Despite the stimulus, although helpful, but ultimately inadequate to the task(as Baker, Krugman, and others predicted) we also keep hearing on the campaign trail, a tall tale, about how the Obama administration saved us from another Great Depression by continuing more Bush/Paulson-like bailouts. That shows just how much haven’t learned our lesson. Economist Dean Baker was almost all alone way back when he was stressing his warnings about the housing bubble that were ignored before everything came crashing down.
And then, in 2008, after Wall Street sealed our fate, they got their string of no strings attached bailouts without a word of concern from then Senator and now President Barack Obama. The same President Obama who continually propped up that same TBTF banking system after winning the election and picking the same people who brought it down discussed in this clip.
Much of these points still ring true today, yet I predict some will naysay as if the guy who wrote one of the definitive papers on the Housing bubble way back in 2002 somehow doesn’t get it. Maybe they’ll say “OMGZ, what about the commercial paper market and payroll?! He didn’t think about that! It had to be right away and it had to be shitty while enriching the 1%!” Well first of all, the Minneapolis Fed disputes the claim that the commercial paper market was shutting down. (PDF) Second of all, that is what is called not understanding the Fed’s powers very well.
The Return of the TARP Lie About the Commercial Paper Market
In September of 2008 Federal Reserve Board Chairman Ben Bernanke deliberately misled Congress. He told them that they had to approve the $700 billion TARP bailout because the commercial paper markets were shutting down.
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Bernanke was deceiving Congress with his discussion of the commercial paper market because he single handedly possessed the ability to support the commercial paper market. In fact, the weekend after Congress voted for the TARP he announced that he would create a special Fed lending facility to directly buy commercial paper from non-financial companies.
If Bernanke had been honest with Congress he could have told them of his plans to create such a facility before they voted on TARP and explained that the commercial paper market could be sustained whether or not they approved the TARP bailout.
Dean Baker and others who saw this crisis coming deserved to be taken seriously during this debate unlike a former Goldman Sachs CEO, a former failed NY Fed President, and a Fed Chairman who can't see bubbles like his job entails. I mean really, to think that supporting everything Bernanke says or does somehow makes you one of the “serious” people that understand finance and economics is a fool’s errand.
In that scenario you certainly are not. Your guy missed two housing bubbles (one in California during the seventies in addition to this one), and he was nominated by President Bush while being on his council of economic advisers during the run-up of this housing bubble. President Obama decided to put Ben Bernanke up for Fed Chairman again because he did just a bang-up job on………what? Missing the big one? He merely flooded the zombie financial system with taxpayer financed capital to keep it and its shadow puppets propped up. However, unless there is change to the status quo, that’s just stacking the TBTF house of cards again, in row until it collapses again.
And just so you know, I supported a Swedish style (or the American version of it James K. Galbraith proposed) bank rescue which was worth waiting for so we would have access to their books, honest accounting marked to market, shareholders being wiped out, and some accountability for These Wall Street barons instead of letting them keep their jobs and their huge bonuses which are an incentive to do this all over again.
And because of the inadequate “foreclosure fraud settlement” and the horrible precedents for any accountability for banks and the mortgage industry’s fraud in the future, borrowers are continually chained to their deflating assets(homes) unable to make up for their massive private debt sucking income out of the economy. I don’t know in what world that constitutes winning, but it’s not earth.
There should have been a massive outcry about all of this from the Democratic base but there was not and still is not. That is a serious problem like the myth about the acts of the Bush and Obama administration propping up TBTF banks supposedly saving us from a Great Depression.
And so to bust this myth Dean Baker will once again spell out reality for everyone in his recent piece with real actual historical economic examples to look back on. The reality is that President Obama did not save us from a second Great Depression and we need not be lulled into that false narrative during this campaign.
Does Obama Deserve Credit for Avoiding the Second Great Depression?
As President Obama’s re-election campaign heats up, there are several new accounts of his track record finding their way into print. One item for which he is undeservedly given credit is saving the country from a second Great Depression.
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All this should be obvious to anyone familiar with the history of the depression, however, we don’t have to go back 70 years for lessons on recovering from financial crises; we just have to look to the south. In December of 2001 Argentina broke the link between its currency and the dollar and defaulted on its debt. The result was a financial meltdown that was certainly at least as severe as the worst-case scenarios that the United States might have faced in the dire days after the collapse of Lehman.
Following this default, Argentina’s economy went into a freefall for roughly three months. Banks were insolvent, families and businesses could not get access to their savings, and normal business-dealing became almost impossible.
However, by the second quarter of 2002, the government had largely pasted things together to the point that the economy had stabilized. It began growing rapidly in the third quarter of 2002 and continued to grow rapidly until the world recession slowed the economy in 2008. By the middle of 2003, it had recovered all the ground it had lost in the initial crisis after the default.
He, George W. Bush, “Oops I missed it, again” Ben Bernanke, “Ain’t no party like a Goldman Sachs Party” Treasury Secretary Henry Paulson, and “I was never a regulator at the NY Fed” Treasury Secretary Tim Geithner merely propped up the TBTF financial system and kept the status quo going. What do they want, a medal?
