Joseph Stiglitz: "Freefall" Obama re-arranged the deck chairs

[amborin]

".....Freefall” .......is a powerful indictment of Wall Street, the United States financial sector and the Federal Reserve Board.......................it offers a reluctant but persuasive elaboration of how the Obama administration decided to embrace the financial sector and the Fed, continuing and enlarging both the bailout and the too-big-to-fail philosophy that it inherited from George W. Bush.

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...... “In virtually every interpretation of the crisis, the Fed was at the center of the creation of this and the previous bubble.” And “in the Frankenstein laboratories of Wall Street, banks created new risk products . . . without mechanisms to manage the monster they had created.” Meanwhile, innovation on Wall Street was “directed at “circumventing regulations, accounting standards and taxation.” Stiglitz, who fears that Wall Street still dominates Washington, is clearly a man outraged.

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Stiglitz supported Obama for president and still finds things to praise about him........ Stiglitz contends that Obama chose a conservative strategy that he calls muddling through. The president may have been concerned to maintain national unity, but the risk, Stiglitz writes, “was that the problems were more like festering wounds that could be healed only be exposing them to the antiseptic effects of sunlight.”

He amplifies: “The Obama administration also didn’t have (or at least didn’t articulate) a clear view of why the U.S. financial system failed. Without a vision of the future and an understanding of the failures of the past, its response floundered. At first, it offered little more than the usual platitudes of better regulation and more responsible banking. Instead of redesigning the system, the administration spent much of the money on reinforcing the existing failed system.”

Warming to his indignation, Stiglitz adds: “Remarkably, President Obama, who had campaigned on the promise of ‘change you can believe in,’ only slightly rearranged the deck chairs on the Titanic. Those on Wall Street had used their usual instrument — fear of ‘roiling’ the markets — to get what they wanted, a team that had already demonstrated a willingness to give banks ample money at favorable terms.” Members of the team included Ben Bernanke, Timothy Geithner and Lawrence Summers, “who proclaimed that one of his greatest achievements as secretary of the treasury in 1999-2001 was ensuring that the explosive derivatives would remain unregulated.”

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“The oddest proposal coming from the Obama administration,” he says, “involved giving the Federal Reserve — which failed so miserably in the run-up to the crisis — more power. .....

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http://www.nytimes.com/2010/02/07/books/review/Phillips-t.html



ps: Stiglitz, like Roubini, predicted the debacle