A problem, Mr. President: Large numbers of voters think we have not done enough to help them.

seafan

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Sun Oct-04-09 12:03 PM
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A problem, Mr. President: Large numbers of voters think we have not done enough to help them.

David Leonhardt writes on September 20, 2009:

Large numbers of voters think the government�s recent policies have done a lot to help Wall Street and relatively little to help an �average working person.� Now, a majority of people also say that the stimulus program was necessary and that it has helped the economy. So there is some internal inconsistency here.

Politically, though, the poll does a nice job of capturing one of the central challenges for the White House and Democrats in Congress. Voters do not think elected officials have done enough to mitigate the damage from the recession.

It�s going to be interesting to watch how Democrats try to deal with this in the 13 months between now and the midterm elections. Another stimulus? Tax cuts for companies that create jobs? An emphasis � both political and policywise � on financial re-regulation? Something else?

Eliot Spitzer warns us repeatedly:

October 1, 2009

The Obama administration, which has spent much of the past year bailing out banks and protecting the markets, has done shockingly little to help the middle class that has borne the brunt of the financial meltdown. Two acts are particularly revealing. First, the administration failed to go to the mat to give judges the power to reform mortgages in the bankruptcy context. The administration barely winced as the Senate caved to the banks on this critical issue, risking no political capital to protect one of the few reforms that could have totally transformed the mortgage crisis. As the foreclosure wave continues, and as adjustable-rate mortgages hit reset points that are going to cause havoc for millions of additional families, this failure of political leadership by the administration stands as one of the early warning signs that things were amiss.

The second act is the recent�equally difficult to understand�concession to the banks, allowing them not to be required to offer what are called "plain vanilla" mortgages and other products to consumers. These products are simpler, more understandable, less ridden with fees, and less prone to long-term risk than most of what banks try to sell consumers on a regular basis. These are the very products consumers need.

.....

The administration's failure on these two policies is symptomatic of its larger failure of vision when it comes to banking reform. The administration has spent more time worried about the musical chairs of regulatory jurisdiction than it has asking fundamental questions about what banks should be doing, what we should expect in return for the vast sums we have invested in the banks, and how discomforting it is that the banks�in an effort to forestall these very questions�are already trying to assert that things have reverted to normal. It's worth recalling that the greatest impact of the New Deal was not the money spent on particular programs but, rather, the fundamental restructuring of the banking and securities sector that President Roosevelt imposed over the objections of business leaders.

Among the advisers to the White House, only Paul Volcker appears to be asking the tough questions. Volcker is asking what banks should be permitted to do if they want to have explicit federal guarantees on deposits and implicit guarantees that they are too big to fail. Unfortunately, Volcker does not seem to have a central role in any of the critical decisions.

The administration also hasn't asked whether the banks are using the capital we have given them in ways that will generate the economic recovery we need.

.....

For 50 years, under a regime of careful constraints on how and to whom banks lent, we avoided a meltdown of the sort we have just suffered though. The least we should now expect is a serious conversation about where banks should be active and how we can avoid rebuilding the same system that just collapsed.

The message we should be sending is clear: If banks want to participate in the high-risk activity that generates outsize bonuses but also outsize risk, they must do so only with their own capital, separated from guaranteed deposits and a taxpayer backstop to their debt and borrowing capacity. Unfortunately, this message is not being sent. If, after all the fuss of supposed banking reform, we do not redefine the relationship between banks and their customers and redefine what banks do with our capital, we will have failed. We will get neither the real economic recovery we need nor the assurance that another round of bailouts will not be necessary in the near future.

And so has Paul Krugman:

October 3, 2009

But another bad employment report yesterday. I�m feeling pretty bleak about this.

And the worst of it is that it was more or less predictable. I went back to my first blog post � January 6, 2009 � worrying that the Obama economic plan was too cautious. I wrote:

This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for � and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan�s perceived failure, if it�s spun that way, will be placed on Democrats.

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we�re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says �See, government spending doesn�t work.�

Let�s hope I�ve got this wrong.

Alas, I didn�t have it wrong � except that unemployment will, if we�re lucky, peak around 10 percent, not 9.

There was a lot of talk about health care being Obama�s Waterloo. It won�t, I think and hope. But stimulus is starting to look like Obama�s Anzio � the battle in which the American commander got himself into terrible trouble by being too cautious.

And right now Obama is pinned down in his too-small beachhead, taking heavy casualties.

The banks are still not helping regular people. Regular people in massive numbers have lost their jobs, homes, health care and savings. The stimulus is falling short of what is needed to support regular people.

This is shaping up to be an F-5 tornado.

IMHO, the most serious mistake this administration has made thus far is to elevate Tim Geithner and Larry Summers as top financial advisors, while relegating Paul Volcker and Austan Goolsbee to the basement.

But, then, I'm just one of the peasants.