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Has Obama been a success despite suspicions of crony capitalism?

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By Edward Harrison of Credit Writedowns. I hope this is a good subject to discuss in light of the recent Obama Administration machinations regarding Fannie and Freddie, Big Pharma, and Healthcare.

Before the Christmas break, I wrote a post to tie together my thoughts on why I have found the Obama economic program so unsatisfying despite some obvious success in stabilizing the economy. This first part framed the status quo as an unequal division of spoils that has become more and more unequal due to kleptocracy aka looting.

In this post, I want to talk about Obama’s economic policies in the context of what I perceive as a crony capitalism which is now endemic in Washington. As I see it, Americans are angry because the economy is still quite fragile and the personal financial situation for many ordinary Americans is still quite dire. Yet, the so-called fat cats seem more pigs eating at the trough of government largesse. This juxtaposition is galling and undermines any success that the Obama Administration has achieved.

Sellout, bamboozler, or ingénue?

The question is this:

  • Did President Obama sell out (i.e. he was a good guy but has been corrupted in short order) or;
  • Did Obama find out he couldn’t change the status quo so easily (i.e. he was a good guy who was naive about the President’s real power) or;
  • Did the President simply bamboozle us (i.e. he was a bad guy who tricked the electorate with his silver tongue)?

I will assert that this question is irrelevant as it ascribes intent when we should be looking either at motive or outcome. If you do look at motive and outcome, you will see why I will focus more on government’s allowing a purge of malinvestment and less on government’s stimulating aggregate demand going forward.

The Obama Way

First, as to intent, Ross Douthat has an interesting piece in the New York Times.  He contends that Barack Obama is a knee-jerk liberal who believes in working within institutions for change. According to Douthat, that makes him Obama an odd bird who seems a Machiavellian willing to cut any deal juxtaposed with the soaring rhetoric of fairly ideological big government liberalism.

The part I found most interesting is this:

Between the stimulus package, the pending health care bill and a new raft of financial regulations, Obama will soon be able to claim more major legislative accomplishments than any Democrat since Lyndon Johnson.

I think Obama could make those claims as well.  I was going to write about this in January 2010 after Obama’s first year anniversary and after healthcare had passed. But now seems a good time to reflect on this: How many President’s can point to the record of accomplishments he can (prevented depression, stabilized finance, saved auto industry, overhauled healthcare). You may not like his methods. You may not like his results. You may not like him. But, President Obama has actually been quite productive – far more productive in his first year than Bush, Clinton or Bush II.

But, despite this productivity, the President’s poll numbers are falling.  He is not benefitting from any of his so-called successes. Clearly, he is doing something wrong. Is it messaging, process, outcomes – what gives?

This is where Douthat is right on the mark when he says in his article:

The assumption that a compromised victory is better than no victory at all can produce phony achievements — like last week’s “global agreement” on climate change — and bloated, ugly legislation. And using cynical means to progressive ends (think of the pork-laden stimulus bill or the frantic vote-buying that preceded this week’s Senate health care votes) tends to confirm independent voters’ worst fears about liberal government: that it’s a racket rigged to benefit privileged insiders and a corrupt marketplace floated by our tax dollars.

The gulf between Obama’s rhetoric and his actions is quite large and that leaves independents who voted for him quite dissatisfied.

Obama’s Intent

People do want to focus on the ‘why?’ They want to know why there is such a large gap between what the President says and what he does. After the November elections, I wrote the politics of economics, saying:

What experimenters here have shown is that there is a real human need to explain. Things happen for a reason, don’t they?  Why did the stock market rally? Why did Harry do that? Why didn’t we do something to stop this? Why did I vote for that guy back then, when I now don’t like him as much?

To the degree there is an explanation void, it will be filled. The question is: filled with what?

Confirmation bias and the psychology of politics

In politics, how the void gets filled has much to do with philosophical/political predisposition and one’s world view.

This is a mistake.  If you want to know why someone does something, it is better to use preponderance of evidence, the burden of proof used in civil trials, as a measure.

Preponderance of the evidence, also known as balance of probabilities is the standard required in most civil cases. The standard is met if the proposition is more likely to be true than not true. Effectively, the standard is satisfied if there is greater than 50 percent chance that the proposition is true. Lord Denning, in Miller v. Minister of Pensions, described it simply as "more probable than not." Until 1970, this was also the standard used in juvenile court in the United States.

As with many issues we discuss, I have started to view this through the lens of intent and motive. In a court of law, intent is the primary difference between manslaughter and murder. In the court of public opinion, a politician who intentionally violates public trust for a hidden agenda is ‘evil,’ but one who does so unintentionally is ‘misguided.’ In general, we like to ascribe intent because it makes it easier to denigrate or glorify the person in question.

Crony Capitalism

This is where cronyism enters the picture. There is a rather large body of evidence demonstrating that the Bush and Obama Administrations have favored large banks in an unseemly way. The same is true for the Congress and other big business insiders like Big Pharma, the Defense Industry and Health Insurance companies.