So all in all, 29 trillion was lent out globally, including shadow bank institutions, to keep the global TBTF financial system propped up, implicit bailout guarantees and all, until it crashes again. This was not smart the way it was done, though it technically saved the financial system till the next crash -- and one happens about every five years -- and now we know there’s reason to believe there was a lot of fear mongering about “avoiding another Great Depression” used in 2008 on now for the 2012 campaign trail.
BTW you can spare me the “Oh some of it was paid back” nonsense. It’s bad enough I have to hear Wall Street shill Erin Burnett spout that kind of BS on CNN, but here on Daily Kos? That kind of defeats the point and shows a disdain for working people suffering who don’t get these below market rates. Dean Baker has an excellent free book he put out there I would encourage everyone to read where he stresses this point among others.
The End of Loser Liberalism: Making Markets Progressive (PDF)
Supporters of the bailout have been eager to claim that the government made money on these loans. This is not honest accounting. The money was lent at rates far below the market rate at the time. No accountant would ever say that a below-market loan turned a profit because it was repaid. Providing a loan at below-market rates implies a government subsidy, and while Wall Street banks were able to get this subsidy from the government, millions of struggling small businesses across the country were not so lucky.
Also when those who want to show "how smart they are" by bragging about free money being lent out and paid back, they also show they don’t even really understand what money is, anyway. Private Banks create money by creating loans all the time like the FED creating lines of credit with taxpayer money here having more than one use not available to you or I. So essentially that would be a dishonest hackish accounting excuse and an uneducated one at that.
This is true whether in the U.K or the USA both with central and private banks that operate this way. Yet some say “Yay no more regulated credit controls?” or “The end justifies the means?” What this really means is a break from the long precedent of credit regulation is OK because of what the politicians some say we should trust; politicians that the banks own.
No, it is absolutely not OK. This is a problem. It’s more important than the Republican primary freak show. Sorry to interject reality.
You might ask why I am bringing this up now and that’s a fair question, I guess. I have my own questions though before I answer that; when is the next time you are going to have leverage over this Democratic president or Democrats in general? They all are bragging about a failed financial reform bill on the campaign trail showing that these problems are not even acknowledged by this administration; one that acts as if it has stopped bailouts as we know it.
History proves law professor and Former SEC Commissioner Professor Roberta Karmel right. Dodd Frank is not a recipe for strong regulation. Even the history of the bailout sheds doubt on it, because if the Dodd Frank Resolution provisions were going to stop bailouts as the President said thus defeating the massive political power of the big banks (the most dangerous power)then why wasn’t it able to be drafted then? Back then there was much more political leverage to do what’s right given the massive unpopularity of the bailout where TARP failed at first and it was not even attempted.
And now I’ll close with the reason you should be worried about all of this; while you are being distracted by the Republican primary freak show, you may not know what President Obama’s campaign manager Jim Messina said to Wall Street recently. He told them not to worry.
Jim Messina Visits Wall Street
On Monday, Obama campaign manager Jim Messina announced that Priorities USA, a Super PAC staffed by former White House officials, would receive full fundraising support from the official re-election effort. On Tuesday, he visited Wall Street:
Jim Messina, President Barack Obama’s campaign manager, assured a group of Democratic donors from the financial services industry that Obama won’t demonize Wall Street as he stresses populist appeals in his re-election campaign, according to two people at the meeting.
In response to a question, Messina told the group of Wall Street donors that the president plans to run against Romney, not the industry that made the former governor of Massachusetts millions, according to one of the people, who spoke on condition of anonymity to discuss the private meeting.
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Again, it’s easy to see the campaign’s logic in revving up its Super PAC. It may need to do that for strategic reasons. The question still remains: What must they promise donors for their increased support? These Wall Street folks that Messina met with already backed the president's re-election, but if they end up donating even more to the Super PAC, it’s unlikely they would do so without expecting some consideration in return.
Now given how unpopular Wall Street is to the public, does this news sound like you or I have any real leverage at all? Indeed, what was promised for this support of the president’s SuperPac? Does that not worry you just a little bit?
Do you think that maybe before the president has no reason to care about what you or I think whatsoever for 4 years (because he’s probably going to win) that perhaps demanding that more attention be paid to going after the Robber Barons who defrauded the American people helping to bring down the entire global economy on their heads? How about we don’t celebrate US AG Eric Holder’s failures and demand a better criminal prosecution or even a referral rate than the Bush administration?
How about we admit that an economy without rule of law doesn't work well for anyone except the people who have the political power and capital to control it? A few good months job growth(still about 10 million short) won’t change that fact or get us out of this hole. Even at January’s growth rate, it would still take until 2019 to get back to full employment.
And because deficit terrorism rules the day, it's probably going to be a lot longer than that because this administration and both parties don't understand fiscal or monetary policy at all or how they connect. They're simply proud of the fact that they are stuck on deficit stupidity, and it's sad because fiscal deficit spending is the only way full employment is ever a reality in the near future. We have all the tools, unlike countries in the Euro-zone who don't issue their own currency, we just refuse to use them.
So how about making some demands before just giving away your money, vote, or time? After all, this is the only time you're going to get.
