Monday, January 19, 2009

Obamanomics: 'Wall Street Voodoo' and 'Kleptocracy'?

The current bailout is unlikely to encourage more lending, because that's not what it's designed to do, and there does not seem to be a need for it, certainly no 'urgent' one, much less an emergency. Rather, it appears that Obama is likely to continue what Bush started, albeit in more subtle ways. At least for now, corporate welfare will continue unabated under Obama, and it makes sense, for he has raised more from Wall Street than any other president, and the donors who benefit most from the bailout are financing his inauguration. It's payback and party time, on the back of the taxpayers! Since the bailout cannot possibly be justified on its merits, it has to be sold differently. This is where voodoo comes in.

One day before the inauguration, Paul Krugman, in Wall Street Voodoo, suggests that Obama may be condoning a new kind of voodoo economics, primarily designed to avoid the 'N-word' (nationalization), and increasing the likelihood of failure:
Old-fashioned voodoo economics — the belief in tax-cut magic — has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans.

But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.


What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as “fair value” purchases of toxic assets.

Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word — nationalization. The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.

Unfortunately, the price of this retreat into superstition may be high. I hope I’m wrong, but I suspect that taxpayers are about to get another raw deal — and that we’re about to get another financial rescue plan that fails to do the job.
To learn about what Obama should be doing instead, read Krugman's What Obama must do: A letter to the new president, the cover story of the current Rolling Stone.

In Bailout a windfall for bankers, if not borrowers, in yesterday's International Herald Tribune,
one reads:
A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future. ...

But a congressional oversight panel reported on Jan. 9 that it found no evidence the bailout program had been used to prevent foreclosures, raising questions about whether the Treasury has complied with the law's requirement that it develop a "plan that seeks to maximize assistance for homeowners."

The report concluded that the Treasury's top priority seemed to be to "stabilize financial markets" by simply giving healthy banks more money and letting them decide how best to use it. The report also said it was not clear how giving billions to banks "advances both the goal of financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs, and families unable to pay their credit cards."

David Sirota, in A brief note to those who still insist the current bailout will spur more lending... on Open Left, describing how 'Obama partisans' try to make themselves feel better and calling this latest approach 'kleptocracy,' which really is not that different from what the Bush regime did for eight years, but perhaps more sophisticated, described as 'new voodoo' by Krugman above:
If you read news about the bailout very carefully, you'll see that the entire goal of the current bailout is to protect bank shareholders - not the taxpayers, homeowners or the financial system as a whole. ...

This is why progressives have been pushing for far more oversight, transparency and restrictions on what the bailout money can - and cannot - be used for. If the bailout was structured differently, it might start helping the economy. If our government was a bit less corrupt, we might have a much more effective bailout with strings attached - maybe, as the New York Times reports, we'd do what the British are doing by forcing bank executives to "sign legally binding agreements requiring them to provide more loans to consumers and businesses." But those are big ifs.

Sure, I know it makes Obama partisans feel better to tell themselves that the current bailout the president-elect endorsed is really designed to stop an imminent emergency, not just to raid the federal treasury on behalf of the Wall Street donor class. But the evidence - whether from the GAO, the Congressional Oversight Panel, and now from the banks themselves - continues to prove that this bailout is kleptocracy in its most naked form.

In Obama pushing bailout without solid plan in place, Sirota provides more background on why
president-elect Obama has threatened to veto any bill rejecting Bush's request to release the remaining $350 billion of the bailout fund:
This isn't much-ballyhooed "change" - it's money politics by a different name. How do we know? Because neither Obama nor anyone else is genuinely trying to justify the bailout on its merits - and understandably so. Even the most basic queries prove such merits don't exist.

This bizarre dynamic is anything but the "pragmatism" Obama rhetorically fetishizes - and America's anti-bailout majority knows it.

Sure, Obama might believe he's deft enough to seem courageously populist while using his White House to perpetuate kleptocracy. Perhaps he thinks the gravity of a veto threat will, for a second time, trick the nation into reluctantly accepting theft.

Or maybe before attempting more sleight of hand, Obama should take a moment away from studying Lincoln's speeches and Roosevelt's fireside chats and recall the irrefutable sagacity in one of the most (in)famous Bushisms of all.

"There's an old saying in Tennessee," the outgoing president said early in his first term. "Fool me once, shame on you. Fool me (twice) - you can't get fooled again."

So exactly who is fooling whom here?

The January 9, 2009 report of the Congressional Oversight Panel notes that the government has 'not yet explained its strategy.' This, at least, is consistent, for it has none; and neither does Obama.

Does the world want to be betrayed? It sure seems like it. Never underestimate the allied powers of denial and wishful thinking.

And since much of the country on this eve of the inauguration seems to be in an ebullient and enthusiastic, if not euphoric party mood about the potential and promise of this great country, the following Bacchic metaphor seems justified: So far, the Obama administration shapes up to look like old wine in new wine skins. No 'new politics.' Instead old politics with a rather translucent 'post-partisan' veneer.

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