For those who believe that the stimulus legislation is a thinly veiled effort by both Democrats and Republicans to enrich friends and engorge budgets, they need only read the Congressional Oversight Panel report to confirm their suspicions. The panel has reported to the Senate Banking Committee this week that Treasury in 2008 paid $254 billion for assets worth only $176 billion. That is $78 billions that simply evaporated into the pockets of well-connected, well-heeled executives.
It is part of the Troubled Asset Relief Program (TARP), which may go down as the biggest rip-off of the American taxpayer in history. The windfall purchases were made by the Bush Administration in its waning days and specifically former Treasury Secretary Henry Paulson, who has earned a lot of street creed on Wall Street.
This result was inevitable given the Administration’s insistence that it did not want to bargain down prices on acquiring assets since the priority was to get money to these companies and banks. That was a virtual invitation for exaggerating the true value of these assets. It is like buying a car but insisting that the dealer not negotiate on what the vehicle is worth but what the dealer needs in terms of value.
For the full story, click here.
This is Paul Krugman’s anaylsis of the “stimulus” plan:
The Destructive Center
By PAUL KRUGMAN
Published: February 8, 2009
What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?
A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.
Even if the original Obama plan — around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts — had been enacted, it wouldn’t have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.
Yet the centrists did their best to make the plan weaker and worse.
One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.
The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care — cut. Food stamps — cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.
On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the “flip your house to your brother” provision: it will cost a lot of money while doing nothing to help the economy.
All in all, the centrists’ insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.
But how did this happen? I blame President Obama’s belief that he can transcend the partisan divide — a belief that warped his economic strategy.
After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy’s dire straits and his own electoral mandate.
Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.
Mr. Obama’s postpartisan yearnings may also explain why he didn’t do something crucially important: speak forcefully about how government spending can help support the economy. Instead, he let conservatives define the debate, waiting until late last week before finally saying what needed to be said — that increasing spending is the whole point of the plan.
And Mr. Obama got nothing in return for his bipartisan outreach. Not one Republican voted for the House version of the stimulus plan, which was, by the way, better focused than the original administration proposal.
In the Senate, Republicans inveighed against “pork” — although the wasteful spending they claimed to have identified (much of it was fully justified) was a trivial share of the bill’s total. And they decried the bill’s cost — even as 36 out of 41 Republican senators voted to replace the Obama plan with $3 trillion, that’s right, $3 trillion in tax cuts over 10 years.
So Mr. Obama was reduced to bargaining for the votes of those centrists. And the centrists, predictably, extracted a pound of flesh — not, as far as anyone can tell, based on any coherent economic argument, but simply to demonstrate their centrist mojo. They probably would have demanded that $100 billion or so be cut from anything Mr. Obama proposed; by coming in with such a low initial bid, the president guaranteed that the final deal would be much too small.
Such are the perils of negotiating with yourself.
Now, House and Senate negotiators have to reconcile their versions of the stimulus, and it’s possible that the final bill will undo the centrists’ worst. And Mr. Obama may be able to come back for a second round. But this was his best chance to get decisive action, and it fell short.
So has Mr. Obama learned from this experience? Early indications aren’t good.
For rather than acknowledge the failure of his political strategy and the damage to his economic strategy, the president tried to put a postpartisan happy face on the whole thing. “Democrats and Republicans came together in the Senate and responded appropriately to the urgency this moment demands,” he declared on Saturday, and “the scale and scope of this plan is right.”
No, they didn’t, and no, it isn’t.
Mike S.
Thank you for your, again, thoughtful response.
Jill,
As you can see from my comment I’m not at all happy with the Obama economic team, nor do I want to defend them. I personally would have preferred Robert Reich, Dean Baker, Krugman or Stieglitz for Treasury. He made these particular choices I think because they were the Democratic team in waiting and because of their experience from the Clinton administration. I’ve said elsewhere that I thought Clinton was far to centrist/right for my taste and I don’t think he was a good president. Robert Rubin for instance is a pig and I think should be investigated.
As to Obama’s choices thus far, governing is a difficult process, especially when the MSM, punditocracy and lobbyists hold such power over the public discussion. You of course could be right and Obama could be a phony. I don’t think so though. I believe that he is a Saul Alinsky infiltrator into the establishment and is proceeding in a fashion that would make Olinsky proud. We’re 3 weeks in and early judgment, especially from all of us scarred from the last 28 years of the Corporatocracy’s plundering of the American Dream, comes more from fear than an actual picture of what’s happening.
