The less optimistic view of Treasury’s handling of the crisis

By Edward Harrison of Credit Writedowns

The Obama Administration is captured. To understand why it has acted as it has, one doesn’t have to take the view that its efforts to save the banking industry were a deliberate attempt to line bankers’ pockets by transferring money from taxpayers to the banking industry. One need merely read the last post I wrote on this topic.

In their wildly optimistic view, the banking industry is solvent and always has been. All that was needed to ‘solve’ than banking crisis was a lot of liquidity, government backstops and, most importantly, time. This blinkered view sees a looting of taxpayer money to bailout the banking industry as necessary to save banks whose credit is the ‘lifeblood of our economy.’

They are wrong. The banks did not need to bailed out. The banking industry industry needed to made solvent again. There is a big difference between those two sentences (banks versus banking industry and liquidity versus solvency) that goes to the core of the captured and politically damaging world view we have seen on display by the Obama Administration.

Change you can believe in

Think back some 18 months when Senator Obama was in a horse race with Hillary Clinton to see who would go up against John McCain in the Presidential election. If you asked any reasonable individual who had the least experience and the thinnest political resume of the three, he or she would have said Barack Obama. If Americans wanted someone long on inside-the-beltway experience, they would have chosen John McCain – or, at a minimum, Hillary Clinton, not Barack Obama.

So, Barack Obama did not best both Hillary Clinton and John McCain and get to the White House because Americans felt him more qualified for the job.  Rather, Americans believed the U.S. was on the wrong path and wanted a qualified person to lead the country who would also change course. They believed that person was Barack Obama.

And when it came to the economy, the presence of two men, Paul Volcker and Warren Buffett, born some 80 years ago, gave one the sense that, despite Barack Obama’s perceived relative youth or inexperience, he had the ablest of wise old men who would be his and our counsel in resolving this crisis.

Bailing out the banks

So when Barack Obama took office, it came as a rude awakening for many that he chose to bail out the too big to fail institutions with little or no strings attached, allowing them to later make record profits and pay record bonuses, while the economy was in a deep slump and ordinary Americans were being bankrupted and losing their jobs and homes at record rates. This was not change you can believe in.

What could or should the Obama Administration have done?

If you had listened to the chatter inside the beltway early this year, you would realize that Obama’s team believed it was not politically feasible to ‘nationalize’ Citigroup or Bank of America and force top executives to resign as was done at RBS, Bradford and Bingley or Northern Rock in the UK. This was a blinkered view which can only be described as captured (if not outright disingenuous).  We need look no further than Fannie Mae and Freddie Mac to see that nationalization was an option.

But this is not the kind of solution we needed.  What we needed was a solution by the Administration to take prompt corrective action in seizing bankrupt institutions, dismissing management, punishing any misdeeds and setting up a timetable to sell off the institution’s assets. That is change you can believe in.

I laid this out fairly comprehensively in February in my post “America needs a pre-privatization plan.” So I am not going to cover that ground here except to quote the key relevant passage in that post:

To my mind, there are three ways to deal with an insolvent financial institution:

  • Bankruptcy. Allow the  institution to collapse (like Lehman Brothers)
  • Nationalization. Seize the assets of that institution and nationalize it (like Northern Rock, AIG, or Fannie Mae)
  • Bailout. Inject capital into the institution in order to allow it breathing room until it can meet capital adequacy levels.

As you can see, governments have tried all three solutions.  However, there are vast differences between the three.

The bailout solution is the most ‘anti-free market’ choice and seems to be the favored solution of governments everywhere.  It props up organizations, giving them an unfair advantage at the expense of other more prudent institutions.  It also acts as a subsidy, which favors domestic institutions over foreign rivals.  Bailouts increase moral hazard by rewarding risky and reckless lending practices.  And they are often the result of crony capitalism due to the power of the financial services lobby. There are many other problems with bailouts. All around, bailouts are a poor solution.

So what we have here is a case of crony capitalism and kleptocracy, plain and simple – whether by design or not is immaterial. And the American people are on to this. That is why people are resistant to other changes this Administration has put forth.

Don’t let the media’s spin fool you: Washington insiders are on to this too. Politicians in Congress realize that Obama’s bailouts have cost him political capital  and they are challenging his policy agenda as a result. This is why the health care bill, which Obama wanted passed before the summer recess, may not see the light of day before year’s end.

Are we home safe?

I would advise the Obama Administration not to run any victory laps about having slayed the beast. The lingering effects of crisis are still there. The Fed’s liquidity is still liquid. Impaired assets are still impaired. And zombie banks are still zombies. As I indicated in my depression piece:

In reality, the problems of high debt levels in the private sector and an undercapitalized financial system are still lurking, waiting for the government to withdraw its economic support to become realized.

Since I covered this ground in that article, I will leave you to read my further thoughts there. What I want to turn to now is the ‘why.’

The Cheney-Rumsfeld replay

Now, I am not writing off Barack Obama’s presidency. I do worry he still could see a recessionary relapse which would cause him to seem more Herbert Hoover than Franklin Roosevelt.  But, despite his Nobel Prize, it is much to early to know what his legacy will be.

Nonetheless, I believe he has wasted a lot of political capital and this will make ushering through a meaningful legislative agenda very difficult.

Why did Obama throw it all away?

Here’s my answer: I call it the Cheney-Rumsfeld replay.

When historians look back at the Bush 42 presidency, it will be defined by 9/11 and the wars in Iraq and Afghanistan.  While George W. Bush was politically pre-disposed to the Neo-con world view, it was really advice from Dick Cheney and Don Rumsfeld which made Afghanistan and Iraq possible. George W. Bush was famously not well-versed in foreign affairs, having almost never travelled abroad.  He was completely dependent on Dick Cheney and Donald Rumsfeld to make foreign policy (although he could have listened more to Colin Powell, his actual Secretary of State; again it goes to predisposition).

So, I see George W. Bush’s presidency as having been defined by foreign policy and the War on Terror and, by extension, on Rumsfeld and Cheney.

Fast-forward to Barack Obama’s presidency and you have an almost identical situation, this time with the economy instead of foreign policy and Tim Geithner and Larry Summers instead of Donald Rumsfeld and Dick Cheney.

But, as with George W. Bush, it goes to pre-disposition. Paul Volcker was a critical member of the Obama 2008 campaign. He also was a key member of Obama’s economic policy team. But, he has been speaking a very discordant message that is not in sync with team Obama. So, as with Bush and his marginalization of Powell, one has to believe Barack Obama has chosen to side with Geithner and Summers over Volcker.

The obvious conclusion, therefore, is that Barack Obama shares the blinkered and captured view of his policy makers and that this is why he has decided to go down this chosen path. And when it comes to Obama’s other ‘change’ decisions on the Guantanamo closure, torture, rendition, state secrets, and health care, the same logic also applies.

Is this change we can believe in? I will leave that for you to decide.

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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


  1. Paloma Vita

    I really like your article but I wonder about one thing. I thought the bank bailout deal was brokered before Obama took office and that the previous administration put everything in place and simply left it to Obama to implement. Which means he was faced with a fait-accompli. I understood that the stimulus package was his initiative, not the bailouts. Maybe I am confused and would appreciate a clarification.

    Kind regards,

    Paloma Vita

    PS. You have a typo at the beginning of the post. It reads: “…its efforts to save the BAKING industry were…” when it should read “… its efforts to save the BANKING industry were…”

    1. Edward Harrison Post author

      The Obama Administration orchestrated a number of bailouts post-Jan 20: Bank of America and Citigroup, in particular but also GMAC. So their policy is an explicit continuation of the previous administration’s rather than a case of legacy bailouts.

      Thanks for pointing out the typo, Paloma. I have fixed it. :)

      1. Doug Terpstra

        Dang it! I just put all my money in Pillsbury and Keebler. I was sure you were tipping the next big bailout—“dough for dough”

    2. bill

      While it was a typo, there’s a certain ironic twist to calling it the BAKING industry that I liked. ;-)

  2. Clay Desjardine

    You have absolutely nailed it. And your analogy of Geitner/Summers to Cheney/Rumsfeld makes complete sense. People really need to pay attention to what is happening. The country’s future is being sold out for the benefit of some powerful insiders who are intellectually locked in a world of power plays and corruption.

