"a failure to revive the banking system would be Obama's Vietnam. It would wreck everything else."

[Better Believe It]

Obama's Loyal Opposition
by Robert Kuttner
April 13, 2009

Robert Kuttner is co-founder and co-editor of The American Prospect magazine, as well as a Distinguished Senior Fellow of the think tank Demos. He was a longtime columnist for Business Week, and continues to write columns in the Boston Globe. He is the author of Obama's Challenge and other books.

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Progressives now find themselves in an awkward position of simultaneously wishing Barack Obama well, but feeling dismayed by his policies on some key issues, most notably the banking bailout. If this were a normal economic situation, the posture of semi-opposition would not be that big a deal. We would simply gratefully accept the decent policies and keep pressing for bolder ones. But a failure to revive the banking system would be Obama's Vietnam. It would wreck everything else.

The economists whom I most respect, such as Joseph Stiglitz, Jeff Sachs, Simon Johnson, and Paul Krugman, all have grave doubts about whether the Geithner-Summers plan can work. The more details are revealed, the more curious it looks. If the plan did succeed in bringing zombie banks back to life, we might hold our noses at the fact that hedge funds and private equity companies were profiting, while taxpayers and the Federal Reserve bore the risk.

The problem, however, is that the plan is not just outrageous in terms of promoting a form of gambling with public subsidy, in which taxpayers bear most of the downside risk while the speculators get most of the upside gain. Nor is it problematic just because of the recently exposed conflicts of interest, which range from the large speaking fees given Larry Summers by some of the very firms that benefit from the bailout to the fact that the Geithner approach was literally designed not by the government but by Goldman Sachs, Pimco, and others that will directly benefit.

The more serious problem is that the plan is conceptually flawed. It presumes that it's possible to create a market that will bid up the value of securities that have lost most of their worth because the mortgages on which they were based will never be repaid at anything like their par value. Banks can play all kinds of games to try to increase the prices at which these securities trade. But unless the taxpayers and the Fed make up virtually the entire loss in banks' balance sheets, the trading games will not serve to recapitalize the banks.

We have two big things on our side: reality--the fact that the plan is a Rube Goldberg contraption and a series of conflicts of interest; and Obama's own intelligence and desire not to fail. But it is not easy to play the role of loyal opposition to an attractive progressive president who at times seems almost willfully determined to let himself be captured by Wall Street.

Please read the complete article at:

http://www.commondreams.org/view/2009/04/13-4

[phantom power]

1. It's not the failure. It's the particular *way* that Geithner is failing.

It's failing by keeping the white collar criminals who created the problem in charge. It's failing by continuing the objectively-stupid policy of "self regulation" that allowed the house of cards to be built in the first place. It's failing by not understanding the inadequacy of supply-side solutions to an economic collapse in demand.

I mean, if they really tried to re-establish a sane regulatory structure, and fired the perpetrators, and either broke up the insolvent banks, or recapitalized them with proper conditions, or nationalized them, and in the end the economy was still in the toilet, I know I would feel like they fought the good fight, and I'd happily back them up.

Or, if they tried to do all these things, and somehow the GOP caucus and maybe some unrepentant blue-dogs prevented it from happening in some scorched-earth political vendetta, then I'd feel like they fought the good fight.

But this? I just can't defend it.

[truedelphi]

2. Very well stated. And additionally -

The 2.9 to 12 trillion we have spent could have done a lot of good, if not given to the deep dark hole created by the banksters.

These obsene amounts of money have been giveaways - and one lesson we have learned about Bailouts/giveaways is that the average worker always suffers through the devaluation of their wages.

[Ikonoklast]

3. Hooray, your daily "Obama's A Failure Thread©"!

I was getting anxious, you're a little late today!


I salute your devotion to a relentlessy negative agenda.

[bbgrunt]

4. k n r. Kuttner is a well-respected economist and

founder of The American Prospect, Every one of these economists (Stiglitz, Krugman, Galbraith and Kuttner) desperately want Obama to succeed. And Common Dreams is a well respected web site. If we simply bury our heads in the sand about this outrageous bailout and heist, we will all suffer immense financial harm and Obama will be vilified.

I guess some would just prefer not to pay attention.

[PBS Poll-435]

5. Lolz

:eyes: