The Man Who SHOULD Head Treasury
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17 September, 2009 By David Caploe PhD, Chief Political Economist, EconomyWatch.com We’ve noted in recent postings that informed observers knew before Barack Obama took office that he was – sadly – unlikely to do much more in economic policy than mimic the paltry and blatantly inadequate efforts of the Cheney / Bush regime, symbolized above all by the Paulson “Plan”, which, in the aftermath of last year’s Black September meltdown, basically begged banks to take taxpayer money and lend it.
17 September, 2009 By David Caploe PhD, Chief Political Economist, EconomyWatch.com We’ve noted in recent postings that informed observers knew before Barack Obama took office that he was – sadly – unlikely to do much more in economic policy than mimic the paltry and blatantly inadequate efforts of the Cheney / Bush regime, symbolized above all by the Paulson “Plan”, which, in the aftermath of last year’s Black September meltdown, basically begged banks to take taxpayer money and lend it.
While the banks took the money, they didn’t run with it.
Indeed, in most cases, they sat on it, hoping to give it back as soon as possible, since – shock of shocks – their friends and past / future employees in the White House had the nerve to say the banks MIGHT have to limit the outsize compensation they’d been awarding themselves for years, basically at the expense of every other actor in the global economy.
The result, of course, was the American, then global, credit freeze, which, as most people don’t seem to realize, is what turned a crisis in the money world – due not to the entirely containable problems in the “sub-prime” housing sector, but, rather to the financial doomsday machine known as “derivatives”, on which more in future posts – into the “real economic” disaster we’re now experiencing known, for the moment at least, as “The Great Recession.”
As we all remember, Obama campaigned on the brilliantly vague slogan of “change” from the pandemic disasters of Cheney / Bush, for which Americans – and, clearly, the rest of the world – were so desperately eager.
But by December, it became clear such hopes were destined to go unrealized, at least as far as the two most important issues Obama will face – the twin, related, crises in the economy and health “care.”
In the latter, the tip-off was Obama’s incredible re-play of the exact same mistake the Clintons made 16 years ago – taking single-payer off the table from the start, hence removing any “stick” with which to push the vested interests – insurance companies / drug co-s / AMA / HMOs / hospitals – who have subsequently, at least so far, successfully rebuffed any movement for real “change” in health care.
In finance, the clue was his naming Tim Geithner as Treasury Secretary and Larry Summers as National Economic Council head.
Why? Because they were the best-known acolytes of the man who has provided the main thrust of Democratic economic policy since the beginning of the Clinton administration – Robert Rubin.
A genuine Teflon giant, Rubin moved from Co-Chair of Goldman Sachs to the job Summers has now, from which he became Treasury Secretary in early 1995, where Summers was his Deputy, until he left in mid-1999 in favor of Summers, who thereupon made Geithner his Deputy.
Talk about a tight daisy chain.
But the issue isn’t the Boys Club, it’s the policy – summed up by the passage in December 2000, in the days immediately following Bush’s installation as President by the Republican Supreme Court, when Summers and Geithner overcame the objections of Brooksley Born, then head of the Commodity Futures Trading Commission, and oversaw the passage of the Commodity Futures Modernization Act, whose mild name effectively camouflaged its explosive intent: the effective de-regulation of derivatives – the real cause of Wall Street’s 2008 meltdown.
In this sense, the Democrats in general, and its Rubinite economic wing in particular, bear as much responsibility for the current disaster as the “don’t stop til you get enough” Cheney / Bush regime and the Republicans.
The tragedy here is that there were immediately available Democratic alternatives in the economic policy area whom Obama could have chosen, who would have represented genuine “change,” but whom he pointedly chose to ignore:
Nobel Prize winner and former Senior Vice-President / Chief Economist of the World Bank Joseph Stiglitz would have been an outstanding Treasury Secretary. And for NEC head, how about either Nobel Prize winner Paul Krugman of Princeton and the New York Times or Nouriel Roubini, aka Dr. Doom, a senior adviser to Geithner in the late Clinton era, before earning the opprobrium of conventional academic economists for his all-too-accurate prediction of precisely the Wall Street nakba we commemorate this week.
So if you really want to get an idea of what is shaping up as the tragedy of the Obama administration, check out these insightful comments in a Bloomberg interview with Stiglitz – the man who shoulda / coulda / woulda been Secretary of the Treasury.
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Joseph Stiglitz … said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc. “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said … “The problems are worse than they were in 2007 before the crisis.” Stiglitz’ views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.” … While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure. Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and he hopes the Group of 20 leaders will cajole the U.S. into tougher action. “We aren’t doing anything significant so far, and the banks are pushing back,” said Stiglitz, a Columbia University professor … “It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?” … Stiglitz, former … member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman. “We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.” The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said. “The question then is who is going to finance the U.S. government,” Stiglitz said. |
But if Stiglitz’ views aren’t welcome in official Washington, they’re apparently not so problematic in Nicolas Sarkozy’s Paris.
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Stiglitz gave the interview before presenting a report to French President Nicolas Sarkozy that urged world leaders to drop an obsession for focusing on gross domestic product in favor of broader measures of prosperity. “GDP has increasingly become used as a measure of societal well being, and changes in the structure of the economy and our society have made it an increasingly poor one,” Stiglitz said. Sarkozy Agrees Sarkozy said … that focusing on GDP as the main measure of prosperity had helped to trigger the financial crisis. He ordered France’s statistics agency to integrate the findings of Stiglitz’s study into its economic analysis. Assessing government’s contribution to economic output, which ranges from 39 percent in the U.S. to 48 percent in France, is one of the shortcomings of the GDP model, as is its difficulty in estimating improvements in the quality of products such as cars instead of just quantity, Stiglitz said. Similarly, increased household debt may drive up output numbers, even though that doesn’t amount to a real increase in wealth, he added. While Stiglitz doesn’t recommend dropping GDP altogether, he wants governments to consider such matters, along with issues of environmental sustainability, in policy making. “Most governments make a fetish out of it. If you take one message out of our report, make it avoid GDP fetishism,” he said. “The message is to encourage political leaders away from that.” |
Now wouldn’t THAT sort of thinking be a refreshing alternative to what Ben Bernanke was peddling earlier this week at the Brookings Institution?
Seems to me, that would be real “change.” But, I guess, a bit too much for Obama and Company.
David Caploe PhD
Chief Political Economist, EconomyWatch.com
President, Minerva School / ACALAHA
