Archive for the ‘Robert Reich’ Category

Robert Reich: AIG,Transparency, Treasury, Fed: Lost?

March 19, 2009

AIG is rapidly becoming a nightmarish metaphor for the Obama Administration’s problems administering the bailout of Wall Street.

By Robert Reich

One central problem is the lack of transparency. According to some news reports, Treasury Secretary Tim Geithner knew weeks ago that AIG was planning to issue the bonuses to executives in its notorious credit default swap unit, and felt it was contractually bound to do so. But even if Geithner discovered all this just last week, he faces an awkward question about why he didn’t know sooner. These bonuses in fact were only the latest if a series, and were not even distributed until last Friday. But it was not until Saturday, after the story leaked to the press,that Geithner went public to express his “outrage” about them.

Meanwhile, the Treasury has been readying yet another big multi-billion-dollar payout to AIG on top of the $170 billion already provided the company, because AIG has been hemorrhaging red ink. The company’s balance sheets have been deteriorating far more quickly than the Treasury had anticipated. But there’s been no clear exit strategy for stopping the flow of taxpayer money.

What’s particularly embarrassing for the current Administration is that it had promised to undertake the Wall Street bailout far more transparently and effectively than the way the Bush administration went about it. The Obama Administration had assured the public that, among other things, taxpayer money would no longer be used to backstop Wall Street bonuses. (It’s worth noting, in this regard, that the related plan put forward by the Obama Treasury to limit executive pay in Wall Street firms that received bailouts turned out to be riddled with holes.)

We’ve also learned that much of the 170 billion has been used by AIG to pay off AIG’s putative obligations to other Wall Street banks such as Goldman Sachs. Goldman has maintained that it got no bailout money from the Treasury. But in fact it received some $13 billion through AIG. More troubling is that the original plan to bail out AIG was concocted at a meeting held last fall, run by then Treasury Secretary Hank Paulson who, before becoming Teasury Secretary, had been CEO of Goldman Sachs. Also attending the meeting was Lloyd Blankenfein, the current CEO of Goldman Sachs. Also at the meeting: Tim Geithner, then head of the New York Fed.

None of this would be nearly as awful if the Wall Street bailout were working. But here we are six months after it began and it’s still the case that almost no loans are being made to Main Street. This week the Fed is launching its own program to get loans to consumers financed by private investors, in effect by-passing the big Wall Street banks.

The Wall Street bailout is starting to look like the most expensive tax-supported fiasco in history. The problem for the Obama administration is that this bailout is near the very center of the President’s economic recovery program. It’s not possible for the economy to bounce back until credit markets are working again. Yet even though the bailout so far is a bust, Geithner still hasn’t decided — or told the public — how he’s going to use the remaining $300 billion of bailout money differently.

The President cannot afford to lose the public’s confidence that his administration is a careful steward of the public’s money. The public was willing to go along with a large stimulus package. But it won’t go along with a second stimulus, and certainly not another TARP. And until the public feels confident that its money isn’t being thrown down a rat hole, it may balk at other ambitious undertakings such as health care or education or the environment.

Bottom line: Before it can clean up Wall Street or do much of anything else, the Administration has to clean up the way it’s been trying to clean up Wall Street.

From Politico:

Obama, Congress, Treasury, Fed: Shameful Mismanagement of Your Money, Recovery

Dems Already Have Excuses for Economic Failure

February 10, 2009

Even while calling for the urgent passage of the $800 billion-plus economic stimulus package, the Obama administration and its liberal allies are laying the groundwork to neutralize criticisms should it fail.

By Philip Klein
American Spectator

“[B]y the midterm elections we’re probably not going to see an economy that’s better than now,” former Clinton Labor Secretary Robert Reich conceded Sunday on ABC’s “This Week” with George Stephanopoulos. “I mean, not that the stimulus program will have failed, but that the stimulus program, even if it succeeds, will not actually kick in. It will not get the economy better than it is now. Without the stimulus, the economy could be far worse in two years than it is now.”

While he hasn’t been quite as explicit as Reich, President Obama has adopted the same line of reasoning as part of his public relations offensive to boost support for the stimulus package: a failure to act will make things worse, even if acting may not make things better — or at least not for a while.

President Obama is selling the plan as one that will “save or create” four million jobs, and he’s continued to hedge his statements on the upside potential of the legislation while portraying the dire consequences of inaction.

Last week, he wrote in a Washington Post op-ed that if Congress didn’t pass the stimulus package: “Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”

On Monday, President Obama took his show on the road, urging an Elkhart, Indiana audience to get behind his plan, while cautioning them not to expect miracles.

“We know that even with this plan, the road ahead won’t be easy,” Obama said in his initial remarks at the town hall-style gathering. “This crisis has been a long time in the making, and we know that we cannot turn it around overnight. Recovery will likely be measured in years, not weeks or months.”

Then, in his first primetime press conference as president Monday night, Obama explained: “My administration inherited a deficit of over one trillion dollars. But because we also inherited the most profound economic emergency since the Great Depression, doing little or nothing at all will result in even greater deficits, even greater job loss, even greater loss of income, and even greater loss in confidence.”

What this means is that if the economy is still in trouble as the 2010 elections approach, Democrats will argue that eight years of Republican rule left the country in such awful shape that Democrats will need more time to clean up the mess. If unemployment is in the 7 percent to 9 percent range, they’ll say, without their policies, it would have been 12 percent, or perhaps higher.

While lawmakers are primarily interested in getting reelected, to liberal intellectuals who are constantly clamoring for more government spending, the failure of the stimulus package would represent another real-life example of the failure of Keynesian theory. That’s why they’ve been criticizing the plan from the left.

New York Times columnist Paul Krugman has led the way by arguing that the stimulus package is far too small.

“[I]f we look at the scale of the problem, the Congressional Budget Office says that we’re gonna have a hole in the economy, insufficient spending to the tune of $2.9 trillion over the next three years,” Krugman said on ABC’s “World News” this Sunday.  “And we’ve got a sort of $800 billion plan to cope with it. It’s actually quite a bit on the low side.”

Krugman has complained that the “sort of” $800 billion legislation has too many tax cuts, and that President Obama made too many concessions in an effort to win support of Republicans.

“You know, he did a tremendous amount of attempt at outreach and got zero for it,” Krugman lamented. “Absolutely nothing. And I hope he’s learned his lesson from that.”

In his Monday column, Krugman tore into the compromise legislation forged by centrists in the Senate. “I blame President Obama’s belief that he can transcend the partisan divide — a belief that warped his economic strategy,” Krugman snarled.

So for Krugman and other liberal ideologues, if the economy does not recover after an $800 billion government stimulus package, the excuse will be that Obama abandoned pure Keynesianism out of a misguided desire for bipartisanship.

But unlike Krugman, Democrats will have to face voters in the fall of next year, and if economic conditions do not improve, they’ll be forced to explain how they ran up trillions in debt without having anything to show for it.