THE STASH MARCH 29, 2009
-
Read Later
READ LATERAvailable only to subscribers. SUBSCRIBE TODAY
-
Listen
ARTICLE AUDIO
- Font Size
There is no question that the Obama administration has abandoned any vestige of laissez-faire capitalism. It may not be socialism, and it’s certainly not fascism, as some idiots--sorry, conservative thinkers--have declared, but it is at the least capitalism with a very strong dose of state planning. The real question is on behalf of whom, or under whose dictates is the planning being conducted. The obvious answer is the Obama administration. But that doesn’t end the questioning.
In an article in the current Atlantic, Simon Johnson argues that a “quiet coup” has taken place in the United States that has put the financial industry--Wall Street--in charge of the nation’s economic policy. “A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true,” Johnson writes. Johnson thinks that Wall Street’s dominance has continued during the Obama administration, and defined the limits of what it can do to pull the nation out of its current crisis.
Johnson surveys what has been done so far, which has largely been what the banks wanted, and who is occupying high policy positions in Washington. In a recent Wall Street Journal article, there is evidence of still another way in which the banks might wield influence. The article recounts how “some bankers say they turned the conversations [with the administration] into complaints about the antibonus crusade consuming Capitol Hill. Some have begun ‘slow-walking’ the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money, thereby escaping federal restrictions.”
Seeking money elsewhere--that’s fine--but “slow-walking” the stress tests suggests that the bankers have been threatening to undermine the administration’s policies if they don’t become more compliant. That’s serious--and it does suggest an attempt to use their power to dictate what the government does. It’s the old strategy of the capital strike.
Johnson and others take the argument a step farther and suggest that one result of Wall Street’s dominance is policy that will not succeed in stemming the current crisis. I am not going to go that far. My colleague Noam Scheiber and my financial advisor Larry Lynn have convinced me to give Mr. Geithner’s plan a chance to work. But it is definitely true that the banks used their political power to rule out a more strenuous alternative to the Geithner plan. If the plan doesn’t work, there will be a reckoning--and not just on the economics of the Geithner bailout.
--John B. Judis
22 comments
Is it really true that the Obama administration has abandoned any vestige of laissez-faire?
Sure there is state intervention on a massive scale. But what's the ideology behind the same intervention? What's the purpose of the Geithner plan? Isn't it to stimulate markets supposing that by their functioning the mess will somehow fade away? That through market functioning shit (toxic assets) will turn into gold?
The strangest belief I've ever faced... But a new kind of "philosophers' stone" that can only be understood within a strong market ideology (a blind market ideology, if you ask me).
Anyway, great post. To denounce such "capital strikes" is always important.
But one must always remember that the most important tool of capital domination (as of any kind of domination) is ideology... And the most important aspect of that ideology is the idea of an "invisible hand". And a subtler version of the same idea is still implicit in the Geithner plan... So, I really find it very difficult to understand how you were convinced on the merits of the same plan. What am I missing?
- luispc
March 29, 2009 at 12:32pm
Just saw Geithner's explanation for the new TARP plan. Apparently bank nationalization is a no-go because of the excessive risk taken on by tax payers. Thus the solution to "share" the risk with private investors. So, 100% risk is too much but 95% is just right and it only costs us 50% of the possible returns. With policies and obfuscating sales jobs like this is there any question who's interests the government really has in mind there.
- eharder2
March 29, 2009 at 1:23pm
There will be no reckoning. The economy is already starting to recover now that the fiscal deficit is finally large enough. Once the stimulus money really hits in April and later this year, the banks will also start lending again, since consumers will be worthy of lending to. We'll just continue to muddle along at less than optimal output. By the end of this year, energy prices may even start skyrocketing again, as we haven't done jack shit to reduce our dependence on oil. The Fed will call that inflation and start raising interest rates, even though unemployment hasn't full recovered. I wouldn't be surprised if our brilliant economists tell us that 7% is the new natural rate of unemployment, to justify this nonsense. We'll just continue to muddle along at less than optimal output.
The real long term solution which would be redirecting banks to the public purpose since they are by nature essentially public institutions will not happen. We will not ban banks from secondary markets that serve no purpose. The banking sector will remain too large a part of our economy, and we'll just repeat this cycle in another decade or so. The Democrats in congress will fail to enact Obama's reforms (they already cannot even pass what is actually a decent budget). The Republicans will win back control, we'll deregulate again. Rinse and repeat. Hopefully I'm wrong.
- acria multa
March 29, 2009 at 1:29pm
Grim.
I do trust Obama and his economic team, they are at least trying to live in the real world of governing and avoid the real world consequences of the whole shebang blowing up.
