Editore"s Note
Tilting at Windmills

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April 14, 2009

PROSE, NOT POETRY.... The one thing I always like about President Obama's speeches is that he just doesn't talk down to his audience. He seems intent on treating Americans like grown-ups, and today's speech on the economy was no different.

Obama warned his Georgetown University audience early on that his speech would be "prose, not poetry." It wasn't filled with obvious applause lines, and the soaring rhetoric that many have come to expect from him wasn't there.

But it wasn't that kind of speech. Instead, the president offered something along the lines of a fireside chat, which happened to be delivered from a podium in a crowded room: "Today, I want to step back for a moment and explain our strategy as clearly as I can. I want to talk about what we've done, why we've done it, and what we have left to do. I want to update you on the progress we've made, and be honest about the pitfalls that may lie ahead. And most of all, I want every American to know that each action we take and each policy we pursue is driven by a larger vision of America's future."

Did Obama break new ground? Not much. But we got a very clear sense of the president's thoughts about where we've been, where we are, and where we're headed. Alex Koppelman described it as "one of the best explanations of the economic crisis and his administration's response that the president has given so far," which sounds right to me.

I won't try to summarize the whole thing, but I was struck by the ways in which the president wants Americans to understand how terribly wrong Republicans are.

"[E]conomists on both the left and right agree that the last thing a government should do in the middle of a recession is to cut back on spending. You see, when this recession began, many families sat around their kitchen table and tried to figure out where they could cut back. So do many businesses. That is a completely responsible and understandable reaction. But if every family in America cuts back, then no one is spending any money, which means there are more layoffs, and the economy gets even worse. That's why the government has to step in and temporarily boost spending in order to stimulate demand. And that's exactly what we're doing right now.

"Second of all, I absolutely agree that our long-term deficit is a major problem that we have to fix. But the fact is that this recovery plan represents only a tiny fraction of that long-term deficit. As I will discuss in a moment, the key to dealing with our deficit and debt is to get a handle on out-of-control health care costs -- not to stand idly by as the economy goes into free fall."

He also tackled the issue of bailouts, most notably of the banks and AIG.

"Of course, there are some who argue that the government should stand back and simply let these banks fail -- especially since in many cases it was their bad decisions that helped create the crisis in the first place. But whether we like it or not, history has repeatedly shown that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months -- years of low growth, low job creation, and low investment that cost those nations far more than a course of bold, upfront action. And although there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks -- "where's our bailout?," they ask -- the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth.

"On the other hand, there have been some who don't dispute that we need to shore up the banking system, but suggest that we have been too timid in how we go about it. They say that the federal government should have already preemptively stepped in and taken over major financial institutions the way that the FDIC currently intervenes in smaller banks, and that our failure to do so is yet another example of Washington coddling Wall Street. So let me be clear -- the reason we have not taken this step has nothing to do with any ideological or political judgment we've made about government involvement in banks, and it's certainly not because of any concern we have for the management and shareholders whose actions have helped cause this mess.

"Rather, it is because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence. Governments should practice the same principle as doctors: first do no harm. So rest assured -- we will do whatever is necessary to get credit flowing again, but we will do so in ways that minimize risks to taxpayers and to the broader economy. To that end, in addition to the program to provide capital to the banks, we have launched a plan that will pair government resources with private investment in order to clear away the old loans and securities -- the so-called toxic assets -- that are also preventing our banks from lending money.

"Now, what we've also learned during this crisis is that our banks aren't the only institutions affected by these toxic assets that are clogging the financial system. A.I.G., for example, is not a bank. And yet because it chose to insure trillions of dollars worth of risky assets, its failure could threaten the entire financial system and freeze lending even further. This is why, as frustrating as it is -- and I promise you, nobody is more frustrated than me -- we've had to provide support for A.I.G. It's also why we need new legal authority so that we have the power to intervene in such financial institutions, just like a bankruptcy court does with businesses that hit hard times, so that we can restructure these businesses in an orderly way that does not induce panic -- and can restructure inappropriate bonus contracts without creating a perception that government can just change compensation rules on a whim."

