Well, What Did You Expect?

by Eric Martin

When faced with a staggering, worldwide economic meltdown spurred on by the greed and excess of our financial sector, the Obama administration (picking up where its predecessor left off) chose to...trust that same financial sector to sort out the problems, with the sorting out to be facilitated by an enormous chunk of taxpayer money.  This money came with no strings attached - there was no receivership, no recapitalization requirements, no real compensation caps, no external controls, nada. 

Shockingly, the greedy capitalists that put short term profits and bonus payouts ahead of the long term health of the economy are, now that they received hundreds of billions in taxpayer money, acting like greedy capitalists who would put short term profits and bonus payouts ahead of the long term health of the economy.  Steve Clemons:

But what we have seen is an Obama White House caught off guard by firms that took vast sums of American taxpayer dollars and paid them off many on their times with hefty bonuses. The most striking statistic is that financial firms that received bailout money have since last September's crisis issued more than 5,000 people bonuses of a million dollars or more.

Unfortunately, Timothy Geithner and Summers have continued the Hank Paulson strategy of begging banks and financial institutions to participate in the bailout programs that the government packaged together to recapitalize the American banking system. But the banks resisted, negotiated, and were able to get terms in the US-private sector relationship that undermined taxpayer interests while maximizing the firms'.

This wasn't the economic version of trust but verify, but rather "trust but nag."  Yves Smith:

The 1980s supermodel Linda Evangelista once said. "We don't wake up for less than $10,000 a day." That seems to be the motto of American bankers, (save Citigroup's Andrew Hall, who needs 40 times that much per business day). Not only do they not care about things banks used to deem as important, like playing a role in their community, now they can't even be bribed to go along with pretending that they care.

The latest object lesson is the complete lack of interest in banks in a new SBA lending program. The banks say the loans are too small and too much trouble to be worth the bother, even with a Federal subsidy. I gather it doesn't occur to them if banks don't lend to small businesses, which have been the only engine of job growth, we won't have much improvement in unemployment, and if unemployment doesn't fall, we won't have a much in the way of recovery, and if we don't have much of a recovery, they won't have much of a business. The banks want to be a free riders on someone else doing whatever it takes to get the economy back in gear.

On the upside, there is likely another wave of really bad news on the way when the other shoe drops with a precipitous decline in the commercial real estate sector.  At that point, there will likely be plenty of tut-tutting from the Obama team, a rhetorical bone or two thrown in the direction of the outraged taxpayer, followed by a massive transfusion of taxpayer cash to the private sector to sort things out.  No strings attached. 

And really, why wouldn't you trust them?

Comments

[Point]

My sense of the Obama administration's reaction to the financial crisis:

First, you have to forestall total economic disaster (aka "another Great Depression"); that means, first and foremost, keeping the financial system from collapsing. Their approach was to "recapitalize through profits".

Second, after you've backed away from the brink, you regulate the financial industry to make sure the crisis doesn't happen again.

On the first step, he's doing okay; and I can understand putting off the second to focus of HCR, and the like, but I'm as anxious as anyone to see it happen.

[russell]

My sense of the Obama administration's reaction to the financial crisis:

They got pantsed. Somewhat willingly, at that.

And, thus, so did we all.

Cash rules everything around me. Read'em and weep.

[tgirsch]

I want to think like Point, but I'm afraid russell is closer to the mark...

[Eric Martin]

First, you have to forestall total economic disaster (aka "another Great Depression"); that means, first and foremost, keeping the financial system from collapsing.

I agree. There were ways of doing that which would have given more control to the government, and would have protected taxpayer money more effectively.

Their approach was to "recapitalize through profits".

Recapitalizing through profits is fine if the banks start lending again. They haven't been. Further, paying out taxpayer money in million dollar bonuses to thousands of employees while you refuse to lend is the worst of all possible worlds.

Second, after you've backed away from the brink, you regulate the financial industry to make sure the crisis doesn't happen again.

Color me highly skeptical and absolutely hungry to be proven wrong.

On the first step, he's doing okay

Disagree strongly.

[Johnny Canuck]

hadn't Paulsen given out virtually all the money pre-Obama?

