothing. That would mean those pols you condemn, as disinterested, have acted (in their view) for the people and against their own political interests. Thus, negating your logic, a catch 22.
October 1, 2009 7:11 PM | Reply | Permalink
If the Democratic Party wants to be the party of Ike, that's cool. America could use a party like that but where do we go to sign up for the party of Truman and FDR?
October 1, 2009 7:12 PM | Reply | Permalink
This is exactly right.
October 1, 2009 8:04 PM | Reply | Permalink
"The truth" is something none of us is privileged to know with certainty, and so my comment on the diagram does not purport to be that elusive truth but rather the view of most mainstream economists, including some very liberal ones. I suspect they are right, but can't prove it. Here goes.
1. Bailing out the large banks and Wall Street "too big to fail" firms was not designed to make everyone's life better, but to prevent the economy from collapsing, which would ultimately have made every ordinary person's life infinitely worse.
2. The stimulus package was the biggest Obama could get. Even more might have been optimal, but the current stimulus is just beginning to work. It has not increased employment but rather slowed the rise in unemployment. Understandably, those who have lost jobs or fear losing them don't feel they are better off, but it does appear that the recession has bottomed out. There is almost universal agreement that unemployment is a "lagging indicator", and so positive job growth is likely, but not until the spring or summer of 2010.
In that sense, public perceptions, as depicted in the diagram, reflect what individuals perceive to be their current status and the status of society as a whole. It is not a predictor of the future trajectory of the economy, which most believe will trend upward, although slowly over a few years.
Given the above, it would be possible to argue that the Obama Administration has done an admirable job addressing a mess that was 8 years in the making, and that final judgment will require at least a few years and probably more.
I know I said it at the beginning, but I repeat it here for emphasis. I think the above is a reasonable assessment, but I don't pretend it's infallible. The part I feel most strongly justified in defending is the suggestion that it is much too early for definitive judgments or dogmatic assertions. This applies equally to those who approve in general of the President's performance to date, and those who disapprove.
October 1, 2009 8:25 PM | Reply | Permalink
Fred,
Our system of capitalism requires moral hazard. Obama and Bernake have removed that and rewarded everyone but Dick Fuld.
The banks did not need to pay their dividends last year and Board members should have been fired. They did, and no one was. Goldman Sachs was allowed to turn into a Bank and survive to make billions last quarter risk free (when the gov gives you money at 0%...).
Large crimes have been committed. Regulators were in bed with Wall Street. The people who led us off the cliff should be in jail-or at least broke. At the absolute very least AIG's financial services group should be on trial. We will never see that money again.
Or if they are all innocent, then the system should be broken up for causing such a calamity and we should be discussing a new one right now. Instead their Bonuses were paid. Derivatives are secretly being traded again, and subprime mortgages are again being traunched and packaged into securities, Banks are sitting on the free money the Fed gave them, and most of my friends are out of a job with no prospects on the horizon.
They are entitled to make some judgments.
October 1, 2009 9:09 PM | Reply | Permalink
The only point I can confidently agree with you about is that the system should be changed. You may be right about penalties for past offenses, but I believe the Administration is focused on preventing future abuses more than on prosecuting past wrongs - legal obstacles are at least one reason for this.
I believe Obama and Bernanke agree with you on the issue of moral hazards - Bernanke in particular has signalled his disgust at the concept of "too big to fail" and is pushing hard to prevent that scenario from facing us in the future. At the same time, faced with the realities at the start of the year, he and others felt they had to choose between the most just treatment of these transgressors and the actions best suited to prevent an economic collapse. I'm certainly not qualified to judge whether they decided perfectly, but I'm willing to give them the benefit of the doubt.
In any case, collapse was averted, and the recession appears to be ending (except for the inevitable lag in job growth). Like you, I've read that there has been some tendency on the part financial institutions to return to the old ways, and so let's hope the Administration is able to push through adequate regulatory reforms. I believe they want to.
October 1, 2009 9:36 PM | Reply | Permalink
I disagree: Geithner is completely a creature of the current banking system.
He was hip deep in everything that was done wrong while he was president of the New York Fed, and he can't even bring himself to voice the slightest doubts about naked credit default swaps, which are insurance on something you have no interest in, because it "promotes price discovery. (translation generates broker fees)
This rule, by the way is over 260 years old:
Refer to this link, but here is a snippet:
There is a reason that you cannot take out insurance against your neighbor's home burning down, it has to do with your access to kerosene and matches.
Innovation in finance is not innovation, but obfuscation, because it prevents open markets, open price competition, and allows banks to fob off risk on rubes.
See here on re-remics.
BTW, when I complain about Geithner, I also mean Obama, because it's clear that he is where the buck stops.
