If Few Jobs are Being Created

and the unemployment rate is very high, then there is no "rebounding" of the economy, despite Timothy Geithner's spin on things.

The Economic Mess

Is the Obama administration looking to screw people over (again) by attacking programs like Social Security?

I have said I didn't exactly trust him, so any talk about cutting SS, had better not leave the talking stage; in fact, it shouldn't even be in the thinking stage.

A snip:

That such comments portend an unprecedented attack on Social Security, the bedrock federal program for retirees dating from the Great Depression, was underscored by two articles posted Sunday on the Washington Post web site. One, entitled “Don’t Expect Retirement Help,” declared, “Uncle Sam won’t be of much help” to the millions whose retirement savings have been decimated, “with Social Security likely to face cuts in benefits.” The other was ominously headlined “A Flimsy Trust: Why Social Security Needs Some Major Repairs.”

It should be noted that these individuals—Obama, Geithner, Summers and Greenspan as well as the talk show moderators—are all multi-millionaires. The "hard choices" they speak of will not impact their lives in the least.

Beginning with Obama, they all exhibit a combination of callousness and ruthlessness that bespeaks not only themselves, but the ruling class whose interests they defend. Their touting of an economic “recovery” for the wealthy at the expense of the broad mass of the population must be taken as a warning.

All of the policies of the Obama administration have been focused on protecting the interests of a financial aristocracy that exercises a de facto dictatorship over the social and political life of the country. Now, the crisis which the bankers precipitated is being used to effect a permanent reduction in the living standards and social position of working people.

There will be no return to the already depressed wage levels and paltry social benefits that existed prior to the crash of 2008. Instead, a further redistribution of wealth from the bottom to the top will be carried out through the destruction of all that remains of past social gains and an immense intensification in the exploitation of the working class.

If that happens, expect massive social unrest, even in the apathetic United States.

Is Obama Screwing Up the Bank Crisis?

It appears he is because he is getting advice from the same type of people who created the mess in the first place:

So you aren't a fan of the recently announced plan for the government to back private purchases of the toxic assets?

It is worse than a lie. Geithner has appropriated the language of his critics and of the forthright to support dishonesty. That is what's so appalling -- numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies. He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything. He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

Geithner is mistaken when he talks about making deeply unpopular moves. Such stiff resolve to put the major banks in receivership would be appreciated in every state but Connecticut and New York. His use of language like "legacy assets" -- and channeling the worst aspects of Milton Friedman -- is positively Orwellian. Extreme conservatives wrongly assume that the government can't do anything right. And they wrongly assume that the market will ultimately lead to correct actions. If cheaters prosper, cheaters will dominate. It is like Gresham's law: Bad money drives out the good. Well, bad behavior drives out good behavior, without good enforcement.

His plan essentially perpetuates zombie banks by mispricing toxic assets that were mispriced to the borrower and mispriced by the lender, and which only served the unfaithful lending agent.

We already know from the real costs -- through the cleanups of IndyMac, Bear Stearns, and Lehman -- that the losses will be roughly 50 to 80 cents on the dollar. The last thing we need is a further drain on our resources and subsidies by promoting this toxic-asset market. By promoting this notion of too-big-to-fail, we are allowing a pernicious influence to remain in Washington. The truth has a resonance to it. The folks know they are being lied to.

I keep asking myself, what would we do in other avenues of life? What if every time we had a plane crash we said: 'It might be divisive to investigate. We want to be forward-looking.' Nobody would fly. It would be a disaster.

We know that with planes, every time there is an accident, we look intensively, without the interference of politics. That is why we have such a safe industry.

Summarize the problem as best you can for Barron's readers.

With most of America's biggest banks insolvent, you have, in essence, a multitrillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale.

These firms will ultimately have to be forced into receivership, the management and boards stripped of office, title, and compensation. First there needs to be a clearing of the air -- a Pecora-style fact-finding mission conducted without fear or favor. [Ferdinand Pecora was an assistant district attorney from New York who investigated Wall Street practices in the 1930s.] Then, we need to gear up to pursue criminal cases. Two years after the market collapsed, the Federal Bureau of Investigation has one-fourth of the resources that the agency used during the savings-and-loan crisis. And the current crisis is 10 times as large.

There need to be major task forces set up, like there were in the thrift crisis. Right now, things don't look good. We are using taxpayer money via AIG to secretly bail out European banks like Société Générale, Deutsche Bank, and UBS -- and even our own Goldman Sachs. To me, the single most obscene act of this scandal has been providing billions in taxpayer money via AIG to secretly bail out UBS in Switzerland, while we were simultaneously prosecuting the bank for tax fraud. The second most obscene: Goldman receiving almost $13 billion in AIG counterparty payments after advising Geithner, president of the New York Fed, and then-Treasury Secretary Henry Paulson, former Goldman Sachs honcho, on the AIG government takeover -- and also receiving government bailout loans.

It's the same old, same old Friedmanite bullshit. I am disgusted with Obama for continuing these failed ideas.