[Ben Alpers]

I was at the "town hall" meeting hosted by my Congressman Tom Cole (R-OK) on Tuesday and by far the largest signs in the large, and very right-wing, crowd involved not healthcare, but the financial bailout. Along with most of Oklahoma's other Congresspeople and one of our Senators, Cole voted for it. And his constituents don't like it one bit.

This really is a populist issue that, at least at the grassroots, has the possibility of bringing together people from both the left and the right. The flip side is that it is, in DC, a largely bipartisan issue that brings together "mainstream" Republicans and Democrats in favor of giving the financial sector whatever it asks for.

And while I basically agree with russell, if it's willing, it ain't being pantsed. And I'm convinced that both Republicans and Democrats who supported this thing knew exactly what they were doing.

[Eric Martin]

hadn't Paulsen given out virtually all the money pre-Obama?

No.

[steve]

I'm sorry Eric ... maybe I didn't get enough sleep last night ... but what point are you trying to make?

[Slartibartfast]

"They got pantsed."

In my (thankfully) limited experience with "pantsing", the pants-ee had his pants forcibly and publicly removed from him, and then said pants were hauled up the flagpole and flown for all to see.

I think russell's on to something, here.

[Eric Martin]

Steve:

When transferring hundreds of billions of taxpayer dollars to the people that created a huge financial crisis under the assumption that they can get you out of it:

1. Include provisions, protections and conditions with the money in order to ensure that the people that created the mess don't engage in the same behavior.

2. Include provisions, protections and conditions with the money in order to ensure that the people that created the mess must take the actual steps necessary to rehabilitate the system (ie resume lending).

3. Include provisions, protections and conditions with the money in order to ensure that the people that created the mess can't just pay themselves that taxpayer money in mindboggling bonuses, leaving themselves weakened, cash strapped and in need of future transfusions of taxpayer money in order to rehabilitate the sytem (ie resume lending).

That kind of thing.

[Eric Martin]

Slarti: the flagpole is a dramatic, if ultimately unnecessary, flourish.

You can get pantsed without such a climax. I know from firsthand experience.

[Gary Farber]

"You can get pantsed without such a climax."

If you know what I mean, and I think you do.

[debt reduction]

russelle said it best

[Point]

"hadn't Paulsen given out virtually all the money pre-Obama?"

"No."

As I remember it, and wikipedia seems to back me up, Paulson had spent over half in a very short period.

But this gets to another concern:

"There were ways of doing that which would have given more control to the government, and would have protected taxpayer money more effectively."

Problem is, there were (at least some) conditions and provisions expressed in the bill -- but the Treasury, under Paulson, ignored them (not keeping track of who got what, etc.).

So it had at least as much to do with bad implementation as less than stellar legislation.

"Recapitalizing through profits is fine if the banks start lending again... Further, paying out taxpayer money in million dollar bonuses to thousands of employees while you refuse to lend is the worst of all possible worlds."

Not to be glib, but economic collapse is worse, and we seem to have averted it.

[Fred]

"...greed and excess of our financial sector..."

Greed is there all the time, when the system runs right and when it runs aground. If greed is what happened then we have to also give greed the credit for all the prosperity gains since the founding of the US economy, or of Wall Street.

Excess is a different matter. One source is that the managerial class divorced it's interests from the investing class, taking risks that had upside for the managers but both up and down side for the investors. You can call it greed but it's not the ordinary profit system. Wall Street firms used to be partnerships where the owners could lose big. More recently they became limited liability corporations, changing the balance between up and down side risks.

Some in the investing class are also working class, through unions and pensions and the like.

[Brett Bellmore]

I'm continually hectored about the way I'm not taking "power relationships" into account. Which amuses me, in as much as I'm not seeing much attention given to power relationships when it comes to the bailouts.

The government has the whip hand. It's the government that forced banks to take TARP funds they didn't want, or enter into mergers against their financial interest. It's the government which has threatened to replace boards of directors, has screwed over creditors in bankruptcy proceedings.

It's the government in control.

Taking that into account, I wonder why so many people look at extortion payments, and see bribes. I wonder why so many people look at funds being disbursed to companies which are fully expected to return some fraction of them to the Congressmen, and see largess, instead of money laundering.

In short, I wonder why you think it's the guys with the army and police on their side, who can just take money if they want it, who are being pushed around. And not the guys who're one regulation away from going belly up, if the feds don't just step in and order them replaced.

