Obama’s Problem Simply Defined: It Was the Banks

By James K. Galbraith, the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. He teaches at The University of Texas at Austin.

Cross-posted from New Deal 2.0, this post originally appeared at Common Cause.

Obama must break his devil’s pact with the banks in order to succeed.

Bruce Bartlett says it was a failure to focus. Paul Krugman says it was a failure of nerve. Nancy Pelosi says it was the economy’s failure. Barack Obama says it was his own failure — to explain that he was, in fact, focused on the economy.

As Krugman rightly stipulates, Monday-morning quarterbacks should say exactly what different play they would have called. Paul’s answer is that the stimulus package should have been bigger. No disagreement: I was one voice calling for a much larger program back when. Yet this answer is not sufficient.

The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.

Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail — with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.

But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”

The banks threw a party. Reported profits soared, as did bonuses. With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed — until the fact came out that they’d so neglected basic mortgage paperwork, as to be unable to foreclose in many cases, without the help of forged documents and perjured affidavits.

But new loans? The big banks had given up on that. They no longer did real underwriting. And anyway, who could qualify? Businesses mostly had no investment plans. And homeowners were, to an increasing degree, upside-down on their mortgages and therefore unqualified to refinance.

These facts were obvious to everybody, fueling rage at “bailouts.” They also underlie the economy’s failure to create jobs. What usually happens (and did, for example, in 1994 – 2000) is that credit growth takes over from Keynesian fiscal expansion. Armed with credit, businesses expand, and with higher incomes, public deficits decline. This cannot happen if the financial sector isn’t working.

Geithner, Summers and Bernanke should have known this. One can be fairly sure that they did know it. But Geithner and Bernanke had cast their lots, with continuity and coverup. And Summers, with his own record of deregulation, could hardly have complained.

To counter calls for more action, Team Obama produced sunny forecasts. Their program was right-sized, because anyway unemployment would peak at 8 percent in 2009. So Larry Summers said. In making that forecast, the Obama White House took responsibility for the entire excess of joblessness above eight percent. They made it impossible to blame the ongoing disaster on George W. Bush. If this wasn’t rank incompetence, it was sabotage.

This is why, in a crisis, you need new people. You must be able to attack past administrations, and override old decisions, without directly crossing those who made them.

President Obama didn’t see this. Or perhaps, he didn’t want to see it. His presidential campaign was, after all, from the beginning financed from Wall Street. He chose his team, knowing exactly who they were. And this tells us what we need to know, about who he really is.

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  1. Dugan Came From Boosh

    Softball article that asks for a few pink slips instead of jail cells and gangster insolvency. The whole schmeer is bought and sold. Most annoying type: “they’d so neglected basic mortgage paperwork” Just shoddy paperwork, eh? That’s all they did?

    1. alex

      You missed the part where Galbraith wrote “prosecute the frauds”. Methinks Bill Black would approve.

    2. i on the ball patriot

      There is more than a softball article here, its a desperation piece, folks are rapidly waking up to the intentional treason involved and all of these slime are VERY aware of it and walking on eggs. Bush is out now selling his book to legitimize; his invasion of Iraq, promoting torture, and ignorance of his very intentional financial decisions and regulators turning blind eyes. He is actually trying to blame the regulators. What a cry baby weasel.

      ALL of these sell out scum bag traitors are working overtime finger pointing and trying to keep alive the fantasy cover up voo doo economics and Ayn Rand ‘free market’ bullshit in order to avoid the coming retribution. They know they are in deep shit and are running scared. They should be the people are not buying it!

      If you listen very carefully you can almost hear the rope being made and the bugs and vultures rushing to the lampposts.

      Couldn’t happen to a nicer bunch of crud human beings.

      Deception is the strongest political force on the planet.

      1. Rex

        “They know they are in deep shit and are running scared. They should be[,] the people are not buying it!”

        Some people may not be buying it, but most of the people have again proved themselves to be deluded idiots. The results of the last election seem to show many people flipping back toward the darker side because they didn’t get any short-term gratification since the last election. The only good news was that they managed to reject the few craziest of the crazy Tea Party people.

        So that’s the most recent metric. I’m becoming convinced most people can only remember back about two years without help. If you help them with lies then they will remember the lies as fact for the next two years.

        The sheeple are mad that the economy sucks, but now they are pretty sure it is time to reduce the national debt which Obama has raised with with the spending half of his “tax and spend”. All BS, of course, but more proof most people are stupid.

        The people are mad, but yank on their leash and they will bite at whoever you put in front of them. I’d like to see some of the worst get what they deserve, but I’m not optimistic, and I am getting less so as time passes.

        1. Chris

          Not so sure that people “voted” them back in. I think a lot of folks are pissed and just plain sat out. Obama not only failed, but his administration disrespected and insulted his base.

        2. i on the ball patriot

          “Overall, turnout in the midterm elections was projected at 42 percent of registered voters, about 1.2 percentage points higher than in 2006.”


          58% BOYCOTTED the elections and stayed home in spite of massive expenditures to “get out the vote” and in spite of the piss poor economy. The people are on to the electoral scam and they see that they have been brainwashed to false values. The coming higher food and energy prices will cause empty wallets and empty bellies that will help them course correct those values. The student is awakening the master will appear.

          Watch the cops and the military, they are always the ultimate tell. Discipline has a way of breaking down when they are asked to turn their guns on their own families.

          Deception is the strongest [political force on the planet.

          1. i on the ball patriot

            Doublespeak is deception.

