The Crisis Is Over, And We Wasted It

Rahm Emanuel reportedly has a doctrine: Never let a serious crisis go to waste.  His point is a good one – vested interests usually block change across a wide range of important issues in the US, and a major financial/economic crisis provides an opportunity to bypass or breakthrough those interests in order to introduce meaningful and substantial change.  Emanuel listed (from the 1:40 minute mark) five priority areas for change: health care (cost control and expansion of coverage), energy (independence and alternatives), taxes (fairness and simplicity), education (fundamental changes to effectively train the workforce), and financial regulation (transparency and accountability).

The financial crisis is abating – although the economic costs continue to mount and new problems may still appear (ask California or Ukraine).  At least among the people I talk with on Capitol Hill, there is a very real sense that business is returning to usual; certainly, the lobbyists are out in force, they want what they always want, and it’s hard to see many of them as seriously weakened.  How much progress have we made on any of Emanuel’s priority areas or, for that matter, along any other public policy dimension that was previously stuck?

The charitable answer would be: this is still a work in progress and you cannot expect miracles overnight.  True, but Rahm’s Doctrine (as Larry Summers apparently calls it) says that you should implement irreversible change while you still have the chance.  Tell me if I missed something, but has there been any breakthrough of any kind?  Was it wrapped up in the fiscal stimulus?  Is the credit card bill a bigger blow to vested interests than we have so far recognized?  Has there been some secret progress on healthcare (although than a vague and apparently deniable pledge drive)?  Were the bank stress tests more subtle than meets the eye?

We discussed this issue on Bill Maher’s Overtime segment from about the 2:20 minute mark on Friday.  Jon Meacham just interviewed President Obama and came away with no clear sense of where the President is really pushing to make fundamental change – although Jon and Bill nicely summarize where he is compromising (from about the 4 minute mark of Overtime).

On financial sector issues, the lobbies look stronger than ever.  “You can’t recover without us” appears to be a winning slogan for big banks and their appointees.   Tough financial regulation may still appear later this year, but it looks like an uphill struggle – and there is no sense that the administration even wants to break vested interests in this sphere.

Perhaps Rahm’s Doctrine was overly optimistic as a broad aspiration, but at least on the financial front some tangible opportunities went to waste.

By Simon Johnson

72 thoughts on “The Crisis Is Over, And We Wasted It

  1. Suppose somehow we recovered over the next few yeasrs, without any fundamental change. Would this lead us into another 25 year super-bubble?
    Or is such growth just unrealistic, given the lack of comprehensive reform?

  2. Well, the second edict of Rahm’s Doctrine: “kick ’em while they are down, and after you kick them, nail them to the floor” was completely missed by Obama. His bi-partisan, conciliatory approach gave the Republicans just enough power to nullify the advantage to be gained by the crisis. In reality, even the woefully-diluted credit card reform, auto emissions, and climate change legislation would have been utterly inconceivable in any other context, so, yes, they have taken some advantage of the crisis.
    Of course, the Administration HAD to fix the economy as its first order of business, and that has (rightly) consumed vast amounts of time, energy, and political capital. A politician’s first-through-tenth priority is “get re-elected” and no amount of progressive agenda accomplishments will achieve that if the economy is still in the toilet come 2012.

  3. The most glaring opportunities lost, were in redefining American foreign policy. America is itself one giant corporation, which might have begun to redefine its corporate ethos to be more in line with ideas of your co-guest Muhammad Yunus. But, by declaring that they will have Georgia, and they will have the Turkmenistan-Afghanistan-Pakistan pipeline, at any human cost, and by any domestic propaganda, he has I think squandered the greatest opportunity. I think without having his office, its hard to say what was and wasn’t possible. And its easy to argue that without the trust of the bondholders nothing is possible, and so change must come slow. But I believe he has, to use a poker term, all-ined on some pretty bad foreign policy.

  4. The U.S. has given the bankers a loud and clear message that it will bail them out when they get into trouble and will ask for very little in return.

    It’s hard to see how anything good will come from this.

  5. I am feeling the same way. A crisis wasted, a good walk spoiled. We can recognize Obama as we recognized Bush, …. has great, dramatic speech writers, can read a telepromoter with poise and dramatic articulation…. gets the collective blood boiling – and is very effective in the 24 hour news cycle. Then our collective A.D.D. (attention deficit disorder) kicks in, What? N.Korea tested a nuke?, What? Mel Gibson is getting a divorce?, What, the Obama’s selected a puppy?…. You can look down the road. How is is conceivable that we can suddenly insure 50 million people. How can we produce 10 million new jobs for the unemployed, how can we increase tax revenues for cut our deficit and fund our underfunded entitlements and correct our state financial disasters. Don’t even think about carbon pollution increasine 3x in the next 40 years. You know we could keep adding to this list all day. Yes, the stock market is up, big whoop!, what are you really going to do with a stock one day when we realize it is nothing more than a piece of toilet paper. It is like the melting of a glacier or the spreading of Farah Faucetts cancer. Slow, enexorable, ….. you know damn well this is going to to be fatal in the end. Don’t know if I believe it, but a Rapture would be nice…… ha, ha, ha….