[(The Original) Francis]

Brett, you must be joking. Bankers are likely the most powerful lobby these days. Why did the gov't take the first $30 billion of Bear Stearns' bad debt? Why did the first TARP bill give Paulson a blank check? Why did the govt back AIG's CDSs dollar-for-dollar? Why is it impossible for Elizabeth Warren to trace the Bush admin's distribution of TARP dollars?

Whip hand, my big patootie.

[lightning bug]

"Nice little world economy ya got here. Be a shame if anything happened to it."

There's a perfectly good way to handle banks whose liabilities exceed their assets -- it's called "bankruptcy". It's designed to deal with pear-shaped situations.

Everybody knows exactly what the weird financial derivatives are worth -- zero. They're the financial equivalent of last week's lottery tickets.

Democracy is nice, but we're seeing who really holds the reins. Our masters are not to be inconvenienced.

[bedtimeforbonzo]

"Not to be glib, but economic collapse is worse, and we seem to have averted it."

Not to be glib, but millions of families who have had their homes foreclosed have seen nothing of the kind averted.

When I see the Dow Jones Industrial average roar past 9,000, I bear no understanding of why and draw no correlation to my own standing in life -- other than feeling as if my tax dollars have helped such bloated rallies.

When I hear that home foreclosures continue to rise at record rates, I feel that but for the grace of God go I.

I worry that this is the "new" normal. Wall Street rebounds quickly with profits. Main Street cuts costs in every knook and cranny it can find just so it can keep the lights on.

In the new normal, I have been able to pay my mortage -- a week late, two weeks late, three weeks late. Same with so many other essential bills. I used to pride myself on being a "good pay" customer. Now I'm just trying to stay afloat.

I think there have been many, many economic collapses. They have been felt by the millions who lost their jobs, their homes, their good credit ratings, their ability to sleep at night. They have been felt by those of us who wonder if this month's paychecks will be enough to keep what you worked a lifetime to attain, leaving out any sense of planning for the future, thereby leaving out any sense of hope for the future.

There is only the present and the feeling that it could collapse at any moment.

[Brett Bellmore]

I am not joking in the least. Bankers are powerful compared to the average person. Compared to federal officeholders, they're just another victim class. They're just a fairly useful victim class, really handy for things like getting you "Friends of Angelo" loans, or putting your wife on a corporate board, which entitles them to the carrot as well as the stick.

But the stick is there, and the bailout included graphic reminders of that.

[topsy, part one]

"The latest object lesson is the complete lack of interest in banks in a new SBA lending program." As somebody trying to get back into the moribund residential construction industry after being laid off for a year, I don't want that to be true.

"They got pantsed. Somewhat willingly, at that." Had to be more "willingly" than "pantsed" because nobody could be stupid enough to think the Paulsen/Geithner plan was going to work in any way to benefit us except by accident. What, they don't read newspapers?

"Our masters are not to be inconvenienced." The arrogance of wealth is wondrous to behold and always makes me think, Would I be that big of a dick if I were rich? I don't think we were supposed to have that kind of country, but goddammit, there it is.

[Phil]

I am not joking in the least. Bankers are powerful compared to the average person. Compared to federal officeholders, they're just another victim class.

RIght, that's why banking regulations and credit card regulations are so tilted in favor of consumers, who are actual voters.

[Gary Farber]

"When I see the Dow Jones Industrial average roar past 9,000, I bear no understanding of why and draw no correlation to my own standing in life -- other than feeling as if my tax dollars have helped such bloated rallies."

During a search for something entirely unrelated, I just happened to have run across this quote from myself seven years ago (yes, more hairy palms):

[...] Nor does it seem to me that, as Brooks seems to think, in all things American ways must be correct, and European ways incorrect. Perhaps I'm mindlessly against efficiency uber alles, but is it so indivisibly wonderful that Americans have the shortest vacations and longest working hours of anyone on the planet? It does wonders for the GDP, but for the individual? Y'know, that person American ideals are supposed to be all about, rather than the collective?

Brett: "Compared to federal officeholders, they're just another victim class."

Brett, if federal officeholders, and particularly Representatives in comparison to Senators, can't get rich contributors, in the forms of PACs and corporations and bundlers (or, if you prefer, unions), to give them those large sums of cash, then they don't get to stay in office.