Witness these posts from the last month alone:

I could provide you with a far longer list of posts from the January to April period when the Citi and BofA bailouts were conducted and the alphabet soup of liquidity programs began which Bank of America and Citi were prepared to game.

I said in March it’s the writedowns, stupid. When accounting rules were formally changed to reflect the de-facto accounting policies favoring banks, I knew the big banks were on easy street and The Fake Recovery had begun. So, by April, I said Wells profit forecast is a clear bullish sign.

Don’t even get me started on the stress tests. They were a sham from the start and were merely a means of recapitalizing the banks via inflated equity valuations. They were neither tests nor stressful, as Bill Black has demonstrated.

More recently, posts by Yves Smith and Bruce Krasting confirmed my long-held suspicions that Fannie Mae and Freddie Mac would be used as a nationalization of America’s mortgage problems via a back door bailout of banks.

The evidence, therefore, tends to demonstrate that we have witnessed an orchestrated campaign by the Bush and Obama Administrations to recapitalize too big to fail institutions by hook or by crook, bypassing Congressional approval if necessary. And when it comes to healthcare, both Congress and the White House have bent over backwards to keep the lobbyists onside. As I see it, our government has favored special interests in the past year of Obama’s tenure to our detriment.

Political legacy

Personally, I don’t buy the line that Obama is a liberal. I consider him more a corporatist (i.e someone who coddles big business). But, from a political perspective, it’s not really relevant, is it? What difference does it make whether President Obama is a liberal sellout as Matt Taibbi claims or a pragmatic corporatist, if the outcome for the electorate is largely the same? Forget about intent. Focus on actions.

As an aside, I should point out the logic likely employed by Geithner et al in bailing out the banks. I gave voice to this last month in the wildly optimistic view of Treasury’s handling of the crisis. Noam Schreiber takes this one better in the New Republic. If you still want a why – this is as good as any:

There’s an interesting back-and-forth between Dan Gross and Tim Geithner in Newsweek‘s year-end interview issue:

GROSS: There have been, and continue to be, calls for you to go. How do you deal with those?

GEITHNER: I spent most of my professional life in this building. Watching the politics of the things we did in the past financial crises in Mexico and Asia had a powerful effect on me. The surveys were 9-to-1 against almost everything that helped contain the damage. And I watched exceptionally capable people just get killed in the court of public opinion as they defended those policies on the Hill. This is a necessary part of the office, certainly in financial crises. I think this really says something important about the president, not about me. The test is whether you have people willing to do the things that are deeply unpopular, deeply hard to understand, knowing that they’re necessary to do and better than the alternatives. …

This is a theme I wrote about in my profile of Larry Summers earlier this year. I don’t think you can underestimate the extent to which the financial crises in Mexico and Asia were a formative experience for the Obama economic team–especially in shaping their thinking on the intersection of politics and economic policy.

In his memoir, then-Treasury Secretary Robert Rubin, who both men worked for at the time, summed up his views on the Mexican crisis by citing "the difficulties our political processes have in dealing effectively with issues that involve technical complexities, shorter-term cost to achieve longer-term gain, incomplete information and uncertain outcomes, opportunities for political advantage, and inadequate understanding." Obviously, these same difficulties made a big impression on Geithner and Summers, too. So they were more prepared than most for the political backlash this time around, even if the intensity may have surprised even them on occasion.

The recent Fannie-Freddie end run around Congress demonstrates Schreiber is right about the Asian and Tequila Crisis legacy -  as do the TARP money stimulus slush fund and the earlier liquidity packages.

The problem for Obama politically is this:

At the same time, Obama doesn’t enjoy the kind of deep credibility with his base that both Reagan and Kennedy spent decades building. When Kennedy told liberals that a given compromise was the best they could get, they believed him. Whether the issue is health care or Afghanistan, Obama’s word doesn’t carry the same weight.

This leaves him walking a fine line. If Obama’s presidency succeeds, it will be a testament to what ideology tempered by institutionalism can accomplish. But his political approach leaves him in constant danger of losing center and left alike — of being dismissed by independents as another tax-and-spender, and disdained by liberals as a sellout.

Come 2011, I expect the perverse math of GDP reporting to spell a double dip recession. As the associated economic slowing will begin much earlier, expect to see the disdain for Obama that Douthat writes about exhibited at the polls in 2010.

See also “We’ll Be Judged on How We Dealt With the Things That Were Broken” from Slate to see how Tim Geithner feels things are going.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward

38 comments

  1. dave

    Indeed, the bigger problem is the lack of recognition of the “super bubble” of debt that has been building since 1980. All Geithner and the rest saw that they re-inflated the bubble, and things were alright for awhile. The idea that that super bubble can’t always be re-inflated doesn’t come to their minds. They can’t imagine that kind of paradigm shift.