  3. yankees

    “Is this change we can believe in? I will leave that for you to decide.”

    ooh, thanks for the inheritance! i’ve never seen that much choice in all my life!

  4. john

    Change we can believe in has boiled down to this: if you are not already inside the Washington/Wall Street bubble you will soon be broke and unemployed. The bright side of this is that it will free up a lot of formerly productive people to focus on our blighted politics. Obama has offered up for many who have not previously wanted it and probably don’t want it now a career in public service! That’s the way the ball bounces.

    1. carol

      ““Why did Obama throw it all away?”
      Here’s my answer. I call it “Obama with ‘For Sale’ sign”.”

      ???? Is that based on anything concrete?

      Isn’t it that Obama, very intelligent, but versed in Constitutional Law, really lacked a broad and deep understanding of financial complexities? Had he ever heard of, let alone understood, CDS, other derivatives, global financial connections, overleverage, implications for pension funds, and on and on?
      Unfortunately for all of us, he chose to rely on the ‘experts’ instead of on fresh picks with the right, non-captive, diagnosis. And that remains an amazing choice by someone elected on a mantra of hope and change.

      1. Lavrenti Beria

        “???? Is that based on anything concrete?”

        My dear, carol, there just isn’t anything any more concrete than the sizeable contributions this bird received from financial and other lobbying interests during the campaign. They have helped to assure his receipt of a six figure salary, a wonderful home in the nation’s capitol for his wife and kids and support his self-deception that doing a fair-to-middling Martin Luther King impersonation when giving public speeches amounts to being a great president. And if you’re looking for evidence of the presence of the “For Sale” on his back, look no further than his nauseatingly obsequeous presentation to AIPAC in June of 2008. He may as well have been wearing short shorts, an uptilt bra and standing on a street corner with his John, David Axelpimp. It was outrageous. See for yourself.

        So no, it isn’t that “Obama, very intelligent, but versed in Constitutional Law, really lacked a broad and deep understanding of financial complexities.” He knew of only one “financial complexity” that needed understanding: His own. And that one he’s understood both all-too-well and very much at our expense.

        1. ndk

          And if you’re looking for evidence of the presence of the “For Sale” on his back, look no further than his nauseatingly obsequeous presentation to AIPAC in June of 2008. He may as well have been wearing short shorts, an uptilt bra and standing on a street corner with his John, David Axelpimp. It was outrageous. See for yourself.

          Hear, hear — and every policy move he’s made since backing down on settlements has turned this even more obvious. Just when you thought you voted out the neocons, they’re baaaaaa-aaack…

          1. Lavrenti Beria

            And the next time someone tells you that you’re living in a democracy, one where your vote actually can cleanse public sevice, point them to yesterday’s 344 to 36 congressional rejection of the UN’s Goldstone report and ask them if they actually think margins of this kind are achievable without coercion, in this case AIPAC’s. Why Josef Stalin in his finest moments could have done little better. These filth have sabotaged and stultified our freedoms for far too long. Its time to detain, interrogate and publically try lobbyists and cooperating politicians. One day, Washington, D.C. will wake to a million angry faces and that will become possible.

  5. bobh

    I just left the comment below on your earlier post on this subject yesterday, in answer to a comment from Mickey from Akron, who wondered whether it mattered what party the president comes from. My comment addresses your points here as well. I try to give Obama the benefit of the doubt, as possibly just being political, but I think your take is closer to what I really believe. The main point about Obama, and the thing that troubled me about him during the primaries, was that he doesn’t seem to have an ideology. This helped him get elected, but will turn out to be his fatal flaw:


    ‘So, ultimately, it doesn’t matter whether Democrats or Republicans control the Executive Branch, right?”

    I’m a Democrat, and watching Barack Obama inherit this mess and take a pass on trying to “change” the scary trajectory of 21st Century American capitalism was painful for me because he was actually in a historical and political position to try to pull off the difficult set of moves that this would entail. Getting the financial sector under control would have been difficult, but it seemed possible last winter. Getting the American people to accept a reduced but sustainable standard of living, with a halfway decent safety net and reasonable health care for poor people, without creating a massive debt bomb for our children would have been even harder. I’m not sure if Obama weighed the politics of the situation and decided his best chance at getting re-elected in 2012 was to try to get another bubble started so he could kick the can down the road, or whether he actually believed (and still believes) he was hiring,in Summers, Rubin, et. al., the best and brightest minds from Cambridge, to tell him how to save the world by bailing out insolvent banks, dead car companies, etc. Either way, I think he made a mistake. When this bubble bursts and another chance comes around for someone else to try to clean up the mess, whoever is in office will be starting from a lower point with less national wealth to work with. I still think that person will need to come from the social-democratic, left-of-center side of things, but I don’t see anyone in the Democratic Party who seems up to it. I wouldn’t have bet on FDR either, however, so I will wait and see if a leader appears. Sadly, I am mostly thinking about what and how drastic my personal strategies will need to be to get my own family through the coming decades. This is hard for Democrats.

    1. Mickey Akron,Ohio


      I can only echo what Stelios Theoharidis has stated. Obama’s hands were tied by Paulson and TARP. From that moment on there were only two options and nationalization wasn’t one of them. It simply wasn’t viable – politically or economically. Already deemed a leftist/socialist by the reactionary right-wing – not all Republicans – outright nationalization would have only confirmed this label. Moreover, as Ed commented on yesterday, this most recent grab for power by the Executive Branch would have been magnified quantitatively and signaled a qualitative change, one which would have antagonized economic elites across the board and wiped out shareholders in the process. In Western Europe where there is sufficient institutional gravitas and historical precedent for nationalization. Neither condition exists in this country. Paulson would have been able to nationalize Lehman Bros easier than any Democrat. It’s similar to why only Richard Nixon could open the door to China. A Democrat would have been excoriated for selling the country out to the Commies! 40 years on and they own us anyways! Who was it that sold US out?

      But my point is that there are structural constraints within which Obama must work. The rightward gallop of the past 40 years limits how far to the left he can move before some of his own supporters begin to question his policies yet alone the cacophany from the right! Blue Dog Democrats and Southern Democrats are by and large Republicans-in-drag [RID], especially on economic isssues, anyways.

      Obama is very aware of these constraints and is trying to manueuver as best he can. The strategy of the right is to defeat/obstruct his efforts to right the economy so as to disillusion the electorate in the hopes of defeating the Democrats both in 2010 and 2012. Then the RBTA – right wing bullet train to Auschwitz – will resume where it left off.

      When I voted for Mr. Obama I had no illusions about just how much change he could bring about in 4 years, particularly once TARP had been enacted. The latter was a stroke of genius as it effectively tied his hands… But at least the RBTA has been slowed down. For how long is anyone’s guess. But one lasting consequence of the SUCCESS of supply-side, trickle-down socioeconomic policies over the past 30 years or so has been the creation of the American working class. For better or worse, CLASS is now the dominant fault line in American politics… It will be interesting to see how this plays out as the Democrats are not the party of this working class. Don’t kid yourself.

  6. Fu

    Nationalization. Seize the assets of that institution and nationalize it (like Northern Rock, AIG, or Fannie Mae

    Say what, Edward? I don’t know the status of Northern Rock, but AIG and Fannie Mae definitely have not been nationalized. Their assets have not been seized… quite the opposite… they have been gifted assets (money) of the US taxpayer.

    1. Edward Harrison Post author

      I wrote the quote in February. At the time I expected AIG to be dismantled and sold. Your depiction is a more accurate representation of what really occurred.

  7. Call me naive

    Edward, thanks for posts. I have been reading them, along with NC, and a whole host of other Financial Blogs for nearly 2 years now. And while I came into these readings financially literate and economically educated (along with employed), I have nonetheless learned a whole lot more.