And they actually have to do things in return to get those cash contributions. So who actually holds the power here? Answer: it's a co-dependency, and a set of choices, not a case of members of Congress holding a clear upper hand.

More often than not, a corporate interest can find another Representative or Senator to buy off, out of 435 and 100, compared to one of the 435 or 100 finding a whole 'nother industry to arm-twist and suck up to, given that it's the power of being on a specific committee that gives a Member or Senator power, and those are very difficult or almost impossible to change, and when they can be changed, it's only every few years.

Whereas corporate interests can change their mind any day of the week as to whom they want to switch their support to.

So, again, who has the upper hand here? It's certainly not any kind of clear case of "Congress" being the answer, no matter how many time you chant that they have the guns (wait, I thought you and the NRA having guns was suppposed to -- by magic or something -- prevent all that monopoly, anyway).

It's carrots and sticks all around for the powerful, and few for the unpowerful. Period.

[Pithlord]

So we avoid a financial meltdown due to good (not perfect, just good) policy. And the socialist response is to be peeved that the rich didn't suffer more, even though they could only have suffered more if those at the bottom had suffered more-squared.

It seems it's not just the cultural right that is into the politics of resentment.

[Turbulence]

It seems it's not just the cultural right that is into the politics of resentment.

No. The problem isn't that rich people didn't suffer enough but that (1) taxpayers payed more than they needed to in order to avoid a financial meltdown and (2) our efforts to avoid the meltdown might not have done enough to prevent future meltdowns. Fixing problems (1) and (2) would involve making rich people suffer, but the reason we want to fix those problems need not have anything to do with a specific desire to make rich people suffer.

[Johnny Canuck]

bedtime, last couple of months have missed seeing your comments, and been wondering how things were coming along, did cash for clunkers help?

[Johnny Canuck]

Turbulence | August 13, 2009 at 08:49 PM

well said Turbulence.

So, Pithlord, I think your assertion:"So we avoid a financial meltdown due to good (not perfect, just good) policy." needs to be modified to something like: we avoided a financial meltdown, with mediocre application of a theoretically adequate policy.

[liberal japonicus]

I'd just point out that when Brett weighed in about coercion and exploitation, he felt that coercion was the ultimate evil, but exploitation was something that was unavoidable, something that everyone done to the Burger King did. I think that should be taken into account in weighing his definition of a 'victim class'.

[jonnybutter]

[the financial bailout] really is a populist issue that, at least at the grassroots, has the possibility of bringing together people from both the left and the right.

Ben has touched on a key point here. It's Obama's most serious mistake so far. It absolutely set the wrong tone right at the start, and he's been mostly defense since then. As I say probably too often on this blog (sorry), most people could not care less about ideology, and that most particularly includes lots of people on the putative 'far right'. There are a lot of angry people out there, and they have every to be angry - and as Ben notes, they are on the left and the right (and I would say at least a plurality are mostly neither, really). Obama's approach to saving the financial system - which could've been much worse - still reinforced the cynicism the country is choking on. It's hard for me to quite believe that someone so intelligent could be so clueless about his own moment in history, and his -at the very least - rhetorical opportunities. Obama has pretty good judgment, except when he doesn't.

[Eric Martin]

And the socialist response is to be peeved that the rich didn't suffer more, even though they could only have suffered more if those at the bottom had suffered more-squared.

What? No seriously, what? I could care less if they suffered or not. What I care about is the fact that they're not lending. What I care about is the fact that they took taxpayer billions and paid them out in bonuses rather than attend to the business at hand. Suffer? Irrelevant. What I care about is the health of our financial system.

For the record, I used to be an M&A attorney. SEC regs and all that. I have dozens of friends in this world. If anything, I would rather see them paid. But I've seen enough up close to recognize that this is a horribly broken system. I want it fixed. If it can be fixed without anyone suffering, to the good. If someone has to suffer, rather than the taxpayer, I'd choose the culpable parties.

Is that wrong? Really? Why?

[Hartmut]

I think the TARP should have come with ornate swords and gold-plated single-shot pistols to fall on and eat resp. (the black mute with the silken bowstring only in cases that the hint is not taken).

[Brett Bellmore]

"Brett, if federal officeholders, and particularly Representatives in comparison to Senators, can't get rich contributors, in the forms of PACs and corporations and bundlers (or, if you prefer, unions), to give them those large sums of cash, then they don't get to stay in office."