October 1, 2009 11:17 PM | Reply | Permalink
You may be right, although my emphasis was on the future rather than on the past, and on regulatory proposals that are under development.
Given the original topic, however, my greater emphasis was on the chart shown in the post, and regardless whether or not we are yet regulating these institutions adequately, I suggest the evidence shows that a collapse was averted, and that benefits from stimulus money can be expected in the future, so that judgments by ordinary Americans based only on their current status don't adequately reflect the value of what has been done.
October 2, 2009 12:00 AM | Reply | Permalink
Two points:
1. No punishment = no deterrent. During the savings and loan crisis over 2,000 bankers, et al were prosecuted.
2. One simple starting point towards setting things right would be to re-build the fire wall between investment banking and commercial banking. Commercial banks should not be in the investment business and vice-versa.
October 2, 2009 8:05 AM | Reply | Permalink
Fred, you are trying to pass along the benefit of the doubt here to an incredible degree. It is not unlike the miner who notes that the canary died, but remains optimistic in knowing that it might have been from natural causes.
At what point do we look at the abundance of facts available and decide that, alas, we are in a pretty precarious position that may wipe us out if we don't respond? How much faith and hope do we invest in Obama who has yet to put a degree of separation between himself and those who are responsible for creating the dangerous casino-like atmosphere on Wall Street that placed us all at extreme risk and who now fight to preserve their "free market."
Did we avert a crisis in the financial sector? How do we know that?
What I know is that the following is a list of reasons offered for the need to open up the Treasury for an unprecedented raid by the very same people who participated at the highest levels in the meltdown on Wall Street:
A.) We need to shore up housing prices and forestall foreclosures, and
B.) We need to make certain that we do not allow financial institutions to become "too big to fail," and
C.) We need to regulate all financial instruments of all kinds, and
D.) We need to put in place other regulations along the lines of Glass-Steagal that separate commercial banking from the free-wheeling gambling casinos that are our "investment banks."
E.) We must avoid the moral hazard of giving a free pass to those who are inclined to privatize profit but pass along losses to the rest of us.
F.) We need to restore consumer confidence so that consumers start buying again.
Hundreds of billions of dollars have been spent, yet we haven't made any significant progress on ANY of the above items. In fact, many of the key issues (like A & B) have been eliminated from the list of priorities.
Champagne flows on Wall Street over the success of this "recovery." But it's damned difficult to see any scenario where Main Street ever joins in the celebration. If anything, we've simply laid the groundwork for an even greater crash in the not-too-distant future.
October 2, 2009 9:45 AM | Reply | Permalink
On the surface it sounds insane, and it is: Wall Street is resorting to its old "financial engineering" tricks — the same ones that helped blow up the world. And as weird as it sounds, there is a strange, book-cooking consistency to this madness.
Though a lot of activities fit that description, we're talking specifically here about "re-remics," or the re-securitization of real estate mortgage investment conduits ("remics"), a process in which existing mortgage-related derivatives are broken up and repackaged into new securities. In a re-remic, the assets of a remic are sorted into "good" and "bad" piles, and new securities created out of each pile. The new securities are then given new ratings by the ratings agencies, such that the capital the financial institutions have to set aside to cover those assets is reduced, even though the assets are the same. If this sounds nuts to you, you're on the right track.
The re-remic scam is one aspect of "Let's Pretend We're Not Broke," the most popular game on Wall Street these days. The more loaded down the banks' books get with toxic waste, the more capital they have to have to cover their "potential" losses, and the lower their capital ratios. Since they've got mountains of toxic waste on their books, the banks are expending considerable effort to reduce the level of capital they are required to set aside, and the re-remic gimmick is one of the techniques being used. The banks are also holding as many government-guaranteed loans and securities as they can, for the same reason. The polite phrase for this is "regulatory capital arbitrage," but "accounting fraud" is more accurate. The end result is to produce a phony statistic that can be used to claim that the bank—or insurance company, etc.—is healthy, when it is not.
This sort of nonsense is what killed the financial system in the first place. The derivatives market itself was created to hide the bankruptcy of the banking system and transfer future losses on unpayable debts from the banks into the securities markets, where it could be sold to pension funds and other suckers. A big part of AIG's credit default swap (CDS) business was just this sort of regulatory capital game: banks bought CDSs from AIG as a way of reducing the capital they had to set aside as reserves, and when AIG exploded, it was bailed out in order to save those banks. It should never have been allowed.
The fact that Wall Street thinks it can get away with such criminality today shows both that the players on the Street have learned nothing from the blowout, and that the so-called regulators have done nothing to clean up the system. The whole thing reeks of corruption and collusion, and demands a new Pecora Commission investigation. Had the Federal government put the financial system into bankruptcy protection, as it should have done, this activity would not be possible. That such activity is occurring again, serves as an indictment of the President and his administration, the Congress and the Federal Reserve. It is time to end the corruption, and end the monetary system which is preying upon us all. Enough is enough!