    I have a number of questions but I’ll limit them to two for now…

    1) When/Where/How can we change all this? Im not talking about letting the existing plans play out, nor am I speaking of completely going against everything the Admin and TPTB suggest, but actually course correction with sensible, logical, holistic changes? Allowing Banks to function normally, business to hire, and Investment companies failing. Call me naive (or more literate) but when I was employed as an Investment advisor for bank and brokerage firms, when speaking to clients, if it wasn’t understood that an INVESTMENT could lose money, well then, I made that clear. When you allow firms (in any field) fail someone comes in and builds a better business (generally) in the same field. And get this, those new companies hired people that lost their jobs from their previous employers reckless behavior. Novel concept.

    2) Why has this, along with other issues (energy, environment, auto industry, financing, jobs, etc. etc.,) not been looked from a WIDE ANGLE LENS with a HOLISTIC solution. Why bail out auto makers (but only after they offer a plan (banks no such luck)) and set some ridiculous 35mpg target 7-10 yrs (forgot the number) out? Why try for some cap-n-trade idea with no bidding which will only line the banks pockets? Why just bail out the investment banks, and use some QE to blow another bubble, while implicitly pushing savers into more risky investments and offer then nothing for actual savings (unless you consider 20 bps as something worthwhile)? Why is every answer a tax cut? Why is everything suggesting taxes berated? etc. etc. etc.

    — Again, call me naive, but wouldn’t/couldn’t/shouldn’t some thought to a holistic solution be offered along with some GENUINE discussion. Why not come to a solution where we bail out the auto’s to move to a more energy friendly (ie alternative energy) vehicle output. Separate the commercial banks (doesn’t need to be a complete return to Glass-Steagall,) to secure the peoples savings. Assist & force the Investment banks to clean up their acts. Give them a new industry to invest & loan to. Give private investors/small businesses an opportunity to build out the needed fueling systems (another area where banks can loan to.) Get people back to work in modern transportation systems. Force all banks to modify mortgages, but don’t artificially prop up the housing market. Reduce our dependency to foreign oil. And yes, raise taxes on some explicitly, and on all implicitly with a gas tax. Use some of that money to fund these programs and the rest to pay down the debt. If I were to run up a debt with a reduction on income that our government is pursuing, everyone would say I was insane. Its way past the time to say the same for OUR government.

    Slightly more than 2 question, but I’ve been holding all this in for a long time. Frankly, when this crisis started to erupt and Obama was looking like an eventual winner, part of me thought that Obama was the man that might actually do something like this. While not the exact idea I offer, but something holistic. Something that truly began to turn the ship in a new direction. Yes, it would taken some time, but this ad hoc behavior certainly hasn’t achieve much in these last 18-24 months.

    And I get your capture argument, and the “listening to wrong people” argument, but I can’t help to think that Obama recognizes this isn’t working and he is wasting his political capital. I also remember Obama apologizing for something (can’t remember what specifically) earlier in his presidency, so he has the ability to reevaluate and course correct.

    Lastly, I do hope you respond (and Yves if you’d care to offer a reply, I’d love to hear what you think on this or any Holistic solution,) but I am tired of listening the nonsense of the MSM that I know to be wrong thinking or worse lies, and I’m tired of reading about all the errors and ridiculous policy decisions, and all the ad hoc solutions they trot out. At this point I’m much more interested in hearing/reading/discussing solutions and when/where/how we can actually get change.

    thanks for your patience in reading this (if you did) :-/

    1. Call me naive

      Failed to point out (but I hope you understood) that my point boils down to putting money behind industries and people, not banks and investment banks. Support new & old industries, nurture them, and allow them to grow, but at the same time force the banks to smarten up and to ensure that they get the concept of ‘you reap what you sow.’ I am a capitalist, so I won’t suggest they can’t make money or that they shouldn’t make/pay themselves too much, but as a capitalist, they need to take the bitter pill when they make unwise decisions. They’ve forgotten that.

      It ain’t ment to be this hard. Get people jobs, employed people make money, money pays the bills, whatevers left can be saved and/or spent. wash, rinse, repeat.

      1. john

        The sausage factory known as Washington is only capable of hearing extremely well funded ideas, no matter how stupid or counterproductive they turn out to be. Like you I hoped Obama understood this and would be different but it is a cultural problem as vast as the Federal Bureaucracy and I doubt any mortal can at this point resist it on their own.

        With the enormous vistas of free time this stellar arrangement appears to be opening up in my present and future I’ve been toying with “GOOOH” a nutty Texas libertarian idea for “non-partisan” party whose goal is to obligate legislators to legislate for their voters rather than donors while kicking out both parties in total in 2010. Quixotic but hopeful, and something to actually do.

    2. Edward Harrison Post author

      Yours is a comment I have been meaning to reply to for a while now.

      You say:

      1) When/Where/How can we change all this? Im not talking about letting the existing plans play out, nor am I speaking of completely going against everything the Admin and TPTB suggest, but actually course correction with sensible, logical, holistic changes?

      Pro-Administration types might say you will get it in due course when the economy is in a better position. I don’t buy this because we have already seen enough evidence to make clear that ‘holistic’ change is not the aim. The Obama Administration does not believe the system is broken. They believe it needs to be tweaked.

      You say:
      2) Why has this, along with other issues (energy, environment, auto industry, financing, jobs, etc. etc.,) not been looked from a WIDE ANGLE LENS with a HOLISTIC solution. Why bail out auto makers (but only after they offer a plan (banks no such luck)) and set some ridiculous 35mpg target 7-10 yrs (forgot the number) out? Why try for some cap-n-trade idea with no bidding which will only line the banks pockets? Why just bail out the investment banks, and use some QE to blow another bubble, while implicitly pushing savers into more risky investments and offer then nothing for actual savings (unless you consider 20 bps as something worthwhile)? Why is every answer a tax cut? Why is everything suggesting taxes berated? etc. etc. etc.

      I think you know the answer. It’s the same as the last one. The Obama Administration is not looking for ‘holistic’ change. Barack Obama has said on health care point blank that he does NOT want to root and branch change. We have an employer-based healthcare system that is entrenched and he intends to tweak that system to affect change. This goes to Mickey from Akron’s points. Barack Obama is not a revolutionary.

      You say:

      Frankly, when this crisis started to erupt and Obama was looking like an eventual winner, part of me thought that Obama was the man that might actually do something like this. While not the exact idea I offer, but something holistic. Something that truly began to turn the ship in a new direction. Yes, it would taken some time, but this ad hoc behavior certainly hasn’t achieve much in these last 18-24 months.

      You are using what a lawyer might call a ‘preponderance of evidence’ approach. The problem I have with those still defending the decision making in the White House is that we have seen a huge number of policy decisions – and they all lead to the conclusion that Barack Obama is a cautious conventional individual. He is not a revolutionary. He does not see the system as fundamentally broken. That is the reason for the ad hoc approach.

      When I write about how this is not in his political interest I will highlight how his administration is filled with political insiders. So, unless Obama himself is diving deep into his subordinates’ policy decisions and dictating how they should make policy at a micro-managing level, you should not expect anything holistic or substantively different than we have seen bandied about in Washington in the last two administrations.

  8. eric

    Where does the buck stop? At the desk in the Oval Office.

    As Mr. Harrison points out, much of TARP remained to be administered under Obama, not Bush. The “financial reform” that has been proposed by this White House would appear to concentrate the power of regulation in even fewer hands, and turn To Big To Fail into To Bigger To Fail. The fantasy “stress tests” were conducted under Obama.

    Obama is up to his neck in whatever is being done now. He owns how the bailouts are conducted, extended, administrated, and watchdogged. He owns the continued attempts to reflate the housing bubble to push TBTF banks back in the black, to the detriment of everyone who wants to buy a new home, but cannot afford the still-high bubble prices. They cannot afford any home at all — without jobs.

    He owns the deficits which are driving the currency south and instigating commodities inflation. And the proposed mandates and tax increases that will stifle future business growth.