Obama also walked a careful line, pointing to small reasons for optimism, while warning of difficult times ahead.

"Because of our recovery plan, schools and police departments have cancelled planned layoffs. Clean energy companies and construction companies are re-hiring workers to build everything from energy efficient windows to new roads and highways. Our housing plan has helped lead to a spike in the number of homeowners who are taking advantage of historically-low mortgage rates by refinancing, which is like putting a $2,000 tax cut in your in pocket. Our program to support the market for auto loans and student loans has started to unfreeze this market and securitize more of this lending in the last few weeks. And small businesses are seeing a jump in loan activity for the first time in months.

"This is all welcome and encouraging news, but it does not mean that hard times are over. 2009 will continue to be a difficult year for America's economy. The severity of this recession will cause more job loss, more foreclosures, and more pain before it ends. The market will continue to rise and fall. Credit is still not flowing nearly as easily as it should. The process for restructuring AIG and the auto companies will involve difficult and sometimes unpopular choices. All of this means that there is much more work to be done. And all of this means that you can continue to expect an unrelenting, unyielding, day-by-day effort from this administration to fight for economic recovery on all fronts.

"But even as we continue to clear away the wreckage and address the immediate crisis, it is my firm belief that our next task is to make sure such a crisis never happens again. Even as we clean up balance sheets and get credit flowing; even as people start spending and business start hiring -- we have to realize that we cannot go back to the bubble and bust economy that led us to this point.

"It is simply not sustainable to have a 21st century financial system that is governed by 20th century rules and regulations that allowed the recklessness of a few to threaten the entire economy. It is not sustainable to have an economy where in one year, 40% of our corporate profits came from a financial sector that was based too much on inflated home prices, maxed out credit cards, overleveraged banks and overvalued assets; or an economy where the incomes of the top 1% have skyrocketed while the typical working household has seen their income decline by nearly $2,000.

"For even as too many were chasing ever-bigger bonuses and short-term profits over the last decade, we continued to neglect the long-term threats to our prosperity: the crushing burden that the rising cost of health care is placing on families and businesses; the failure of our education system to prepare our workers for a new age; the progress that other nations are making on clean energy industries and technologies while we remain addicted to foreign oil; the growing debt that we're passing on to our children. And even after we emerge from the current recession, these challenges will still represent major obstacles that stand in the way of our success in the 21st century."


Steve Benen 2:25 PM Permalink | Trackbacks | Comments (22)

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"...but we will do so in ways that minimize risks to taxpayers and to the broader economy. To that end, in addition to the program to provide capital to the banks, we have launched a plan that will pair government resources with private investment in order to clear away the old loans and securities -- the so-called toxic assets -- that are also preventing our banks from lending money."

This is particularly grating, given that many economists predict that his particular combination of government and private investment increases risk for taxpayers.

Posted by: socratic_me on April 14, 2009 at 2:30 PM | PERMALINK

Alex Koppelman described it as "one of the best explanations of the economic crisis and his administration's response that the president has given so far."

That was exactly how I felt. As was his explanation on how to fix the economy. Yet somehow, the talking heads on MSNBC, lead by David Gregory, didn't seem to understand. All they could conclude was that he was doing too much, when he should be focused on the economy. Duh? (Ron Insana actually said that.) But they were encouraged that he was going to take on entitlements, even if they didn't know what that meant.

Posted by: Danp on April 14, 2009 at 2:32 PM | PERMALINK

Sounds like he was trying, at least in part, to pre-empt the Tea Baggin' protests tomorrow, by countering, in advance, at least one of the potential reasons for protests.

Posted by: Jason on April 14, 2009 at 2:43 PM | PERMALINK

The most important part of Obama's speech was his direct and clear explanation of the need to put a price on carbon pollution, to force markets to internalize the costs of the CO2 emissions that cause global warming, and his very clear statement that new energy technologies will be the driving force and fundamental basis of the world's economy going forward.