Since WWII the US has been captured by a Military/Industrial Complex, to use Eisenhower’s words, that is determined to continue in power and destroy the middle-class/working people, because they see themselves as the modern royalty/feudalists. How you begin to fight back against this requires stealth and brilliance, lest the powers that be decide you’re expendable and I believe in Alinsky forever and therefore in Obama for the time being. The man could have left Harvard with an extremely high paying job and still have satisfied any political ambitions he had. He chose another course that familiarized him to the plight of the “underclass.” I’m holding off judgment because of this.
Mike S.,
This article was in Salon today. It takes on many of my questions. I’d like to hear you opinion if you have the time.
“At the top is Lawrence Summers, the director of Obama’s National Economic Council. As Bill Clinton’s treasury secretary in the late 1990s, Summers worked with his deputy, Tim Geithner (now Obama’s treasury secretary), and Clinton aide Rahm Emanuel (now Obama’s chief of staff) to champion job-killing trade deals and deregulation that Obama Commerce Secretary Judd Gregg helped shepherd through Congress as a Republican senator. Now, this pinstriped band of brothers is proposing a “cash for trash” scheme that would force the public to guarantee the financial industry’s bad loans. It’s another ploy “to hand taxpayer dollars to the banks through a variety of complex mechanisms,” says economist Dean Baker — and noticeably absent is anything even resembling a “rival” voice inside the White House.
That’s not an oversight. From former federal officials like Robert Reich and Brooksley Born, to Nobel Prize-winning economists like Joseph Stiglitz and Paul Krugman, to business leaders like Leo Hindery, there’s no shortage of qualified experts who have challenged market fundamentalism. But they have been barred from an administration focused on ideological purity.
In Hindery’s case, the blacklisting was explicit. Despite this venture capitalist establishing a well-respected think tank and serving as a top economic advisor to Obama’s campaign, the Politico reports that “Obama’s aides appear never to have taken his bid (for an administration post) seriously.” Why? Because he “set himself up in opposition” to Wall Street’s agenda.
The anecdote highlights how, regardless of election hoopla, Washington is the same one-party town it always has been — controlled not by Democrats or Republicans, but by Kleptocrats (i.e., thieves). Their ties to money make them the undead zombies in the slash-and-burn horror flick that is American politics: No matter how many times their discredited theologies are stabbed, torched and shot down by verifiable failure, their careers cannot be killed. Somehow, these political immortals are allowed to mindlessly lunge forward, never answering to rivals — even if that rival is the president himself.
http://www.salon.com/opinion/feature/2009/02/07/sirota/index.html?source=newsletter
Mike S.,
Why do you think Obama choose the same people who brought us this mess to clean it up? There were many capable people to choose from, why keep these people around? Why hasn’t he fired them? How can he be co-opted by people he hired and could fire at any time? These are sincere questions. I just don’t understand why he didn’t hire good people from the get go. Tim Geitner really was the head of TARP. The dismantling of our financial system occurred under both Democrats and Republicans. In fact, the same people in place now have been around at least since Bill Clinton, on to Bush, now on to Obama. Why do you believe Obama choose them and keeps them on?
NYT article Buddha linked:
Frank Rich really makes the connections. K street should be locked down. Or maybe torched.
When the financial crisis first hit I wasn’t surprised because people like Krugman, Dean Baker, et. al. had been saying it was coming for more than a year. The bank bailout, however, I believe was used by the wealthy elite to starve government in light of the beginning certainty that Obama would be elected and the Dems would make hay. That it was to be administered by Henry Paulson a buccaneer from Goldman Sachs only increased my suspicion. Finally, the amiability towards it by the Bushies was the final clue.
Ever notice how almost every time they were for something it was bad for the American people? It was again a fear driven crisis that forced almost every pol to get on board with TARP. I believe that more crooked dealings will be uncovered quickly as the auditors do their jobs. Paulson and the jackass at the Fed should face prison for this, but it’s doubtful they will. I’m not thrilled with the Obama economic team, but his endgame is too early to see. I’m hoping he gets the picture, but then the trouble with Washington has never been the Bureaucracy but the co-optation of idealists into the hands of the upper class establishment. Our punditocracy and many of our politicians have merged into courtiers, who vie for the attention of the rich and powerful rather than the three Branches and their leaders.