Yeah, and if you decide not to buy insurance from Tony Soprano, he'll be suffering financially, too, right? No, your store will burn down.

Like I said, you look at extortion, and see bribery. You don't understand who's actually in control of the transaction. You probably think cows lord it over farmers, too, because they get feed in return for their milk.

Did you maybe miss this business of Bernanke and Paulson http://issa.house.gov/index.cfm?FuseAction=News.PressReleases&ContentRecord_id=18e9c87a-19b9-b4b1-1234-e628d887d817>threatening to remove the board of directors of corporations that didn't knuckle under?

[Brett Bellmore]

" Obama has pretty good judgment, except when he doesn't."

It's a common mistake at all points on the political spectrum, to confuse competence at running for office, with competence at carrying out that office's duties. The only thing Obama has demonstrated he's pretty good at, to date, is getting elected. That's got a different skill set, to say the least, from governing.

[Marty]

"[...] Nor does it seem to me that, as Brooks seems to think, in all things American ways must be correct, and European ways incorrect. Perhaps I'm mindlessly against efficiency uber alles, but is it so indivisibly wonderful that Americans have the shortest vacations and longest working hours of anyone on the planet? It does wonders for the GDP, but for the individual? Y'know, that person American ideals are supposed to be all about, rather than the collective?"

And, ultimately, this difference is why a country of 300 million still drives the economic health of a world of 6 Billion. It is also the economic model for entrepeneurs all over the world. It is the land of opportunity that we talk about in immigration discussions because of that purely capitalist work ethic.

Seven more years?, or twenty?, and we may be a country significantly scaling back our leadership role economically and militarily as we continue to try to balance these competing ideals.

If the marginalization of America is created by a choice of the people to not work so much, take more time off and accept the consequences economically and in the ability to impact global affairs, then that is better than the marginalization by ruinous extravagance.

One of the last steps in this process is the understanding that it means you make less money. Many people want both constantly increasing salaries and constantly decreasing work schedules. Eventually that eats away at those productivity and GDP numbers and the economy becomes unsustainable.

Everyone has the right to make those lifestyle deecisions, they just don't get to demand both things.

[Phil]

Being accused of not understanding something by Brett is much like being accused of being mentally ill by Charles Manson.

[Brett Bellmore]

Look, how do you determine if a transaction is bribery or extortion? You ask, who has the power to impose unwanted consequences?

Corporations have the power to deny donations, or direct them to challengers. But there are multiple sources for donations, and challengers have, unless an incumbent has almost literally screwed the pooch, a trivially small chance of unseating an incumbent. So it's a fairly unfrightening threat.

Office holders have the power to pass putative laws, or sic regulators on companies, with consequences ranging up to the complete destruction of the company. THAT is a serious threat.

When you see money changing hands between the government and private sector, it's almost always going to be extortion, not bribery, because the power to impose consequences is in the hands of the government, not the private sector.

Sometimes the government provides benefits, and that confuses you. But even the carrot can be a stick, if your competitor gets the carrot, and you don't.

[Hartmut]

Yes, we all know that a single congressbeing has the power to strangle any corporation, if the protection money does not flow in sufficient quantity. And the revolving door is purely fear driven also. Which brings me back to my old proposal to make being a public offcial a crime punishable by death because that would prevent them from cashing in after leaving office (while combining the beloved 'for-life' with reasonable term limits). Drat, another acid hole in the keyboard.

[Phil]

I suppose that if I were so limited in thought that I could only come up with two categories at a time to place things into ("extortion" and "bribery"), and if I didn't realize that regulations tend to target or benefit industries rather than companies, I might come up with the same paranoid freakshow of a worldview you have, Brett.

Sometimes the government provides benefits, and that confuses you.

Aside from the mindreading foul here, again, being accused of being confused by you is something of a compliment.

[liberal japonicus]

"And, ultimately, this difference is why a country of 300 million still drives the economic health of a world of 6 Billion. It is also the economic model for entrepeneurs all over the world. It is the land of opportunity that we talk about in immigration discussions because of that purely capitalist work ethic."