            Deception is the strongest political force on the planet.

          2. RobW

            Ok, you know there’s a difference between not voting and boycotting the election, right? For it to be the latter, people have to, you know, say that’s what they’re doing. Your comment is the first and only use of the word “boycott” I’ve heard regarding the 2010 vote.

            58% of the voters didn’t vote. As usual. Don’t be so dramatic. It’s not the coming of the revolution, it’s just another midterm. It’s just presumptuous to invent motives for the inactions of other people just because it suits your fantasy of what the world should be.

    3. vick

      obama rocks, and in 10 or 20 years all idiots will realize his larger-then-life achievements, fastest economic recovery, and near-perfect executive decision making.

      1. karen1p


        Obama is in bed with the banks. He has not instructed anyone to prosecute. His HAMP program is a “fast-forward foreclosure program.” He is useless.

  2. Opinionated Bloviator

    Tax and Spend, Print and Bailout, Demagogue and Confiscate, Panem et Circences = Hope and Change. The coming economic collapse down to the Untied States of Mexico/Argentina, brought to by the end of the rule of law and Wall Street. To Big To Fail, To Unaccountable To Trust, To Broken To Save.

    1. alex

      “Demagogue and Confiscate”

      That’s Galbraith alright. He’s advocating the sort of socialist expropriation that was practiced by the Reagan administration during the S&L crisis. Guess all them pinkos think alike.

      1. Francois T

        “socialist expropriation that was practiced by the Reagan administration during the S&L crisis”

        Are you for real or just being a provocateur?

        One forgo property rights in case of systematic fraud.

        It’s about the rule of law; why should anyone wants to politicize that, unless he/she agreed with the fraud?

  3. scepticus

    And now ron Paul will get to have his own crack at destroying the dollar.

    I bet he’ll be far more successful than bernanke ever was.

  4. KFritz

    Good call on Krugman. He’s been the sound of one hand clapping for at least 18 months. Calling for stimulus, but no mention of the harsh correctives needed to restore health.

    This reader is not entirely sure that Obama groks the totality of the economy. It looks as though he believes that he’s done what’s necessary to restore the American economy to its last previous (relatively) healthful condition. The exhortations of Krugman and Stiglitz during the White House dining room debate with Geithner and Summers weren’t enough to show him the error of his strategy. He doesn’t recognize Financial Capture as “Capture.” To POTUS that’s the way it’s supposed to be. Much luck to us, his ‘subjects.’

    1. alex

      Krugman does have a blind spot when it comes to out-and-out crime. He always looks for an alternative explanation. During the Enron/California blackouts he explained a model that showed no actual foul play was required for the explanation. Then tapes were made public with such charming exchanges amongst Enron traders as:

      “All the money you guys stole from those poor grandmothers in California?”

      “Yeah, grandma Millie, man”

      “Yeah, now she wants her f——g money back for all the power you’ve charged right up, jammed right up her a—— for f——g $250 a megawatt hour.”

      1. Enkco

        There I believe there was also a point when oil was peaking post 2008 when Krugman insisted it could not be a bubble, since the market always reflects the true price, or some such. Pure classical economic dogmatic crap.

    2. Francois T

      “This reader is not entirely sure that Obama groks the totality of the economy.”

      Well, I can tell you this reader is entirely sure that Obama does not grok the totality of the economy.

      Keeping Geithner and Summers despite multiple failures? That’s your proof right there.

      Hopefully, a successful primary challenge will remove him in 2012.

  5. Peter T

    Summers is gone, and Geithner as the economic point man of the Obama administration has failed, which is now obvious. Obama should fire Geithner as soon as possible.

  6. Brent Eubanks

    Actually, Obama’s problem is more fundamental. It’s adherence to the myth of infinite growth. Only under the influence of this myth does “getting credit flowing again” sound like a solution to a crisis triggered by overleveraging. Within the scope of conclusions permitted by this myth, supporting the banks (however distasteful it might or might not be to him personally) was the only way forward, the only way back to business as usual.

    Unfortunately, Obama never understood — still does not understand — that business as usual is OVER. Reform or plutocracy are the only paths forward from here.

    Unfortunately, if you go blindly forward, you will always go down the easier path. And, lo, welcome to this week.

      1. carping demon

        But still, just a myth. Like geocentrism. Lets people feel good, but useless for prognostication.

      2. Brent Eubanks

        Yeah. It’s amazing the number of adults (the vast majority of Americans, at least) that believe in the Infinite Growth Fairy. She’s like the Tooth Fairy with a mohawk, pierced nose, and a bad attitude. And she’s every bit as real as the Tooth Fairy or Santa Claus.

    1. F. Beard

      It’s adherence to the myth of infinite growth. Brent Eubanks

      I believe in infinite growth; I think the problem is that we are required to pay exponential interest for our medium of exchange as Michael Hudson recently pointed out:


      Actually, government money should be created debt and interest free. Usury should be left for the private sector assuming it could survive there (which I don’t think it could for long).

      1. Toby

        Infinite growth of what? Cars? Houses? Widgets? Population? That is of course impossible, whether you believe it or not.

        Why is economic growth necessarily good? After a certain level of comfort and access to good food, clean water, transport, housing, warmth, education etc., why ever more stuff? The happiness-feeling flatlines after around a $60,000 income is reached, where $60,000 is merely a number denoting an income that affords the basics + some comfort and freedom of movement. It’s not perpetual growth that society needs, but something far more subtle which economics and markets don’t consider beyond the Magical Invisible Hand.