  6. The honeymoon phase is drawing to a screeching halt.

    It is certainly emblematic of this administration that, given the choice between giving people real help with their underwater, unaffordable mortgages or their overworked credit cards, Obama’s people opted for the latter. Come again? That’s right, their efforts to stem foreclosures and/or push the housing crisis to some sort of resolution (save em or let em go to the wall, pick ONE!) have failed miserably. On the other hand, your teaser rate on that new Visa won’t expire after 3 months.

    Picture Team Obama as firefighters called to a burning home where a mother screams that her baby is trapped inside. They go in, can’t get to the child, but throw down the diaper bag and hightail it out of there.

    Do you think that mother will be grateful they “saved” something?

    Now, I’m not saying this administration set the fire–they came on duty with it in full blaze–but they have been vowing to put it out and make things right for months now and what has been saved? After a while, people’s blood will start to boil.

  7. How many more bubbles can we blow? People seem to enjoy them a whole lot. So there is huge motivation to keep blowing them. When the world-record bubble (maybe in the future?) pops, however, we’re going to be swimming in bubble juice.

  8. Surprised you couch the crisis as being over, Simon. In my opinion we are in the eye of the hurricane, with the backside maelstrom of 3T in treasury issuance and a second and bigger wave of foreclosures bearing down on us.

    The banks will clearly need to go back for TARP 2 in the next 18 months. Since QE began yields have gone straight up as traders have tendered into the subsidy.

    A very similiar respite occurred in the GD. Take heart, there is plenty of crisis left.

  9. Obama has a councilatory bi- partisan approach? What?

    Gee, let’s see. How many House Republican votes did Obama get for his stimulus package or budget proposals? Zero, as in not one.

    How bout these Bi- partisan proposals : Gutting defense, the F-22, the Airborne Laser, and missile defense, Check. Selling out Georgia, Ukraine and Israel. Check. Cozying up to Dinner Jacker, Hugo and Ortega, Check. Enacting the Libby Ledbetter work place rules. Check. Enacting the largest by far Social Welfare benefits increase in history. Check. Endless Bailouts. Check. Proposing the Carbon Tax. Check. Proposing mandatory abortion care for all doctors and hospitals. Check. Proposing Card Check. Check. Relaxing Union accountability rules, Check. Proposing Universal Health Care, Check. Ignoring Bankruptcy laws. Check. Taking over the Auto Industry. Check.

    The list goes on and on. These radical socialist measures are what this crisis is being used for. Obama has got or will get most of his proposals through, to the detriment of us all.

    Meanwhile, back at the ranch there will be no serious positive attempts to improve the financial regulatory system, because real reform would seriously constrain the Democrat’s pay to play payola schemes. Crony Capitalism/Socialism is just too good a cash cow for the Democrats.

  10. Meanwhile the single most important reform, regulating Fannie ande Freddie, say as much as a local bank even, hasn’t been even floated. Instead we are loading FHA with subprime loans because Fannie and Freddie are already bust. Over the past 10 years we have silently nationalized the home mortgage market (about 2/3 of all mortgages are owned or guaranteed by F&F, most of the rest follow their guidelines). So we are following that smashing success with nationalizing banks, car companies, health care…

  11. A Public Option

    As Obama is pushing for a public option in the health-insurance arena, so too could he push for a national credit union for both individuals and businesses as an option in the world of finance.

    Shoring up the system in this time of crisis may have been wise politically. Efforts at systemic reform may have spooked the markets. In order to send a political message, individual traders may have made certain decisions that would have worsened the crisis. Capital flight may have been a real risk.

    If they act quickly while memories of the crisis are fresh in the public mind, it may be better to implement structural reforms after the economy has stabilized.

    But Obama’s approach is only a slight modification of trickle-down economics. Rather than accepting that a certain level of education should be a prerequisite for a living-wage job, for example, he could have used the economic-stimulus program to move toward assuring everyone an entry-level, living-wage job opportunity in fields such as child care, in-home caregiving, and environmental cleanup. These jobs could employ more people than construction jobs.

    He says that both Main Street and Wall Street are essential in his communitarian populism, but so far Wall Street is the more important partner. I hope the balance shifts soon.