I'm sure that this is going to be a pile-on, but this is a remarkably ethnocentric way of viewing things. I believe that you've voiced the notion that the US can't deal with unrestricted immigration, but there are a lot of other countries with much higher population densities than the US, and either you have to create some sort of gated community and keep the hoi polloi out, or US society has change in response to changing patterns in society. Despite the belief that Europe and the developed parts of Asia are like hell on earth, life isn't really quite that bad. Of course, the US can try and make time stand still, but the genius of the US has always been been not so much its ability to avoid changing, but its ability to change.

[Marty]

" Despite the belief that Europe and the developed parts of Asia are like hell on earth, life isn't really quite that bad."

Clearly the point of Gary's post is that, in many ways, European culture is more individual friendly, I don't (and don't think I did) dispute that in any way.

[steve]

Eric ...
Got it thank you.
and right on target BTW
like I said, not enough sleep

[liberal japonicus]

I don't understand your paean to US enterpreurial spirit because if the US is less individually friendly than Europe, I don't see how one can argue that the US 'drives' economic health, unless you would accept that the driving is thru consuming more thru consumer credit and such which seems more like a problem than a sustainable model. And while the US creates about 20% of the world's GDP, the EU creates almost 30%, and Japan and China combine for about 10%. I guess it revolves around what is meant by 'driving', but I don't think 20% gets at an image of driving to me. YMMV. But given that workers in the Europe work less than workers in the US (in France an estimated 28% fewer hours, and Germany, 25%) I'm thinking I'd rather call shotgun.

[rea]

When faced with a staggering, worldwide economic meltdown spurred on by the greed and excess of our financial sector, the Obama administration (picking up where its predecessor left off) chose to...trust that same financial sector to sort out the problems, with the sorting out to be facilitated by an enormous chunk of taxpayer money.

Well, plainly they ought to have entrusted the task to some other finanical sector.

That's admittedly snark, but what was the alternative? Tear down the whole system and start over from the beginning? I doubt that would be practical. The point is to reform the system, not abolish it.

[Marty]

Iam not sure we disagree.

"And while the US creates about 20% of the world's GDP" with 5% of the population.

And consume a significant portion in the same relative terms as a huge net importer. I refer to this as ruinous extravagance, clearly not sustainable.

"But given that workers in the Europe work less than workers in the US (in France an estimated 28% fewer hours, and Germany, 25%)"

A clear lifestyle advantage, what I don't have is the relative income levels associated with that. Ethnocentric requires an implication of superiority, I was commenting on the the impacts of that cultural norm, of changing it and the costs of changing it.

The rest of my comment was on the potential impacts of the very changes you seem to see as positive in terms of being an economy that consumes way beyond it's real ability.

However, for those who are looking for wealth and fortune built from hard work and great ideas, I believe that many do see the US or the model of capitalism in the US as a way to accomplish it.

[cleek]

The only thing Obama has demonstrated he's pretty good at, to date, is getting elected.

not true.

among other things he has:

1. passed a huge stimulus bill (which appears to be working), despite fevered opposition
2. begun pulling troops out of Iraq
3. stopped GM from going under
4. protected 2,000,000 acres of forest
5. expanded S-CHIP
6. put a SC Justice on the bench
7. driven the GOP totally insane

some will disagree about the merit of some of those. and i'm not interested in arguing about them. but, plenty of people think they are positives.

also note that the campaign was at least twice as long as he's been in office so far.

[liberal japonicus]

Well, when you say that the US is the 'economic model for entrepeneurs all over the world', it sounds like an implication of superiority. And when you say that the US has engaged in 'runious extravagance, clearly not sustainable', I don't see how the 'model of capitalism in the US' is somehow blameless.

As a counterpoint, my own take is that the US system is something that is sui generis, and the geographical advantages are located in a particular moment in history that makes it difficult to think that some sort of special part of the American character that makes it so.

[Eric Martin]

That's admittedly snark, but what was the alternative? Tear down the whole system and start over from the beginning? I doubt that would be practical. The point is to reform the system, not abolish it.

But I don't want to abolish anything. I want reform.

The alternatives were to beef up the regulatory framework to prevent such leveraging through exotic securities, take some of the banks into receivership, put compensation caps on entities that took taxpayer money (so they couldn't give thousands of employees million dollar bonuses with taxpayer money), mandate certain lending cooperation, etc.

[bedtimeforbonzo]

"Obama's approach to saving the financial system - which could've been much worse - still reinforced the cynicism the country is choking on."

