“What cannot be accepted are financial rescue operations that benefit the unworthy and cause losses to other important groups – like taxpayers and wage earners. And that, unfortunately, is the perception held by many nowadays, particularly in the United States.”
But Brad, is it just a perception, or is it real? I think DeLong is saying it’s real, but I’m not certain.
“Officials cannot say that a global recession has been avoided; that they ‘bailed in’ the banks; that – with the exception of Lehman Brothers and Bear Stearns – they forced the bad speculative actors into bankruptcy; or that the government made money on the deal.*
“It is still true that the banking-sector policies that were undertaken were good – or at least better than doing nothing. But the certainty that matters would have been much worse under a hands-off approach to the financial sector, à la Republican Treasury Secretary Andrew Mellon in 1930-1931, is not concrete enough to alter public perceptions. What is concrete enough are soaring bankers’ bonuses and a real economy that continues to shed jobs.”
I agree that the banking-sector rescue was better than nothing; whether it was “good” requires a consideration of the alternatives, which is beyond my scope here. But I think that it is true–as DeLong strongly implies–that it benefited the unworthy and caused losses to other groups (at least relative to other possible options). And on a political level I think that President Obama has to go beyond just feeling people’s pain.
We had a family discussion about Obama yesterday. He has gotten a bad rap for not accomplishing more in the past year. To me, the real question is whether he simply couldn’t get more done because of Congress, and it was actually a wise strategy for him to sit in the background and let Pelosi, Reid, and Baucus (and Lieberman??!!) take the lead, or whether he could have gotten more done by pushing harder and more publicly. I have no basis to know what the right legislative strategy is for health care, which is an intensely divisive issue where more Obama might have backfired. When it comes to financial reform, however, I think he clearly has not done enough. The public overwhelmingly wants reform; they just don’t know what reform should look like, and Obama and his team haven’t done a good job of showing them what it should be. As a result, they have not capitalized on the strong anti-Wall Street sentiment, and the result has been a classic interest-group battle on Capitol Hill.
* James here: The government at times tries to say it made money on the deal, which is true of some individual TARP investments, but it’s a much harder case to make for the rescue as a whole.
Update: Brad DeLong answers below.