Bad Banking

If even after what seems a never ending string of financial debacles you were still not completely convinced that the status of the US economy was anything but abysmal, then ruminating on the following chart for just a few seconds should help to remove any remaining optimism. The figure, compiled by Speaker of the House Pelosi's office, shows the run of job losses for several recent recessions and compares them with our current economic downturn. You can easily pick out the "Republican Depression" (ie. our current economic nightmare), it's the green curve that is heading South faster than a jackrabbit fleeing the gun sights of Dick Cheney. The scary thing, other than there being no evidence for a slowing in job losses, is that it's not even clear that the rate of job losses has reached it's peak. That is, the next few months could see the economy shed even more jobs than the last few.

Having gotten their proverbial butts kicked in the recent election, the Republicans were keen to make some changes to show voters and their constituents that they had not become completely irrelevant. Thus, newly elected National Committee Chair Michael Steele's first public utterances were basically along the lines of, "wrong? what's wrong? there's nothing wrong with our party, we just have to do a better job of selling our ideas." Yes, I kid you not, it was the old, we're just not good salesmen routine. Well Michael, good luck with that.

But not to worry so much, the Republicans did manage to latch onto what they argued was a "winning" political issue, watering down and stalling what almost all reputable economists consider a vital government spending program to stimulate the "rigor mortising" economy. Not a single House Republican saw fit to vote in favor of Obama's economic recovery plan, that's right, not a single one! And over in the Senate, mental steam engines such as Mitch McConnell were arguing that the bill did not have, wait for it, enough tax cuts! Even in the face of overwhelming data that shows that the fastest way to stimulate the economy, read add jobs, is by direct government spending--and essentially everyone agrees that creating more jobs is our most pressing economic need--the Republicans are still calling for more tax cuts. Word has it that the new Republican leadership is also working on the tax cut cure for cancer bill. Maybe they should get Michael Steele working on that.

Unfortunately, the Democrats, and President Obama in particular, have not done a good job of explaining why the spending plan is so important, nor countering the specious arguments put forth by Republicans and their echo chamber of talking heads in the main stream media. Rather, Obama seemed to be selling a "bipartisanship" stimulus bill, almost as if "bipartisanship" would feed hungry mouths, and keep roofs over people's heads. "Johnny, be a good boy and pass me another helping of the bipartisanship, please." Of course, there is nothing inherently problematic about seeking votes and allies across the aisle, however, it should not be a requirement for passage of a bill, particularly when the other side preconditions its support on the same failed policies that wrecked America in the first place. In such a case, the President needs to be much more aggressive in pushing the right ideas and facing down the Republicans when they propose the same useless and counterproductive policies. Indeed, Obama's desire for the illusive "bipartisanship" has resulted in a bill out of the Senate that cut too much useful spending and included ineffective tax cuts, simply to get all of three Republican votes. No, if Republicans cannot see fit to do the right thing, then Obama needs to get tough and go directly before the American people and hammer the Republicans as the Party of Herbert Hoover, that, having driven the ship of state over a cliff, are now unwilling to aid in its recovery.

Of course, with the Republicans having suddenly discovered a voice for fiscal restraint (after running up the biggest deficits in history, and amidst a depression no less), it was not much of a surprise that they could find many a willing media servant, who, if not mouthing Republican talking points verbatim, could at least be counted on to completely obfuscate the truth. Most notable in this regard was the vanilla-brained Charlie (don't call me Charles) Gibson of ABC News. In perhaps a record low moment (among many) Gibson, while questioning President Obama couldn't seem to get his little head around the concept that government spending is, by definition, economic stimulus. Gibson argued that, "a lot of people have said it's a spending bill and not a stimulus." So much for not being able to grasp perhaps the most fundamental fact surrounding the issue. Not even able to grasp this truism, how could we expect anything more but pablum from Gibson. As economist Dean Baker so eloquently put it, "Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple. ... Any reporter who does not understand this fact has no business reporting on the economy." How much is ABC paying Charlie Gibson?

Meanwhile, all is clearly not the "Change We Need" in the White House. Evidence of this is clear in Obama's selections to head his economic team. Both Treasury Secretary Timothy Geithner and chief economic advisor, and ex-Clintonista, Lawrence Summers are so deeply entrenched in the policy and regulatory regimes that helped to fuel and precipitate the crisis, that one can still see the umbilical cords connecting them with Wall Street. Indeed, Geithner only just recently "announced" his new plan for Treasury to prop up the collapsing banks. I put announced in quotes because when you discuss a plan but then give essential no specifics, it's not really much of an announcement is it? The response from investors was swift, they either couldn't figure out what Geithner was actually talking about doing or they felt that it perhaps wasn't the "sweet-heart" deal that they had quite hoped for from the former Wall Street man. Either way, the stock market took another significant vacation in a southerly direction.

From Geithner's terse statements and pronouncements since, it has become clear that one aspect of the new bailout plan is the formation of a fed-run "bad bank" that will essentially accrue to itself much of the toxic securities that many banks find in abundance on their rose-red balance sheets. Of course, the name is telling, because the joke's on us, guess who the "bad bankers" are? That's right, it's just us poor tax paying suckers who are going to get stuck with all the bad debts made by these rich folks for whom the requirement of being restricted to, say a paltry salary of $500,000 a year is a travesty to scarring to bear. And what do we get for assuming all the risk in this little transaction? In real capitalism those who assume the risks stand to receive the biggest rewards, but not so much in this case. There is no indication that Geithner intends to obtain stakes in the bailed out banks for the government, so that taxpayers would get some compensation if and when the banks become profitable. But this is certainly not "real" capitalism. No, what we are witnessing here is more socialism for the rich, and social Darwinism for the rest of us. This is effectively the same dynamic that has led us to this point. Profits are privatized, but losses and risk are subsidized with the public's money. Put more simply, gamblers get to play at the table with someone elses money. Not the kind of system that you would expect to generate probity and restraint is it? Nope, the operating term here is corruption of the highest order.

At this stage a much more sensible, equitable, and arguably effective plan would be for receivership (ie, nationalization) of the failed and failing institutions. Indeed, many of the economists who foresaw the devastation and were ignored are calling for nationalization as the most effective solution, but the voices of those who best understood the situation and saw it coming continue to be largely ignored. A good example here is Nouriel Roubini, professor of economics at the Stern School, NY and no communist he, who argues eloquently that from a pragmatic standpoint the only remaining workable solution is nationalization. Let's see how long it takes the likes of Geithner and Summers to reach the same conclusion. I won't be holding my breath.