Johnnybutter puts his finger on something here.

Obama rode into office on a sea of change and brought many new voters into the process, ordinary Americans. But he reinforced the notion that money, and little else, makes a difference in this country. Cynicism replaced hope. His credibility has been weakened and we are seeing that play out in the health-care debate, where he lost control of the message and may not get it back.

[Fledermaus]

"And the socialist response is to be peeved that the rich didn't suffer more"

i like how expecting wall street firms to suffer the free market outcome of their poor decisions, like they lecture everyone else about, is the socalist response. While the libertarian solution is to give them hundreds of billions in taxpayer money with absolutely no strings. Any conditions would be socialism!

[CharlesWT]

"While the libertarian solution is to give them hundreds of billions in taxpayer money with absolutely no strings."

You must have libertarians confused with somebody else.

[low-tech cyclist]

What we need here is a public plan....er, bank.

Just like a public plan would compete with the insurers and keep them honest, a public bank would lend money to creditworthy people and companies that the Big Banks don't want to lend to, despite the piles of TARP and AIG money they've gotten, thereby keeping them honest.

[russell]

And the socialist response is to be peeved that the rich didn't suffer more

In what meaningful sense have they suffered at all?

[Johnny Canuck]

In what meaningful sense have they suffered at all?

Russell, now don't bite my head off, I'm just trying to answer your question:

-suffered shock of decline in portfolio and property values

-suffered the indignity of being collectively insulted by much of the populous;

- had lack of infalllbility exposed;

- are now in a position where they are unsure whether they will be bailed out next time.

-expect to see their taxes rise by a greater percentage than those earning less than $250k

[JanieM]

Johnny Canuck: Russell said meaningful. Of course, I suppose it all depends on the definition of "suffer."

;)

[bedtimeforbonzo]

Johnny: I didn't mean to ignore you the other day. Regarding the cash-for-clunkers program, it has been a huge shot in the arm to the auto industry and, it appears, the economy as a whole.

But where there are winners, there are losers. The program has actually hurt the used-car business, my side of the street, where many buyers have been taken out of the market. We had been holding our own, so it's hard to look at this selfishly.

Looking at the bigger picture, I think the program has showed, to make up for the lack of shovel-ready projects, there were other ways to stimulate the economy.

[CharlesWT]

"Looking at the bigger picture, I think the program has showed, to make up for the lack of shovel-ready projects, there were other ways to stimulate the economy."

Yes and if I shot off sticks of dynamite in your neighborhood, it would bring joy to the hearts of local craftsmen and money to their pockets as they rushed about fixing all the windows.

[bedtimeforbonzo]

CharlesWT: I would get behind a program that gave out rebates for home improvements to make homes more green and energy-efficient. (I believe tax breaks for such things already exist.)

But we saw what your suggestion did. Banks and Wall Street investment firms put the dynamite to the economy, blew it up and we are still picking up the pieces.

[CharlesWT]

"But we saw what your suggestion did. Banks and Wall Street investment firms put the dynamite to the economy, blew it up and we are still picking up the pieces."

So some hair, cash-for-clunkers, of the dog that bit us is a good idea?

[bedtimeforbonzo]

In an economy that depends on consumer spending, the cash-for-clunkers program is the only stimulus plan I can think of that has been consumer-driven.

Imperfect and complex though it may be, I'll take it over throwing money at banks and being able to nothing when those banks sat on that money while goosing profits.

[CharlesWT]

..., I'll take it over throwing money at banks and being able to nothing when those banks sat on that money while goosing profits."

We're somewhat in agreement in that regard.

[Anarch]

Corporations have the power to deny donations, or direct them to challengers. But there are multiple sources for donations, and challengers have, unless an incumbent has almost literally screwed the pooch, a trivially small chance of unseating an incumbent. So it's a fairly unfrightening threat.

Good lord. Have you never heard of the Fuggers or the Medici?

