A Lot Can Happen in a month: Back to the Future

Last month I attended Thing Big, a  conference held in Washington under the sponsorship of Campaign for America's Future among other progressive groups. At that time progressives were concerned over the presumptive appointment of Sen. Gregg as Commerce Secretary and the Obama stimulus package was under attack..Did his appointment of Gregg signal a pull back by the President from the progressive agenda which he had put forward?

I was particularly impressed with the optimistic tone of the conference. The message that I took away with me was that while President Obama will no doubt make mistakes, he is a new president and can learn from them and  (as did FDR) .  Just as progressives and the labor movement won significant gains in the 'thirties, so too can a strong progressive movement today. Now we are at another political crisis point, with the Bernanke-Geithner-Summer team threatening to create a de-facto banker's dictatorship which would put the Obama administration into receivership..

Within days of the Think Big  conference, the optimism expressed by the speakers, seemed to be  borne out as Gregg withdrew.his name because of irreconcilable differences with the Administration.  Now we are at another political crisis point and we can hope that President Obama will pull back from his support for Treasury Secretary Geithner retreaded bailout plan. and use his bully pulpit to fight for the social reforms that he has endorsed. Robert Reich, Paul Kurgman and Robert Kuttner have addressed the current inflection point. It's just a month snce the Thing Big conference but the economic situation is rapidly deteriorating. Popular anger is on the rise and the president again appears to be  veering off course.

The AIG bonuses have become a target for popular anger as the economic situation continues to deteriorate. Robert Reich discusses this in his last blog post:Congress' Potempkin Populism, where he takes on the failure of Congress to move forward on legislation:

nice to see that when the public gets sufficiently angry about something, Congress responds. In a rare show of bipartisanship, members are eagerly registering shock and outrage at AIG's bonus payments by coming up with an assortment of ways to reclaim the bonanza, including taxing them away retroactively. Who says democracy is dead? 

But much of this is for show. When the public isn't looking, Congress reverts to its old ways. The Obama-supported plan to allow distressed homeowners to renegotiate their mortgages under the protection of bankruptcy has run into a Wall Street wall. Although Citigroup temporarily broke ranks a few months ago when it was receiving one of the most generous bailouts, the rest of Wall Street has remained adamantly opposed, and apparently Democratic leaders have decided not to push back.

The agenda has shifted to how to deal with the financial crisis and the signs are again ominous. We are seeing a new phase in the bailout of Wall Street while measures for Main Street remain stalled.

And then there was this really scary banner headline in today's Huffington Post, Obama Wants "Unprecedented" Powers for Geithner.

Remember the first days of Bush proposal to give Paulson absolute power over the use of the $700 billion TARP appropriation to do as he saw fit, without congressional oversight etc. Well that was defeated although it seems that under Geithner Congress is de facto being denied oversight. AND NOW MORE POWER TO COME!!! Well fortunately this time appearances were deceiving. This particular bit of news did not signal a replay of the past.

Things have been looking bad lately and  it seems that the Treasury Secretary is going down the same path as his predecessor Henry Paulson, with President Obama putting his own credibiltiy on the line by energetically supporting Geithner's handling of the situation. Bad news for sure but not as bad as the hedline seemed to indicate. We are not seeing a reply of Bush's attempt to make Paulson the unchallengable Treasury Tsar. Actually the headline in the Huffington Post was linked to an article in the Washington Post, U.S. Seeks Expanded Power to Seize Firms.

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

... snip ...

The administration's proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed's other responsibilities, particularly its control over monetary policy.

The government also would assume the authority to seize such firms if they totter toward failure.

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG's most troubled unit.

However it does seem that we are in for more of the same policy Wall-Street centered policy and this is bad news. Krugman's, in his latest column. Foreign Policy Despair, lays it out and he doesn't pull any punches.  He rips into the bankruptcy of the new Geithner/Obama bailout plan.  "

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

But hey, It's not all about AIG althoug the bonuses have been a means of focuses popular anger. Here is what Robert Reich has to say on that subject in his blog: (Again I recommend reading his post in full).