  2. John

    What evidence is there that Obama’s policies ‘prevented a depression?’ Just because there is technically no depression doesn’t mean Obama’s policies prevented one from happening.

    I get really tired of reading of how Obama/Geithner et al’s policies ‘prevented a depression’ when there is no evidence to back this up. This assertion by Obama supporters is equivalent to the pro-Bush folks who used to brag that Bush’s ‘policies kept us safe.’

    Both statements are impossible to prove without a time machine.

    1. Edward Harrison Post author

      John,

      I am being a bit flippant as I agree with the first commenter about their policies re-inflating an asset bubble. This is what has (temporarily) arrested the fall in GDP. However, once stimulus is removed, we will likely see a shaky foundation for sustainable recovery.

      Nevertheless, from a ‘do-something’ perspective, Obama has been quite productive. I am trying to explain the gap between this productivity and his success as measured by likely voters in opinion polls. In my view, the gap has everything to do with how plain the two-tiered economy of crony capitalism has become in the face of their attempts to reflate asset prices.

      1. Tao Jonesing

        “I am trying to explain the gap between this productivity and his success as measured by likely voters in opinion polls.”

        I think that’s easy. Obama is following Clinton’s lead and is trying to “triangulate” without realizing that one leg of the triangle– the “conservatives”– has largely been taken off the table. The birthers/teabaggers fervently believe that Obama is an illegal immigrant Muslim who has usurped the presidency of the United States to promote the interests of Islam. There is nothing that Obama can do to change the minds of these people, who are certain to vote. This leaves him with the other 70% of the country, which consists of reasonable conservatives (10%), moderates (30%) and liberals (30%). Obama has alienated the liberals, split the moderates, and lost most of the conservatives, who worry about his liberal rhetoric notwithstanding his conservative actions. By alienating the liberals who voted him into office and splitting the moderates (like me, who only voted for him because he did not have Sarah Palin as a running mate), Obama has dealt himself a losing hand unless his actions start to reflect what he tells us he believes.

        We’ll see.

        1. David

          Obama didn’t say much during the campaign, so he isn’t breaking promises. He’s just doing something different from the impression he quite willingly allowed people to have.

          It’s not the fault of conservatives. It’s because of people’s disappointment. People hate the bank bailout and properly so they blame Obama. They should blame those Congressmen and Senators who went along, and that’s most of them, but Obama gets blamed too, rightly.

          If he had said he was going to bail out GS, he would probably have lost the election, so he “forgot” to say it. Simple. He’s probably a one-term president, so he has to get his stuff done quickly.

          All this hand-wringing is a bit silly. Calm down and understand simply that GS backed him for the White House. He didn’t get where he is by forgetting who he works for.

          1. David

            And one more thing. I was NOT fooled. I DID notice during the campaign that he didn’t say much, but he did say that he would move the troops from Iraq to Afghanistan (rather than bring them home), and that’s what he is doing.

            My comment to some elated Obama supporters on Election Night were “He’s a blank slate. He hasn’t done much and hasn’t said much, so I don’t know what he is going to do.” They had never thought of it that way. I cannot claim to have predicted all his actions so far, but it does not surprise me in the least that he has been a lackey for his backers GS. Follow the money. Money talks, bull*** walks. Etc.

        1. NotTimothyGeithner

          The rationales for Obama’s actions were lacking. He left out the possibility Obama is not merely naive but ignorant or stupid and the most frightening possibility that Obama is a neo-liberal/triangulating ideologue.

          1. ds

            I have seriously considered that O’s plan is to duplicate Clinton’s presidency, vis-a-vis the Dems losing the 2010 congressional elections, and control of at least the House, to such an extent that he is “forced” as Clinton was, following the 94 elections, to “work with” a Repub Congress. Ie, he is a pure corporatist Blue Dog, just as Clinton was.

        2. dan bednarz

          Yes, and it would help to note that Obama simply had to “act” re the fiscal crisis. The content of this activity was an extension of Bush/Paulson/Bernanke policy. Re healthcare, he punted so his fingerprints cannot be on the debacle -but he will claim it was an historic bill. given the context in which he came into office, he’s been both astonishingly unproductive and misguided in what he has done.

  3. Doc Holiday

    Holiday sales can account for between 25% and 40% of annual sales for many retailers….

    Despite our early enthusiasm for the new president, the public’s mood about the state of the nation has been grim all year. In December 2008, 89% told CNN/Opinion Research Corp. pollsters that the economy was in recession. This month, 84% gave that response. In February, 18% said they or someone in their household had been laid off or lost a job in the past year. In November, 30% said that was the case.

    http://www.forbes.com/2009/12/26/polls-barack-obama-economy-opinions-columnists-karlyn-bowman.html

    > “Last year the economy and consumer spending were in free fall. This year we’re talking about an environment that has stabilized, that has seen a leveling off,” said Kamalesh Rao, director of economic research at Spending Pulse.