      2. RobW

        Usury should be left for the private sector assuming it could survive there (which I don’t think it could for long).

        Right. Which is why the very concept of usury is an archaic ancient idea that thankfully faded away of its own accord in the thousands of years since its invention.


        So, if usury couldn’t survive in the private sector, where exactly did it come from and why did laws need to be enacted against it? Looks to me like it thrives mightily in the private sector absent public (gov’t) intervention to prevent.

        Never seen any payday loan centers in your neighborhood, I take it. Or did you think the government put them there?

    2. Chris

      Obama still has no idea what is going on with the economy and the banks………He is a deer in the headlights and it is really showing now……He thought charisma could change the world. A smile, hand shake, a few “inspirational” speeches and the world would see him as the second coming……
      He is a fraud. He might be a decent person, who knows, but his naiveté has made him look more like a fool than a leader. The banks will b-slap him again soon when they come asking for more accounting changes or a free pass regarding the fraud and robo signing. No one in Washington had the sense to hold the banks accountable when they came with their hands out, and they appear to be just as self serving today. Money rules Washington and banks rule money, no one rules the banks.

  7. Pixy Dust

    Thank you for posting this fine man’s competent analysis. I had hoped at the beginning of his term that President Obama would select James K. Galbraith or Michael Hudson as his economic advisor. Things would be very different today. The immediate sense of betrayal I and others felt when he appointed Summers and Geithner to important positions in his administration suggested he did not understand the electorate that gave him vast decision making power. When he reappointed Bernanke, our worst suspicions were confirmed. Four more years of Wall Street’s insider circle-jerk at the tax-payer trough.

    Obama now has an opportunity to make things right for the vast majority of American people. Let’s hope he doesn’t continue to reach across the isle only to get his hands lopped off again. That obviously hasn’t worked. It’s time for good advisors and strong leadership. That requires real commitment.

    1. lambert strether

      What do you mean, Obama reaching across the aisle hasn’t worked? It’s enabled the banksters to keep collecting monstrous bonuses, keep throwing people out of their homes, and evade any legal accountability for accounting control fraud. What’s not to like?

      Seriously, at some point, the best test of intention becomes outcome. Just because Obama’s policies don’t “work” for you, doesn’t mean they don’t “work” for the small group of kleptocrats who own the government and run the country, right?

      1. Doug Terpstra

        “Seriously, at some point, the best test of intention becomes outcome.”

        Yup, another guy said something similar a while back: “Watch out for false prophets. They come to you in sheep’s clothing, but inwardly they are ferocious wolves. By their fruit you will recognize them … a bad tree cannot bear good fruit. Every tree that does not bear good fruit is cut down and thrown into the fire.” (Matt 7:15-19)

        Time to tune and sharpen the chainsaw and stoke a good bonfire for 2012.

  8. Jeff Gomes

    He hasn’t called for a foreclosure moratorium, many people will hate him for the rest of their lives just for that alone.

    1. Glen

      Funny thing, those people already hate him, and he cannot ever change that no matter how much he tried. Obama’s real secret to anti-success is to make the people that voted for him, no longer care, or in some cases even, hate him. Most of the people that supported Obama have given up, after seeing that he doesn’t support them.

  9. Glen

    The bank bailouts were hated by the American public who can at least smell a rip off even if they cannot explain the details. Obama could have recovered from this early on by starting investigations and taken action to figure out what’s happen even if he did not want to take any positive action dealing with broke TBTF banks and Wall St firms.

    Instead, it was a cover up, a white wash. And on top of that were rosy economic predictions which were wrong, and the slow uncovering of massive fraud and corruption. By the beginning of 2010, Obama’s inaction and silence on this issue has almost singlehandedly resurrected a Republican party that was dead in early 2009.

    Now, it may be too little too late if Obama takes a stab at fixing it all. He has decided he will hang on and hope for the economy to recover or hope to convince the voters that the Republicans are worst. Both are now shown as dramatic loosing hands: the resurgent Republicans are even better positioned to block attempts by Obama to make the economy better, and Obama’s ability to convince voters that Republicans are worse is non-existent as the recent midterms demonstrated.

    Obama has doomed himself to being Herbert Hoover II, and doomed American to a long painful depression with no end in sight, and most probably doomed the existence of the American middle class.

    1. F. Beard

      …and doomed American to a long painful depression with no end in sight, and most probably doomed the existence of the American middle class. Glen

      Not necessarily so,imo. Our problems are not so big (yet) that a huge check of new legal tender fiat sent to every American family would not fix them.

      Heck folks, it isn’t like we have to dig gold out of the ground anymore to create money.

      1. Glen

        I hope you are right, but I just don’t see Obama changing course. He’s still running the odds pretending it’s 1994 and he’s Bill Clinton. The 2007/2008 crash was a game changer, the American middle class is finally bottoming out after thirty to forty years of Reaganomics strip mining the middle class. I would love to see the SOMEBODY trying to fix this, but I don’t.

        The irony was all he had to do was let the banks go down while protecting the American people. How would the Republicans fight that? They want bigger government? They want to interfere in free markets?

        1. F. Beard

          The irony was all he had to do was let the banks go down while protecting the American people. How would the Republicans fight that? They want bigger government? They want to interfere in free markets? Glen

          Good point. But heck, even Krugman can’t escape the debt-money paradigm. He doesn’t see the fundamental immorality of it and so a direct moral solution does not even occur to him, I’d bet. Or at least that is my impression. Michael Hudson, OTOH, does offer a direct solution; a debt Jubilee.