  12. Wow the financial engineering racket is simply the best organized white collar crime organization ever !

  13. Bush did it with the Iraq war…

    War is a racket. It always has been. It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives. A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small ‘inside’ group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes.”
    – U.S. Marine Major General Smedley Darlington Butler, one of only 19 people to be twice awarded the Medal of Honor,

    Obama is doing it with the 19 too big too fail banks

    The US financial ponzi scheme is a racket…..Obama and his Wall St bought and paid for economic team have put all their chips on the Banking Oligarchs. It is conducted for the benefit of the very few ( The 19 too big to fail banks ) at the expense of the very many ( the American taxpayers). Obama’s objective with his Wall St bought and paid for economic team is to pump up great chunks of the Big Shitpile that’s essentially worthless unless the peak real estate values of the bubble can be miraculously restored.

    This will fail because America and Americans are swimming in debt

    Most Americans had better start making the gradual adjustment that the party since Reagan in the 1980’s where deficits did not matter is over and there will be a leveling of the global playing field.

    And I suggest that most should be recalibrating their American dream ;)

  14. Is the crisis over?
    Say your car breaks down beside the highway. A tow truck comes by and hook you up… now you are moving again. Are you fixed?
    Government guarantees now mask almost all financial credit indexes so there is no way to know what the true risk perception – sans backstops – may be today. The traditional indexes are worthless until the government backs out – if ever.
    I believe we were here in 1937-1938, too.

  15. You’re not paying attention; you’re silo-ed. Obama has to face many power centers that are far stronger than any FDR faced.

    Waxman Markey is a huge, historic deal. It is minimally adequate now….but it is a platform upon which more stringent regulation can be built; it is a strategic piece of legislation. It also faced HUGE opposition. It was a victory to get it through – but it’s not done yet, of course.

    Healthcare is next, but it is too early to tell. Nothing happens overnight. And yes, it is as important as the financial crisis.

    Commenters in this thread, in my view, are narrowly focused, somewhat idealistic and of the “I want it all, anything less is a disaster” mindset, and do not understand political capital. Obama does not have an unlimited well.

    If he achieves health reform, his capital with voters will be enlarged. His approval rating might hit 70%. Then, he can be bolder in taking on more financial regulation.

  16. The republicans are exactly right, the US is a socialist republic, though not in the way you would expect. While the EU uses its socialist economy to protect jobs, provide healthcare and foster some sense of collective responsibility for the fate of their nation, the US republic has been effectively practicing Banker Socialism. Any and all policy objectives seem to be measured by one metric: does this provide and opprotunity for I-Bankers to make a lot of money? If so, then both sides of the house rally behind it, while transferring trillions of middle class peoples wealth to plutocrats in the name of fairness and competition. This is unbelievable, that a capitalist nation would allow itself to be turned into a bananna republic so that a tiny % of bankers will never suffer the indignity of actually producing something usefull to the economy. The rest of the economy is being held hostage by bankers unwilling to abide by their own free market principles and sell their toxic assets at “market” prices. Capitalism, a beautiful system for allocating capital and producing widespread wealth was destroyed by politicians and special interests. Crony capitalism has laid claim to another nation.

  17. My take on it is that it’s still not 1932 yet. The Senate, especially, is not flat desperate enough to implement the real changes. So we need to keep pushing.

    Back to circling Cal.

  18. My sense is that Obama came to office little more than 100 days ago with multiple catastrophes to address. Two wars. A terrible economic crisis. Catastrophic failure of the financial system. Huge rise in unemployment.

    Our president has been busy. Perhaps focused on triage still and not yet focused on reform.

    Because we remain in the midst of the crisis, I’m not convinced that it’s been completely wasted just yet.

  19. WHAT??? Love tangle for power broker: Citigroup’s Richard Parsons has love child with model MacDella Cooper

    WHAT??? Texas couple claim they saw Christ-like figure – in a Cheeto

    WHAT??? Does Victoria Beckham own about 100 Birkin bags worth $2 million+?
    WHAT??? Starting a new career: Industry veterans provide valuable feedback

    WHAT??? Did a Merrill Lynch employee poop in the stairwell?

    WHAT??? Is a cheaper iPhone plan on the horizon?

    It’s no secret that Citigroup board Chairman Richard Parsons has been working for months to repair the financial giant.

    But, until now, even his closest associates didn’t know he also was wrestling with a personal crisis – how to tell his wife and three children he has fathered a child with another woman.

    Parsons and model-philanthropist MacDella Cooper are the parents of a baby girl named Ella.

    The 61-year-old former Time Warner chairman said only: “This is a private matter, and I prefer not to talk about it at this time.”

    Cooper, 32, also declined to discuss the circumstances of her daughter’s birth.

    “My private life is private,” the striking beauty said. “I’m sure you can draw your own conclusions.”

    Cooper gave birth last August, according to a source, who said Parsons will support the child and has set up a trust fund for her education.

    The widely admired executive is said to have become close to the former model – who says she has worked for Ralph Lauren and appeared in Glamour magazine – through his support of her MacDella Cooper Foundation, which she founded in 2004 to help orphans and abandoned children in her homeland of Liberia.