Will the USA be the world's leading manufacturer and exporter of wind turbines, photovoltaics and concentrating solar thermal systems? Or will we be importing them from China, Spain, Germany and Denmark? It's that simple.

I just hope that the administration will follow through. The fossil fuel corporations and their bought-and-paid-for tools on both sides of the aisle in Congress are gearing up for an all-out battle to block any form of cap-and-trade or carbon tax legislation, or if that fails, to ensure that it is so weak that it will achieve nothing.

This is not an issue where Obama should compromise. As Ayn Rand said, in any compromise between food and poison, poison wins.

Posted by: SecularAnimist on April 14, 2009 at 2:44 PM | PERMALINK

President Obama is a breath of fresh air - and thought.

The Age of Reason is back.

Posted by: Nashville_fan on April 14, 2009 at 3:14 PM | PERMALINK

Obama said

"We must build our house upon a rock. We must lay a new foundation for growth and prosperity a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad."

But he also said

"The truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth," Obama said.

So, are we going to borrow less or borrow more?

I think he really wants us to borrow less, but he needs to justify the extreme amounts of money thrown at his (and Congress') campaign contributors in the financial industry, rather than giving it to the people who really need it.

Posted by: Larry on April 14, 2009 at 3:19 PM | PERMALINK

Great speech.

Loved: The prose (talk about recovery package, cap and trade etc) and the poetry (house built on sand vs. built on a rock).

Hated: The response to the nationalization argument - "preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence."

No, and no. There may be slightly higher upfront costs, but the combined market cap of Citi and BofA is LESS that the money already spent on TARP. Stop saying stuff without numbers to back it up please, you sir, of all people.

Posted by: Ohioan on April 14, 2009 at 3:37 PM | PERMALINK

Stop saying stuff without numbers to back it up please

Where are your numbers? Or Krugmans?

Posted by: Danp on April 14, 2009 at 3:44 PM | PERMALINK

I hope President Obama's use of a prewritten speech delivered with the help of a teleprompter doesn't hurt him among the many Americans who think he should have been able to speak off the cuff about these issues.

Why is he so afraid to trust his ability to speak extemporaneously? Does he know something we don't about his limitations or about the truth of what he's saying?

It's worrisome.

Posted by: MatthewRQuarreler on April 14, 2009 at 3:45 PM | PERMALINK

In response to Larry's concern about borrowing, a concern many conservative people share, let me suggest that the problem with borrowing is not the fact of borrowing, but the lack of prudence suggested by departures from historical standards. The suggestion is that a greatly increased flow of credit means that someone isn't watching the store. But the reading is a false one. There are excellent reasons why both lenders and borrowers can now expect repayment with far more good reason than was the case a generation ago. It has nothing to do with probity, and everything to do with a vastly improved ability to predict financial behavior and to reduce the risk of failure.

It probably sounds idiotic to say this now, but the reality is that even the improvements that make a greater flow of credit reasonable, even those improvements, cannot overcome the kind of faults that created the current mess. Those faults come down to 3: the improper alignment of financial incentives within the financial industry, particular the part dealing with mortgages; the massive growth of key financial institutions, which renders them at the same time "too big to fail" and too big to govern; and the decline of regulation for ideological reasons since Reagan's presidency, culminating of course in the ideologues of W. Bush.

Posted by: keith on April 14, 2009 at 3:45 PM | PERMALINK

"The truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth, ...."

This is the direction we need to start going in. Rather than following the advice of "Das Boosh", and trying to buy our way out of this mess by spending everything on a bunch of stuff, and then leaving ourselves mutually at risk when the cash reserves run short, we need to instead start cranking a bit of our resources into savings accounts. It is my "dollar's worth of savings" than becomes that "eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth".