          We elect amoral politicians and they have no moral compass, big surprise.

  10. Charley

    Why does Galbraith think it ended with those three — why would he think O wasn’t just another member of the team?

    Really the issue is the we got suckered…


    for the umpteenth time…

    because we like being suckers and playing the fool…

    Because that is easier then facing up to the cold facts of the situation — that Washington should be burned to the ground and salt poured on the earth so nothing will ever grow there again.

  11. The whole system is corrupted

    Foreclosure Crisis, Part 2: Modifications

    (((Ms. Risotto is full of it..there is no recourse..there is no follow through…been with Aurora..made all payments..transferred to IBM LBPS..now no record of paperwork)))SCAM

    Treasury officials don’t keep track of how many of the disputed loans are subsequently averted from foreclosure. Ms. Risotto says borrowers can call a counseling hotline if they believe they were wrongly denied.

    ((Mr. Barofsky hits nail on head)) Please look into Aurora Loan Services…scam city)
    Mr. Barofsky says the oversight is toothless, noting that no servicers have been fined for bungled paperwork or improper foreclosures. At the request of nine U.S. senators, Mr. Barofsky is auditing whether servicers in HAMP are correctly following Treasury’s guidelines when deciding whether borrowers should get a loan modification. The inspector general also is scrutinizing how borrowers are notified that they failed to qualify.


  12. Pwelder

    In all of the Monday-morning quarterbacking that goes on about what the Obamanauts could’a, would’a, should’s done,
    there’s not nearly enough recognition of the most important difference between his situation and that of FDR:

    FDT got to sit in Albany as governor of NY and study the calamity, for about 3 1/2 years before assuming the Presidency.

    If we take Lehman weekend (September 15th, 2008) as the counterpart of the initial crash in October 1929, the Obama crew had about 3 1/2 months.

    So all of the initial shell-shocked flailing around, which for FDR transpired on Hoover’s watch,

    Most of it landed on Obama’s watch.

    Big difference. FDR took office when the electorate had completed a three-year crash course in what wasn’t going to work – although Hoover by the standards of the time had tried some things that were way outside the box.

    I agree with Krugman’s criticism of O’s choices wrt policy and personnel. But all the same, that three-year differential is huge.

    1. Glen

      Well, he will have a life time to think about it all once his one term is over.

      I cannot think of a larger wake up call than Obama just got with the midterm election results, but I do not see him changing course no matter what happens. so even the argument about the 3 and 1/2 years no longer holds water for me. FDR changed course many times even after his Presidency started, heck, if you look at Hoover’s record, even he was more progressive that Obama. Heck, Nixon was more progressive than Obama.

    2. alex

      While you’re right about the three years, you forget that an awful lot has been learned since the Great Depression about dealing with financial crises, depressions (oops, recessions) and the importance of financial regulation. FDR had to write the book – Obama just had to read it.

      1. Doug Terpstra

        A key point: “FDR had to write the book – Obama just had to read it.”

        If only he would. And now we have a purported scholar of the Great Depression pushing us into the all-time Greatest Depression with exponential trickle down to the nth power. Truly unbelievable.

        Even a high school course in the GD shows the pivotal importance of the CCC, the WPA, TVA, the USDA, SCS, and a host of direct public works projects in creating jobs to prime the pump. Bernanke and Obama are channeling Herbert Hoover. It’s unforgivable.

        The key difference today seems to be the sophistication of money invested into public propaganda that has people confused, diverted and divided. As Paul Craig Roberts wrote recently:

        “The control of the oligarchs extends to the media. The Clinton administration [telecommunications Act] permitted a small number of mega-corporations to concentrate the US media in a few hands. Corporate advertising executives, not journalists, control the new American media, and the value of the mega-companies depends on government broadcast licenses. The media’s interest is now united with that of the government and the oligarchs.”

        “On top of all the other factors that have made American elections meaningless, voters cannot even get correct information from the media about the problems that they and the country face.”

        “As the economic situation is likely to continue deteriorating, the anger will grow. But the oligarchs will direct the anger away from themselves and toward the vulnerable elements of the domestic population and ‘foreign enemies.'”


        On that note, David Broder (now well past his sell-by date but nevertheless sucking up to AIPAC) wrote:

        “With strong Republican support in Congress for challenging Iran’s ambition to become a nuclear power, he can spend much of 2011 and 2012 orchestrating a showdown with the mullahs. This will help him politically because the opposition party will be urging him on. And as tensions rise and we accelerate preparations for war, the economy will improve.”

        “I am not suggesting, of course, that the president incite a war to get reelected. But the nation will rally around Obama because Iran is the greatest threat to the world in the young century.” WTF? This is not the Reverend’s Washington Times, but the Washington Post!


        1. F. Beard

          This is for you David Broder, as you near the meeting with your Maker:

          The LORD tests the righteous and the wicked, and the one who loves violence His soul hates. Psalm 11:5

          1. Glen

            Thank you, F. Beard! That needs to be said again, and again, and again.

            But doesn’t it make you wonder what kind of economic advice Bush was getting when he went to war twice?

    3. Looking Ahead

      The Financial Crisis Inquiry Commission (FCIC) is due
      to issue a report on its findings on December 15, 2010.

