James Galbraith says a clear economic path was open to the new Obama administration, and it WASN'T "selling out to the bankers"

"These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures."

-- James Galbraith, referring to President Obama's economic team in his blogpost Obama's Biggest Mistake: Selling Out to the Bankers

by Ken

Granted, I tuned out of all the Election Night coverage, and haven't been paying all that much attention to the 24/7 post-election maundering, so perhaps I've simply missed it. But I haven't heard any pundit saying, "Son of a gun, they pulled it off, the Wall Street predators and their bankster brethren. Under cover of an economic meltdown, they strangled even more life out of the economy while getting themselves made whole and consolidating their power so that no one can ever challenge their economic hegemony. Son of a gun."

It's not a popular message, of course, since those people now control pretty much all the money in the country, and don't like sharing it with people who, say, suggest that they should have to put up with more than token government intrusion into their affairs.

It wasn't that long ago that we were registering with admiration economist James K. Galbraith's ringing, stinging denunciation of just about everything having to do with what I called alterately "the Secret Commission on Deficit Reduction" and "the loomingly disastrous Let's Stick It to Social Security Commission brought to us by the president in cahoots with America's pillars of economic orthodoxy" -- more popularly known as the Catfood Commission. (I wonder, though, whether the folks who picked up on that name have priced catfood lately. Once the "deficit hawks" have had their swashbuckling way with Social Security -- next stop, Medicare -- I wonder whether senior citizens will even be able to afford that.) And, wonder of wonders, Galbraith delivered his scathing report to the commission's ugly puss.

Our Jamie had better watch this nasty habit of talking sense in or around an orthodox-economic establishment that regards this kind of sense as the sort of thing that, after the fact, "who could have known?" As in: "Who could have known there was a housing bubble that could go bust and bring the whole economy down with it?" Of course there were plenty of people who'd been screaming about this for ages, but one of the key tricks to being part of that economic-orthodox establishment is having the strength of mind to not see and not hear the people who keep jumping up and down saying, "Can't you see? Can't you hear?"

Of course the president and his people won't be tuning Jamie in now either, because he's committing the cardinal sin of looking back instead of forward. Never mind that people who don't know where they've come from rarely have a clue where they're headed. And I mean this literally. Those people never mind the infernal backward-lookers and lesson-learners. And if you're as clueless as, say, your average right-wing predator or thug or sociopath, you have a vested interest in degrading people who do see and do learn.

In setting forth "Obama's biggest mistake," Jamie G accepts Paul Krugman's challenge that "Monday-morning quarterbacks should say exactly what different play they would have called." He accepts Krugman's argument that the Obama stimulus package, as all economists to the left of, well, the new president's economic team were saying at the time it was announced (who could have known?), was too small, but he insists that that was only part of the answer.

The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.

Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail -- with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.

But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”

The banks threw a party. Reported profits soared, as did bonuses. With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed -- until the fact came out that they’d so neglected basic mortgage paperwork, as to be unable to foreclose in many cases, without the help of forged documents and perjured affidavits.

But new loans? The big banks had given up on that. They no longer did real underwriting. . . .

Galbraith assumes that everything he knows about the way the economy malfunctioned was known to Geithner, Summers, and Bernanke. "But Geithner and Bernanke had cast their lots, with continuity and coverup. And Summers, with his own record of deregulation, could hardly have complained." And "to counter calls for more action, Team Obama produced sunny forecasts," insisting that what they were doing was working just fine. He argues that the team's acceptance of "responsibility for the entire excess of joblessness above eight percent "made it impossible to blame the ongoing disaster on George W. Bush. If this wasn’t rank incompetence, it was sabotage."

This is why, in a crisis, you need new people. You must be able to attack past administrations, and override old decisions, without directly crossing those who made them.

President Obama didn’t see this. Or perhaps, he didn’t want to see it. His presidential campaign was, after all, from the beginning financed from Wall Street. He chose his team, knowing exactly who they were. And this tells us what we need to know, about who he really is.

Now most anything different the administration may want to do -- and you have to think that along about now they'd like to do something different -- will likely require the "cooperation" of the new House Republican majority under the, er, "leadership" of "Sunny John" Boehner and the impendingly emerging coalition of crazed Republicans and panicky, weaselly Conservadems in the Senate. And of course there's no reason to trust anything new the administration may try to undertake than we should have trusted what it did undertake. It might be wise to stock up on catfood before the prices really soar.

Who could have known?

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