[gregspolitics]

The purpose of the (misnamed) bailout was to save the financial system from collapse and prevent another great depression. PERIOD. In that it has been a great success. It demonstrated that the government, acting as the lender of last resort, could save the system, and that there are times when only the government, as lender of last resort, can save the system. Not only was it used to keep banks going, but it has also been used by the Obama Administration to save GM and Chrylser and the jobs of a whole lot of people in the auto and auto parts industry, again acting as the DIP financer of last resort in bankruptcy and demonstrating again the necessity of government action. As a liberal, I say declare VICTORY and move on. Of course, we need serious reform to try to avoid this happening again (although like other bubbles in history, no doubt there will be another crisis) and to try to prevent the growth of "too big to fail institutions" and provide a mechanism for liquidating large financial institutions without choosing between financial collapse and a financial rescue. And those things are being pursued now and should be supported. Criticising the bailout will not facilitate those reforms but will simply play into the hands of those who oppose those reforms and claim that government is always the problem and not the solution. In this case, government clearly was the solution and I say we should shout it from the mountaintops.

[bedtimeforbonzo]

gregspolitics: I was reminded how much I disagreed with your post while reading this gloomy economic thread over at Balloon Juice.

[Gary Farber]

gregspolitics: "The purpose of the (misnamed) bailout was to save the financial system from collapse and prevent another great depression. PERIOD. In that it has been a great success."

bedtimeforbonzo: "gregspolitics: I was reminded how much I disagreed with your post while reading this gloomy economic thread over at Balloon Juice."

How do you know how much worse it would or wouldn't have been without what was done?

I wouldn't argue against any statement that the bailouts should have been a great deal differently, nor defend against the assertion that there is a great deal indeed to fault with the bailouts. I think those are both entirely correct.

However, it's obvious that we are in nothing close to the state the country was in during the Great Depression, and if you think otherwise, you simply have no familiarity with the Great Depression.

[...] by 1933, 11,000 of the United States' 25,000 banks had failed. The failure of so many banks, combined with a general and nationwide loss of confidence in the economy, led to much-reduced levels of spending and demand and hence of production, thus aggravating the downward spiral. The result was drastically falling output and drastically rising unemployment; by 1932, U.S. manufacturing output had fallen to 54 percent of its 1929 level, and unemployment had risen to between 12 and 15 million workers, or 25-30 percent of the work force.

In rural areas:

Farming and rural areas suffered as crop prices fell by approximately 60 percent.

Currently:

Nonfarm payroll employment continued to decline in July (-247,000), and the unemployment rate was little changed at 9.4 percent, the U.S. Bureau of Labor Statistics reported today.

[...]

In July, the number of unemployed persons was 14.5 million. The unemployment rate was 9.4 percent, little changed for the second consecutive month. (See table A-1.)

Among the major worker groups, unemployment rates for adult men (9.8 percent), adult women (7.5 percent), teenagers (23.8 percent), whites (8.6 percent), blacks (14.5 percent), and Hispanics (12.3 percent) were little changed in July.

I'm pretty sure this is much better than "25-30 percent of the work force."

Even in 1937, "Unemployment jumped from 14.3% in 1937 to 19.0% in 1938." (Previous Wikipedia link, with footnoted source.)

So you "seriously disagree" that the bailout has "prevent[ed] another great depression"?

Do you have some figures to back up that claim?

Please note that, with all sympathy to your personal situation, and that of everyone else in economic trouble today -- hey, am I going to be unsympathetic? -- we're neither talking about specific people, nor about subjective feelings, but about an objective overall claim specifically limited to comparing the Great Depression and our current financial state.

For gregspolitics' claim to be "disagreed" with correctly, you must, in fact, demonstrate that we are in conditions similar to the Great Depression. I think one would have to apply rather selective metrics to attempt to successfully do that.

gregspolitics' claim was quite specific and narrow.

I hope you and your family and dogs are getting along as well as can be hoped, btfb, and I certainly don't mean to sound unsympathetic in pointing out that we're not in The Great Depression. That is, after all, a rather low bar to hurdle over.

[bedtimeforbonzo]

Gary: I disagree with gregspolitics that the bailouts saved us from another Great Depression because I think that would be buying into the scare tactics that were used to save many Wall Street firms gone bad.

Just as General Motors and Chrysler eventually had to face bankruptcy, I think we would be better off today if many of the Wall Street elite suffered a similar fate.

[CharlesWT]

"[...] by 1933, 11,000 of the United States' 25,000 banks had failed."

[CharlesWT]

"Just as General Motors and Chrysler eventually had to face bankruptcy, I think we would be better off today if many of the Wall Street elite suffered a similar fate."

If only if we hadn't given any of them all that money first. :(