      I saw some video of the FCIC’s hearings. The FCIC
      had the authority to issue subpoenas, or orders to
      appear before the Commission. I actually believe that
      at least some of the Commissioners had the intelligence and
      ability to understand the nitty-gritty details of
      the securitization process and other arcane matters
      discussed at hearings. The main-stream media have
      scarcely mentioned the hearings, relative to their

      Hence, I’d be surprised to see the media accord the
      report the coverage which, in my opinion, it will most
      likely deserve. This sort of connects with Jon Stewart’s
      critique that in public affairs, not all topics deserve
      equal amplification. Some are more important than others
      to the general welfare of the people.

      I might view the reactions to the forthcoming report
      as a kind of litmus test for where policy makers and
      elected officials /*actually*/ stand.

      Finally, with the Internet these days, one does not
      have to resort to the media as intermediaries to
      find out about public reports. Most likely,
      the final report of the FCIC will be available for
      free download.

    4. emca

      I don’t buy the 3 1/2 year argument.

      Hell, it wasn’t exactly a secret, possible criminal malfeasance by those running the bank had been sliced in the deck. On this point alone, 3 1/2 minutes should sufficed in understanding that a change of course was needed.

      If you can’t act like a free-standing independent agent – not a retread of George and Hank’s Most Excellent Wall Street Adventures – then you need to get out.

  13. Dave Erickson

    “The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.”

    There it is.

    1. Anonymous Comment

      Agreed. In a nutshell. Continuity on the path is not a positive if the previous path led to ruin. Et voila. Here we are after all.

    2. PQS

      Yes. That line grabbed me as well as a perfect summary of the mismanagement that was evident to even a middle class nobody like myself, who has unfortunately seen her fair share of lame upper management in my career.

      Everyone who has worked for a big corporation KNOWS that the guys who get promoted, very often, aren’t even the least competent. They’re the psychotic butt kissers who are IN-competent, but still manage to get promoted upwards – often, I think, to keep them from doing any more damage to the profitable portions of the company.

  14. KnotRP

    Obama is not going to cross the money that put him in Office, so
    stop deluding yourselves. He’s an insider to The Sting.

    The Democrats hoped they could point out that the Republicans drove the economy into an oceanic trench, but the Democrats have spent their 2 years stripping the economy for parts.

    de Toqueville warned that an Aristocracy could be manufactured, in this manner…

    Real people are going to have to start carving out time
    to attend to the politican garden (overgrown weed patch?),
    or suffer political, and possibly, literal starvation (whenever
    the foodstamp cards run out).

    1. Glen

      “the Democrats have spent their 2 years stripping the economy for parts.”

      Ha, now, that’s actually a fair description of HCR and FinReg. The DC Dems are the guys that leave your car on blocks after they strip the wheels, drive train, glass, seats, and the stereo.

      We’ve got to count our blessings (so far), the Republicans will come by later on and first shoot the shit out of the hulk, and then stuff a rag down to the fuel tank and light it on fire.

  15. Francis

    This is the single best short explanation of the Obama admin.’s approach to the financial sector that I’ve ever read. Thanks very much for this capsule summary.

  16. Dave

    This column is so shallow (“As Krugman rightly stipulates,…”)
    that it doesn’t deserve comment.

    I’m embarrassed for you.

    1. Doug Terpstra

      I’m with Alex. What’s your point, the size of the stimulus or just an empty swipe at Krugman?

      I believe Krugman is in good company on the stimulus: it was woefully inadequate and poorly targeted. It barely kept unemployment flat, but it’s done.

      With the tan man now controlling the house, benefits are likely to end and unemployment soar — unless (not unlikely) we get another war going. That’ll reduce unemployment … by “voluntary” draft or simple attrition.

  17. Ed Tindal

    Please, look through the smoke and mirrors.
    Obama has no say in this whatsoever, he’s just a mandarin.
    Beyond people like Obama, Geithner, Bernanke, Summers and Rubin one will find the real (by proxy)rulers of the USA, the Rothschild Cabal c.s. Solutions? Get rid of all Jews in top positions and give your middle finger to the FED. Americans owe the FED nothing for monetary magic created out of thin air. Then start reading Ellen Brown carefully to enlighten your brains.
    Question is only: Do you have the guts?

    1. F. Beard

      Get rid of all Jews in top positions … Ed Tindal

      Our problem is the money system, not necessarily those who run it.

      and give your middle finger to the FED. Ed Tindal

      No problem with that!

  18. ECON

    The US electorate over several decades have structured there response to elections as mere beauty contests rather than a need to truly evaluate contenders on basis of policy and rational debate on strengths and weaknesses. Every American voting of an ability to read and write should have known how corrupt Congress, president and courts to be bought and paid by the corporate junta and oligarches. Y’all got what you voted for before and after mid-terms.

  19. stoverny

    Thanks for this, this is EXACTLY what I have been saying all along. It is the reason the Dems got pounded in the midterms, and the reason Obama will likely be a one-termer.

    Team Obama is still convinced that it is a problem of communication… that their accomplishments have not been appreciated, that the message has been distorted. No. Obama supporters (of which I was one from the earliest stages of his campaign) are disillusioned because of exactly Galbraith talks about here.

    Not one person has been prosecuted. Not once has anyone in Obama’s administration even uttered the word fraud. Justice has been made a mockery of. That is the root of the populist anger. People want justice more than they want lower interest rates or a higher Dow Jones average. People now realize that they have been played for patsies. There are 2 systems of justice in the USA – one for the financial elite, and one for the rest of us suckers.

    We thought Obama would fight for the rest of us and not be another puppet of the financial criminals who committed the greatest mass fraud in the history of the world. We were wrong, sadly.