    When history is written by persons several generations down the road, who have some distance from this fiasco, with no connection to today’s Democratic and Republican Parties, which by then will hopefully be extinct, it will be observed that the “H” in Barack H. Obama stands not for “Hussein” but “Hoover.”

  9. But What do I Know?

    This is right on–great comparison between Cheney/Rumsfeld and Summers/Rubin.

    I many ways I think Obama has governed like Robert Redford’s character in the Candidate would have–the one that turned to his advisor/wise man after winning the campaign and said “What do I do now?”

  10. KidHorn

    I wanted Obama to beat McCain. I thought the pubs had made such a mess of things, we had to change course.

    My right wing family members tried to convince me he had no agenda and no experience. They said he was all show and if you listen to what he says, it’s all a bunch of nothing. I ignored them thinking they are always anti liberal, so they would say this no matter what.

    Now, after 10 months or so, I have to think maybe they were right. It seems like Obama’s biggest fault is he’s a lot like dubya. He’s not for change. Sure, he talks about global warming, carbon tax and comprehensive health care, but nothing has really been done or has changed. Maybe McCain would have handled things better.

    I think you hit the nail on the head about the financial crisis being illiquid vs insolvent. I remember when the crisis was unfolding and the banks were complaining that their debt was being traded at unrealistically low prices. Here we are a year later and the prices haven’t gone up. I think when the prices have stayed low for this long, you can’t call it a panic any more. The prices are actually what the assets are worth.

    1. Lavrenti Beria

      There were other alternatives beside the Regime candidates in the last election, you know, although they labored under the typical oppression meted-out to third party and independent candidates by the election management apparatus. So it’s not as though you had to consider McCain the only alternative to this cretin. One perhaps better choice would have been to boycott the election, to sit it out – something I’ve done since 1992 – but that requires sufficient maturity to have grown past the illusion that elections in this country mean anything. But what ought to be clear to you in no uncertain terms by this point is that you’re in a one party state where one of its factions simply serves to funnel public outrage into a black hole. And the grasp of this vile octopus just gets tighter and tighter year after year. Look at what they just did in Congress to the UN’s Goldstone report on war crimes during the Israeli aggression against Gaza last January. These maggots are enough to turn your stomach.

  11. Anonymous

    Ed, two thoughts.

    1. That the Bush and Obama administrations call this a liquidity crisis rather than a solvency crisis does not mean they actually believe it. It just may be the words they choose, so as to avoid scaring everyone. The truth matters and they should be willing to be blunt, but policy makers certainly tend not to me. I’m not saying we should let them off the hook, but only that I’m not persuaded that we should assume they actually believe the same thing as they are saying. (Call me a cynic if you like.)

    2. Likewise, I wonder if Obama truly believes that Geithner and Summers are right and Volcker is wrong, or if, on the other hand, he just finds the G-S advice more do-able politically. Perhaps he thinks he can maximize the chance of passing healthcare if he takes an establishment-friendly tack on finance.

    Anyway, great piece. Curious whether you have any comments on 1 and 2.

    1. Edward Harrison Post author

      I recently wrote a piece on intent and motive at Credit Writedowns. Our resident cynic Lavrenti Beria labeled this ‘facile.’ So I will probably flesh out my thinking on this topic at a later date.

      But, the heart of what I said there applies here. A lawyer looking to convict doesn’t have to prove intent – it is largely irrelevant unless you are looking to convict for 1st degree murder. What you need to show is motive. This is something people understand and will react to.

      So when I look at the Geithner-Summers-Obama nexus on finance, their intent is irrelevant to me. I can’t get inside their heads or even have evidence o all of theiractions.

      What I care about is motive: who are they connected to, where is the money coming from, who are they talking to. Most evidence points to Wall Street as having undue influence over Administration policy – based on Geithner’s phone records, based on campaign contribution, based on Geithner and Summers previous earnings and employment. To me, this goes to motive. This is why they have chosen to bail out banks.

      This is also why I am not as interested in conspiracy theories about the plunge protection team and backroom deals and the like. I will stick with the lesser charge of capture. That is sufficient motive to drive policy in the direction we have seen.

  12. The Rage

    What did Obama do that made you think he was for some “big” change?

    Let me give you a bit of advice: When candidates are elected for their party’s nomination, they usually are selected to where the current plutarchy wants them politically.

    The point is, Obama didn’t win elections because of a populist uprising, but because he was one of the boys. Basically between McCain and Obama, they couldn’t lose which is the way they work things. So his policy was similiarly enacted. I mean, what did you expect. He pretty much told you all that before the election.

    Listen, the financial crisis “for now” is over. It will resurface in coming years but the number is the mystery. 2012? 2015? With all the savings Americans are creating, they will be able to spend enough for a period of time when confidence returns to trigger a recovery, eventually the 00’s the badside of overinflated asset problems will come back as high oil prices, overinflated fiancials, overinflated real estate prices(which will probably still be far less than what we had) but the real economy will keep contracting. Liquidating all the debt at once would have been brutal and threatened the basic American nation itself. So they kicked it down the road, closer to when the “peg” is gone.

    The real fact is, the current crisis won’t end to the Asianic peg is gone. That is the “Volcker interest rate surge” comp. The peg is losing more and more value to the US. Eventually, we won’t want it at all. That is when you will get your populist uprising………all manufactured itself. The plutoarchy just won’t be ready for it, they will back it. Then the next boom period begins again.

  13. donna

    I think there are a lot of political considerations involved, many of which the public is completely unaware of. Fine and dandy for us to say what needs to be done, but when it comes to pissing off the moneyed class and their powerful interests, Obama may have simply calculated that it was too politically dangerous for him to do so this early in his presidency. My own suspicions are he is very centrist indeed — but what that means is he will move with the true center of American interests. If we want him to make changes, we need to be the opinion generators that will force those changes to happen. Which is EXACTLY what he told us when he was running, and now.

    Keep pushing and pulling to get where we need to be.

  14. donna

    In other words, he’s a true leader — leading from behind us and making things work behind the scenes. You want change, let’s demand it from the banks. Move your own money out of the big banks, encourage your friends to as well. Move your businesses out of the big banks as much as possible. Take their money away. The government and the banks will start getting the message, and eventually demand regulation on their own in order to re-establish their reputations. This is how real change works.

  15. Haigh

    Re: Cheney-Rumsfield/Geithner-Summers
    Clever analogy but don’t lose sight of the fundamentals.

    From the day Obama entered the Senate its been clear that his idea of change is to change big government into bigger government. Faced with the choice of bankruptcy, nationalization, or bailout, the choice most consistent with making big government bigger was bailout. Geithner and Summers are the hand-tools.

    In voting for Obama America knew it was voting for bigger government, and now its gotten what it asked for; a package that always includes a weakening economy and a lower standard of living, likely to last a decade.

    1. Edward Harrison Post author

      I’m sorry but that is revisionist rubbish. You may think you’re getting big government with Obama but that is not what the bailouts are about whatsoever. Open your eyes and try to see things objectively instead of using buzzword catch-alls.

      The bailouts are about protecting the financial services industry and the people who run it.

      1. Haigh

        >The bailouts are about protecting the financial services industry and the people who run it.<

        Exactly, the fourth branch of government.

  16. Froggy

    It is simplistic to say 8 years hence that Cheney/Rummy/Halliburton/Blackwater/(insert RW boogeyman here drove an intentionally “Neo-Con” foreign policy for no good reason. In the aftermath of 9/11 (which New Yorkers seem to remember less than the rest of us) we had to fight our enemies abroad in order to preserve the country. That wasn’t an option.

    WRT Iraq, Saddam had not only violated 15+ UN Resolutions and had actually gassed Kurds and Iranians, he was acting as if he WAS concealing a WMD program while lining the pockets of the senior reaches of the UN (remember Oil for Food/Kofi Annan, etc?). It turned out that Bush was wrong about two things: 1) WMD and 2) Not introducing a Counter-insurgency strategy in Iraq (or Astan) soon enough. Rumsfeld got bounced for those mistakes.