So far, except for some brilliant commentary on Talkback, the critics have been so marinated in class resentment and conspiracy nonsense, its hard to make out how any of their alternative plans - when offered, which is rare - will be practically implemented (maybe there IS a use for all of those Commerce Dept employees).
I like Krugman, but he ruins his credibility by his knee-jerk chicken littleing every single issue ever since he started his column. He's always on def-con five hysterical mode. He's cried wolf too much for me.
But it IS hard to trust that this plan will work when there is no accountability built in to it. Why haven't the boards of these banks at least been removed? What is Jamie Dimon doing grinning in to every camera? I appreciate that he's supportive of more regulation and all, but his feeling free to act as if we need his support in the first place is really distrubing.
Whether they like it or not, until this economic team fires someone at one of the big name banks, or explicitly explains why they choose not to - they will not have the full trust of the American people. They need to show the American people that they aren't intimidated, even if, in practicality they are not - we can't see that out here. It sure looks like they are.
Judis is also a chicken little guy about all things Obama to my taste, but in this post, he's right.
- Wandreycer1
March 29, 2009 at 4:14pm
acria, I pretty much agree with everything you wrote, it is not a "If the plan doesn’t work" more a question of how much will it work? Judis writes this as a coin flip, it works or doesn't, when that is not the case. I absolutely agree that "We'll just continue to muddle along at less than optimal output." What that will mean politically I have no idea.
- blackton
March 29, 2009 at 5:01pm
The FDIC regularly sends teams of eighty people to close down and wind up small regional/community banks that employ 100-120 staff. Leaving aside the question of what the feds should be doing, the little matter of the how can't just be ignored. To replicate that kind of FDIC close-out for a large national or even international bank would require a physcial on-site intervention that I don't believe we have anything like the resources for at the moment.
That is what is in many ways most worrying at the moment. Large banking institutions that don't in fact really know what their assets are and are playing everything super-cautiously when it comes to credit have a kind of logistical advantage over the government. They can claim with an air of injured innocence that they are going about their normal business, but in fact they are trying to sabotage operations. I believe part of Geithner's deal is that he genuinely doesn't know how he would ever have a better hand -- it's a certain kind of myopia, rather than a cynical selling-short of the public interest.
- ironyroad
March 29, 2009 at 5:25pm
Smart Irony.
After the last 20 years these guys don't even know how to play anything but hardball. They need to be potty trained, enough collegiality.
I thought Thursdays anouncement was getting somewhere - that the jig is up for hedge funds, the new derivatives exchange. Good stuff.
I remember writing these exact sorts of posts during Obama and Hillary. I was always wrong.
- Wandreycer1
March 29, 2009 at 6:39pm
This is both helpful and hurtful - Dimon better be next:
G.M. Chief Is Said to Be Resigning in Deal With U.S.
Rick Wagoner is stepping down just as President Obama prepares to unveil his rescue plans on Monday for G.M. and the ailing American auto industry.
- Wandreycer1
March 29, 2009 at 6:44pm
Wagoner needed to go. He's made some awful decisions with the one bright spot being getting Maximum Bob to work for GM. What I don't understand is why the hardball with the car companies but rolling over for the financial companies. Transparency for the auto bailout, complete opaqueness for the bank bailout. Double standard? Sure seems like it to me.
I just pray that the auto plans are vastly superior to the banking part. Considering Geithner and Summers know financial companies that's not a comforting thought. Banks are easy to create; once you lose a huge chunk of your industrial base you don't get it back.
- tnmats
March 29, 2009 at 10:19pm
Best quote I've read so far:
"Instead Of Throwing A Banker To The Wolves They Have Decided To Throw Wagoner To The Wolves"
www.reuters.com/.../idUSN2937445020090330
If indeed it's true Treasury demanded Wagoner's ouster for gov't funds then expect Congress and the public demand the same or harsher for the banks. GM did some dumb things but they weren't so stupid or so arrogant as to buy corporate jets after taking gov't funds.
- tnmats
March 29, 2009 at 10:31pm
There are indeed some folks out there trying to suggest that, before Barack Obama, laizze-faire capitalism was the norm. They suggest, in turn, that "crony capitalism", "state capitalism", "the corporate state" etc was never deeply embedded in our political economy.
To read their takes, one would think the Reagan, Bush 41, Clinton and Bush 43 administrations [along with their counterparts in Congress] deregulated the finance industry not because the finance industry poured millions and millions of dollars into their PACs and election campaigns, but because they were "mesmerized" by the sheer genius of their economic arguments.
A few months ago I was reluctant to go down the "nationalization" route. I thought the focus should be on 1] ending the crisis 2] investigating its causes and 3] coming up with new regulatory measures to decrease the odds something like this would happen again.
Also, I stressed the need to overhaul "the safety net" so as to bring America into alignment with the other G7 nations. In my view, no American citizen should be forced to watch their lives collapse all around them because they lost a job or suffered a health crises. Especially not those with children.