Posted by: S. Waybright on April 14, 2009 at 3:50 PM | PERMALINK

Yes, MatthewRMarler, that's the most important comment that could be made on Obama's speech, his use of a teleprompter. You're right, it would be a great idea to speak extemporaneously during a major speech on the economy. It's just so stupid and unusual for a president to deliver prepared remarks! His press conferences and interviews have showed him to be such a doofus, especially compared with George Bush and Ronald Reagan who were both such scintillating off-the-cuff speakers.

Idiot.

Posted by: jduffy on April 14, 2009 at 4:16 PM | PERMALINK

I've got to agree with you jduffy. Let's see here, Obama can a.) appease the morons who are obsessed with telemprompters because they aren't clever enough to develop real criticisms or b.) prepare his remarks smartly and read from a teleprompter so he can articulate his message in the most effective manner. I pick option B. I think most of America is smart enough to pick option B as well.

Posted by: OC on April 14, 2009 at 4:34 PM | PERMALINK

I assumed Matthew was joking. I still believe it.

Posted by: Wordboy Dave on April 14, 2009 at 4:42 PM | PERMALINK

Sounds like it was a great speech! I hope it helped more people to understand our situation.

Now, on to a health care system reform and financial system regulations.

Posted by: MarkH on April 14, 2009 at 4:50 PM | PERMALINK

have we all looked at where the sand/rock metaphor comes from (Matthew 7; 24-29). We get may get some sense here of the message.

Posted by: barbara Feinberg on April 14, 2009 at 4:59 PM | PERMALINK

It is simply not sustainable to have a 21st century financial system that is governed by 20th century rules and regulations that allowed the recklessness of a few to threaten the entire economy.

This would be more convincing if it wasn't the exact same argument that the Rubinoos used to deregulate the financial system and get us into this mess (or at least, allow it to get quite so messy) in the first place.

What's missing from his admirable prose? A simple principle: If it's too big to fail, it's too big to exist. Obama rejects that. All else follows.

Posted by: tatere on April 14, 2009 at 6:27 PM | PERMALINK

Psst. You might want to read the name on "Matthew"'s comment a little more closely.

Posted by: Mnemosyne on April 14, 2009 at 6:28 PM | PERMALINK

Amazing that in a time of crisis, so many stand to obstruct these plans for purely political reasons. Like watching flames competing to burn the brightest while burning up everything in site as they head towards embers. This is why we need regulations of the financial markets.

No one has put forward any other credible plans to deal with our situation..but lord look at all the criticism...like watching pouty little babies throwing tantrums because they lost. Time for the golden tea bags to be thrown back to the people from these oligarchs which make up America's top 2% with more money than half the country put together.

Posted by: bjobotts on April 14, 2009 at 7:07 PM | PERMALINK

No, and no. There may be slightly higher upfront costs, but the combined market cap of Citi and BofA is LESS that the money already spent on TARP.

So what? The cost of nationalization has nothing to do with market cap. If we nationalize, the government assumes responsibility for all the liabilities. A company is insolvent if liabilities are greater than assets. If that happens, then shareholder equity, for which market cap is a proxy, goes to zero. You can always pick up a bankrupt company for pretty much nothing. That's because it's worth less than that.

Posted by: J. Michael Neal on April 14, 2009 at 10:02 PM | PERMALINK

The problem is, the gov't wants to pretend the bad assets have more value than they do - which will lead to them continuing to be a boat anchor on the economy. As to this fiction that "private money" will buy out the assets, it's nonsense when the government is giving the private sector 80% of the money so they can buy the assets. You cannot artificially prop up pricing and expect the prices to stay there unless you continue to pour money into the market.

The bottom line is that the government (and we) have got to accept the fact that these assets were wildly overpriced and will have to be re-priced significantly lower before the markets can get back to normal. Playing "make believe" with prices won't solve the problem.

Posted by: MichMan on April 15, 2009 at 8:24 AM | PERMALINK

excellent resource for great links on this topic:

http://tinyurl.com/Solar-Thermal


it's worth browsing them through, really !!!

Posted by: EnergyRevolution on April 15, 2009 at 10:08 AM | PERMALINK




 

 

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