  20. Bernard

    what a classy way to go!. Obama hires the men who screwed the Country to be the foxes guarding the henhouse. yep, even those plain ignorant Dancing with Stars Americans can see this for what it is. Obama seeks “bipartisanship”/give the Republicans the moon for the promise of working together, to save Obama sorry ass. lol. And the Republican fight Obama every step of the way, while Obama keeps “pleading” for bipartisanship. lol. Even the Stupidest American can see how “smart” this is. NOT!

    The Republicans get so much joy screwing Obama. Obama keeps asking to be screwed by the Republicans, even rescues the Republicans from near death as a party. Obama refuses to “blame” the Republicans until the elections near.
    oh my, oh my, those “people” ran America into a ditch.” lol.

    not a word about jobs or the Main St. economy. or average Americans, for that matter. Obama continues sucking up to the Republicans, like President Snowe or Nelson or Liebermann. Or hires Insurance Companies to write the Health “Reform” bill.

    most Americans can see how “trustworthy” Obama is. Obama feeds the Right wing loonies all the “goodies” they could ever “Hope” for. lol

    what a set up! Could the Republicans ask for a better deal? Well, Obama will find a way to help the Republicans if need be!

    Obama looks mighty “bought and sold” to most Americans who choose to see how stupid Obama’s behavior is.

    if that is what Obama considers being as a label for “Bipartisanship” or “Democratic”, well, Americans voted NO big time Tuesday. lol.

    lol. now Obama will try even harder to suck up to the Republicans, i wager.

    of course, Obama could act differently, but with such a “successful” 2 years behind him, why would he want to “Change”.

    Hope and Change, Obama style! Obama is really a member of the Republican party, just we don’t know it yet!

  21. Hugh

    “Obama must break his devil’s pact with the banks in order to succeed.”

    “And this tells us what we need to know, about who he really is.”

    These are the first and last sentences of this post. Let’s take the last one first. Obama is a kleptocrat among kleptocrats. This actually tells us what we need to know about the first sentence. Not. Going. To. Happen.

  22. Avg John

    Oh puleeeze! We are to believe this savvy, hard-nosed, former Senator, political activist and Chicago politician was just naive and too trusting? Simply misled by “team Obama”?

    Excuse me, but it’s just a little bit difficult to believe that President Obama didn’t understand how power is wielded in the corridors of Washington D.C., by whom and for whom.

    Maybe “change you can believe in” was really just empty rhetoric, or maybe he just didn’t believe in his own promises or fully appreciate he had a once in a generation mandate for change, but he knew continuing with the bailouts as well as failing to fully investigate abuses and fraud of Washington and Wall Street was the easy way out.

    His biggest mistake was his failure to believe in the American people that put him in office. That’s when people realized he was no different than the rest of the Washington D.C. beltway crowd. He sold main street out for the likes of wall street and we all know it. He wasn’t a bold man with audacious ideas and hope. He was a practical man, planning, laying the early groundwork, and pandering to the political powers that he thought he would need for his successful bid for a second term in office.

    As far as I’m concerned, I will not remember him for trying and failing, I will remember him for failing to try.

    1. PQS

      Yes. Each and every time Obama told us that we couldn’t have or do XX, my first response to each and every item was typically, “but you didn’t even try. You didn’t even ask. You traded it away at the beginning….”

      Exhibit A: Making the banks give up something in exchange for the bailout.
      Exhibit B: Health care Reform. Public Option sold out sometime after Max Baucus called the cops on the PO advocates.

      I swear, it’s like the guy never negotiated a deal in his life. Or even bought a car, for pete’s sake.

  23. F. Beard

    What’s really sad about Obama is that he could have PERMANENTLY killed the remaining racism toward blacks in the US. Now, the next time a black man runs for President, many people may think “Yes, he seems like a good candidate but so did Obama”

    He still has time but he better get moving.

  24. killben

    You are living in a fool’s paradise if you think Obama can be a good and effective leader. It takes a leader to look at the problems, find appropriate solutions and implement them with the best available team. When you have a leader who thinks window-dressing and papering over problems so as to be able to fool as many people as possible to get through the door is not the hall mark of an effective leader.

    His economic team consists of Geithner, the architect of different bailouts and Bernanke who never saw the crisis coming and has only one solution to offer … print money .. makes you think what he meant by “Change we believe in”.

  25. F. Beard

    …has only one solution to offer … print money .. makes you think what he meant by “Change we believe in”. killben

    Printing money would work just fine if it was just given to American families in sufficient amounts to pay off their underwater mortgages times a nice multiplier to compensate for theft.

    Actually, we can believe in “change” since it is debt and interest free money. If we paid off all the debt in the system, that is all we would have left except maybe some Greenbacks still circulating as electronic bits.

  26. Rick Halsen

    Let me get this straight…..

    Obama’s election is bankrolled by fraudstreet and banks in general. Then the author expects Obama to bite the hands that fed him.

    Is this better odds than a snowball’s chance in hell?

  27. mp

    My, people’s expectations of their leaders is low.

    Having served on an army general’s staff, Obama’s post-election promise to “hit the ground running” in January 2009 had special meaning for me.

    Obama had almost 3 months in which to take counsel, have his staff prepare a plan, wargame it, identify the risks, and prepare the battle book.

    Instead, Obama went to Hawaii for what was said to be a “much needed” vacation. Meanwhile, the US financial system, and the economy, continued to collapse.

    I’m sure his newly-appointed staffers were busily occupied arranging movers for their household goods and finding places to live in Washington. My old boss would have said, “The people of the United States pay us to do a special job. We don’t go home at 5:00 o’clock like the civilians do. If it means you have to sleep on the floor to get it done, get used to it.”