    WRT to TARP, Bush but especially Paulson did that in the midst of not only a quickly evolving economic meltdown, but also a transition to another administration. Bush spent HALF of the TARP only on emergent liquidity in the banking sector as a bandaid until the Messiah could be officially immaculated on Jan 20.

    Obama has had nearly a year to react to what happened and yet all he has done is to pass a gigantic pork stimulus bill that has achieved none of its intended goals and to push healthcare while Rome is burning around him. He’s a frickin’ ideologue AND an neophyte. He is captured by the far left.

    I have never seen a president outsource policy to Congress the way he has. Effective presidents formulate policy and then solicit support and modification from Congress. He has done nothing on the policy front at all. He is too inexperienced to know what to do so that’s why Geithner/Summers/Pelosi/Reid are running the show.

    There is no leadership ability in this man whatsoever. He is an empty, emotionless void that is only concerned with his personal image above all else. This is a truly frightening presidency.

    1. Edward Harrison Post author


      Let’s get this straight. Nowhere have I editorialized the War on Terror. I do have specific thoughts on the issue. However, the point is not to characterize the decision one way or the other – if you read the post you will see this is so. Your comments are misplaced.

      The issue is the analogue of Rumsfeld/Cheney in Geithner/Summers and how the Obama Presidency will be defined.

      1. Froggy


        “While George W. Bush was politically pre-disposed to the Neo-con world view, it was really advice from Dick Cheney and Don Rumsfeld which made Afghanistan and Iraq possible.”

        I’d say you were making some fairly clear editorial comments on the GWOT based on this sentence. Taken at face value your admonitions would cause me to conclude that there was no other nexis for the wars other than advice from Cheney/Rumsfeld. That is a bit hard to swallow especially for a person who fought in the Iraq war like me.

        It is quite expedient to make this kind of generalization and a useful literary device, but the facts in evidence placed in the context of the situation and what was known at the time do not bear that out.

        It can and will be argued which decisions that were made in the midst of a crisis (9/11 & the meltdown) were wise or not, but let us not forget that they WERE made in a crisis with pressing time constraints and incomplete information. President Obama has not been faced with such constraints and therefore ought not be afforded the slack entitled to a president who was.

        Obama has been forced to deal with the consequences of those decisions, but he has had the advantage of time, a fully Democratic Congress, the pick of the world’s greatest talent, and the goodwill of the planet. And yet he has actually managed to take a crisis response in the case of the meltdown and institutionalize to all of our detriment without providing meaningful change.

        His problem, aside from a total lack of leadership, is a total misplacement of priorities by ignoring the economic problems that persist from the crisis and now obfuscating key decisions about a war he deemed to be of necessity.

        1. Edward Harrison Post author

          Read whatever you want into my comments, it doesn’t make it true. When I say:

          “While George W. Bush was politically pre-disposed to the Neo-con world view, it was really advice from Dick Cheney and Don Rumsfeld which made Afghanistan and Iraq possible.”

          Most people would assume I mean that George Bush was not capable of making the foreign policy decisions on his own given his limited experience. The analogy to Obama-Summers-Geithner being obvious.

          Again, you are using my words to make an irrelevant political point.

        2. Yves Smith


          There is ample evidence that the WMD rationale offered for the Iraq War to the US was largely if not entirely fabricated.

          First, the UN weapons inspectors were in Iraq, going through sites in order of priority, and had gotten through a fair number already. Had we let the inspectors do their jobs, we would have known if Saddam had WMD before invading. And when the UN was in, Iraq, like the entire world, was under US satellite surveillance. If he had anything, given the fact that the UN had already examined most of the high priority sites, he would have had to be moving it around on trucks.

          Second, even if it had had WMD, Iraq had no delivery capability.

          Third, however, the US had already mobilized, it was not going to back down and go through another costly re-mobilization in the fall of 2003, which would have been the right timetable had the weapons inspectors been allowed to complete their task.

          Fourth, the argument re Saddam treating his own people badly, while true, is not a cause for invasion. Our stance here is completely expedient. The US has long tolerated similar, if not worse, large scale human rights abuses in our allies and proxies. They also happen to go unreported in the US media.

          1. Doug Terpstra

            Froggy is clearly inferring things never stated or implied to go off track (and off the rails) on a political rant.

            Indeed the WMD lies, the rush to short-circuit meaningful inspections (the Dowing Street Memo) and ever-changing catalog of post-rationalizations for an illegal, aggressive war have been exposed clearly. Even Powell has expressed regret for his unwitting role in that fisaco.

            This and Froggy’s insistence on beating a dead horse only exposes another maddening failure of our current charismatic CIC: his decision not to investigate or try war crimes so the whole ugly mess can be aired publically and put to bed before the world. Unless you put perps like Cheney, Rummy, or Thain in cuffs and leg-irons, the crazies will continue their crimes, and their many disciples will never get the message.

  17. G

    In regards to this topic, I think the following is slightly interesting. It purports to be an e-mail correspondence between a Democratic party activist working in investment banking and an unnamed writer (and was initially published in the blog Liberal Rapture). Since the names were redacted, I initially believed that it was a hoax – so I set out to disprove it, but eventually determined that it was a genuine correspondence between this individual and Jim Kunstler (who verified the exchange).

  18. jake chase

    Nice analysis of Obama as big mouth empty suit. Being totally ignorant of finance he had to trust someone and naturally he trusted those whose money had elected him.
    The fact that he was more intelligent than Bush (and who isn’t) made a good many intelligent people believe he was more honest. Big mistake. Intelligent folks are careerist too. As for fixing finance, it is hard to fix a swindle when you decide not to punish anybody responsible and make certain none of them loses either prestige or money, and when you compound the crime by enriching them all through the temporary fix which everyone agrees only postpones the problem (and who knows for how long), then you find more than a few otherwise decent people wanting your head on a spike. It is extremely unlikely that the bailout will produce anything but a brief asset bubble, since leverage in OTC derivatives is still at work and all markets are moving in the same direction against the dollar. Maybe next time the guys who made the mess will not be trusted to repair the damage.

  19. GYSC

    I was ambivalent on both candidates, but the fact that Paul Volcker was with Obama made me slant that way. Too bad he has been ignored. Great, balanced piece.

  20. Stelios Theoharidis

    Through every single one of his nominations (minus maybe Van Jones) Obama has presented himself to be quite more moderate than he initially represented himself to be. However, I don’t believe Hilary or McCain would have been much different, given the Clinton’s past relations with Summers and Geitner as well as McCain’s relations with Phil Gram, who, by the way, makes them look like altar boys.

    Part of the issue of listening to the wrong people is that the wrong people insulate you from others. As you mention, it is well known that Summers and Geitner are insulating Obama from Volker, as Cheney and Rumsfeld previously insulated Bush from Rice and Powell. However, is the tail wagging the dog here or is the dog wagging the tail, I don’t believe you have sufficient evidence presented to make that assessment. Given the current circumstances: war, economic issues, and medicare reform, I believe Obama is overstretched beyond his capacity to make meaningful and informed decisions outside the influence of the cadre of moderates that he selected to support him. And, they were very much selected to appease the individuals that brought him into office, not the public that voted.

    It is not simply the Obama Administration that is captured, there is a general capture of the entire beltway and state assemblies. You can see it in the execution of any legislation that has come up in recent history. You should not overestimate the power of the executive versus a generally but not exclusively captured legislative branch. The judicial branch may still be a toss up, that is why you see state and local legal campaigns delivering some results. However, the Supreme Court, will probably continue to make decisions supporting corporate America and the status quo.

    It is too easy to drop this on Obama’s lap when it is a manifestation of 20 years of the finance industry, and corporations in general embedding themselves into both academic, political, and popular cultural landscape. Finance is just the tip of the iceberg as far as government capture is concerned. We live in a country where being elected into a position of power means you may have gotten at best 20-25% of eligible voters approval. You become a slave to concentrated interests in the process of getting into public office, and then are confronted with a legion of lobbyists and influence peddlers when you get there.