October 2, 2009 5:30 PM | Reply | Permalink
Are there charts/graphs that represent the amount of monies paid back by the financial and any other entities in these equations?
Thanks.
October 1, 2009 9:38 PM | Reply | Permalink
Here you go Aunt Sam:
http://bailout.propublica.org/
Check it out, propublica has been doing a great job of tracking the TARP. Unfortuently the FED stuff is harder to understand, but that is where most of the money has come from (2 trillion or so in new money given to banks).
It would be nice if Fred spent a little time investigating the crisis too. Also I would strongly recommend the This American Life podcasts that covered the crisis- Big pool of money and the follow up this year both come to mind.
And a refresher of what happened is in this video.
My Anger is that the jerks on the top who made all the deals are walking free with both their cash from making the deals, and now our cash from the bailout/FED printing press. For example even Dick Fuld, the former CEO of Lehman, is still worth hundreds of millions. In the meantime all the rest of us are fucked. No trials, no investigations. We just handed them the money.
I don't really see why I should be happy that the system was saved if I am upside down on my house and none of my friends can get jobs. That is a lot of the anger behind the birthers and the teabaggers too. It was not a system worth saving.
October 2, 2009 1:10 AM | Reply | Permalink
Thanks Sal...
I agree, there has to be consequences, public and harsh, for all to witness. Huge mistake not to proceed with some type of class action suit against the principals. Fraud, bad faith and list goes on.....
Thanks for links, very interesting. Much appreciated!
October 2, 2009 2:34 AM | Reply | Permalink
Thanks for that, Sal. Really useful.
October 2, 2009 10:30 AM | Reply | Permalink
Your conclusion feels incorrect. There is no way to indicate where we are in the public's thinking. How do you assume that we are at the same end point as the one you use as a reference to the public's perception changing? (Clinton's impeachment.)
The public's perception is so warped right now by the hysteria of the right-wing media, Limbaugh, Hannity, Beck, etc, the public's perception will take some long-term, hard evidence before it will come back to anything resembling reality.
That leads me to think that I should take all such measurements of public perception with a grain of salt.
October 2, 2009 10:05 AM | Reply | Permalink
The chart/picture is actually not too far off, too.
The thing is, while it would be wonderful if the administration could somehow kick-start the small business sector (which would indeed help enormously with the unemployment / underemployment problem), it's very hard to do, perhaps even impossible. You (where "you" means the current administration) can't simply offer cheap money, because small businesses don't want to borrow. (But they will borrow if they must, so you should offer them cheap money anyway. But there is a paradox here, more in a moment.) You can't simply offer to buy their goods and services: because government is such a huge buyer, and has heavy-weight procurement rules to avoid not only improper spending but even the appearance of improper spending, you are actually too big a buyer, with too much paperwork. (But you should still try.)
Here's the lending paradox: money needs to be cheap (ie, interest rates low) so that those who actually need money to finance legitimate businesses that will really help people-and-the-world can borrow. But when interest rates are low, those who have money—including banks, both big and small—become disinclined to lend it, as the profit margin on lending is so tiny. So there's a balancing act even here.
October 2, 2009 11:09 AM | Reply | Permalink
In February the first rumors of Microsoft's layoff of 5000 FTEs. At the same time the USCIS released a report detailing fraud in H-1B.
What these have in common is that Microsoft is the major benefactor of the H-1B federal regulation of US labor markets. There are now around 2.2 million foreign workers in the US on H-1B. There are also now over 2.2 million highly skilled US workers out of work. So the federal government is largely the cause of the massive levels of unemployment among software engineers and other technical workers.
And the Obama response has been silence.
October 2, 2009 12:28 PM | Reply | Permalink
The question was simple and straightforward.
Who has received the benefits of government financial activities post-Lehman? Is anyone going to argue that the respondents didn't answer the question correctly?
The real issue is Ezra Klein. Like too many left pundits he thinks the people are stupid (". . . all they know is . . . ."). Well, they're not stupid.
They know that the Paulson, Bernanke, Geithner, Summers and Obama responses to this recession have been directed at advancing the interests of the fat cats (otherwise known as their campaign finance contributors) rather than the interests of those they call, in public, their constituents.
Let's see whether the people send a message on November 2, 2010.
October 2, 2009 1:14 PM | Reply | Permalink
Hey everybody do you want some great conspiracy theory fodder. According to last months New Yorker article Eight days by James Stewart Hank Paulson, the former CEO of Goldman Sachs worth an estimated 700 million, DOES NOT USE EMAIL.