    By March 2009, I’d written him off.

  28. Marcello


    James, it seems the apple did not fall far from your father’s tree.

    (Admittedly I miss your dad’s flowery and sardonic tone :-)

    but sadly, to quote a wise man:

    “One of my greatest pleasures in my writing has come from the thought that perhaps my work might annoy someone of comfortably pretentious position. Then comes the realization that such people rarely read”

  29. unirealist

    All that is true, insofar as it goes. But Obama’s advisors realized (on some level) that putting the big banks into receivership was only a small first step.

    The US has advanced metastasized cancer. It isn’t like taking out a tumor, even a large and ugly one. It’s more like having the doctors open you up, take a look at how ever organ is infected with disease, and say “oops…”

    As soon as surgery for the cancer began, it would have been necessary to suspend the Constitution, invoke martial law, default on the national debt, and nationalize the entire economy.

    By contrast to the result, the Great Depression would have been little more than a cafeteria food fight. And frankly, I (like Obama’s advisors) am unsure that even the vaunted US Government could have controlled the spectacular implosion.

    This country would have collapsed faster and much, much, further than the USSR did.

    But it should have been tried anyway, because all they did was buy two or three years, while ensuring that there will be less chance of success when it finally happens.

    1. Doug Terpstra

      Sharp analogy, cancer. That does describe the extent of metastisized fraud: it is dendritic, entangled with all parts of the global economy, all branches of government and media, and enmeshed with healthy tissue. Hence the conspicuous fear of surgery to excise the fraud; it’s too integrated.

      But absent surgery it’s grown to stage four. Obama is trying faith healing and snake oil. Bernanke is trying systemic chemotherapy, without consent, but the patient is slipping fast.

    2. Ben

      I think you are probably correct with the cancer analogy.

      I’ve seen many commentators call out for the crooks to be arrested, the banks to be put in receivership, the depositors to be paid, and the bond & stockholders to take the pain. But what would the economic consequences be? What frauds would be uncovered? What kinds of default clauses would be triggered around the globe? What would happen to all of the beleaguered pension funds and 401ks that hold those bank stocks and bonds? I’d love to see someone like Yves put up a post describing what might happen.

      My guess is that the widespread economic hardship would be immense. The American electorate will only endure that when there is no other choice. In my experience trying to talk about these issues w/ family and friends, I have found that the vast majority still have very little grasp (or even interest) in the depth of the trouble we face. Those of us who recognize the fundamental problems underlying our economy are still a tiny (but growing!) minority.

      In a such an environment, it would take an extremely strong leader to take the big banks into receivership and inflict pain upon the public. That individual would face a tremendous backlash from the congress and the American people, because the people as a whole haven’t yet realized just how bad our situation is. All they would know is that their personal situation just got A LOT worse. They would view the move as a tremendous mistake and overreach of government. The talk shows would be boiling with rage about how “Obama the Socialist Dictator” was trying to take over America.

      I’m not trying to excuse Obama. I voted for him and have been disappointed. But I’m not sure there were any electable candidates who would have made the difficult call to take the banks into receivership. The sad fact is that we must wait until things get worse before the people wake up and realize that painful action must be taken. Hopefully it will not be too late.

      1. PQS

        “What would happen to all of the beleaguered pension funds and 401ks that hold those bank stocks and bonds? I’d love to see someone like Yves put up a post describing what might happen.”

        I thought about that, too, after I got done sharpening my pitchfork around Spring of ’09 and the banksters had taken us all for a ride…but wouldn’t it be possible (herculean, I know), to separate the smallholders from the large? To make sure grandma and grandpa and all the rest of the individual pensioners got their money out of their 401Ks or other retirement accounts (a la an FDIC sort of mechanism…)?

        Say that just one TBTF bank was taken into receivership by the USG. Couldn’t the value of their stock be “frozen” for the purposes of paying off these smallholders, say for two years while the bank is unwound and everyone comes forward with their balance statements for remit. If the assets of the bank aren’t enough to cover these payouts, then the USG steps in and pays the rest. Smallholders walk away relatively unscathed, and yes big ones would have to take a haircut and so forth, but wouldn’t that have been probably less expensive, more of a shot in the arm to the economy than what was done? I would think that the rest of the TBTFs could have been somewhat intimidated by this action, maybe enough enough for them to get their act together…plus there’s the added advantage that such a “bailout” be set up that the rest of the TBTF herd would have to agree to conditions before they could get their hands on all that newly freed 401K money….

        Just idle speculation – certainly nobody in DC would ever in a million years consider taking care of the smallholders first. It’s just Not Done, I know.

  30. Dwight Baker

    The original sin of Obama’s presidency
    By Dwight Baker
    November 6, 2010

    To beat the drum of WHAT IF, will simply not suffice. We 325 million of us are at the great divide standing on the edge of the great abyss.

    I voted for Obama but with conditions. During the first three months when he did not push the RULE OF LAW as our leveling rod, I took leave of supporting him in any way.

    Thus during the time of his presidency, I have witnessed him breaking each and every one of his vows made to us. Therefore at this time I hold no hope in any actions coming out of Washington DC.

    Our system is broken our Democratic Republic needs a forth element of the highest veto rule. Our system is rigged and we all know it —– but few and I mean few want to do anything about it.

    Our only hope is to form a coalition of five thousand or more to begin grassroots efforts to start our own lobby in DC. I have worked on that plan and it will work. Many of the billionaires in the USA will support that effort once we have the plan for revue.