    These issues are structural and entrenched. Believing that a President would stop or even slow down the oncoming locomotive is naive at best. The solutions are really all out there, but almost no one in Washington is listening, and no one will until this pandemic problem of capture is resolved.

  21. David

    Jake “Nice analysis of Obama as big mouth empty suit. Being totally ignorant of finance he had to trust someone and naturally he trusted those whose money had elected ”

    Sorry, Obama is doing exactly what he said he would do, “bankrupt the coal companies, Fundementaly change the US, remember to Obama and his chief of staff, this crisis is an opportunity.

  22. David

    In about a one year time frame he may have moved an additional 30% of the GDP into the hands of the goverment.

    The man has an agenda, and crisis is his friend, this is classic politics.

  23. David

    The more unemployed, the greater the “need” for goverment protection.

    “This and no other is the root from which a tyrant springs; when he first appears he is a protector.” Plato

    Yes indeed, classic politics

  24. Michael Fiorillo

    Years ago some very Big Men glanced in Obama’s direction and nodded. Since then he has had a magical mystery tour of Harvard Law – where, according to classmates, he could be dependably relied upon to make the most eloquent case for the most conventional position – the University of Chicago (!!!) and brief apprenticeships in public office. A brief glance at his campaign contributors – and recall that he refused public financing of his campaign – show it infested with names from finance. Whether his captivity is by choice or compulsory matters not at all; he is captive to the predations and parasitisms of finance capital.

    Despite his eloquence and personal attractiveness, he is largely a marketing phenomenon. It’s small wonder that his own people refer to “brand Obama,” and he himself has written about how he is a blank screen that people project their own subjective desires onto.

    As a public school teacher, I see him as far more dangerous than McCain, since he is moving aggressively to privatize the public schools in a way that McCain could not have pulled off.

    The ultimate test will be to see what he does about Social Security. He campaigned in favor of doing the right thing to shore up its finances: raising the income ceiling on SS withholding taxes. My guess is that political exigencies, or the self interest of his backers, or both, will lead him to try to privatize that as well, in the name of “fiscal responsibility.” it will be the ultimate “Nixon goes to China” trick.

  25. craazyman

    Good stuff Ed. Very nice summary and overall point of view.
    I’m appalled. Really, the depths of cynicism of all this are sort of emotionally traumatizing to my sensitive psyche and anything I can say is redundant to all the articulate and impassioned thoughts here and elsewhere including Lavrenti Beria’s link, which I read. When I saw the Obama Joker image I didn’t think socialist at all but that the jokes on us for electing this “messiah” and believing through a form of poetic faith that we weren’t really watching a movie. But that facial expression on the poster said it all. I’m pretty a-political really, I’m lazy and self-centered and I’d rather drink a beer and spout my nonsense than really do anything. But am astonished the Big O Administration doesn’t see the bankster looting and bonuses with the same moral lens as they’d no doubt see compromising with Jim Crow or bailing out some slave industry — or else the cotton wouldn’t get picked and we can’t have that, can we, And while we’re at it, let’s keep the Lords of the Manors in their plantations because we need their talent and the southern senators won’t go for the rough treatment, like having the Lords move out of the house. And that’s not just due to Obama’s background, but to the national zeitgeist, which in that case is dead-on-appropriate. And Yeah, yeah, that’s a hysterical analogy, I admit. But the willingnes and ability of repulsively familiar technocrats to work the back channel chessboard on this one misses the hunger for moral clarity that got the Big O elected in the first place. Suffering for a cause is noble and inspiring and people would rally to it, but suffering for banker looting under the abstract notion that it’s in “your best interest or the system will crash” presumes so many lacunae where responses might have been mounted as to be a holey mess. Chump Nation, we are. Chump change we’ve gotten. This isn’t going to go well politically for the messiah. By their fruits, ye shall know them. Messiahs are tough acts to live up to. Yes, there’s still time and he might find his legs yet. But as a lifelong bleeding heart liberal-type — when I pay attention anyway to politics, which I try not to. I’d rather watch football and read about weird stuff like multi-dimensional life forms and transitory apparitions, like Bigfoot — I have to say, when the Republicans took New Jersey and booted that Goldman Sachs dude and Virginia, my home state — I said, “Thank God.” And my joy was a shocker to me. At this point, I’d be for a Teddy Roosevelt/Eliot Spitzer ticket. Yeah I know TR is dead, but our current crop of politicoes is so lifeless it could only be an improvement to have even TR’s corpse back in charge to bust the trusts, and make a few more National Parks. And Mr. Spitzer would know how to treat the financial shills, probably. I couldn’t care less about his interludes in Washington. I thought that girl was pretty hot, but I wouldn’t want a long-term relationship with her either, so making it a business deal keeps it all clean and above board. Better that than the banksters and their sleaze, in my book. But I couldn’t afford her, so it’s all a moot point. I can’t afford the banksters either. – Monologus Rex

    1. gordon

      Teddy Roosevelt’s corpse might cause some difficulties, particularly on TV appearances. Interviews might be a bit slow and lack punch. Even now, the smell could be a problem.

      A little while ago on another blog, in response to a commenter whose views were much like yours, I offered myself as Podesta for the US, for maybe a couple of years of knocking heads together. My qualifications include still being alive, being a white male, 61 years old, a widower, literate and numerate, having an idea of there really being a thing called the public interest, retired, and Australian. After my little term I would be very happy to return to suburban retirement on the other side of the Pacific. All I would ask would be a modest salary and all found, and a sufficient armed guard. My objective would be good government and the opportunity to get enough cash together to help my son buy a house. That’s it.

      A modest offer, but maybe better than the defunct Mr Roosevelt.

  26. gordon

    There is also the sheer career dynamic of the US Presidency. It’s only 8 years at the most. What then? Retirement? Pres. Obama no doubt has a career plan which extends more than 8 years into the future. Unless a real antique is elected, who is obviously at the end of his working life, this will always be a factor in the behaviour of US Presidents.

  27. DownSouth

    For this is a general rule that never fails: a prince who is not wise himself cannot be wisely counseled… An unwise prince, having to consider the advice of several counselors, would never receive concordant opinions, and he would not be able to reconcile them on his own… Therefore I conclude that good advice, no matter where it comes from, ultimately derives from the prudence of the prince, and the prudence of the prince does not derive from good advice.
    –Niccolo Machiavelli, The Prince

    PBS produced a video concerning the presidency of Lyndon Johnson. Johnson was certainly no saint, but just compare the following episode to how Obama has conducted himself in office. As far as a leader is concerned, there is only one word to describe Obama: Pathetic. PBS also has a program on Franklin Delano Roosevelt which is replete with examples of great leadership. But Obama pales in comparison to some ambiguous character like LBJ, much less someone truly great like FDR:

    Rep. James Pickle: But he had enough sensitivity that he knew that all hell was going to break loose if we didn’t do something about it.

    Narrator: Civil rights workers laid siege to a segregated society. There were sit-ins at lunch counters, on trains and buses, in hotels and theaters, forcing Johnson to act. When some of Johnson’s aides advised him not to lay the prestige of the presidency on the line, he responded, “What’s it for if it’s not to be laid on the line?”

    Roger Wilkins: He said over and over and over again in those days, “I’m going to be the president who finishes what Lincoln began.” He said it over and over again. Well, it was great rhetoric, but you also knew that it was a great reading of history, that if, in fact, he could accomplish that, he’d have belonged up there on Mount Rushmore.

    Narrator: A bill to prohibit the segregation of blacks and whites in public facilities had been put before Congress by John Kennedy, but it was stalled. Johnson determined to act.

    President Johnson: This bill is going to pass if it takes us all summer and this bill is going to be signed and enacted into law because justice and morality demand it.

    Roger Wilkins: All of a sudden, there was a power and a force behind this kind of legislation that we hadn’t seen in the Kennedy time and with that, my view about him began to change.

    Narrator: The full force of the Johnson treatment, perfected in the Senate, now became a weapon in the arsenal of the presidency.

