The economic crisis and missed opportunities

2009-04-18

in Economics, Politics, Rants

[Update: 3 July 2010] Photo removed at the request of the subject.

The most frustrating thing about the ongoing financial crisis is the way in which it has sapped the ability of the Obama administration to do much of anything else. Even if he had inherited an economy in tip-top condition, there would have been an extremely lengthy list of things for Obama to work on: from foreign relations to domestic climate policy. As things stand, everything is taking a back seat to restoring the financial sector to some semblance of normality: an exercise in institutional repair that only has the potential to leave the country slightly better off than it was before the crisis began. A banking system more resistant to crises is a good thing to build, but doing so is ultimately a lot less impressive than reforming health care or pushing the economy firmly onto the track of long-term greenhouse gas reduction. It is, at best, damage control rather than meaningful reform.

Of course, presidents need to deal with the circumstances they encounter. Harold Macmillan may have been right to call ‘events’ the greatest challenge faced by statesmen. Still, one cannot help feeling disappointed at seeing the energies and talents of this administration being primarily directed towards sorting out some errors of lax regulation and oversight which blew up the global economy, rather than making good on its progressive potential. We can only hope that the bank recovery will work, the economy will get back on its feet, and there will be time enough left to take action on other fronts.

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{ 13 comments… read them below or add one }

Tristan April 18, 2009 at 1:49 pm

The last major economic crisis seems to have been an oppertunity to create the American middle class. Crises are wonderful opportunities to change society, it seems strange that you see it has a hindrance rather than an oppertunity.

Krugman, on how the Rosevelt administration caused the great “compression” during the late great depression:
http://www.youtube.com/watch?v=5kwA-CwFK5A

Tristan April 18, 2009 at 2:56 pm

“A banking system more resistant to crises is a good thing to build, but doing so is ultimately a lot less impressive than reforming health care or pushing the economy firmly onto the track of long-term greenhouse gas reduction. It is, at best, damage control rather than meaningful reform.”

Why is not an economic crisis a chance for meaningful reform in all these areas? The economic crisis is also a crisis in confidence in the ways we have done things up till now – so it’s an oppertunity to do all sorts of things differently. It’s an oppertunity to question everything about the current system.

oleh April 19, 2009 at 12:56 am

With the system of checks and balances in the United States, reforms initiated by the President require the support of Congress. As Congress generally supports the status quo, reforms in too many areas is not feasible.

It also requires a President to be able to use the mandate for reform soon after the election.

This situation reminds me of how the Clinton administration began its first terms with the intent of introducing health care reform. Hillary Clinton was to preside over that initiative. However, the “Whitewater scandal” and an unco-operative Congress quenched that reform.

I agree that the economic crisis will weaken the Obama administration’s ability to undertake reforms in other areas as concerns over jobs and economic stability are paramount.

Tristan April 19, 2009 at 10:44 am

How did the Rosevelt administration put through their reforms? (I really don’t know enough about American history to know).

. April 27, 2009 at 11:49 am

Future historians will inevitably judge all 21st-century presidents on just two issues: global warming and the clean energy transition. If the world doesn’t stop catastrophic climate change — Hell and High Water — then all Presidents, indeed, all of us, will be seen as failures and rightfully so.

How else could future generations judge us if the U.S. and the world stay anywhere near our current emissions path, warm most of the inland United States 10 to 15°F by century’s end, with sea levels 3 to 7 feet higher, rising perhaps an inch or two a year, with the Southwest from Kansas to California a permanent dust bowl, and much of the ocean a hot, acidic dead zone — impacts that could be irreversible for 1,000 years if we don’t reverse emissions soon and sharply. This will require an unbroken — and indeed escalating — response by our political leadership throughout this century. The same is true for the very important, but still secondary, issue of avoiding the worst impacts of peak oil.

. November 6, 2009 at 1:55 pm

Lexington
One year of The One

Oct 29th 2009
From The Economist print edition
He has achieved more than his critics claim, but the meat is yet to come

Measured against the expectations of those who bought pictures of him riding a unicorn, Mr Obama’s presidency has been a failure. Measured by a more reasonable yardstick, however, it has seen solid successes. For a start, the financial system appears to have stabilised. Continuing where Mr Bush left off, Mr Obama intervened to prop up ailing banks and insurers, thereby probably averting catastrophe. The bail-out may cost him votes, but it was necessary. And though the economy is still in a terrible state, it could now be through the worst.