    Besides making donations, Parsons was the keynote speaker at her foundation’s gala in October 2007.

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    A press release for the foundation said it was “proud to have earned the devotion of such esteemed individuals as … Richard Parsons.”

    Having attended benefits for the foundation, Parsons was regularly seen going into Cooper’s midtown apartment building, where she lives and works, a source said.

    Parsons is due to mark his 31st wedding anniversary with his wife, the former Laura Ann Bush, in August. They have three grown children: Gregory, Leslie and Rebecca.

    Parsons met Laura, a community activist with a doctorate in child psychology, at the University of Hawaii, and he has frequently credited her with his success.

    “I’m certain I would not have followed the career track that I ended up following if it hadn’t been for my wife,” he told Megan Basham, author of “Beside Every Successful Man.”

    “I can expose her to problems and issues, and she will ask very sound baseline questions that cause me to think about it in a different light. … I very much need Laura’s input.”

    His wife has said that she encouraged him to go to law school because he enjoyed arguing.

    His career, which has made him one of the most prominent African-American businessmen in the world, has been an incredible journey of success.

    He worked as a part-time janitor to pay his tuition at Albany Law School and scored the highest marks out of the nearly 4,000 lawyers who took the New York State bar exam in 1971.

    Parsons appears well-equipped to support his latest offspring. In 2008, he received a total compensation package from Time Warner of $10,399,000.

    He receives no cash from federally subsidized Citigroup, but did get 240,000 shares of stock and 6,512 options.

    He enjoys the fruits of his success, with a home in Manhattan’s fashionable Tribeca and a vineyard in Italy.

  20. I’m with Anne on this one – and besides, there’s always next time, which will not be terribly long in coming.

    Probably a dollar collapse, perhaps before the end of the first Obama term. Chindia won’t be long in pressing for more influence on the global economy, and they’re in the driver’s seat now…

  21. Maybe “Rahm’s Doctrine” was just more “talk” like most of the other stuff Obama claimed he was going to do (see: ending indefinite detention).

  22. The “health reform” that the administration has recommended is the same kind of “reform” that he gave the banking industry: trillions of dollars in free taxpayer dollars given to the same corporations that created the problem in the first place, with few or no strings.

    I don’t count either of those as reform. I count them both as ways of making an existing problem even worse. At this point, he’s implemented so many of John McCain’s policies that I wish McCain had won, so that he, not Barack Hoover Obama, would end up being the one blamed for the inevitable result.

  23. Uh, it’s not done yet. Do you comprehend that? You act as if today is January 19, 2016.

    Your point on McCain is not worthy of debate.

  24. Have they missed the boat on fundamental change within financial service regulation? You bet!
    I believe the game was over as soon as Obama took counsel from his ‘wise men’, many of whom were directly implicit in the mess the global economy now finds itself in.
    Summers, Rubin, Geithner et al do not strike me personally as those I’d like to surround myself with at this juncture in time.
    Indeed, Geithner’s Congressional testimony best sums up this persons attitute: “I was not a regulator,” when referring to his time at the FSBNY.
    A quick check on its website suggests that the FSBNY has oversight on Wall Street, or have I missed something?
    The Treasury Secretary’s links with Goldman Sach’s, as those of Paulson, fill me with utter dread and horror.
    So, yes currently they have missed the boat – however, and i note from personal testimony, a few good men are still at the helm trying to inform regulatory reform which is expected in the Fall.
    Why the hell zombie banks are allowed to hire lobbyists though, is one for the American public and Congress to answer.
    However, fear not, as someone else has stated, we are in the first phase of the crisis and the Government, that is the public, is only on the hook for US$12 trillion – so, evidently, the bailout has been a great success and we are now returning to normalcy.
    I get a sense of deja vous here though, after the Wall Street crash a sense of normalcy quickly resumed, quickly followed by mass bank closures in 1932 paving the way for major change in 1933.
    We should also note, that the US suffered a double depression in the 30’s, 1930-1934 and 1937 until the beginning of WWII – rearmament and lend-lease pulling the country out of the economic mire, not too mention actually engaging in War at the end of 1941.
    Given a strong belief we are not out of the woods, a belief held by the Bank of England itself, perhaps the banksters will finally be thrown out of the Whitehouse when the CDS issue implodes.
    Think AIG but 1000 times worse, whilst currently the current mess is only 100 times worse than the S&L crisis if memory serves me correct – it being very late in Hong Kong

  25. This reminds me of half a dozen Paul Krugman columns this year where an economist provides no specific data or analysis but just generally grumbles that his personal agenda has not been adopted wholesale in the first few months of the new term. Yet, if someone on the right were to say, “the Presidency is in trouble because he has accomplished so little”, the author would no doubt say “the right is rushing to judgment because the administration has only been in power such a short time”. I would point out that many things the (equally popular in its first few months)Bush administration wanted (e.g., privatization of social security) were stymied too. That is the salutary function of the centrists in Congress, and the fortunate effect of the checks and balances in the Constitutional system.