    Now our own blessed hope is to stop trying to fix a rigged system and get to DC and take care of cleaning up the years of tragic ditches created for us to fall into.

  31. ella

    I really think that this article is spot on as it applies to the banks and credit issues.

    Credit is not the problem, demand is. Demand is based on one’s ability to earn enough to support his life style. Now we are embarked on QE2 and the devaluation of our currency. Devaluation means that the cost of goods and services will rise … inflation. As the cost rises, all of us who are earning less spend less and attempt to save in order to pay for the basics. Even now, commodity prices are up and the cost of a 16oz can of beans is the now the cost of a 14oz of beans. (Somehow, I doubt the shrinking of the size is accounted for in the CPI.) The cost of health insurance and care is also rising. Demand is reduced further because of inflation.

    The era of the 2000’s where debt was encouraged and substituted for income created a classic economic disaster similar to the conditions that existed before the great depression. Then as now the public reached a point were further consumption based on credit was shunned and income was used to pay down existing debt. Thus, income was withdrawn from demand which caused layoffs which cycled into a deflationary spiral. Asset prices crashed. The economic turnaround began when the federal government began the largest stimulus / public employment plan to date. This of course was WWII.

    The federal government took on huge debt paying for the military and the private sector jobs building the needs of the war (ie weapons, transportation, food, and other goods like tents, uniforms & blankets). The recovery was not based on tax cuts but good old fashion employment by the federal government. Forced savings through rationing was another component of the recovery.

    I am not advocating for war, quite the contrary I am pointing out the economic benefits of a federal government jobs program. Those who argue that the government does not create jobs are simply wrong and deny the history of this country. Our national and local infrastructure is in desperate need of repair and extension. The jobs by and large cannot be outsourced. Money would stay in the local economy.

    Next we need to return jobs to the states instead of outsourcing. Former Reagan official Craig Paul Roberts has put forth a plan to bring import jobs. It is a simply plan, lower taxes for value added to goods and services based inside the states and higher taxes for those imported into the country from offshore. Naturally, this would be an uphill battle because powerful interest like the national Chamber of Commerce promote off shoring for their economic interests as opposed to the national interests of the USA.

    Obama should fire his economic team and listen to new voices like Galbraith, Stiglitz, Roubini, and Wm Black. Continuing on the same old path will doom the economy to far more economic and political pain than necessary.

  32. ella

    from http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/bernankes-latest-folly-will-cost-us.aspx

    “Once again, Bernanke has demonstrated his complete lack of understanding of how money printing and inflation work, just as he has never understood that the Great Depression was not a function of the Fed pushing the wrong buttons in the 1930s but rather a consequence of the bubble that came before.

    Since then-Chairman Alan Greenspan showed up at the Fed in 1987, it has had the wrongheaded notion that all problems can be solved with money printing, when in fact all of our really big financial problems have been created by the money printing resulting from Federal Open Market Committee decisions.”

  33. rob adams

    The subject of collusion between Wall Street, Congress, the Executive (and now even the Supreme Court) has been hammered repeatedly since at least the fall of 2008. If the rule of law itself is suborned by greed, then it is only a matter of time. So, which do we as Americans prefer? A bang or a whimper?

  34. F. Beard

    If the rule of law itself is suborned by greed, then it is only a matter of time. rob adams

    I don’t see it so much as greed but lack of a competing and coherent ideology. Genuine capitalism would fit the bill. What else hasn’t been tried? We are so dang close. All that really needs fixing is the money system which remains fascist. We could pull out of this mess and once more lead the world.

    However, i don’t expect we will. The battle will be between the archaic gold bugs and the Ellen Brown followers. Neither has a vision for genuine capitalism so we will probably stagnate and be surpassed by the younger and more enthusiastic fascists in China and India.

  35. Jackrabbit

    It seems that Russ Feingold and Alan Grayson will have some free time before 2012. There must be others that would make good candidates too.

  36. ep3

    Amen on the last line.

    Okay, good idea, put the broken banks in receivership. But I once saw on 60 minutes that the Saudis held 60% of stock in Bank of America. What would happen if we just told them, “sorry the bank is broke, you lose that trillion dollar investment that we traded for oil”?

  37. Edwardo

    There have been some excellent comments made here, but no one has directly articulated what I think is the central truth behind our appalling predicament, namely that our political system is such that no one who is genuinely of a mind to reform that which needs to be reformed, let alone the wherewithal to do so, will be allowed to come anywhere near the seat of power. Our elections are a sham, and genuine reformers are not allowed to participate. In that light, Obama, the self declared agent of “hope and change” was, to put it mildly, DOA.

    Those who voted for Barack Obama thinking he was “the real deal” were well and truly conned. Those, like Mr. Galbraith, who are still, for all intents and purposes, asserting that he can be any different than he has been to date, are deluded.

    1. THE FED

      Could happen. Don’t forget, Obama won by going to New York very early and taking all of Hillary Clinton’s bank money because she didn’t flatter it well enough.

      Bank money beat her.

      Perfect political poetry = Hillary acts like a woman scorned against the two offending parties in 2012.

  38. charles

    Nessim Taleb wrote an update to his book, recently in which
    he mentions in a chapter titled: “10 ways to live in a black-swan free world’, ‘In the 2000s, the banks in the U.S took over the government. That’s surreal’

  39. James Galbraith

    A note: that first sentence about the “devil’s pact” is not part of my original piece. It’s a sub-headline, inserted by someone in the blogging world.


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