Month: August 2010

I have just returned from Madison, Wisconsin, where my octagenarian mother is beside herself over President Obama’s lack of political courage. Remember, she only knew one President until she was out of high school–FDR.  Here’s what I told her. Geithner and Summers wanted to push a $1.2T stimulus package, but Rahm Emanuel said he did not have the votes to push the package through. So it was either the $787M package or it was no package at all.

She shoots back: but the blue dogs and the Republicans knew that President Obama would cave. Is she right?

The argument goes something like this. Let’s say President Obama tells his blue dogs and Republican naysayers he’s going to let them vote down a $1.2T stimulus. They vote it down and then approve a package similar to the one they actually passed. The difference is that now in 2010, when the economy is tanking, Obama can take to the road saying that the reason the economy is tanking is the blue dogs and Republicans would not support a stimulus package that every responsible economist said was necessary. But, let’s say the blue dogs and Republicans know that this is what is going to happen; and let us say that some, not all, of them fear that they will lose this argument when they return to their constituents in 2010. Enough of them are so frightened that they give Obama the benefit of the doubt and decide to support the $1.2T stimulus. Either way, the President is able to say that he stood his ground. Just as important, he retains his base in 2010.

As it stands, it was President Obama, not the blue dogs and Republicans, who put the insufficient $787M package out on the table. That failed package sticks to Obama and the Democrats, not the blue dogs and the Republicans. And so its a fairly easy and accurate campaign stump: the Democratic package failed, why not give us (the Republicans) a try?

That Rahm Emanuel didn’t see this is not all that surprising. While Rahm has many strengths, that’s not one of them. That Barack Obama didn’t see it is nothing short of astounding. Of all people, Obama should have seen that, win or lose, only the $1.2T package gives him a chance to retain Congress in the 2010 election. And that should have been his No. 1 goal.

So, what about the $787M package? President Obama would have been well-advised to turn and run from it as if it were a mid-term election. The $787M package? “That was the Republican idea. I signed it. But, as I said at the time, it was not enough. And, not surprisingly, it failed.”

So, is my mom right?

No doubt you have read this parody of the derivates market. Bar owner encourages alcoholic clients to accumulate debt, which banks, investors, and hedge fund managers mistake for a valuable asset. (“Look at all the debt the bar owner has accumulated! Let’s get a share of that!”) The tag line is instructive, but certainly not for the reasons the story’s original author believes:

“Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Government.

“The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi’s bar.”

Yes, it is true, that the bank, brokerage houses and their respective executives are bailed out. But were the tax-payers really the innocent bystanders portrayed in the story? No. Surely they were not non-drinkers. They too were consuming on credit and held questionable investments. But that’s not the point.

The point is that they enthusiastically supported the political candidates and espoused the regulatory policies that forced the financial community to take the steps and offer the investment instruments referred to in the story; and, probably with this and similar stories in mind, they will probably indignantly and loudly support political candidates and espouse economic policy changes that will once again fail to adequately regulate markets.

Professor Lough holds a doctorate in Modern European History from the University of Chicago and now teaches World History and Political Economic Theory at the University of California, Berkeley. He is the author of Weber and the Persistence of Religion: Capitalism, Social Theory and the Sublime (Routledge 2006).