A Missed Opportunity

Here's a report from the Inspector General for the TARP program saying that Treasury lied to get money into the hands of the banks.

The inspector general who oversees the government’s bailout of the banking system is criticizing the Treasury Department for some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks.

A Treasury official made incorrect statements about the health of the nation’s biggest banks even as the government was doling out billions of dollars in aid, according to a report on the Troubled Asset Relief Program to be released on Monday by the special inspector general, Neil M. Barofsky [...]

Mr. Barofsky’s office also says that regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy.

Former Treasury Secretary Henry M. Paulson Jr., for instance, said on Oct. 14 that the banks were “healthy,” and that they accepted the money for “the good of the U.S. economy.” The banks, he said, would be better able to increase their lending to consumers and businesses.

That was George Bush's Treasury Department. And this practice of private equity companies and Wall Street investment firms looting the Simmons Bedding Company through borrowing the company into debt and taking out profits, is a fairly common practice. Neither should be intimately associated with the Obama Administration. Neither should the TARP program, initiated by Henry Paulson and the Bush White House. And yet, these revelations are happening on a Democrat's watch. And Chris Bowers is absolutely right to note that the bailout has constrained Obama's moves on the economy and threatened the Democratic majority for years to come.

The $810 billion Wall Street Bailout is a loadstone hanging around the neck of the Democratic Party. It thwarting what should have been a realigning moment in American electoral politics. Upon regaining control over the federal government following the 2008 elections, Democrats should have been able to cement their image as, in the words of Al Gore, "the people versus the powerful." Instead, we have become complicit in perpetuating a federal government that is more responsive to the wishes of powerful moneyed interests at the expense of the vast majority of Americans. And so, our chances at realignment are slipping away [...]

Maybe it wasn't possible to pass a $1.2 trillion stimulus in early 2009. However, this was due as much to Congress passing a $700 billion Wall Street bailout in October 2008 as it was to anything else. From October 2008 through February 2009, Congress did actually pass more than $1.2 trillion in economic stimulus. The problem was that, in the form of the Wall Street bailout, most of that money went to the same people financial institutions who caused the economic meltdown.

Perhaps the distinction between the stimulus and the bailout is clear in the minds of most economists and policy wonks, but it is not clear to many Americans. As such, passing the Wall Street bailout imposed a huge opportunity cost on the amount of money the Obama administration could realistically ask for in the February stimulus / jobs package. If they had not asked for $700 billion to hand over to Wall Street, they might very well have been able to ask for, and pass, the $1.2 trillion needed in the stimulus package.

Again, the bailout began prior to Obama's election, but Democrats in Congress held the majority when it passed, Obama endorsed it, and he even started pressuring members of his own party about it. He clearly had no problem with it, and yet it has narrowed his options on a sagging economy that has not seen much of a comeback on the jobs front. As Paul Krugman notes today, Christina Romer knew that the stimulus package would need to be twice as large as it ultimately became, but Larry Summers didn't even offer that as an option for political reasons. They didn't think they could move a $1.2 trillion dollar stimulus. So Summers talked himself into calling the stimulus “an insurance package against catastrophic failure,” admitting its lack of sufficiency. And the bailout contributed to that. Bowers is right that people don't make the distinction between the bailout and the stimulus in their minds; to them it's all government spending. And the right has used this skillfully, taking advantage of the anxiety people feel with job loss and financial insecurity to advance a kind of right-wing populism that ultimately serves corporate interests as much as the bailout did. As a result the teabaggers are gaining the upper hand in this debate:

Having said all that, there is great, HUGE value in this movie as an emotional, populist polemic for the left, something I've been screaming about since the beginning of the financial crisis. It's extremely disheartening to see the administration and so many Democrats in congress completely ignore the political and policy ramifications of failing to engage in fundamental financial reform and fiery populist rhetoric at a time like this. This teabagger movement is happening in a vacuum created by a lack of interest in this topic by liberals who are so enamored of being members of the new "creative class" and the like that they aren't paying attention to the cynicism and anger that's reaching critical mass among average working stiffs out there. It's easy to dismiss it, but very, very foolish. The issues Moore raises in this film will be answered on the right with authoritarianism, militarism, immigrant bashing and violence. It's a recipe for disaster unless the left takes this on in direct, political terms.

It's all there in Ryan Lizza's beat sweetener on Larry Summers and the Obama economic team. Fairly or unfairly, they are being tarred as corporate sellouts and tagged as the ones who ushered in the bailout. What that really suggests is that the parties in this country are interchangeable in the face of corporate hegemony, where powerful interests can write the laws no matter which party nominally controls the government. Right now, that's being proven by an economy working only for the banks and not regular people. And the Democrats are in power at this moment.

This is a dangerous time, where a party at near-historic lows in the public consciousness could actually rise to power, because they can credibly claim the mantle of being the party of the people. If the Democrats don't show Americans they are on their side, that's exactly what will happen.