It's nice to see that when the public gets sufficiently angry about something, Congress responds. In a rare show of bipartisanship, members are eagerly registering shock and outrage at AIG's bonus payments by coming up with an assortment of ways to reclaim the bonanza, including taxing them away retroactively. Who says democracy is dead? 

But much of this is for show. When the public isn't looking, Congress reverts to its old ways. The Obama-supported plan to allow distressed homeowners to renegotiate their mortgages under the protection of bankruptcy has run into a Wall Street wall. Although Citigroup temporarily broke ranks a few months ago when it was receiving one of the most generous bailouts, the rest of Wall Street has remained adamantly opposed, and apparently Democratic leaders have decided not to push back. 

And now back to the future.

At the Think Big conference  Kuttner and Krugman (who gave the keynote) not only emphasized the need for a large stimulus package (this was on the agenda at the time) but also urged that we all give the new President to, as it were,  learn on the job.  They urged the necessity of having a strong progressive voice that would counter Republican and centrists Democrats who were already signallying that they were going to create trouble for the Obama program. Taking the long view, the speakers turned to the New Deal as a benchmark, and looking  at the successes and failures of FDR's successive Administrations, urged cautious optimism. Videos and reports on the speeches are on line here.

I left the conference feeling much more hopeful and I resolved not to respond to contribute to the Republican noise machine by expressing anxiety at every set back to the Progressive agenda. That said, While Krugman has been consistently warning of the dangers inherent in the course being taken by the Fed and Treasury, I take Robert Kuttner's sharply critical post in Sunday's Huffington Post, very seriously. Geithner's Last Stand.. Here are some excerpts: 

It would be hard to find two administrations more different than Bush and Obama. Yet, when it comes to bailing out financial firms, Geithner's approach is a seamless continuation of his predecessor, Hank Paulson's. It makes you wonder who is the permanent government. Perhaps Wall Street?

Even the players are the same Goldman-Citigroup crowd. The well named Neel Kashkari, the Citigroup executive brought in by Paulson to run the TARP program, is still in place. Geithner's top assistant, Mark Patterson, is from Goldman. And most of the concepts are coming from the same Wall Street crew.

So far, the policy has been an abject failure. The latest idea is to use some of the remaining Treasury funds from the TARP program approved by Congress last October to anchor several trillion more in loans and loan guarantees by the Federal Reserve and FDIC. For weeks, Geithner has announced only vague principles of his next move.

... snip ...

The problem, of course, is larger than Geithner. The entire Obama economic team is far too close to Wall Street and far too much a continuation of the Paulson approach. And though Geithner is primed to take the fall, the plan is the work of senior economic strategist Larry Summers as much as it is Geithner's.

The grave political and economic risk is that Obama continues to let Summers and Geithner lead him down the garden path; the industry-oriented mortgage rescue saves too few homeowners; housing remains in the doldrums and mortgage securities with it; the hedge funds and private equity companies make some money with government guarantees, but the banking system remains comatose; and Republicans increasingly become the instruments of public anger

... snip ...

If Obama handed Volcker the ball, as some kind of senior counsel, they could drastically change the game plan without even having to fire Geithner. This would be the smoothest and least awkward way of changing course. Obama could simply say that we tried variants on the Paulson formula and it didn't work. Now it's time to try something else.

The alternative course, which is winning converts across the political spectrum, is a variant on the Reconstruction Finance Corporation of the Roosevelt era. With an R.F.C. temporarily taking over the insolvent banks, you wouldn't have to bribe hedge funds and private equity companies to speculate on toxic securities. Government would take over zombie banks and use government auditors to determine just how much new money was required to bring a vastly simplified financial system back to life. Shadow banks, loan securitization, and convoluted high-risk schemes would loom smaller, not larger. The process would have far greater simplicity and transparency. And it would be far more likely to get the banking system working again, more quickly and at less public expense.

Barack Obama is a president of great promise, reassurance, and political skill. In the next few weeks, we will learn how he performs in a crisis that is being worsened by his own appointees.

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