Prophets Of Doom? Meet The Regents Of Reality

WITHOUT THESE ECONOMISTS THE TOUGH DECISIONS WON'T BE MADE
Salon's Andrew Leonard lays out who he calls the "Cassandras" and Chicken Little's of economic punditry. Read it here. Whether the piece is meant as a jab at the perceived bottoming out of the economy or an homage; one thing is clear from Paul Krugman to Nouriel Roubini (and I might offer Robert Reich) these are the voices that have consistently shifted overexuberance to the side of caution and reason.

Start with Leonard's assessment of Krugman: "Without missing a beat, Paul Krugman went from being George Bush's most passionate and prominent critic to fulfilling the exact same role for Barack Obama."

This is either a criticism of Krugman's across-the-board disgust with any president or he posits the Nobel Prize laureate feels he can sell papers writing from the side of the minority. It's actually neither, but an inkling shared by this blog that the good ol' boys in Manhattan run the Treasury not matter what party is in power.

The consistent opinion of most of these men says the bailouts are not big enough, but the political solution must take into account the same Americans angry about taxpayer-funded bonuses and a poor economy. With both sides taken into account, all the Obama Administration can muster is what we have received. The hope and the prayer that it is just barely enough to get the country barely above water.

Psst..The Banks Are Insolvent; Please Don't Tell Wall Street

PROPPING UP THE BANKS WILL PROLONG THE RECESSION
Here's the dirty, dark secret nobody with a stake in the economy wants you to dwell upon: the biggest financial institutions in the U.S. are insolvent.

Economists like Paul Krugman and people like Robert Reich have been saying this for awhile, but, they too, seem to bury the sentences in their prose. Everybody seems frightened to deal with the 800-pound elephant sitting in the corner for fear of causing the stock market to dive into a free fall of epic proportions. The rationale from a banker's perspective is sound if you account for the fact that the health of the industry is predicated on consumer confidence in banks. From a political and policy making standpoint, feigning it's importance through the lack of public discourse is dangerous.

On the heels of Tim Geithner's universally-panned debut in unveiling the administration's newest plan to bailout the banks, it should not shock observers that the same group of officials who oversaw the crumbling of Wall Street would find loopholes to further cover the backs of their brethren once they came into power. Nicholas Von Hoffman at The Nation crafts a scenario where the slavish nature of Washington to the banks mirrors the dreaded comparison to Japan's economic "lost decade" of the 1990s.

Try as the nation would, it could not return to prosperity. According to most everybody who has studied it, the reason Japan was unable to cure itself was its policy of propping up the country's major banks, which were largely insolvent.

As mentioned, the banks--Citigroup and Bank of America, notably--are insolvent. While hackneyed Congressmen skewer the executives of these banks for dubious spending habit while receiving government aid, the money in the first round of $350 billion in TARP aid did nothing to release the credit crunch. This phrase has been overused lately, but, the government is really spending good money after bad and it likely will not cease as long as former bankers in the administration continue to enable the industry.

The problem is we live in an era of politicians institutionally frightened to make the tough decisions. The American economy needs to take its bitter medicine. Von Hoffman writes bluntly: "Doubtless they are scared out of their wits at what that might do to the stock market. The market will take a big hit, but in due course it will bobble up again. That's what markets do."

It seems prolonging our current situation by sidestepping the problem is what politicians do.

Stim Bill Isn't Sufficiently Super-Sized

DEALING WITH THE GOP DEFLATED THE PLAN'S OOOMMPH
President Obama will likely sign a stimulus bill this week roughly the same size he initially offered, but wholly different in composition. Some like Robert Reich and New York Times columnist Paul Krugman never thought it was large enough in the first place, and the watered down bill is furthering their anxiety. Krugman wrote last week:

And I don’t know about you, but I’ve got a sick feeling in the pit of my stomach — a feeling that America just isn’t rising to the greatest economic challenge in 70 years. The best may not lack all conviction, but they seem alarmingly willing to settle for half-measures. And the worst are, as ever, full of passionate intensity, oblivious to the grotesque failure of their doctrine in practice.

During a speech last month at The Commonwealth Club of California, former Labor Secretary Robert Reich reiterated his belief that the stimulus bill should be over $900 billion or more over the next two years. On his blog he wrote this week:

But what if the stimulus isn't big enough? (I fear it won't be, given the large and growing gap between what the economy can produce at near full-employment and the meager demand coming from consumers and businesses.) And what if the bailout doesn't quite work? (It may not, given that the banking system is collapsing and many banks are actually insolvent.) The economy in November of 2010 may be worse than it is now, with no turnaround in sight.

Reich also predicted during his Commonwealth Club address that President Obama might bargain with Republicans to win votes in a bipartisan fashion. This indeed occurred, and the nearly across-the-board rejection by Republicans of the plan has rankled many Democrats. Joan Walsh at Salon wrote today about President Obama, "He better have learned that Washington bipartisanship is dead." Even the president's chief of staff, Rahm Emanuel, admitted that working with congressional Republicans who were dead set against the bill was a mistake. Not surprisingly, the editors at the conservative National Review declared President Obama's economic plan already has a ring of "no-confidence" surrounding it.

This article and others can be read at the Commonwealth Club of California's blog, commonwealthclub.blogspot.com.