A New New Deal


Back in October in a post titled The Rape Of The American Taxpayer, when the government’s bailout of Wall Street was already in high gear, I wrote:

Having been brutally raped by a Wall Street gang, aided and abetted by Bush and his congressional cronies, Americans are now being required to buy the rape kit, as well as bear and raise the mutant child.

Nice to know that Nobel laureate economist Joseph Stiglitz agrees, though he uses a different metaphor, robbery:

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

Even if the plan clears banks of massive toxic debt, worries about the economic outlook mean banks could still be unwilling to make fresh loans, while the prospect of a higher tax burden to pay for various government stimulus plans could further undermine U.S. consumers, he said.

Economist James K. Galbraith (whose father ran FDR‘s wage and price controls unit during the last Depression) is also thumbs down on the Geithner plan. In his article “No Return To Normal”, he states:

Geithner’s banking plan would prolong the state of denial. It involves government guarantees of the bad assets, keeping current management in place and attempting to attract new private capital. (Conversion of preferred shares to equity, which may happen with Citigroup, conveys no powers that the government, as regulator, does not already have.) The idea is that one can fix the banks from the top down, by reestablishing markets for their bad securities. If the idea seems familiar, it is: Henry Paulson also pressed for this, to the point of winning congressional approval. But then he abandoned the idea. Why? He learned it could not work…

He offers four concrete proposals for dealing with this crisis, including larger public spending projects, protection for the elderly via the strengthening the social security and Medicare safety net, a tax holiday for working families, and a

jobs program to put the unemployed to work quickly. Infrastructure spending can help, but major building projects can take years to gear up, and they can, for the most part, provide jobs only for those who have the requisite skills. So the federal government should sponsor projects that employ people to do what they do best, including art, letters, drama, dance, music, scientific research, teaching, conservation, and the nonprofit sector, including community organizing—why not?

Why not, indeed.


  1. Propagandee Propagandee

    Arianna seems to share my concern.


    Indeed, during a 1998 Senate hearing, Summers testified against the regulation of the derivatives market on the grounds that we could trust Wall Street. “The parties to these kinds of contract,” he said, “are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws.”

    It would be hard to make assumptions that turned out to be more wrong than Summers’ were.

    Summers is, of course, Barack’s chief economic adviser.

    Basically, I’ve resigned myself to que sera sera. There’s nothing left to do at this point than wish BO, and the rest of us, godspeed.

  2. Hi Sherry,

    Nice to see you here. . . 😉

    (You too, Prop 🙂

    Your dilemma is everyone’s, I’m afraid. I know even less than Propagandee about economics, since I’ve never had enough currency to warrant learning how it does or doesn’t work in global situations.

    But China’s recent and more insistent calls for an international currency ( at least for international reserves ) caught my attention, and I think there’s more to it than mere carping over the fact the West controls the IMF.

    I don’t share Prop’s apprehension about Treasury, simply because the past experience of the principles wont mean all that much when the battle lines are drawn between the Monitarists and whatever policy emerges from the ashes of the current debacle. The Monitarists don’t think there’s anything wrong with their policy, preferring to blame our problems on a “breakdown” in productivity growth in crucial sectors of the economy; most particularly retail trade; as if the middle class being broken wage slaves is just an unfortunate happenstance that is somehow different from the nation being effectively broke and in hock to …. (insert names of world’s wealthiest assholes here) … and yeah, China.

    So what needs to happen may be on the horizon, but no one can clearly make it out yet. When they do, it will have to include the West (US) letting go of some of it’s diminished and tarnished authority in global economic control, and a more equitable approach to monetary policy across the globe. Obama is certainly right about the fact that we’re all in this together, but he needs to reframe that from meaning all Americans, to meaning all human beings.

  3. Propagandee Propagandee

    Hi Sherry

    I appreciate your dilemma. I didn’t know squat about economics, and more relevant, the markets until I started trading my own accounts. Despite paying a few thousand bucks to learn the basics, I soon realized what a rigged game Wall Street has become. It is run by a generation of traders that have no scruples about separating honest and hardworking folks from their savings so they can assume their presumptive roles as Masters of the Universe.

    So when BO who, let’s face it doesn’t have much life experience in these matters, announced his economic team last November, I cringed, crossed my fingers and hoped for the best. His personnel choices to “fix” the economy, Mssrs. Geithner and Summers are both proteges of former Goldman CEO Robert Rubin (Clinton’s Treausry Secretary who along with Phil Gramm dismantled the regulatory regime put in by FDR to prevent another depression). Geithner in turn retained Neel Kaskari, a former Goldman VP to run the TARP. And appointed as his chief of staff one Mark Patterson, a former Goldman lobbyist. Hence my designation of Treasury being a wholly owned subsidiary of Goldman Sachs.

    As you are probably aware, Goldman Sachs has been the recipients of over $20 billion of OUR money, thanks in no small measure to the present Goldman CEO who was believed to be one of the few men in the room when AIG’s bailout plan was fashioned. Goldman was a major “counterparty” of AIG, and as Geithner’s testimony today all but confirmed, received 100 cents on the dollar for their exposure to AIG.

    Sorry to say, but these appointments have every possibility of making BO a failed president.

    Something I very much don’t want to see.

  4. Knowing virtually nothing about economics, I am not qualified to speak. I can only trust that the man I trust, B. Obama, has chosen someone whom he believes has the right answers. I am keeping my fingers crossed. I realize that Krugman is now against the Obama recovery plans. I don’t know what that means either. I suspect most everyone else doesn’t know either. This may be new territory. As Obama said on 60 Minutes, referring to the G. Depression only gets you so far. We live in a different time where the connections are so numerous and crossed that it is hard to know what will work. It went down like a rock, it might soar in months. I don’t know, but I have decided to trust, one more time!

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