    The spike in online spending stems from greater consumer comfort with e-commerce, as well as from snowstorms that hit the East Coast and the Midwest in the final week before Christmas, stranding many shoppers at home. Online retail sales account for about 5 percent of overall sales.

    But Rao cautioned that the return of retail spending was “tentative” and still far below 2007 levels.

    Holiday sales can account for between 25 percent and 40 percent of annual sales for many retailers. The National Retail Federation has forecast a 1 percent decline in holiday sales this year.

    http://www.reuters.com/article/idUSTRE5BR0HP20091228

    No comment….

  4. biofuel

    He seemed to promise to take the country in a different direction, but instead just patched up the holes with duck tape. He took private debt on the government books and bought a bit more time for the economy. Health care reform and financial regulation are not passed yet, early indications are these bills could be more of the same. What good is a legislation if it changes nothing and only advances us along the same road.

  5. Tao Jonesing

    Ed,

    An excellent post on many levels, particularly the recognition that actions (and results) matter far more than intentions (and activity).

    My only quibble, and it is probably more than that, is I don’t think you’ve identified all of the options as to what the question actually is. The meme being proferred by Obama’s (likely paid for) shills is that Obama ran as a right-leaning centrist and that he is really a technocrat. So what about the option “Only the technocrats among us knew he was a technocrat, that if you didn’t understand that, you’re clueless (if disappointed; too bad, by the way), but the fact remains that Obama’s actions are 100% true to how he campaigned?”

    Personally, I think there is a fifth option: the guy is really clueless. Being smart and understanding power are two entirely different things. Obama is really smart (and articulate; I love his speeches), but he doesn’t seem to understand power. Heck, he can’t even get the heads of three TBTF banks he helped bail out to come and pretend that they owed him a modicum of respect.

    Maybe it is a fault of mine, but I just have a hard time ascribing any bad intentions to what Obama has done. That doesn’t mean I like him any more or dislike him any less. That’s because I care about what he does, not what he thinks or what he says.

    1. jake chase

      Can anyone else spell o-p-p-o-r-t-u-n-i-s-t? The guy came out of nowhere, made a speech at the 2004 convention and got himself annointed savior four years later, in very much the same way he vaulted to the Harvard Law Review without bothering to achieve high grades. Obama never had to do anything, because it was so easy for him to convince people that he WAS something. He looks more like a Jerzy Kozinski character every day.

  6. biofuel

    “Obama” is the whole of individuals who serve as his advisers, speech writers, financial supporters, supporters in the corporate world, in the world of professional and academic elite – a large chunk of the elite. To consider a person Obama in separation from this “Obama” would be misleading. I took Obama’s promises of change as a recognition by the “elite” that they have messed up and are willing to fix the mess. So far, this has not happened. The question is then: at what point, if ever, will Obama the person recognize that his present constituency is spoiling his legacy as a ruler, and if he wants to be counted among the greatest rulers who changed their land for better, he needs a new constituency. But then again, I would bet that “Obama” did not select Obama because he was known for drastic decisions.

    1. JTFaraday

      ” I took Obama’s promises of change as a recognition by the “elite” that they have messed up and are willing to fix the mess. So far, this has not happened.”

      I think it’s exactly the opposite. Rather, the “liberal” wing of the elite is convinced of its inherent cultural superiority, and nothing else actually matters.

  7. Blurtman

    prevented depression – unprovable

    stabilized finance – correlation does not imply causation

    saved auto industry – prop up does not equal save

  8. lark

    Obama’s falling poll numbers reflect the jobs situation.

    Douhat’s article was hocus pocus. Americans prefer middle of the road pragmatism. Ideology on the right or left is not trusted, and ‘clarity of vision’ in politics is usually about ideology.

    I think Obama is serious about winning a second term and this is not a dumb crew. Being pragmatic means fixing what is broken. They may need to change course and become much more aggressive in being pro Main Street and reining in Wall Street. Since his re-election depends on it, I expect him to do this.

  9. fresno dan

    As I’ve said before, I do not believe (though I may be wrong) that Geithner, Summers, and Bernanke are evil – but they are demonstratably wrong. It is astounding that you have people as economic advisors who have so clearly shown that they don’t know what is happening or how to fix it (Summers – hugh losses at Harvard, Bernanke – subprime is contained, Geithner – 100 cents on the dollar to Goldman).

    People have beliefs and ideologies – it is very difficult to look at your worldview and determine that it is not in accord with reality. One sees this in medicine all the time – it isn’t like there is NO arguements or data to support their philosophies – it is just that the preponderance of reality is showing major flaws in the Bernanke/Summers worldview.

    1. David

      Oh that’s nonsense. Of course these people knew what they were doing. They are fully responsible for their actions, and Obama is responsible for Geithner’s actions too.

  10. Jojo

    Oh, and this story hasn’t gotten much media play that I saw:
    ===============
    12/18/2009 5:58:00 AM
    Under the radar, Obama pushes for Patriot Act renewal

    Feingold expresses frustration over Senate version

    Richard Moore
    Investigative Reporter

    With key sections of the U.S. Patriot Act set to expire Dec. 31, the Obama administration – essentially tiptoeing through the corridors of Congress and using the raucous health care debate as cover – has quietly maneuvered for renewal of the controversial provisions, which he opposed as a senator.