    When I read something like this from Krugman, I figure he just had to fill a deadline and could not find anything insightful to say. I don’t know why someone on the Web has to succumb to the same syndrome. Less is more.

  26. “a national credit union for both individuals and businesses as an option in the world of finance.”

    So we could have another success for taxpayers like Fannie Mmae or Freddie Mac?

    “he could have used the economic-stimulus program to move toward assuring everyone an entry-level, living-wage job opportunity in fields such as child care, in-home caregiving, and environmental cleanup.”

    I shudder to think what quality of care would be provided by someone who had an assured job. Somehow the productivity of the old East Germany flashes before my eyes. I also think you don’t appreciate the irony of the idea of assuring everyone an entry level wage (i.e., what about those who aspire to more?)

  27. Oh yes its all over.

    Derivatives,falling commercial and residential prices, lower increases in unemployment, industrial output down only by a few percent ok 35% for Japan and a a lot for Germany but only 12.5 for the US. No worries.

    UK and USA still have AAA credit ratings so they can still spend twice what is coming in from taxes but hey China are still buying bonds and equities are doing well now.

    Panic over gold will soon be down 50% march was the bottom lets party.

    I have been weeding my potato patch today.

    If however you are not convinced I live among a resilient community I recon.

  28. Given my recent and ongoing dealings with the banking system, I would say that we probably missed the opportunity to euthanize the worst of the lot, but many of these are just going die a slow, agonizing death, and are highly susceptible to acceleration of the process by seemingly minor maladies.

  29. There are a myriad of problems being addressed in this blog alone, but no one can seem to find a simple answer to the umbrella problem. Call me progressive, but talks about socialism, neo-capitalism, etc. are simply irrelevant. We need to stop recreating the past, but rather lift the best components from other political systems that will help us vastly restructure our current society.

    I am in agreement with what has been previously said, but I do not think that anyone has a viable solution to the problems at hand. What happened to the days of accountability, the days when humans were forced to rely on themselves for survival and not the political elite? I know this is too progressive, but humans were once hunter gatherers, all of us. The whole idea of political systems was a construction of our ancestors to promote higher chances of survival. The problems we are facing are not being addressed with answers are focused on survival.

    We are at a time perfect for regime chance. Not small crutches that will prop up the baking system, health care, and pensions. American society is fat and bloated like the American population. Let the companies that cannot compete in this market die, new ones will pop in in their place that are leaner and ready to adapt to the future. Bailouts and earmarked loans for companies are like expensive hip-surgeries on 90 year olds. Sure they can walk for another year, but was that really worth the insurance companies 10 grand? What did that 90 year old do in those last two years of life to help the rest of us survive?

    This moment is of immeasurable importance.

  30. Obama and Emanuel got what they wanted. And that’s what we should expect if we consider their campaign contributors (from

    Emanuel is also one of the biggest recipients of Wall Street campaign contributions, the Center for Responsive Politics reports. He “was the top House recipient in the 2008 election cycle of contributions from hedge funds, private equity firms and the larger securities/investment industry.” Since being elected to Congress in 2002, he “has received more money from individuals and PACs in the securities and investment business than any other industry”; these are also among Obama’s top donors.

  31. Marie Antoinette: “The honeymoon phase is drawing to a screeching halt.”

    Err, what honeymoon? I missed it. I must have blinked. The Republicans dug in their heels from day one, while the right wing media has screeched a Harpie chorus all along.

  32. Paul: “Obama has a councilatory bi- partisan approach? What?

    Gee, let’s see. How many House Republican votes did Obama get for his stimulus package or budget proposals? Zero, as in not one.”

    That reflects their lack of bipartisanship, not his. He responded to Republican calls for including tax cuts in the stimulus bill without a whimper, and made other concessions without negotiation. The Republicans were pleased with that victory, and could vote against the bill at no political cost (in their minds).

  33. For what it’s worth, I agree with both those who say that it would be too soon to call this crisis “wasted” even if it were over and those who point out that it’s probably not over yet.

    I don’t think housing prices have yet bottomed or that foreclosures have yet peaked. The banks haven’t yet determined what the so-called “toxic” or “legacy” assets are worth yet, and when they do, I think they will find that they’re in worse shape than they think they are now.

    In my view, the PPIP plan was mainly a way to kick-start price discovery for those assets, even if that meant “discovering” prices that were quite likely too high.

    Not much has happened with that program since it was announced and it will be interesting to see how it goes if anyone actually decides to take part in it. Even if it produces prices that do in time prove to be too high, I still think the banks are going to be unhappy with them.

