When Barack Obama became president in January, the American people had two priorities: stop the implosion of the economy; and fix the system so that it doesn't happen again. How's it going?
By most measures (except unemployment and credit for small businesses - see the November 20 blog) , the implosion has stopped, particularly for Wall Street. Economists will long argue about the natural course of the business cycle and the long term implications of our massive debt, and politicians will long argue about the Stimulus Plan, TARP/TALF, home purchase incentives, mortgage restructuring, the auto bail out, and "cash for clunkers", but the reality is that the "green shoots" turned into Gross Domestic Product growth in the July - September quarter, and those consumers who have jobs seem to promise a decent holiday shopping season. Priority 1 - implosion stopped. Mission Accomplished (to coin a phrase).
The same cannot be said about Priority 2 - understanding and fixing the root causes. What has been done? Other than compensation limits for TARP recipients, very little indeed. What is needed?
1. Eliminate the "too big to fail" problem for large, complex banks which received billions in subsidies after the collapse of Lehman Brothers. Options include reinstitution of the Glass-Steagall Act (rescinded in 1999) which separated commercial banks from investment banks; other downsizing alternatives; a protocol for managing bankruptcies; increases in capital reserve requirements; an overarching regulator; international agreements. Maybe some day, if Goldman Sachs agrees.
2. Require greater transparency and control over trades in derivatives such as "credit default swaps". Perhaps require that trades be done on an exchange instead of back rooms. Maybe some day, if the hedge funds agree.
3. Overhaul the directly responsible agencies - Fannie Mae and Freddie Mac who buy most of the inadequately secured mortgages. And the rating agencies who gave AAA ratings to bundled garbage. Maybe some day, if Barney Frank agrees.
4. Restructure the regulatory framework for banks, hedge funds, consumer lenders, and sundry financial institutions. In another case of "leave it to Congress", we have radically conflicting bills from Barney Frank's House Financial Services Committee and Chris Dodd's Senate Finance Committee. Centralize - disperse. Elevate the Fed - subject the Fed's monetary policy to congressional oversight. Settle some scores with Sheila Bair at the Federal Deposit Insurance Corporation. Settle some scores with Tim Geithner at Treasury. Lets have Ben Bernanke grovel with the Senate for his reappointment at the Fed. We will apparently get a Consumer Protection Agency to control the abusive practices of banks on credit cards and mortgages - although the prior was not a factor, and the latter was just one of many causes. Maybe it would help to go back to the dormant proposals of Hank Paulson in April of 2008.
One of the missing points on the health care debate is the misdirection of the Left's priorities. In the short run it should be "It's the economy, stupid", and in the long run it should be the huge deficits which will squeeze out of funding for education, national security, and anything else. Why Obama put all of his eggs into the "increase health care from 16% to 17% of the national economy" basket instead of concentrating on the economy defies explanation.
This week's You Tube is from Barbara Boxer, the chair of the Senate Environmental Committee, dismissing the recent exposure of e-mails showing systemic manipulation of climate data, and emphasizing the criminal activities of the whistleblower. Science is sacred, unless it is not. Unfortunately, the Al Gore crowd has precluded an objective discussion of the last 10 years of data showing no global warming. (See my October 29 blog for a balanced view.)
bill bowen - 12/4/09