    James Farmer: He was on the phone with Republican senators and with Southern Democrats and he was bargaining with them. He was telling them about some bridge that they wanted back home or some dam that they wanted. And he would help them with that if they would help him with this and give him this thing that he wanted, that the whole nation wanted and the nation had to have. And he was also reminding them in not-too-subtle tones that if they didn’t support him, he would have ways of getting back at them.
    Jack Valenti, Special Assistant to the President: So in those days, we played hardball. My catalogue included a number of Southern congressmen where you had to say — they’d say, “Well now, Jack, there’s no way I can vote for that,” and I’d say, “Well, Mr. Congressman, I know you’ve got this, this and this that you want and I don’t think we’re prepared to deal with you on that unless you’re going to be responding to some of the entreaties from the president.” We let them know that for every negative vote, there would be a price to pay.

    Rep. James Pickle: And he kept saying to his Southern friends, “If I can advocate it, as president, you ought to be able to vote for it in your constituency. This may be the best chance we’ll ever have. I think we got to change our way of doing things.” It’s not like a Yankee from New York we got to do this. This was a Southerner saying it ought to be done and that helped. It didn’t help a whole lot because the Southern boys, they knew that they again were going to catch heck for it.

    Roger Wilkins: That’s what he got from the Southerners , that, “You’re killing us by loving up the niggers. You’re ripping the party apart here. You’re hurting us.” And Johnson’s answer was, “This is what we’ve got to do and this is what I’m going to do and this is what the Democratic Party is supposed to do.”

    Narrator: Once again, the leader of the Southern Democrats, his old friend and mentor, Richard Russell, stood in his way.

    Senator Richard Russell: But we are not yet ready to surrender in our opposition to this bill which we feel is a perversion of the American way of life.

    Jack Valenti: And he said to Dick Russell, “I want this Civil Rights bill passed and you nor no one else is going to stand in my way.” And I remember Richard Russell said to him, he said, “Well, Mr. President, you may do it, but I’ll tell you what — it’s going to cost you the South and it will cost you an election.”

    Narrator: Southern senators prepared to filibuster — to prevent the bill from ever coming to a vote by talking it to death — but Johnson was not to be denied.

    Joseph Rauh, Jr.: What the president did was to say, “They can filibuster till hell freezes over, I’m not going to put anything else on that floor,” so the filibuster couldn’t win. And that was Johnson’s great contribution to the Civil Rights bill.

    Narrator: The debate paralyzed the Senate for 83 days. It was the longest filibuster in Senate history. And then, the Senate voted to stop the talking. The bill passed. That same evening, at two in the morning, Johnson reached Congressman Jake Pickle, one of only six Southerners to vote in its favor.

    Rep. James Pickle: And he says, “No, Jake,” he says, “this is your president.” He said, “I know it’s late and I know where you’ve been.” I said, “Where have I been?” He said, “You’ve been out having a few drinks and trying to forget that vote you cast. You voted for the Civil Rights and you’re trying to forget it.” And I said, “I sure am.” And he said, “Cause you’re going to catch heck, aren’t you?” And I says, “Yes, I’m afraid I will.” He said, “Well, let me tell you — the reason I keep calling is I want you to know that your president is extremely proud of you.” He said, “I had chances to do something like one year as a congressman,” he said, “and I didn’t.” And he said, “I’ve always regretted.” He said, “You did something I thought was basically right and I didn’t want this night to go by until I called on you personally to tell you how proud I am of you.” He said, “I am. Now,” he said, “go to sleep.” Well, of course, I couldn’t — between the vote and that call, it was hard to go to sleep then.

    1. Doug Terpstra

      Thanks, DownSouth. An 83-day honest-to-God, genuine filibuster. Why can’t we have one of those today? It would be so instructive to have wall-to-wall C-Span coverage of that. Why is it the lazy bums in DC get all wobbly and bend over whenever anybody says the word?

      Johnson said later that he knew he had split the Democrats and Dixiecrats over Civil Rights and lost the South to Republicans for a generation. He was right, but that generation has finally passed. After LBJ’s sacrifice, if Obama does not now seize his own political moment standing on Johnson’s shoulders, it will be a terrible, historic tragedy.

      1. craazyman

        He’s the only president with a male body part named in his honor.

        That’s why.


  28. David

    Great story about Johnson, civil rights we can be proud of; sadly the welfare state that ensued, directly leading to the destruction of the black family, as well as causing Black crime and incarceration to soar was a disaster, and only made worse by those who pandered to the “we are owed” mentality.

  29. Hugh

    I agree about Prompt Corrective Action with regard to the banks. The banks needed to be fixed, not bailed out. Recapitalization would have been part of that but at the price of their restructuring. Of course, this never happened.

    Ruben and the Chicago boys like Goolsbee were much more influential than Volcker in influencing Obama. When the Citi stuff blew up, Ruben went deeper into the background but his place was taken by the like-minded Summers and their acolyte Geithner. Volcker just added some gravitas and Buffett some further cred.

    Re the TARP, Obama helped garner Democratic support for it. But there was very much a deal associated with it. As the first chunk was spent, Congressional action was needed to free up the rest. The deal was basically to split it 50-50. $350 billion went to the Bush Administration and $350 billion went to the future Obama Administration to spend.

    I shouldn’t worry about comparisons to Herbert Hoover or calling Obama a one-termer. I started writing about those months ago. There was quite a bit of blowback at the time but as things have evolved many of those involved have become harsh critics of Obama in their own right. Obama’s only hope of a second term is if the ever kooky and imploding Republicans throw up another ghastly candidate to run against him. On the merits, Obama would otherwise be toast.

  30. gizmo

    My take on Obama and his team is that they are scared silly. Just about every policy position they have taken thus far is rooted in fear. They are facing ominous challenges on all fronts, so they have calculated that they can’t afford to rock the boat too much and alienate Wall St., the insurance companies, Big Pharma, the banks, etc. And Rahm Emmanuel is mindful that the Democrats will have to raise a lot of cash to finance the mid-term elections in 2010, so that’s another reason not to aggravate any of the major donors.

    I don’t think we are going to see anything resembling transformational change from Obama until he wakes up with very little time left in his term in office and realizes that he hasn’t been bold enough. He’s already squandered much of the opportunity that he enjoyed early on, and it’s likely that the mid-term elections will produce a Congress that is even more hostile to his agenda, so the changes of real Change are diminishing by the day. I’m not optimistic about where things are headed.

  31. Justicia

    Folks forget that Obama (and the Dems) got more money from Wall Street than they did from Main Street via the “netroots.” So why are we surprised that he’s responding to his monied constituents.

    All of our politicians are for sale. Until we end the system of legalized bribery (aka campaign contributions) we will have the worst government money can buy. Get the money out of politics!

  32. moneta

    When it takes months for boards to choose a printer or make other decisions where they actually have the competencies, I find it mind boggling that anyone would expect the President to overturn an entire industry, an incredibly important one at that, in a couple of months.

    Most pros in finance can’t even agree on what needs to be done, and everyone is expecting the President, who was probably not even an expert in the matter in the frist place, to snap his fingers and fix the problem in a jiffy.

    The World just can’t shake off the pent-up shrt-termism.

    Wake up people. You obviously have been deluded for way too long.

    The correction will not be fixed by anyone in particular. Only time will do the job.

    1. Hugh

      Your argument has no weight. It is like you are telling a drowning person not to make any special effort to save themselves because water is hard to overcome. We are living through the greatest economic crisis of our lives. Business as usual just doesn’t cut it.

      1. moneta

        I’m not saying not to do anything. I’m just saying our leaders won’t get us out of it.

        I think the changes are going to come from the people, not the leaders. One person at a time.

  33. Mickey Akron, Ohio

    Having read the posts since my last, I’m confounded by the both the IMPATIENCE and VITRIOL heaped on Obama. How long has this storm been brewing? Have we become so mesmerized by the “point and click” mentality to believe that this can be fixed in 10 months? No, I make no excuses for the President. But he is not operating in a vacuum! There are powerful opposing forces in place with which he must deal. Indeed, LIMITED GOVERNMENT is predicated on such forces. If he ran roughshod over them then he would be accused of dictatorial aspirations just as Mr. Bush was by his detractors. Yet, somehow the debate, however heated or shrill, continues.