    So like someone said, no worries, there’s plenty of crisis left.

  34. And the beat goes on…This truly boggles my mind. Wall street (aided by gov’t, Alan Greenspan, and the numerous ex-Goldman officials who permeate the Treasury department, along with a populace so numb that it conviced itself that most efficient means of helping the middle class was to give tax cuts to billionaires and cut social services for themselves) screwed up royal, made numerous stupid bets, combined with side bets and bets on bets leveraged by bets on other bets, and surprise, the whole thing imploded when no more idiots where around to dump these assets on; then, after a bunch of ex or current investment bankers (Robert Rubin, Geithner, need I go on?), the very men who thought glass-stegal was an impediment to innovation, and were responsible for the very regulatory enviorment which amplified this train wreck concluded that the only means of resolving this crisis is surprise-GIVE MONEY TO BANKERS! Isnt one of the fundamental tenets of capitalism that when you make dumb decisions you should be allowed to fail. But when push came to shove the finacial services industry proved it does not actually believe in capitalism. Its current actions show it would rather see the US crash and burn then modify its current postion. Am I the only watching this with my mouth on the floor wondering why the US population does not rise up with pitch forks for these greedy ass clowns? This situation reminds me of when a cop shoots and innocent bystander, only to be investigated by his own police department, who concludes that nothing went wrong.
    I find this especially maddening for all the good business that played by the rules, made sound investments and are now being crushed under the weight of these peoples greed and hubris. And don’t get me started on PIPP, which anyone with an even basic understanding of economics or common sense can see is a regurgitated version of the Paulson plan, with fancy math thrown in so as to confuse average people enough not to ask any questions. Another banker subsidy, state takes all the risk, banks take the upside, sounds like winner.

  35. Simon;

    With all due respect I think you should be among those to blame for this result. In April when Europeans were saying that financial reform was to be recognized as the number one priority, (because only at that time there was the needed sense of urgency), and that a stimulus package was not, you missed the point and went on with the too much easy explanation: Europeans just do not want to do their part.

    At that time I was really puzzled by your sense of satisfaction for the FMI new financing.. which had just the effect of taking away the sense of urgency.

  36. Wasted? I think not.
    We made certain that all of the people who send their kids to the best schools could continue to do so, and that those children would be next in line to continue running our country into the ground.
    You can fool yourself into thinking the crisis was averted if you like – ignorance is bliss, no?
    And what’s up with all of this Democrat/Republican dribble? I think I signed up for the wrong website.

  37. “Bi-partisanship” is an oxymoron, and if not that a figment. Who wins, governs. And then the complaint most often, as now, is they don’t heel the ship over far enough, not that they don’t come together in bipartisan compromise or consensus.

  38. Just be patient… emergency rule by decree, overwhelming monetized debt, inexorable rise of right-wing extremism: Barack Obama is your Chancellor Schleicher. Viel Glueck!

  39. I love this guy – Fiduciary duty – A Crisis of Ethic Proportions – He’s just right on. Thanks for the post.

  40. Does no one have any patience anymore?

    The Great Depression is the best analogy to what is currently happening. A global financial crisis, a rapid fall in world trade, a rapid fall in global money flows, the threat of deflation and mixed responses by monetary/fiscal authorities.

    So let’s look at the time line for that episode: The recession that eventually became the Great Depression was dated to have begun in Q3 1929. By Q2 1931, a little more than 18 months later, many observers came to the same conclusion that Simon (and recently Paul Krugman) expressed, i.e., that the worst is over and we’ve avoided “the big one”. Then out of the blue came the failure of Creditanstalt and a bad global recession became, over the next two years, the Great Depression.

    The current bad global recession has been dated to have begun in Q4 2007. A little less than 18 months later many have concluded that “the worst is over, we’ve avoided utter catastrophe”. Maybe, maybe not.

    Is there a modern day Creditanstalt out there? Be patient. We’ll find out soon enough.

  41. Simon: You claim that the financial lobby “owns ” the senate. If that is indeed the case, then we must take very strong collective political action to bring about the needed reforms. This is a very good web site, however you are preaching to the choir. You need to move from analysis and complaint to action.

    The public has the votes. Somehow, the public needs to be involved. We need action and soon.

    I suggest that you start a new web site or a subset of this one where a list of proposed reforms can be debated. A good starting point would be to first list the reforms. Hmmmm what might those reforms be? Form a small committee to come up with an initial list of reforms. Then explain why you want the particular reforms. Let the participants debate and vote on the list of reforms.

    Do it in a form simple enough that high school math teachers can understand the message. Then use the internet to engage the public.

  42. Min-

    Remember the meeting Obama had with Republicans, when they asked for tax cuts, he reminded them ” WE WON”. What concessions?