    Perhaps the most contentious measure is the business records provision, also known as the library provision, which allows the government to seek a court order forcing private entities such as banks, hospitals, and libraries to hand over “any tangible thing” – from library circulation records to medical records – officials think is relevant in a terrorist investigation.

    …..

    http://www.lakelandtimes.com/main.asp?SectionID=9&subsectionID=9&articleID=10649

  11. Jefferson

    Trying to analyze Obama’s legislative “achievements” without a clear understanding of the global elite’s underlying objectives is pointless. The global elite are totally aware that the political and financial system must reset because they are engaged in a controlled demolition of the existing framework.

    The basic plan is to bankrupt all of the major developed nations and force each nation to hand over sovereignty to the BIS/IMF/FSB gang. Each developed nation will be required to accept austerity measures including limitations on carbon emissions and repayment of bailout loans in SDRs.

    If you want to understand the purpose of Obama’s “activities” simply pay attention to the speeches of the various individual members of the IMF/BIS/FSB and G30.

    Everything else is simply noise and misdirection.

  12. i on the ball patriot

    Good read, your getting closer to the bone, especially by using the ‘court of public opinion’ to frame the debate.

    But you still use the deflective language of the scam ‘rule of law’ system — crony capitalism is a masking term for gangster deception, cronyism is a mask for gangsterism, etc.

    Regarding this;

    “This is where cronyism enters the picture. There is a rather large body of evidence demonstrating that the Bush and Obama Administrations have favored large banks in an unseemly way.”

    A preponderance of evidence would also show that you could also paraphrase and say this;

    “This is where gangsterism enters the picture. There is a rather large body of evidence demonstrating that the “ordinary Americans” willingly and knowingly participate in a scam electoral process in an unseemly way.”

    By doing so, the “ordinary Americans”, seek to continue a crooked system that rewards them with a grossly unfair share of the world’s crumb supply. Why is this so important? Because, until ALL scamericans are made to realize that they benefit unfairly at the expense of the rest of the world, and change their state instilled attitudes of elite exceptionalism, nothing will change. They will continue to march to the scam polls and validate their gang leaders corruption that provides the crumbs so well for them.

    Central to bringing about this attitude shift, along with revealing that it even exists, is to also reveal that the gangster elite have now turned their exploitation and oppression on their domestic populations (the “ordinary Americans” you speak of). Said another way; pig size is relative, and now the ruling elite big gangster pigs, that owe their giant size to their alliances with their well fed domestic middle class gangster pigs, have begun to break those alliances and feed on those well fed middle class gangster domestic pigs.

    You won’t change the behavior of the pigs until you change the viewpoints of the pigs.

    Deception is the strongest political force on the planet.

  13. sherparick

    1. I had two big disappointments with Obama over the last 12 months. The first leads to the second. That was his appointments of Summers and Geithner to run his economic policy. Both men have been part of the elite that have driven the policies of the last 20 years that has resulted in this shipwreck of our economy. They still have a vision of a global economy where the U.S. competitive advantage is “finance” as demonstrated by this quote of Secretary Geithner’s in the Gross interview: “But don’t overdo it. Our financial system is much smaller, as a share of GDP, than the financial systems are in other major economies like the U.K. The profit share of the financial sector was high because U.S. firms were the pre-eminent global institutions.” As he freely admits in his interviews and testimony, his primary goal has been to rescued the large banks and return the financial system to the status quo ante, with a perhaps a bit of tweeking and to reflate residentital real estate values to restore value to the all the toxic mortgaged backed securities (MBS) and collateralized debt obligations (CDOs). Somehow, despite the price collapse of the last two years, Geithner and Summers still can’t believe it because “U.S. House prices only go up!” and that the collapse is the aberration not the Housing bubble that preceded it. They still don’t seem to understand the fundamentals about U.S. housing prices and their relationship to median income (declined this decade), rents (declined this decade), and vacancies (at a record in the post WWII period). And they refused to listen or respond to people like Dean Baker, Robert Schiller, Stiglitz, and Krugman who point these things. And then neither are held to account by the journalists who cover them about their mistakes or errors. (By the way, does anyone think Summers could now get through any Senate confirmation process with his record? With all the questions he would have to answer about his disatrous tenure at Harvard? By his support for both repeal of Glass-Steagall and the deregulation of the derivative market? So why did Obama appoint them. I expect the close relationship he developed with Rubin and Jaimie Dimon as big Democratic fundraisers is one part of it. But also Obama, was an adjunct law professor at the University of Chicago, and thereby a colleague and friend of Richard Posner and Frank Easterbrook. As Paul Krugman pointed out, Obama was to the right of almost all the other candidates for the Democratic nomination on economics and finanical industry policies. If people imagined him to be something different because of his color and because he would campaign in poetry, the actual policies he proposed were always conventional and within the consensus of the elite. His economic views I suspect are close to the neo-classical consensus that prevails at Freshwater U, and hence his comfort with Rubin, Geithner, and Summers.