. November 30, 2009 at 1:54 pm

Obama’s Brilliant First Year
By January, he will have accomplished more than any first-year president since Franklin Roosevelt.
By Jacob Weisberg
Posted Saturday, Nov. 28, 2009, at 8:13 AM ET

This conventional wisdom about Obama’s first year isn’t just premature—it’s sure to be flipped on its head by the anniversary of his inauguration on Jan. 20. If, as seems increasingly likely, Obama wins passage of a health care reform a bill by that date, he will deliver his first State of the Union address having accomplished more than any other postwar American president at a comparable point in his presidency. This isn’t an ideological point or one that depends on agreement with his policies. It’s a neutral assessment of his emerging record—how many big, transformational things Obama is likely to have made happen in his first 12 months in office.

. December 18, 2009 at 10:28 pm
. February 1, 2010 at 10:48 am

US economy bail-out goals ‘not met’

The US economic bail-out programme has done little to ensure that financial crises do not occur in the future, a key watchdog report has said.

While conceding that “some aspects of the financial system are more stable”, it said that a number of the bail-out’s key goals “have simply not been met”.

Most notably, banks are still too big and lending has not increased.

The $700bn (£440bn) Troubled Asset Relief Program (Tarp) was approved by Congress at the end of 2008.

It has been widely credited with playing a vital role in turning round the fortunes of the US economy, which returned to growth during the second half of last year after a long and deep recession.

Milan May 10, 2010 at 2:31 pm

The next bailout in this ongoing crisis: 750 billion Euros for Greece.

. July 5, 2010 at 3:28 pm

The ABCs of Reform
How Washington blew its chance to bring real change to Wall Street.
By Eliot Spitzer
Posted Thursday, July 1, 2010, at 6:23 PM ET

Even acknowledging the truism that making laws is like making sausage, often leading any observer toward becoming a vegetarian, if not a vegan, some legislation stands out as especially unpleasant. With that in mind, what conclusions can we draw about the financial reregulation bill now making its way through Congress?

First, the bill does virtually nothing to confront the single greatest structural problem we face: the continued growth of too big to fail, or TBTF, institutions. Indeed, over the course of the crisis we have gone in the wrong direction, with the banking industry now more concentrated than it was several years ago. There is no reason to believe that this trend will change or that the federal guarantees of TBTF institutions will be withdrawn.

Second, the bill by and large reinvests regulators with the same discretion they had—and failed to use—before the crisis. The theory underlying the bill is simple: “Trust us—next time we will do better.” Indeed, in virtually every case, the very same people are still in the positions they had before the cataclysm. Isn’t it comforting to know that the systemic risk council—that critical group that is supposed to be akin to the canary in the mine, warning of impending danger—will be led by the same people (Timothy Geithner and Ben Bernanke) who failed or refused to see the omens of this crisis as it swept through the economy?

Third, those few ideas that promise structural reform and did make it into the bill—namely, the so-called Volcker Rule and changes in derivatives practices—are horrendously watered-down and compromised. And they derived their support from outside the White House, as the alignment between Geithner and Larry Summers vigorously opposed these ideas until the political pressures became unbearable.

. November 4, 2010 at 3:11 pm

President Obama lost his capacity to harness the support of the disaffected middle when he enhanced the bailout of Wall Street without getting anything meaningful in return. That was the emotional Rubicon for this administration. Had the bailout been accompanied by fundamental reform, genuine contrition, and actual pounds of flesh, the public might have accepted it. But when the banks, in the midst of the foreclosure morass and economic disaster, returned to the same old bonus behavior, the public sensed one thing: betrayal. The president had become one of “them,” and the space for the Tea Party to capture the anxiety of the middle was created. Franklin Roosevelt never would have let it play out this way. He would have raked the Wall Street titans over the coals, demanded that all bonuses be returned, and forced real reform on them. Compare the president’s meek statement to Wall Street: We are all in this together. The president ended up getting the worst of all possible bargains. He gave Wall Street what they wanted yet got their enmity. He evoked taxpayer ire by making taxpayers pay for Wall Street excess, yet didn’t align himself with the taxpayer emotionally.

. January 10, 2017 at 3:22 pm

The reign of Obama did not produce the nightmare of Donald Trump – but it did contribute to it. And those Obama cheerleaders who refused to make him accountable bear some responsibility.

A few of us begged and pleaded with Obama to break with the Wall Street priorities and bail out Main Street. But he followed the advice of his “smart” neoliberal advisers to bail out Wall Street. In March 2009, Obama met with Wall Street leaders. He proclaimed: I stand between you and the pitchforks. I am on your side and I will protect you, he promised them. And not one Wall Street criminal executive went to jail.

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