Now, however, I see these banks [and AIG] mocking us with their bonuses and $10,000,000 office overhauls, pissing on us as the money is shovelled into their vaults, holding their "too big to fail" trump card over our heads like so many Damocles swords.
We can continue to go their "fuck all the rest of you" way or, instead, put a leash on them and pin them to the mat. Whether we nationalize the finance industry or not, there are going to be big risks involved.
And right about now, I am more inclined to teach those bastards a lesson. Get rid of the men who created this noxious swamp, stabilize Wall Street by nationalizing the finance establishments and then, once stabilized, find more competent men and women to run the enterprises once again as part of the newly re-regulated "private sector".
george walton
- iambiguous
March 29, 2009 at 11:47pm
Of course Wagoner has to go to the wolves. He's not part of hte NY-DC oligarchy.
Speaking of same, before you label such talk "conspiracy nonsense," Jill, why don't you read the Simon Johnson article that Judis links to? He made exactly my point.
Not surprisingly, at least to those of us who've worked in oligarchic places like Moscow or Buenos Aires, Johnson's ex-IMF colleague, Desmond Lachman (who also headed emerging markets research briefly for Salomon Bros) has also crossed the Rubicon and compared our NY-DC nexus to the oligarchies of the develo- er, emerging markets. As Lachman puts it:
" the United States is coming to resemble Argentina, Russia and other so-called emerging markets, both in what led us to the crisis, and in how we're trying to fix it.
"Over the past year, I've been getting Russia flashbacks as I witness the AIG debacle as well as the collapse of Bear Sterns and a host of other financial institutions. Much like the oligarchs did in Russia, a small group of traders and executives at onetime venerable institutions have brought the U.S. and global financial systems to their knees with their reckless risk-taking -- with other people's money -- for their personal gain...."
www.washingtonpost.com/.../AR2009032502226.html
- teplukhin2you
March 30, 2009 at 3:44am
tnmats - what is Maximum Bob up to now?
What a damned shame that he's not heading up that committee instead of a financial scammer like Steven Rattner.
- teplukhin2you
March 30, 2009 at 3:46am
From Paul Krugman's column today:
"It’s painful now to read a lecture that Mr. Summers gave in early 2000, as the economic crisis of the 1990s was winding down. Discussing the causes of that crisis, Mr. Summers pointed to things that the crisis countries lacked — and that, by implication, the United States had. These things included “well-capitalized and supervised banks” and reliable, transparent corporate accounting. Oh well.
"One of the analysts Mr. Summers cited in that lecture, by the way, was the economist Simon Johnson. In an article in the current issue of The Atlantic, Mr. Johnson, who served as the chief economist at the I.M.F. and is now a professor at M.I.T., declares that America’s current difficulties are “shockingly reminiscent” of crises in places like Russia and Argentina — including the key role played by crony capitalists."
In America as in the third world, he writes, “elite business
- iambiguous
March 30, 2009 at 4:50am
Ok Tep, deal - I'll read it. I have endless skepticism about conspiracies and words like oligarchy but I'll keep an open mind. Prostitution ring - with the American public as johns too - suits me better.
It will have to be tonight, I must work.
- Wandreycer1
March 30, 2009 at 10:04am
PS Obama is ten steps ahead as usual.
- Wandreycer1
March 30, 2009 at 10:04am
George - I heard Simon on Terri Gross from a podcast. He was riveting and absolutely convincing, more than any critic I have read. He was very British, decent and witty. Anyway, buy it from ITunes store for 2 bucks or something.
- Wandreycer1
March 30, 2009 at 10:15am
Tep, I read a short interview with Bob Lutz in Ward's AutoWorld. Lutz is 78 years old (I wished I looked that good and I'm 48 years old!) and the man is one tired warrior. He said he just can't take dealing with the financial types (i.e. Wall Street) anymore and the gov't stiffs dictating what GM should/should not do. Bob is a product man, one of the few in the industry. He said that working in the car industry isn't "fun" anymore, that he can't fight all of the bureaucratic BS the entire industry has become. He could never become the CEO since that will require a hatchet man the way things are going and Lutz was never a hatchet man. He's old school: you innovate or outdesign the competition to make more money (the LH cars and the early 90s Ram trucks are cases in point, along with the Viper). He was never one to 'cut' a company to prosperity.
I'm guessing the man will just fly his fighter jets and do other fun things in retirement. He's done his tour of duty and deserves a break. One thing that did hearten me is in the same article several industry observers said he's done such a thorough restructuring of GM's product planning/development that it'll survive without him. I've seen some of what GM has in the pipeline and if it weren't for this financial mess the banks put us in you'd see a lot of them in months, not years. And damned near every one of them is a fantastic product.