    Obama has embarked on the most drastic socialist transformation of government ever conceived and you want to call it “bi-partisan”. That’s a joke.

    Getting two or three Senate Rino’s to cave does not make a bill bi-partisan. Bi- partisan should mean actually working with members of the other party to actually improve the bill. Hell, even the Blue Dogs were shut out. Most members of Congress weren’t even given the courtesy of time to read the bill, much less the ability to comment on it. Amendments weren’t even allowed to brought to the floor.

    You can double-speak all you want – it won’t make it true.

  43. This is a case where a temporary victory may turn out to be far more Pyrrhic victory than a real one. From everything I see, the only real “green shoots” that seem to have appeared is a change in consumer confidence (now up to 53%?), and that has more to do with consumer fatigue. Unemployment is still moving upward, albeit slightly less dramatically, mortgages are still foreclosing, the stress test calculus seems to be substantially crumbling, the assets appear to be getting more toxic, and credit in most areas is either tight or not called for (too few interested parties). The GM scenario is going to play out over the next couple of months, but, if the bond holders are able to convince a bankrupcy judge to honor their interests, that may be a very difficult (and expensive) process for the government to deal with. Meanwhile, AIG is still trying to deal with a trillion and a hslf dollars in toxicity.

    How can we feel confident? I think that the worst is yet to come, and the public will is incredibly fragile when it comes to bailouts. And, then there is California (the tip of the iceberg in terms of state budgets). We haven’t really witnessed the impact of lower real estate valuations on the property tax stream to local governments — that will really be amazing, and won’t happen until later this year.

    How can we be confident? And then there is the financial disaster looming in eastern Europe, and lots of difficult international issues (N. Korea, Iran, Israel, Pakistan, Afghanistan…) which could begin to erode the international markets. Since Mumbai there has been no major terrorist event, but it will happen.

    How can we be confident? And, then, yes, there is still the major issue of re-regulation, which will go poorly. Tim and Larry seem to have convinced our Congressional and Executive leadership that the crisis has been essentially handled. Only time will tell, but I remain a seriously doubting Thomas. To many mealy mouthed platitudes and half-baked pep talks, too many smoke screens and red herrings. Just enough to enable those who suffer from recesssion fatigue, to lose the intensity of their care and go away for a while.

    How can we have hope? The big insureres have largley taken the only truly logical reform of health care off the table: single payer. It will be slightly modified business as usual, while the oligarchs go on pumping a half a trillion dollars a year into “convincing” our leadership that the status quo is worth defending. Meanwhile 50 million Americans will continue to be under cared for and uninsured.

    How can we actually have any hope at all?

  44. I think that you are being a little tongue in cheek here. I’m sure you know that the crisis isn’t really over and I’m also sure that you realize how unlikely it is that any real reforms will take place until the American elites feel their own position and power threatened. Roosevelt was able to pass reforms in the 1930’s partly because people were afraid the whole system would collapse. We are still far from that now.

  45. Paul: “Obama has embarked on the most drastic socialist transformation of government ever conceived.”

    Err, remember Lenin? Mao? Castro?

    Besides which, the Obama administration is leaning over backwards to avoid socialism. For instance, even though we own most of AIG, we have non-voting stock. That’s why we could not prevent AIG from paying its gambling debts off in full. That’s why it has avoided doing anything that even resembles nationalization of the big banks. That’s why it is proposing a public-private partnership to buy “toxic” assets rather than having the government buy them and act as a bank itself. Perhaps you consider corporate welfare, which is what the government is doing for the banks and will be doing for its “partners”, socialism. But corporate welfare is hardly new in this country. It has been practiced by administrations on all parts of the political spectrum, Republican and Democrat, conservative and liberal.

  46. The “health reform” spoken of to-date is designed to further lull the rubes into complacency.

    Offering to cut 150 basis points from the annual GROWTH in health care costs isn’t enough to make affordable the extension of health insurance to all citizens. Not even close, and if anyone uses that argument on you, they’re a liar. If you believe it, you’re a rube. Do the math, Cletus.

    Aside from the health care fiasco, milking a crisis in order to create a collectivist state, where all people are equal, is a utopian dream. Face it – not all people are equal, and our “betters” in government know it.

    No offense intended to those in the bottom quartiles – someone has to bring up the rear, or, as Judge Elihu Smails said to Danny Noonan, “Well, the world needs ditch-diggers too.” We as a society have a pact to take care of all of our citizens. We don’t have a pact to become equal to them, because in that direction lies our bankruptcy – we don’t all need to be ditch-diggers.

  47. Bizarre post. Logically it’s quite self-defeating too given the criticism you (and many others) have levelled against remedial policy to date: nothing will change and things will get worse.

