Sunday, January 25, 2009

On Economy, Not Obama's Style to Boldly Go Where No Man Has Gone Before

Last night (technically early this AM), I posted a brief piece following the NY Times precis of the Obama financial oversight plan: "Little Change in Obama Reform Plan".

A similar and more detailed write-up appeared in Naked Capitalism today: "Obama's Financial Reform Proposals: Less Than Meets the Eye". Those interested in more detailed commentary that says somewhat similar things to my thumbnail critique will find it well-written, as usual.

I believe that we need real change we can believe in. That the mainstream still doesn't "get it" is evidenced by an "Economic View" article in the NY Times today by a mainstream Democratic and academic economist, the former Fed Vice Chairman Dr. Alan Blinder. In this vapid writeup, "Six Errors on the Path to the Financial Crisis", the first 4 allegedly preventable errors all relate to the over-leverage of the system that the Fed and the Feds encouraged, allowing the financial community to loot the economy. That should have been his main theme; if he wanted to mention these amongst many other mess-ups, fine. Dr. Blinder then gets specific into the alleged failure to "rescue" Lehman when Bear, Stearns had been rescued. One could turn his argument against him and ask why taxpayers should have been on the hook to rescue Bear for $29 B. He also fails to point out the multi-hundreds of billions of dollars of bail-out money for AIG and Fannie Mae and Freddie Mac. Apparently for him, it's all bail-out all the time. But with whose money coming from where? His final point criticizes "TARP's Detour". 'Nuff said on this. The whole TARP thing was a disgrace. Freedom to succeed means freedom to fail. Exactly which way a fundamentally unfair bill was to have been implemented- with the benefit of hindsight and at least disaster delayed if not averted for the financial system as a whole- misses the point.

If mainstream economists are going to give us a more thoughtful, allegedly better-regulated version of the derivative-heavy financial system in the setting of a society that has fallen prey to over-financialization, the insiders will cheer, because their primacy is being supported, but the rest of us will remain in wait for someone with real vision. As Dr. Krugman pointed out in his TKO over President Obama (see "Krugman v. Obama: Fight Over in a Technical Knock-Out"),

Mr. Obama channeled none other than George W. Bush's First Inaugural Address in Mr. Obama's Inaugural Address.

No matter what strengths Mr. Obama has, he is presenting a picture of continuity, not major change, on economic and financial issues. (In fact, he is supporting the Bush Administration on a spy case in California, so the continuity may be surprisingly broad.) He is to date acting cautiously. Most of the "stimulus" from his plan is going to come at least a year from now, according to the Congressional Budget Office. Even "Dr. Doom", Nouriel Roubini, forecasts that the economy will be out of recession by then.

Please, Mr. Obama, tear down the Debt Society. Go after the Merchants of Debt with a vengeance. Don't legitimize credit default swaps, either treat them as insurance products and put them in that bin, or treat them as gambling. The world got on just fine in the past without them just as it got on fine without no-doc mortgages, covenant-lite corporate loans, no-down payment auto and home loans, etc. etc. Be bold.

Think Kirk.

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