What I see in the end is that people like me, ones that design and develop products for export, who get their hands dirty designing real products and get them into volume production do not matter in this country anymore. Just look at how the bankers are treated and how the industrial companies are treated. One gets kicked to the curb, the other gets massive giveaways, no strings attached and no one is allowed to see how they get their cash. America's cooked best I can tell and Obama's way is just heaping more dirt on the grave.
- tnmats
March 30, 2009 at 11:57am
thanks, tnmats, that was my view of Lutz as well. His/GM's blog was excellent, btw (that's where I first heard he was stepping down). Lots of gearheads among the commenters, incl GM engineers and dealers, most of whom had the same take as yours.
My only reason for hoping he'd come back is that he's seen this before, at Chrysler. The challenges aren't fundamentally different now. Still the basic business challenge of figuring out what people need before others (sometimes including the customers themselves) do and then selling it for more than it costs you to design build and bring it to market.
Best of luck to you tnmats, btw, and to the rest of this nation's engineers who've been shunted aside for the financial oligarchs.
My 7 year-old's head-over-heels into science and engineering. I only hope that this country can start to appreciate and compensate people like him and you by the time my son graduates from (touch wood!) Cal Tech in 15 years. (A world class U-Cal school that specializes in whatever STEM subject he's into by then would also be great-- any pointers or recommendations gladly accepted.)
rgds,
t
- teplukhin2you
March 30, 2009 at 1:23pm
I really wonder sometimes Tep whether this country has a chance. What scares me a lot is that engineering schools are mainly educating non-citizens. American kids aren't lazy, they just don't want to be outsourced. Recently National Semiconductor laid off an analog IC designer (my specialty) that is a legend in our business. This guy was so well known in the industry he was used in their ads; I can only think of 3 others in my business revered like this guy. It's like Apple laying off Steve Jobs. The chatter around the lab was "if he can be laid off, what chance to I have?".
The president is all happy talk about new energy, improved medical care, etc. What I don't hear is educating the next generation of scientists/engineers like we saw in the 1905s/60. We reaped the rewards for the next 2-3 decades. Without the technical brains we're sunk but I do not see the MBA class doing anything but wrecking it all (like they've already done over the last 30 years). I don't see waiting lists for engineering schools but I see plenty for MBA classes.
Shakespeare was wrong; the first thing we must do is not kill all the lawyers, we must kill all the MBAs. America has gone from making things to just having your hands in someone else's pocket.
As far as schools in the engineering field, you're hard pressed to pass up UC-Berkeley. World class school no matter how you slice it. Their engineering programs are considered in the elite tier along with Stanford, CalTech, MIT, UofMi and UofIL.
Regarding Lutz, what he set in motion at GM was that product is king and not cut corners. It is showing in cars like the Caddy CTS and the Malibu. World class designs and drivetrains. If GM is given some breathing room they'll make it; he really did unleash the creative talent that was always there and put in some underlings that should be able to keep the momentum going. Chrysler, um, not so much. Dieter did a number on that company; Daimler emasculated the company technically and left a husk. Then again, Chrysler has been left for dead too many times in the last 40 years to bet against the Mopar boys.
- tnmats
March 30, 2009 at 3:20pm
Thanks, tnmats. Sobering about hte semiconductor engineer. No one not affiliated with the government or the NY-DC oligarchy has any security these days, alas.
Re GM, would you buy a Malibu? Heard great things about it but don't know anyone who drives one.
Re engineering, hope he can get into Berkeley but if not, how good are the next tier of U-Cal engineering schools and science programs, like UC San Diego, UC Santa Barbara, UC Santa Cruz?
Not idle speculation, btw. The UC system is about the only thing that, long-term, would keep us in California. Don't see how we can afford a private university, though if he got into Cal Tech or MIT I'd work three jobs if necessary to pay for it.
- teplukhin2you
March 30, 2009 at 4:02pm
Would I buy a Malibu? Absolutely. In fact it's the top choice on our car shopping list right now. My wife drives a 2000 Saturn wagon and it's over 9 years old. We want something new and no one makes a wagon that's reasonably priced and reliable (you will not get me in a European car; pretty but too breakdown prone and cost a fortune to repair). That leaves only a sedan and the Malibu is the top of my list with 4 banger and 6 speed slushbox. A few own the Malibu or Aura in my office building and they say they're good cars with no trouble. Whenever I take the wagon in for service I never see an Aura on the lift. I presently drive a Mazda 3, the cream of the small car crowd. Color me unimpressed after 4+ years of ownership. Drives great but not that well assembled.
I'm not too familiar with the other UC schools except for Berkeley. I noticed a lot of Silly Valley engineers are San Jose State grads though so that must mean something.
- tnmats
March 30, 2009 at 4:48pm