Obama

had better get his shit together on the economy and get rid of the likes of Summers and Geithner or the public is going to lose all faith in his ability to turn things around:

It is becoming increasingly apparent that our economic recovery measures are being designed and implemented exclusively from Wall Street's point of view. The needs of investment bankers, stock speculators, corporate bankers, hedge fund operators, and insurance moguls are taking total precedence over the needs of the American taxpayers and the American people, particularly including those who have led frugal, responsible lives and have much of their assets in savings. A day of reckoning will come in response to the printing of almost $3 trillion in greenbacks that have been given to these institutions, and the effects of this behavior will hit hardest on those whose holdings are primarily in American dollars -- the "prudent" savers among us -- and on working Americans whose salaries are not adjusted according to fluctuations in monetary rates. It will hit hardest on those with fixed incomes.

Summers and Geithner (and to a slightly lesser extent Bernanke) seem to be striving to return Wall Street to the "good old days" of business as usual c. 2005-2006. They seem intent to measure our economic performance by the Dow, and wish to restore the health of our megabanks and mega-brokerages. I do not believe this to be the solution.

They are not trying to design a new, stronger, more resilient financial system less vulnerable to bubble-and-bust. I do not believe that Summers and Geithner are the guys for that job, but that's the job we need to have done. Instead they are trying to rehabilitate the current system, and it is the current system that has failed. Geithner is a bean-counter and might make a better Treasurer than Secretary of the Treasury. Summers, through and through in his heart and in his mind, is an investment banker -- it is all he knows and all he sees. He completely identifies with their needs and aspirations and will do everything he can to make life good for his colleagues in that field. But it is regulating, and indeed governing, in the exclusive interests of these very people that have caused our ruin and that will prevent our recovery if we continue to do it.

The AIG debacle is just a big red flashing light -- important to deal with, but not the actual danger. We are absolutely right to be outraged by those bonuses but we are ignoring the greater lesson of them -- the "bonus system" of compensation itself that encourages exactly the kind of dangerous behavior that has given us the current disaster. Think: What are those bonuses granted for? Designing and marketing innovative financial instruments; hawking the greatest volume of high-risk investments to unsuspecting investors; selling the most snake-oil insurance policies; outsourcing jobs and entire industries to overseas firms; and in more industrial fields, closing manufacturing plants and laying off the most employees in the name of "productivity." Are these the things we really want to reward at the level of a winning lotto ticket (another recent abomination created with the purpose of shifting the tax burden onto the backs of the poor)?

And yes, our economic policies should move sharply to the left. No more Chicago school, neoliberal, or Friedmanite nonsense.

You Know Things Aren't Good for

Obama's administration when The New Republic believes Geithner is bad, yet the magazine continues with its neoliberal philosophy and says this inept "Brownie" type should not be sacked.

Has the Kool Aid Finally Worn Off

for Frank Rich? For the first time in many months he finally makes some coherent sense regarding Obama.

Well, when you are in fact a product of the Chicago School, and Obama actually taught at the University of Chicago, and when you surround yourself with Friedmanites of the Democratic persuasion, or neoliberals, any economic policy which seeks to prop up the status quo is going to fail. The status quo, which for the past thirty years has been Friedmanism or some variation thereof, has been a complete failure. If one wants to use the Katrina comparison, you can't plug a leaking levee with a bandaid.

And Geithner and Summers HAVE to be ditched.

More Krugman

It appears the Obama administration is wedded to the discredited economic policies of the past when in fact there needs to be drastic change:

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

Robert Scheer on AIG, Etc.

Some of Obama's people need to get the hell out of Dodge.

The Kool Aid Has Finally Worn Off

for this commentator, and he doesn't like what he sees in Obama, with the Obama administration's clear pandering to Wall Street:

As everyone who has ever read anything I write knows, I am a big fan of Barack Obama, an absolute yellow-dog Democrat, and much quicker to defend anything any Democrat does or says than to criticize it.

But I have to say that I believe that Barack Obama has chosen the wrong people for his economic team and needs to rectify this mistake quickly or risk losing the public support he needs to accomplish what he intends. Geithner, Summers and Bernanke have got to go, and go quickly.

I would suggest replacing Timothy Geithner with Robert Reich, Larry Summers with Paul Krugman, and let them pick Bernanke's replacement.

See, Summers, Geithner and Bernanke are striving to rehabilitate the existing system that has failed. We need a fresh team, a team without ties to the Wall Street of the last two decades, to create a new financial system that is better suited to the realities of the times in which we now live.

These guys (and members of Congress) talk about taxing the bonuses of executives of bailed-out corporations at a confiscatory rate, or banning those bonuses outright. Why is this limited to bailed-out corporations only? Why not confiscate or ban them throughout the entire economy for all American businesses? They are NEVER fair, they are rife with cronyism and nepotism, and they are the source of a lot of the difficulties we now face. For example, take AIG (in the immortal words of Henny Youngman, "Please!"). The "performance" that triggered the receipt of these bonuses involved smooth-talking agents selling snake-oil investments, and the more persuasively deceptive they were, the more customers they bilked, the more likely it was that they'd get the big money. And this is true throughout the whole system of investment banking and insurance, not just AIG.

We have GOT to stop rewarding that kind of corruption. It is not good for our national health.

With the announcement of today's ADDITIONAL $1.2 t-t-t-trillion in stimulus from the Fed, that's ANOTHER two months of EVERYBODY'S pay. It brings the cost of this bailout to FIFTEEN MONTHS of the salary of EVERY AMERICAN WORKER'S SALARY COMBINED. How stimulative would it be if we just gave everybody a lump-sum check for a year and three months of salary?

I am afraid we are following in the footsteps of the Weimar Republic. And I am afraid that Goldman Sachs is the Obama administration's Halliburton.