    His second mistake flowed from the first, along with his innate caution, a caution that Rahm Emmanuel only reinforces. The stimulus in how it was initially constructed and and its initial proposed size, showed that undue caution and a complete blindness about the nature of the current Republican Party and Movement Conservative opposition. Like Krugman and Stiglitz, I blamed Obama’s and his political team caution, along with Geithner’s and Summers reflexive Rubinism on the budget matters and dislike of the economy West of the Hudson and East of the coast ranges. As it was, the Obama stimulus was sufficient to stop the initial nose dive, but not enough to really reverse the employment situation. Further, Obama’s own Fiscal conservatism, his desire to restrain Government spending (in this way so like FDR) means that he all to likely to continue along this path and provide political ammunition to the Movement Conservatives that Government spending is the problem with the economy, not a collapse in demand with his own anti-spending rhetoric (and when so much of deficit is outside his control in the form of declining tax revenues.)

    Health care is where I am really pleased with him, along with overall competence that he has provided to the executive branch after the previous eight years. As Krugman points out, Obama is about to accomplish something that every other Democratic President since FDR has failed to accomplish. And flawed as the bill is, it is not much different from the actual health care proposal that Obama campaigned on (again as Krugman pointed out), an essentially conservative plan that built on the current private, employer based, system.

    What will happen in the next year? As someone once said, “Its the Economy Stupid.” The four areas of potential growth are health services, exports, simple inventory replacement, and business investment to replace worn out and obsolete equipment and spurred during the first half by the remaining Fiscal stimulus. The one good thing I read in that interview of Geithner is he is not going to intervene to prevent a necessary decline in the dollar. Such a decline, and an increase in exports, is necessary as long as the U.S. continues to run a trade and current account deficit, U.S. personal savings rise, real wages (except for the elite) decline, and US Fiscal policy retreats, would otherwise mean a substantial fall in demand and an acceleration of the delfationary death spiral temporarily arrested by Obama’s half-hearted Fiscal stimulus.

    Palinism and Cheneyism should not be treated as jokes. If the U.S. has another decade of economic stagnation and delcine, this authoritarian temptation will present itself as the solution. And most of the elite, who want to gut Social Security and Medicare, remove all restraints on crony capitalism, and pursue a buccaneering foreign policy a charismatic leader like Palin would be an ideal figurehead to usurp the Constitution (see the agenda of the Federalist society), no that that to implement an unpopular agenda that will radically reduce standard of living of most Americans, an authoritarian regime will allow them to implement what Naomi Klein calls the “Shock Doctrine.”

    1. alex

      “Health care is where I am really pleased with him … Obama is about to accomplish something that every other Democratic President since FDR has failed to accomplish.”

      With enough bribes you can get anything passed. Obama and the Dems are giving away the farm to the insurance and pharmaceutical industries. Why wouldn’t it pass? It’s a bill that requires every American to buy their product at whatever price they want to charge, and offers lots of subsidies (taxpayer money) to do it with. Who turns down billions in guaranteed business?

      Make no mistake – I’ve been a staunch proponent of UHC for decades, and have no problem with subsidizing health care for those who earn less than me. What I object to is having my money thrown wholesale at the very industries that are responsible for most of our obscene health care costs.

      Worst of all I fear that this measure will backfire – its extravagant costs will cause it to be stripped down to the point where it accomplishes little. But we won’t know until at least 2014, when the thing becomes effective. Gee, isn’t that past the next 2 federal elections? Meanwhile Obama and the Dems can tout their Pyrrhic bill as a great liberal success.

      “And flawed as the bill is, it is not much different from the actual health care proposal that Obama campaigned on (again as Krugman pointed out), an essentially conservative plan that built on the current private, employer based, system.”

      Krugman is wrong. See Yves’ most recent post on this. This is a classic devil in the details problem. While many countries rely heavily or exclusively on private insurance (Switzerland, Germany, Netherlands) they are strictly regulated. Switzerland for example forced all health insurance to become non-profit. Anyone think congress has the balls to do that?

      “along with overall competence that he has provided to the executive branch after the previous eight years”

      Talk about damned by faint praise. After Bush, Mickey Mouse would seem like a good president.

      1. Ultimate Janitor

        This legislation fails to remover the anti-trust exemption that health insurers have enjoyed for decades. This is a key step to lowering overall costs.

        This bill is 2000 pages of garbage that sets the stage for a bunch of congressional back slapping and horn blowing.

        Business as usual at the legislature.