Quotes from the excellent NYT article Buddha linked:
“The new president who vowed to change Washington’s culture will have to fight much harder to keep from being co-opted by it instead. There are simply too many major players in the Obama team who are either alumni of the financial bubble’s insiders’ club or of the somnambulant governmental establishment that presided over the catastrophe.”
“This includes Timothy Geithner, the Treasury secretary. Washington hands repeatedly observe how “lucky” Geithner was to be the first cabinet nominee with an I.R.S. problem, not the second, and therefore get confirmed by Congress while the getting was good. Whether or not this is “lucky” for him, it is hardly lucky for Obama. Geithner should have left ahead of Daschle.”
It was clear during the Bush administration that the pirates were at the helm, the jury is still out on the Obama administration officials on whether or not they are the navy steaming in to route the buccaneers. But you might want need to be prepared to remain onboard that Coast Guard ship a bit longer than anticipated, prof.
http://www.nytimes.com/2009/02/08/opinion/08rich.html
There was an interesting NOW this week. One interviewee pointed out that he sees people go to jail for stealing a $300.00 bike but nothing happens to these people who have stolen millions to billions. It has made him lose faith in the rule of law.
http://www.pbs.org/now/shows/506/index.html
In addition to this money the Sec. of the Fed has dictator like powers to allocate money with no accountability to Congress or the people. So far, the estimates on that money totals around 1.2 billion (already paid out).
Paul Krugman is highly critical of the present stimulus package, more so since the Senate has stripped vital pieces from the legislation. He writes:
“I’m still working on the numbers, but I’ve gotten a fair number of requests for comment on the Senate version of the stimulus.
The short answer: to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.” (krugman blog)
I think any Republican or Democrat who is ignoring the plight of the poor and the middle class while attempting to enrich the wealthy should be ignored. This is absolutely a crises, not an opportunity for the ruling elite to enrich their wealthy, connected buddies. I believe jail time would be fully warranted for many of these people.
I am increasingly persuaded that the dire condition of our economy is no accident. I am more and more convinced this is what Reagan had in mind when he proposed that lowering taxes was intended to “Starve the beast”. His and the conservatives’ goal these last 30 years has been to weaken the government through tax cuts, borrowings, debt and deficits. The combination diminished the flow of revenues and added crippling debt service (interest). The whole idea was to make it very difficult, if not impossible, for the government to respond to the needs of average citizens, to starve existing social programs like Medicare, Social Security, welfare, etc. and to prevent Democrats from ever implementing a national healthcare system or other spending programs
GW Bush put the whole approach on steroids and added a heightened level of laisse-faire irresponsibility. I believe that during the last election cycle it was apparent that McCain wasn’t going to win and perpetuate this diabolical scheme so he (they) invented the TARP plan to add another $700B to the debt and distribute that largesse to their cronies.
If there was a flaw in the plan it was that even the most conservative policy thinkers didn’t count on the incredible level of unbridled and uncaring greed of their constituency. The thugs on Wall Street opened the flood gates of their me-first desires and preyed on the public with impunity. This made the conservative polititians’ cynicism toward the middle class look like socialism by comparison.
Listen to the polititians on the right these days saying “…the President’s plan is too expensive…” and “…we can’t afford it…” and “…it’s leaving debt to our children…”, etc. They’re reading from a script that was prepared three decades ago just waiting on a shelf for the moment when the country would get wise to their ruse and throw the bums out. They knew that someday some future Democrat would want to help the American people out of the mess they were deliberately creating and they’ve been bound and determined to assure that doesn’t happen.
I’m sure that President Obama is a better person than I am because he’s still willing to discuss post-partisan politics and bipartisanship when I think the progressive agenda should be driven down the GOP’s throat with no input or consideration for their opinions.
FFLEO,
Neither do I per se. But I do believe that in nature systems seek equilibrium.
Oh, that was probably Hank’s bonus. Nothing to see here, move along.
Unfortunately Buddha, I do not think there is karma, a Bema Seat, a Great White Throne of Judgment, a god et al., so I want my justice/judgment—or call it revenge—for these pathetic thieves now.
Those who profited will be punished one way or another.