Monday, January 04, 2010

The First Year of the Obama Administration: the Economy

I voted for President Obama with great enthusiasm. I supported his proposed policies, both domestic and foreign. I am impressed with him as a leader. I think the Obama family are delightful. I believe the Obamas are likely to be the family most like the Gruntleds to ever live in the White House. This first week of the new year I am going to offer five brief judgments on how the first year of the Obama administration has gone, inviting your replies.

The most urgent problem President Obama faced when he took office was the collapse of the economy. A few companies that lent money were so large, and took risks so huge, that when the inevitable bubble-burst came they threatened to take the world economy with them. This handful of firms consisted of some jumped-up stockbrokerages that called themselves banks, a massive insurance company, and automobile finance companies that incidentally made cars. They got around the sensible safeguards that we had built following previous collapses partly by skirting the existing regulations, and partly by the Bush administration's policy of ignoring regulations.

I believe that if the Obama administration had had even six months to deal with the under-regulated bubble-economy before it collapsed, much of the disaster could have been averted. But that is not the way it played out. When the collapse did come, the Bush administration was paralyzed. They bailed out some firms and let others collapse piecemeal, with no larger plan. When Obama took office his half-assembled team was stuck with the commitments outgoing Treasury Secretary Paulson had made - and still had to save the actual economy. And the Bush bailouts saddled the new administration with gigantic debts that will take years of recovery and prudent administration to overcome.

SO the Obama administration had to save the remaining Wall Street "investment banks." It sensibly brought them under the regulations that actual banks had to follow. They were stuck with AIG and its ridiculously self-indulgent management, which the administration has tried to bring to some responsibility. I agree with the president that we could not simply let General Motors fail, though they richly deserved to. I believe the United States government, forced to be owners of what should be a grown-up company, has been remarkably indulgent in letting almost all of the bosses keep their jobs. I am hopeful that General Motors can learn a lesson fast enough to become an independent company again. It appears that Ford has learned from its brush with disaster and may become fairly responsible. I never thought Chrysler would reappear as an independent company once it was bought by Daimler, so I will not be surprised if it disappears.

The big picture is that the Obama administration saved the world economy from collapse. The parallels with the mess created by the Hoover administration, and eventually cleaned up by the Roosevelt administration, are clear. Things are bad, but getting better. We are not worried now about a massive chain reaction of collapsing financial institutions around the world, as we were in the last days of the Bush administration.

On the first great test, President Obama passed.

7 comments:

carter said...

Welcome back. We missed you.

"They got around the sensible safeguards that we had built following previous collapses partly by skirting the existing regulations, and partly by the Bush administration's policy of ignoring regulations."

Democrats were in power for two years before the collapse. Obama was voting present as a senator. Barney Frank was threatening the regulators.

"When Obama took office his half-assembled team was stuck with the commitments outgoing Treasury Secretary Paulson had made"

Obama agreed with Paulson's remedy. I saw him at the table. So did McCain for that matter.

Obama as Messiah doesn't work. He and his Chicago cronies is making things much worse.By the way, George Bush is not president anymore and I am surprised by your partisanship.

Centrist indeed!

halifax said...

The financial crisis was completely oversold from the beginning by the very people who caused it, i.e. irresponsible bankers, irresponsible government backed agencies and programs (e.g. Fannie Mae and Freddie Mac who played as large a role, if not larger, than the banks in creating the housing bubble and the subprime mortgage crisis; and the Fed which kept money artificially cheap throughout the decade precisely to prop up a faltering economy), and irresponsible citizens who took out mortgages that they could not pay back (it's truly demeaning how the Left in the US treats American citizens, assuming that they are too incompetent to tie their own damn shoes, much less borrow money, and thus that they are not responsible for anything that they do, unless, of course, they are racially or sexually insensitive).

Obama's continuation of Bush's wrongheaded policy only throws the problem into the future and encourages further irresponsibility on the part of all parties, while also, of course, giving further impetus to the dependence of American citizens on the leviathan state. Given that the whiz kids on both sides of the aisle were completely blind-sided by the collapse of the mortgage market, why should we believe these jokers when they provide a diagnosis which serves only their interests?

Obama believes (like everyone on the American left and most folks on the Ameircan right) that the US is one large corporate enterprise and that the government is its manager. Banking, automobiles, health care: the US government does it all for 'we the servile', which should replace the first three words in the US Constitution. I'm waiting for Obama's new initiative which will create a national bottom-wiping bureaucracy which will take that nasty business out of our hands as well. I'm sure that our managerial masters already have that bill in preparation, given the shoddy waste of toilet paper that goes in this country. Did you know that the American wiping system costs more than that of any other developed country. It's time that we take care of those not capable of wiping for themselves and, of course that includes all of us.

Anonymous said...

Halifax you forgot to mention that the lucky few, those who have won life's lottery, can afford softer toilet paper than the butt reddened hordes.

Soft toilet paper is a right not a privilege. Surely the richest nation in the world can afford soft toilet paper for all its citizens.

Susan Perkins Weston said...

Franklin Roosevelt's regulation of banking and corporate finance enabled the private sector to expand dramatically and brought us the largest sustained prosperity in the history of the known universe.

Barack Obama is on track to renew that regulatory system and allow us another half century of sustainable growth in the private sector.

While some fans of market capitalism believe that the finance system can regulate itself, this fan for market capitalism takes the twentieth century as very fine proof that government regulation for transparency and liquidity are essential.

Fortunately, we now have a president whose grandmother and mother both led banks, and he's filled the key slots with leaders who have studied the real economy rather than the fantasy world of Taggart Rail and Reardon metal.

Gruntled said...

First, let me make some general comments about this series, and about what centrism means. My posts in this series are about President Obama, not Democrats in general. I am a Democrat, but not very partisan about it.

Ideologically I am a centrist. I support and criticize based on position, not party. I usually find more to support on the Democratic side, and more to criticize on the Republican side. That is how I picked my party. I hope that is how anyone would pick his or her party.

Gruntled said...

Now, to specific comments.

The legislature makes laws, but has to depend on the executive to execute. When laws on the books are not enforced, the president, not the Congress, is responsible.

I thought President-elect Obama exercised admirable restraint in not trying to take over early. He was obliged to go along with Secretary Paulson's bailout plan in the months before inauguration because he was not yet president.

I agree with Halifax that Fannie Mae and Freddie Mac are as much part of the problem as the "investment banks." I believe they show the same problem of agencies that act like banks without bank regulation. I applaud the Obama administration's attempts to bring some order the quasi banks.

carter said...

"Ideologically I am a centrist. I support and criticize based on position, not party. I usually find more to support on the Democratic side, and more to criticize on the Republican side. That is how I picked my party. I hope that is how anyone would pick his or her party."

I agree. Most people find more to support on one side or the other then choose a party. Does that mean everyone is a centrist? Since you seem to agree 90 percnt or more of the time with the left why call youself a centrist? Name five other centrist sociologists. How do you define centist?