    The wheels are loosening a little here. If you want to keep growing your readership you need to tighten up on stuff like this. While you’re at it, have James Kwak simplify his expression a little – then he might realise how little he really is saying most of the time.

    Less is more folks.

  48. Crisis over? Ha! Maybe we are at the end of the beginning. The real world of jobs, property, retail, business, et al is showing that this recession is gathering pace and building momentum.

    There will be plenty of opportunity yet for change but I’ve practically given up that it will be top down. Change is going to come from the bottom because the people are smart enough to see what has been done to them.

  49. IMHO, this post is somewhat unfair to Team Obama for reasons listed below.

    First, it underestimates the real danger to the world that could have resulted from the panic (a danger that Baseline frequently discussed back in November-January). We very nearly saw a worldwide meltdown. Even the after-effects of a near meltdown are immense.

    Second, Team Obama was heavily constrained by the obscene failure of TARP under Paulson; which gave the Senate opposition more flexibility to oppose everything (as they have done, along solid party lines), using a fillibuster if necessary. The US system is designed to move slowly. It is not a parliamentary system.

    Third, good legislation is complex to write. This post presumes that we could have just passed a well-written health care law. Remember two critical things. Consider health care. Team Obama probably entered 2009 with a health care “plan” that evolved during the election cycle. This plan was deliberately kept vague. The opportunity to radically broaden the scope of that plan did not emerge until the unemployment rate started increasing (December/January timeline). At this point, Obama launched an initiative to begin writing that legislation – and we can expect that process to take nearly a year.

    In other words – passing fundamental legislation to alter deep structural issues unrelated to finance (like health care) in the 2.5 months of high drama after January 20th may neither have been possible nor desirable. (Just getting the stimulus bill, which everyone agreed needed to be passed in some form, took till late February to get through Congress even after a pledge of Jan 20.)

    Nor, I would argue, is immediacy necessary for long term structural legislation. The supposition that good legislation _only_ gets passed in the middle of crises is incorrect. Some of the most serious reformist laws in the US have passed a year or more after crises. Consider the Freedom of Information Act ammendments of 1974 that followed on Nixon’s abuses (passed by Congressional override of Ford’s veto), and the Government in the Sunshine Act of 1976 that followed two years later… These laws have had an immense impact on government (except when they were abrogated by executive decree under Reagan’s broad expansion of the definition of “national security”, and then later Bush’s expansionist definition of “executive privilege”).

    If we look at Team Obama, they have been doing an acceptable job in several policy domains. Arguably, they have not done enough, but they have actually done more than they promised during the campaign in some cases (the stimulus bill + budget have stronger energy subsidies than initially promised, although still not nearly enough to reverse long term energy trends).

    The great failures have really been in the domain of financial policy – and were entirely foreshadowed in Obama’s inauguration speech in which he aggressively defended the notion that govt. should reignite debt-financed growth (“credit is the lifeblood of the modern economy”). And most of the truly awful policies can be traced directly to Summers, and to a lesser extent Geithner. (I took Bernanke off of my hate-list in March when he finally stood up for himself.)

    The real danger is not that the general public – or even Congress – doesn’t have the willpower to pass new regulation on the financial sector. It most certainly does according to all the polls.

    The real danger is that Summers still has the ear of the President, and that Summers’ worldview seems remarkably resistant to change. “Change” doesn’t just happen by itself. Someone needs to lead, and Summer is leading in the wrong direction.

    But the window of opportunity is not closed. In fact, IF we do experience a mini-recovery later this year, that will be the point of maximum opportunity. Obama will be able to claim credit, raise the banner of Never Again, and he’ll (probably) have 60 Democrats in the Senate.

    Hopefully Summers doesn’t blow it again (or, Obama fires him).

  50. The breakthrough is quite obvious.

    We transferred two trillion from the taxpayers to the banks with no transparency and no accountability and not so much as a Congressional hearing. I’d call that a breakthrough — especially if I were a bankster.

    The country is now officiallly a kleptocracy.

  51. Patton: “We as a society have a pact to take care of all of our citizens. We don’t have a pact to become equal to them, because in that direction lies our bankruptcy – we don’t all need to be ditch-diggers.”

    Well, that is where the upward redistribution of wealth that has been taking place for a generation is taking us. Maybe not to being ditch-diggers per se, but servants of the ruling class.

  52. Stats Guy: “But the window of opportunity is not closed. In fact, IF we do experience a mini-recovery later this year, that will be the point of maximum opportunity. Obama will be able to claim credit, raise the banner of Never Again, and he’ll (probably) have 60 Democrats in the Senate.

    “Hopefully Summers doesn’t blow it again (or, Obama fires him).”

    Unfortunately, a mini-recovery would probably give validation to Summers and his policies.

  53. “The traditional indexes are worthless until the government backs out”

    Good point. Then how do we guage the current situation?

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