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Moon over the Yosemite Valley

Tuesday, June 12, 2012

Empty Pockets

I got this letter today from JS:
Robert,
Read this. It may help to understand what the admin should have done from day one.
i.e. incentivize the private sector…not draining cash by moving it to the public sector.


I send him back the standard response:
We tried to incentivize the banks. They swallowed up the smaller banks.
And received this:
That is just a small facet of the solution and apparently wasn’t administered well.
We need low taxes, accelerated depreciation for capital investments, and less government regulation.
Once the economy is recovering the admin can consider their agenda. You wrote about gov intrusion into antique ivory
among many issues.
If the present path had any merit, we would have seen some private sector growth. 
Me:
To be fair to this administration and the last one for that matter, everybody was running around like de headed poultry. They reacted by large scale infusions - it helped financial institutions but not people. You propose to further help the institutions.
He:
No more gov infusions into banks… why give money to banks without a plan/incentive to make it accessible to the people (private sector)?
That includes reexamining Dodd-Frank’s uncertainties.
Remember, wealth is created in the private sector (ex: Apple, Toyota, Nikon, etc.). Government while necessary, draws its funds from
the private sector, reducing the liquidity available to that segment.
Obama, from day one should have focused on invigorating, through incentives, the private sector before advancing his massive public growth.
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Now I am a long way from being an economist but I have a pretty good memory. We get stuck in a horrible recession six years into the Bush administration. After six years of getting the government off the businesses back, we get credit derivative swaps, insider trading, a Bernie Madoff who gets a green light from the SEC and all hell finally breaks loose when the shit hits the proverbial fan. Average family loses 40% net worth from 2007 to 2010.

Now we can go round and around and you can lay the whole thing at the footsteps of Fannie and Freddie if you like but I think that history would show you off base in an accurate post mortem. A little Fannie and Freddie perhaps but a lot more should be laid on the shoulders of the Glass Steagall repeal.

Anyhow Bush appoints Geithner and Paulson and we get TARP and a big stimulus to get everything moving and save those vaunted institutions judged to big to fail.

So Bush gives way to Obama and he inherits a total mess and we are sore at him because he hasn't cleaned up the mess fast enough. Apparently all problems can be fixed with a magic wand and two years is long enough. Let's just go back to the policies that caused the mess in the first place.  I don't think Obama has been perfect, but neither has anybody else. His homeowner recovery program was a fiasco. The banks received the country's mercy and doled absolutely none of it out for the consumer. But the reality is that we were not willing to see any more of the largest financial institutions fail and we applied the same keynesian policy that has been applied effectively for every recession since the Great Depression.  Volcker cautioned at the start of this one that it was different, I believe that he called it a transcendent recession and said that they typically last about 14 years. Americans are used to snapping their fingers. That's a long time to wait. What do you mean you can't fix it right now?

So much of the anti obama rhetoric is just revisionist chatter and monday morning quarterbacking. Not that he has been perfect, by any means.

Interesting article today on Talking Points Memo regarding the Controller of the Currency. The investment banks walk circles around the regulators time and again...

Jamie Dimon testifies today that his traders didn't understand the risk inherent in their trades.

1 comment:

Anonymous said...

re: about the Blue Heron Blast post about the guy who claims Obama poured increased amounts of money into the public sector... he is dead wrong! He has cut spending levels in the public sector since 2008. I believe, like Paul Krugman, that we need more spending here, not less.

kp