Is this for real? The man who came up with the idea of TARP, and forced it through Congress and the White house when the country was distracted with a historic election one month away has not left any written record of his actions. Does anyone have any more information on this?
October 2, 2009 2:12 PM | Reply | Permalink
The natives are restless. That is for sure. Ichyma just gave me a link (as did Obey) to a conference committee hearing concerning the bailout, TARP, pledges made by the Feds to insure investments....
comes to nine trillion dollars. The witnesses just do not know how that is all going. ha
Half a trillion will take care of National Healthcare for a decade.
Yeah, I am growing restless.
October 2, 2009 2:28 PM | Reply | Permalink
In looking over the comments, many strike me as focusing on whether past transgressors should have been punished more, and/or whether future regulatory reforms will be sufficient to avoid another meltdown. These are legitimate questions, and although I'm inclined to think the government has so far addressed the issues reasonably, there is room to disagree.
Where I continue to disagree with the implications in the original post, however, is with its main point - that ordinary Americans have grasped "the truth" that the Administration has not done enough to help them. I believe that's basically wrong for two reasons. First, part of the "help" was to avert a collapse, which we've apparently succeeded in doing, as well as to provide stimulus money that won't yield significant benefits to ordinary citizens until the future. The second, related reason, is that consumers are expressing valid judgments about their current status, but the value of Administration actions can't adequately be judged until much later.
Whether the Administration did the right thing or not can be argued, but I don't believe anyone can legitimately argue that we can accurately judge how much good they have done until we've allowed much more time for events to unfold.
October 2, 2009 2:48 PM | Reply | Permalink
. . . the government has so far addressed the issues [of punishment (that is, responsibility) and regulatory reform] reasonably . . . .
Really? Name one instance.
October 2, 2009 3:12 PM | Reply | Permalink
A mother was trying to cajole her young son to eat his broccoli.
"Don't you realize there are millions of little children in China who would just love to have your broccoli", she asked.
He replied, "Name three".
I'll pass on your request to discuss the details or regulatory reform, even though I foresee some potentially important developments. The reason relates to my main point above - that past penalties and future reforms are peripheral to what this post was trying to imply; viz., that the current status of ordinary Americans has been accurately interpreted hy them to mean that the Obama Administration has not acted in ways capable of helping them substantially. My point is that what has been done takes time, and so the time for judgment is in the future.
The other issues should be the subject of a separate discussion, so as not to confuse arguments about them with the question of whether helping the banks and paying out stimulus money was capable of helping Americans even if some of the effects are not obvious in a snapshot of today's economy.
October 2, 2009 3:53 PM | Reply | Permalink
reply below:
October 2, 2009 4:06 PM | Reply | Permalink
I suppose I should hope that you are right Fred. Since the republican prescriptions would be horrific. I am a Hegelian at heart. Perhaps we humans need a true full blown crisis before we abandon the flawed institutions and mindsets that create the problem. However, I concede that might be selfish of me, and perhaps even nilhist. Most people would suffer.
As to punishment-I think that people need to see that the rich are being punished just like them in order to not become cynical about politics, or violently angry. That may be petty of them (and me) but it is my view of human nature. We are social creatures and nobody likes to feel raped. A few investigations and prosecutions would go a long way.
Have you ever read Candide?
October 2, 2009 3:54 PM | Reply | Permalink
I think it takes an amoral nature, Saladin, not to wish to see justice done. Sometimes, that wish must be balanced against the need to avoid imposing justice on some if it would harm others, including the general public. I don't feel qualified to judge how much more could or should have been done with the reckless folks on Wall Street who took risks with other people's money, but I agree with the Obama Administration's desire to focus on how best to manage the future.
I have never read Candide itself, although I'm familiar with some of the content. We're far from living in the best of all possible worlds, but other parts of this world are much worst than the place where we live.
October 2, 2009 4:38 PM | Reply | Permalink
Having lived in a number of those parts of the worlds at various times in my life, each time I return I am again shocked at how rapidly we are racing to join them.
Our system (both legal and economical) requires justice, it is the fundamental operating principle, we have removed that principle for short term expediency.
But you are right, history will judge. In the meantime I have still have an opinion.
October 2, 2009 4:57 PM | Reply | Permalink
You are spot on Saladin. It seems that expedience has trumped nearly all principles in this recent configuration of our democratic Republic. The Obama camp would call it pragmatism. I call it a rudderless ship that is destined to end up on the shoals at some point.
And make no mistake that we are indeed on a race to the bottom as you say. Just what are all the calls for "competitiveness" in our economics if not a demand that we participate in the world economy using the lowest common denominator to be found in environmental, labor, and other regulations that govern quality of life?
October 3, 2009 2:21 AM | Reply | Permalink