    2. JasonRines

      The United States government has become a Cerberus, a three headed monster consisting of two little heads of the Democrats and Republicans and one bigger ugly head of international banking cartels. The analysis of Obama while well presented is foolish. Why anybody would be pleased with a 2,400 page Healthcare bill that NOT ONE representative has read is also God awful, but somehow you celebrate it? If Healthcare costs were to be brought under control three things would have happened:

      1) Anti-trust against the regional insurance monopolies, they are NO different than Ma-Bell’s charging .30 cents to talk from one end of the state to the other in 1983.
      2) Imported drugs from Canada
      3) Began rigorously prosecuted fraud where the estimates are between $30B and $60B a year.
      4) Cut off all subsidies to illegal aliens, period and no exceptions.

      Now, I personally benefit from positioning a business for Washington’s grand collective corruption. I would prefer a whole country moving in the right direction than from being right.

      Now as to Obama I say IF he gave a damn about the United States, he would have taken down the banksters. Yes, it would have probably cost him his life to do it but that is what the American people expect a true leader should be. Of course, any person willing to take a bullet for the American or global citizen for that matter can never be elected based on a totally corrupt electoral process.

      Obama sold out to guarantee his family will stay safe and well fed. I am sure he will be, although the world he and his family will entering into is not one of Hawaai-laden trips and servants, although I am guessing he wagers otherwise.

    3. JTFaraday

      “And most of the elite, who want to gut Social Security and Medicare, remove all restraints on crony capitalism, and pursue a buccaneering foreign policy a charismatic leader like Palin would be an ideal figurehead to usurp the Constitution (see the agenda of the Federalist society), no that that to implement an unpopular agenda that will radically reduce standard of living of most Americans, an authoritarian regime will allow them to implement what Naomi Klein calls the “Shock Doctrine.””

      I’m sorry, but there is simply no evidence whatsoever that they decided they need to “wait for Palin.”

  14. wally

    “You may not like his results. You may not like him. But, President Obama has actually been quite productive”

    Sorry, you can’t have it both ways. If the results aren’t there, he has not been ‘productive’. In general, the results are not – the claims of what he has done are far, far overblown, to the point of lying. Take health care: you start by trying to reform medical costs and end by forcing people to buy commercial products from the very companies who are the problem. That is not a successful, productive result. It is counterproductive sellout. Or take the argument that you must subsidize banks to ‘save’ Main Street’… and then Main Street goes through the worst recession of 70 years while certain, hand-picked bankers party and Main Streets banks get shut down. Success?

    1. Edward Harrison Post author

      wally, if I thought the Obama Administration has been successful I would have said so. In the quote above, I would have said:

      “You may not like his results. You may not like him. But, President Obama has actually been quite successful.”

      That’s not what I am saying at all. What I am saying is the Obama Administration has been ‘productive’ – they have produced outcomes – ones which they are now trying to argue are ‘successful’ due to a technical recovery (what I have called the fake recovery).

      Productivity is normally seen as almost synonymous with success from an economic policy perspective. In this case, this is not so. Their solutions have made very plain the looting which crony capitalism has engendered in a way that the bubble economy and increases in debt over the past decade masked. This explains the divergence between productivity and ‘success.’

      Read what Geithner is saying. He is saying: “we have been successful and history will judge us as such – more so because we took an unpopular route to success.” He can make this argument right now because GDP has increased – not that the argument resonates with prospective voters. The Fannie/Freddie manoeuvre is indication that the Obama team are attempting to insure these policies stick.

      However, when these policies prove ineffective because the inherent problem is private-sector debt not asset prices, this argument will ring hollow.

      As for Obama, I have tried to use the term ‘Obama Administration’ to reflect the fact that the man Barack Obama is not the only one in Team Obama conducting economic policy. Much as George W. Bush and the Bush Administration were beholden to the national security and defense expertise of Rumsfeld and Cheney, Barack Obama and the Obama Administration are beholden to the economic and financial sector expertise of Summers and Geithner.

      See here:
      http://www.creditwritedowns.com/2009/11/the-less-optimistic-view-of-treasurys-handling-of-the-crisis.html

  15. Reno Dino

    Like his mother, Obama is a cultural anthropologist who observes a culture but does not attempt to change it. He inserts himself into that culture to achieve the maximum personal gain. That is his genius. Don’t expect to change him or expect change from him. Simply admire a master at work.

  16. alex

    “Forget about intent. Focus on actions.”

    Thank you, thank you thank you!

    What difference does it make whether Obama is a “good guy” who is either naive or has been corrupted, or whether he’s a “bad guy”? The only thing that matters is what kind of a job he’s doing. I wish more political/economic analysis would have your focus, and avoid the squishy, unknowable, (and practically meaningless anyway) “human interest” aspect of intent. Since few journalists are mind readers, they should stick to what can be objectively reported.

  17. Hugh

    The first rule to being taken seriously is never to quote Ross Douthat. It’s like asking for Bozo the Clown to explain Einstein’s relativity.