    Ed’s analogy of the Cheney/Rumsfeld – Summers/Geithner is useful insofar as it is suggestive of the “groupthink” mentality that ALL “insiders” are susceptible to. But my question is whether we’re talking about two distinct “groupthinks” that can be simplistically defined as Republican or Democrat or the “groupthink” that transcends these two and is reflective of the narrower common groupthink shared by members of the ruling elite.

    It is the common enduring themes of this ruling elite “groupthink” [consensus might be more appropriate] that transcend political party affiliation that explain why incremental policy-making is more the norm in American politics than it is the exception. Andrew Bacevich, an academic at Boston Univ, has written a number of books that focus on the historical continuity of this consensus. And as I watched the camapaign debates, etc it became clear that Obama reiterated many of these same themes. Hence, ‘CHANGE WE CAN BELIEVE IN’ was nothing more than an appeal to reform, when and where possible, not revolution! Reform that would take time because the movement for such sustained reform remains to be built. He has said as much on several occasions. Let’s not forget that.

    But it’s still the relatively narrow boundaries of this ruling elite groupthink that must be critically analyzed and reformulated. For example, so long as the ruling elites’ concept of PROGRESS remains the only one, how will an alternative to it ever materialize? Clearly, the emphasis on ever expanding economic growth enables this elite to avoid any serious disucssion of its equity and distributive justice… All boats will be lifted – rowboats and yachts alike, right?

    Ed’s analogy is more interesting for what it says about what Cheney/Rumsfeld – Summers/Geithner SHARE IN COMMON than what separates them.

    1. moneta

      I agree. I also think Obama will make the chages when the people push for it.

      There is still too much apathy right now.

      1. David Mercanus

        Very true. Most people don’t understand this dynamic, which is essential to overcoming the power of major donors. Obama…or almost any President…will listen when they are forced to. He said so himself. FDR said the same thing…”make me do it.”

        Look at health reform. It’s happening. It will happen. But there is not similar grassroots effort supporting financial reform.

        Financial reform grassroots movement must begin now.

      2. Edward Harrison Post author

        That is what this is all about, isn’t it. We want to have influence politics toward a better outcome. Some people have given up, thinking ordinary citizens can’t have influence. I agree with your sentiments that you make a difference at the grass root level.

    2. Edward Harrison Post author

      I owe a few of you a reply. First, I am going to reply to Mickey here and then hopefully the others who asked me direct questions.

      I understand where you’re coming from Mickey and I understand your perspective to be centered on a belief that Obama actually does want change and this change will take time. I asked readers at Credit Writedowns in July whether they felt this view accurate. 75% said no, despite my including 4 different yes answers to 1 no answer response.

      My polls archive is below.

      Obviously, my readers are not typical of all Americans. Nonetheless, I took this to mean that there is a deep sense of mistrust about Obama and that his policies had undermined the perception that he is a change agent.

      So, when you see people’s impatience, this is one source of it.

      My own feeling, summarized in the post is that Obama has had many opportunities to affirm his desire to act as a change agent and has repeatedly failed to do so. He has taken a number of positions in finance and elsewhere that, while cautiously middle-of-the-road, were not demonstrably different from what one would have expected of, say, John McCain or Hillary Clinton as president.

      Is that change we can believe in? That’s what I asked at the end of the post. Is he an incrementalist, so we will see the change over time (as 6% in the poll said)? You are saying he is. Others are saying he is not.

      At some point this weekend or Monday I will post on why I think his policy decisions (especially the ones on stimulus and bailouts) have not politically beneficial – in part due to a post I saw by Paul Krugman and the chatter in the political blogosphere about the 2009 elections in VA, NY and NJ.

      1. moneta

        In my mind, if Obama did what most seem to want, there would be deleveraging and fast. Much more than we have been witnessing now.

        Deleveraging would, in the short term, cause a lot of pain to a lot of people. Probably more than we have ssen up to now. And that would be his demise.

        He is stuck between a rock and a hard place. No decision he makes will lead to a consensus. EVERY decision will lead to PAIN. We are making all kinds of assumptions without even knowing half the stuff that is going on behind closed doors.

        People are expecting way too much out of him. Instead of looking up to him, they should be looking at how to fix things in their own lives and those of their loved ones.

        Start grassroots operations instead of just complaining.

        1. Edward Harrison Post author

          Moneta, the key was to prevent a downward spiral – which he did. The question however was how best to do that.

          Bailouts are one way. Asset seizure is another. Both would arrest a deflationary spiral. So I think your fears about pre-privatization increasing deleveraging can be put to rest.

          Bailouts create a level of socialization of losses that nationalization or FDIC seizure do not.

          1. moneta

            IMO, both lead to a socialization of losses.

            And by the way the road to bailouts was chosen before got the baton.

  34. Dan Duncan

    Obama has split the Progressives into the camp that thinks healthcare reform is the number one priority, and those that think financial reform should be paramount.

    The result is that the Progressives who think we need financial reform first have been deserted. Where to turn? These Progressives, as a result, have an end in mind that’s more aligned with Libertarians of a Mish Shedlock.

    Financial Reform Progressives and Shedlock Libertarians want a smaller Wall Street: Progressives by regulation and Shedlock Libertarians by a refusal to let the government bail them out.

    Obama’s decision to continue the Bush/Paulsen/Geithner approach has done irreparable damage to the Democratic/Progressive movement. It has split the Movement in half and fractured any hope of meaningful change.

    Think 911 Light: Bush had the opportunity to effect REAL change…and blew it. Now, so has Obama. All we have left are Fragments of Movements…and incompatible bedfellows.

  35. David Mercanus

    I think it may not only have been inadvisable politically to nationalize the big banks….but it may have been operationally inadvisable as well.

    You and other critics never seem to acknowledge that such nationalization could have been a total political and policy disaster. I think it was risky. I think the administration made the right call on this.

    I think your analysis of “blinkered and blindered” is off the mark. I think their eyes are as wide open as yours. Judge their decisions, that’s fine…but when you get into analyzing the psychology of people you don’t know, especially with behaviors that are not represented in prior actions (unlike Bush, Cheney,, Obama does not have a history of capture and rigidity) you are guessing blindly.

    1. Edward Harrison Post author

      David, I’m not making a psychological assessment. It’s irrelevant what their intentions are. What I care about is the incentives (i.e. motives) and the actions they engender.

      As for pre-privatization, I would argue it is bailouts which were riskier and have done so in the past.

      See my Larry Summers post:

      Remember, GM, Chrysler, AIG, fannie and Freddie have all been effectively nationalized. Are you telling me Citi could not have been? That is not a persuasive argument.

      As I see it, the Obama Administration’s economic team made a calculus that understated the severity of the economic downturn in conducting economic policy early on. That is why they provided little and back-loaded stimulus and also why they felt they could get away with bailouts without inducing bailout fatigue and a backlash.

      This was a policy error, plaim and simple – and it is one now being used effectively by the GOP to discredit Obama. Two weeks before he entered the White House I said:

      Edward here. The long and short of Krugman’s fuller analysis is that this will NOT be enough stimulus to provide the economy the boost it needs. Moreover, Krugman asserts that the lesson learned if it comes up short is that government spending does not work. Therefore, Obama will be less likely to receive monies if he tries to add stimulus a second go ’round.

      I tend to agree with Krugman’s political calculus here. Obama has one shot. From a political standpoint, he should be opting for massive stimulus and look for that to be cut back to a more palatable level in negotiation. However, he seems to be treading a cautious line, looking for bipartisan support that he may not receive.

      I see this scenario as very negative for the U.S. economy. First, you have huge government spending that requires additional borrowing by the U.S. government. But, this spending does not give the economy the needed jump start to pull out of the deflationary spiral.

      This is EXACTLY what has happened – and my post having been written a full 10 months ago says it was all too predictable.

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