Friday, March 6, 2009

To Dither or Not to Dither, that is the Question

Score another one for CR, who reports today that a Fed President has finally come around to the idea that the big banks are too big and sick to succeed, in "Fed's Hoenig: 'Too Big has Failed'" (this links to Calculated Risk's post on the topic).

Here is one small quote from the Hoenig speech itself, the link to which is here.

Third, if institutions -- no matter what their size -- have lost market confidence and can’t survive on their own, we must be willing to write down their losses, bring in capable management, sell off and reorganize misaligned activities and businesses, and begin the process of restoring them to private ownership.

Meanwhile, if you are wondering why the stock market goes down almost every day and almost every week, Dr. Krugman opined in a New York Times op-ed yesterday as to why; the title gives his point away: "The Big Dither".

MSN Encarta defines "dither" as a noun meaning a state of nervous agitation or indecisiveness.

Clearly Krugman means the latter. From his op-ed:

Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic
(emphasis added), over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

While the Hoenig speech is lengthy, please read CR's post on it, and please read the Krugman editorial, which is concise.

As predicted in this blog since last year, the Obama administration early on made up its mind to continue the Bush-Paulson-Bernanke-Reid-Pelosi-Frank plan of doing nothing other than throwing money at the banksters who caused this mess and have been extorting money in unbelievable quantities, threatening to huff and puff and blow the house down if they didn't get the money. But they are bluffing. Their wealth is in the house, too.

At least there are hopeful signs that more than some bloggers and academics are realizing that dithering is no policy and that the public has an interest that is opposite from that of the banksters.

Everyone knows that the stock market is poised for a sharp move in one direction or the other.
The end of the first phase of the bear market is in sight if President Obama would find an excuse for Tim Geithner to resign and persuade Dr. Bernanke to go back to Princeton, and bring in some Swedes and Japanese who resolved their banking crises a decade or more ago to advise the President and the new heads of Treasury and the Fed.

In the meantime, the more the new president focuses on healthcare, green energy, and war in Afghanistan, the more he looks out of touch. The economy is the only paramount issue, and the major problem with the economy is the parlous state of the large complex financial institutions. Be not fooled by early polls. Mr. Obama is actually trailing one G W Bush in popularity at an equivalent time in each presidency.

Adjusted for inflation now vs. deflation in 1929-31, the stock market crash to date is the worst in the last century for the length of the bear market to date (about 17 months). Sooner rather than later, Barack Obama will own this economy in the minds of the public.

Dither no more, Mr. Obama. Tear down these banks.

Copyright (C) Long Lake LLC 2009

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