    “using cynical means to progressive ends”

    This is what the rest of us call Obama’s use of progressive rhetoric and appeals to “change we can believe in” to placate the rubes while he pushed through Blue Dog legislation that is a lot closer to where Douthat is ideologically than progressives.

    Parenthetically, as a male Obama would be an ingénu, except of course he is nothing of the sort.

    Bamboozler sounds so much more benign than the reality. Obama flat out lied.

    “prevented depression, stabilized finance, saved auto industry, overhauled healthcare”

    At most on all of these, I would say Obama has bought a little time, often at extremely high expense.

    “As I see it, our government has favored special interests in the past year of Obama’s tenure to our detriment.”

    I agree with your assessment of crony capitalism. I would extend it to the energy companies vis-à-vis climate change legislation, and contractors in both the defense and intelligence establishments. And I would go much further than “detriment”. We are talking about a squandering and looting of the nation’s and the government’s resources on an unprecedented scale, something not seen previously in our own history or indeed human history.

    Just a reminder about Geithner, he was one of the villains in the Asian banking crisis and made it much worse than it needed to be. This should have raised red flags all over the place for his heading the NY Fed and his mishandling of the housing bubble and meltdown. Instead he continued to fail upwards to Treasury Secretary.

    Finally, the reason progressives and the Democratic base don’t believe what Obama says is that 1)he freezes them completely out of the policymaking process and 2)he generally does the opposite of what he says (and promised in his campaign). At this point, anyone who believes anything Obama says probably also believes in the tooth fairy.

  18. Teri

    You know to have a little pity party here…………………….I don’t give a flying f about Obama’s success or not (am one of those independents that wonders why I did) as I sit here and write a $500 check to the plumber in a long list of large checks this month on the eve of my 30 day start to unemployment for a house bought during the f’n housing boom. American dream be damned. The middle class is gone and cronyism will finish the rest of you.
    Thank you for listening and now I return to life as it is 

  19. Tom Hickey

    I think that where a lot of people, including me, see crony capitalism, the administration sees preserving capital. Capitalism is about capital formation as the backbone of the economy, and destroying capital through debt deflation runs in the opposite direction. After the collapse of Lehman, everyone at the top woke up the fact that any economy as highly leveraged as ours is a house of cards. For example, if Fannie and Freddie were to cut back, let alone fail, the mortgage market would implode and a whole lot of mortgage debt would just blow up, taking down big institutions along with mortgage holders.

    This is a very complex situation, and the US and world are not out of the woods yet. I think that there is still a very significant possibility of Great Depression II happening. No I don’t like the crony capitalism, but the alternative may be unthinkable, given that the administration has a lot of facts that aren’t general knowledge.

    1. ab initio

      Tom-

      Capital in the classic sense is savings from income and investments from such savings in productive assets.

      Debt deflation is the outcome of debt based inflation and malinvestment beyond the capacity of the asset to sustain. Trying to reflate assets that were inflated beyond their real values through increased debt by taking on more debt is a recipe for even more debt deflation down the road.

      As John Hussman has posited the idea that if the government did not bail out bond holders in Wall Street banks that our financial system would have collapsed is preposterous. The assets on the banks balance sheets do have some value and Hussman has shown that the senior most creditors – the depositors would never have taken losses although other creditors would all have taken some level of haircut as they rightfully should.

      At the end of the day even if Fannie & Freddie were liquidated housing values will not go to zero. When homes reach a clearing price which would be in line with incomes then mortgage lending would resume as the collateral risk would correspondingly be less.

      What is being attempted right now with the unlimited taxpayer blank check for the GSEs and the Fed monetizing $1.25 trillion of MBS and trillions in other assets including Treasury and Agency debt is to prevent housing prices from clearing by continuing to reflate when the excess inflation of housing assets was one of the causes of the financial crisis in the first place.

      All we have to show for the current reflation effort is even more debt on the governments balance sheet, higher prices for commodities and financial assets and increased accounting profits and management bonuses on Wall Street. We have currently over $12 trillion in Federal government debt and growing at an annual rate of $1-2 trillion and over $75 trillion in unfunded Federal government liabilities for social security, medicare and federal pensions which will grow at an enormous pace every year as the boomers start cashing those checks – all to be supported by a $14 trillion economy. At some point adding more and more debt to reflate what has previously been inflated beyond any reasonable value just stops working. Then we may truly see a collapse of the complete economic system and our government. Is that the outcome everyone wants?

  20. ken

    Wow, thanks everyone for the posts…thanks to Yves Smith for educating and offering this space. I think I have not read a better one since Moon of Alabama was shuttered. May 2010 be better for us all, but I can’t quite bring myself to believe it after reading more. Funny but my kid wanted to invest a little money before the meltdown so I got to researching and before my eyes the markets were crumbling and the more I read and dug the more I understood the ponzi, I never invested the cash and I don’t think I ever will. Question a bit off topic, if one was to choose a Plan B country out of USA, what would it be and why? I can only think of Canada but only because UHC. Thanks again and
    Happy New Year to ALL.

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