Reply #3: President Obama, it's just not enough; the public favors strong action.

[seafan]

Is anyone listening?


Behind the Curve

By PAUL KRUGMAN
March 8, 2009

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There are now three big questions about economic policy. First, does the administration realize that it isn’t doing enough? Second, is it prepared to do more? Third, will Congress go along with stronger policies?

On the first two questions, I found Mr. Obama’s latest interview with The Times anything but reassuring.

“Our belief and expectation is that we will get all the pillars in place for recovery this year,” the president declared — a belief and expectation that isn’t backed by any data or model I’m aware of. To be sure, leaders are supposed to sound calm and in control. But in the face of the dismal data, this remark sounded out of touch.
And there was no hint in the interview of readiness to do more.

A real fix for the troubles of the banking system might help make up for the inadequate size of the stimulus plan, so it was good to hear that Mr. Obama spends at least an hour each day with his economic advisors, “talking through how we are approaching the financial markets.” But he went on to dismiss calls for decisive action as coming from “blogs” (actually, they’re coming from many other places, including at least one president of a Federal Reserve bank), and suggested that critics want to “nationalize all the banks” (something nobody is proposing).

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How about nationalizing only the specific banks that are identified as being insolvent? Up until this point, concealing the identity of WHICH banks were in trouble was precisely why former Goldman Sachs CEO/Bush Treasury Secretary Hank Paulson forced all the major banks to take Bush's TARP money. If all the banks were forced to take this money, the insolvent ones had the perfect cover as the election loomed closer.



Krugman continues:

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As I read it, this dismissal — together with the continuing failure to announce any broad plans for bank restructuring — means that the White House has decided to muddle through on the financial front, relying on economic recovery to rescue the banks rather than the other way around. And with the stimulus plan too small to deliver an economic recovery ... well, you get the picture.
Sooner or later the administration will realize that more must be done. But when it comes back for more money, will Congress go along?
Republicans are now firmly committed to the view that we should do nothing to respond to the economic crisis, except cut taxes — which they always want to do regardless of circumstances. If Mr. Obama comes back for a second round of stimulus, they’ll respond not by being helpful, but by claiming that his policies have failed.

The broader public, by contrast, favors strong action. According to a recent Newsweek poll, a majority of voters supports the stimulus, and, more surprisingly, a plurality believes that additional spending will be necessary. But will that support still be there, say, six months from now?
Also, an overwhelming majority believes that the government is spending too much to help large financial institutions. This suggests that the administration’s money-for-nothing financial policy will eventually deplete its political capital.

So here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.
But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts. And as a result, the recession rages on, unchecked.

O.K., that’s a warning, not a prediction. But economic policy is falling behind the curve, and there’s a real, growing danger that it will never catch up.

IMHO, the president has one bite at this apple. Bold steps must be taken now to nationalize the specific banks that are in trouble, while leaving the solvent banks alone. The general public is behind the idea that pouring more money into the black hole of insolvent banks is futile. Time is of the essence. If these failing banks are not nationalized temporarily to restructure them, President Obama's political capital will be drained very quickly.

Needless to say, the Republicans are crossing their fingers that our president's economic recovery efforts will fail. And if we do not rapidly nationalize these failing banks, these jackals just may get their fervent wish.