More heavy criticism of Obama’s economic plan

March 25, 2009 | By | 32 Replies More

Obama’s economic plan is receiving heavy criticism from distinguished economists, including Joseph Stiglitz, James Galbraith, Paul Krugman and many critics from Europe .   Many of the critics believe that Tim Geithner and Henry Paulson are far too beholden to Wall Street and the financial sector.   The fear is that the toxic debt (much of it based on fraudulent mortgage-backed securities enabled by Wall Street fraud) is being lifted from the banks and dumped onto the U.S. taxpayers because the Obama plan is making the FDIC ultimately responsible.   I’m not an economist, but based on these criticisms, this fear seems well-founded.  I don’t see any reason for Geithner or Paulson to be going to bat for the taxpayers.   Most of their friends live on Wall Street.

At this same link, you’ll see the Nation’s view that we need an outsider to clean up this mess.  Writer Katina vanden Heuvel even recommend Eliot Spitzer as one of the few people aggressive enough to take on Wall Street before it was a trendy idea.  Frankly, I like that idea, based on her stroll down memory lane (pre-Ashley Dupre):

Spitzer took on Wall Street’s metastasizing corruption before the meltdown. He defended consumers’ and taxpayers’ rights. He speaks with passion and clarity about what went wrong and what needs to be done to restore integrity to our system. He is chastened by personal scandal, yet untouched by complicity in Wall Street’s public scandals which have obliterated peoples’ savings and devastated our country.

What does Spitzer have to say about the economic crisis?  That the crisis was not caused by the lack of necessary laws. Rather, the crisis was caused by the lack of good judgment and lack of tenacity to defend the public interest. These things, says Spitzer, cannot be legislated:

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Category: Economy, Politics

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

Comments (32)

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  1. Imee says:

    I don't think Obama's ARRA is a complete failure, but it's not the most successful economic plan either. It's just a couple of months into his term so I'm still willing to wait out. I do think he's got a point, that things will turn worse first before getting much much better.

  2. Roger Stone says:

    ridiculous. Eliot Spitzer is a criminal who abused his power as both AG and Governor, using the State Police to spy on his political opponents, lied under oath about his illegal campaign financing and stonewalled an investigation into his illegal activities Nixon-style. Spitzer was a failure as AG . ruining many companies withour real cause and losing in court most of the time when he actually go to trial. A total, complete fraud. We need Spitzer in DC like we need hemmroids.

  3. sam dixon says:

    What's confusing me is that buying these 'toxic assets' is similar to what led Wall St. to the meltdown in the first place. Albiet this time around, these incentives are on a short leash for those banks that take the bait. Here's a recap of the meltdown from a broker POV:

  4. Karl says:

    If the problem was a lack of judgement then the only reaasonable answer is to make the "boards of directors and CEO's" liable for the losses – not the entire nation of tax payers.

    You better believe the boards and CEO's want the bail outs because they knoew they were either deceiving the nation or were asleep at the switch.

    If Spitzer really has a point then all of the board member and directors of Fannie Mae and Fannie Mac have an enormous amount of explaining to do for the compensation packages that they received. Those who changed obvious toxic assests into paper investments need to have their real assets surrendered to the companies they derailed.

    Every former or current politician that profited from this debacle needs to return their undeserved gains for all of the years they were board menbers and CEO's or get out of politics, perhaps even both.

    • John says:

      Karl i feel that those CEO's should be able to keep their monies, instead of saying "oops we sgouldn't have given them money" we should learn from this mistake and say "well we won't do it again. The real problem is that our government will give out untold amounts of money to businesses that missused their finances to begin with. What makes anybody think that these companies will use the money differently from how they originally did?

    • Karl says:

      If you don't put a conscience back into the board rooms and into the general accounting principles we will be right back here in less than a year with the next bunch of bandits who have all kinds of access to other people's money, but no concren over how much of it they think they deserve.

      If people have nothing to fear about group endorsed theivery, we might as well roll over and play dead. Board members not aware of what policies they are approving deserve to have it blow up in their faces, not the tax payers.

      Capitalsim was never designed to be run by people without a conscience. That becomes despotism – not capitalism.

  5. Erich Vieth says:

    U.S. stocks will fall and the government will nationalize more banks as the economy contracts through the end of 2009, said Nouriel Roubini, the New York University professor who predicted last year’s economic crisis.

    “The stock market is a bit ahead of the real macroeconomic and financial news,” Roubini . . . said in an interview with Bloomberg Television in London today. “We’ll have some major banks going belly up that will need to be taken over.”

    The global equity rebound in March . . . is a “bear-market rally” and U.S. Treasury yields will “remain relatively low” as investors flock to the safest assets, Roubini said.

    http://www.bloomberg.com/apps/news?pid=20601087&s

  6. Erin Smith says:

    Spitzer is and was a bully with no respect for judicial governance. He's all about power and its abuse. He does not belong in politics. He belongs in day care.

  7. Niklaus Pfirsig says:

    Isn't the phrase "Lack of good judgment" nothing more that a euphemism for "Don't know, don't care and don't want to know what effect this will have on the national and world economy as long as we get buttwads of money in our account"?

    Tenacity to defend the public interest? What in the world has Spitzer been smoking lately? Corporations tenaciously defend one and only one thing- continually increasing their profits by any means possible. On a list of corporate priorities, defending the public interest is dead last if it even makes the list. (and I seriously doubt that it is on any corporation's list of priorities)

    NO you can't outlaw stupidity, however I have heard it said that willful ignorance of the law is not a viable defense for violating the law. Those who believe the fraud perpetrated by these captains of industry (the same people who claim their multimillion dollar compensation packages as reward for their level of expertise) was done out of stupidity, have apparently had the contents of their bowels and the content of their skulls exchanged as they slept.

    • Erich Vieth says:

      When he's talking about defending the public interest, he's referring to the regulators, not the corporations. From everything I've read about the crisis, U.S. oversight over the financial sector has been an utter travesty. There should be thousands of white collar business people going to prison, but I only hear about their "problems" and the need to bail them out. We should be focusing on preserving the institutions and the public interest. As far as the financial bigshots who caused this mess (there are many of them and most of them are still in positions of great power), they should be stripped of their personal financial holdings and sent to prisons (after trials, of course). Matt Tabbi of Rolling Stone names lots of names.

    • Karl says:

      That's putting it a bit crudely but it illustrates the real nature of lack of accountability even after the fact.

      Negligence in monetary oversight over years can often be clearly traced, and then recovery and/or restitution can often be attempted. Why can't the affects of policies that delivered unjust gains to board members and CEO's be treated directly as violations of generally acceptable accounting principles which should have direct consequences similar to embezzling?

      Many banks and some investment companies are still in fair shape because they didn't follow the lemmings over the sub-prime cliff. They had CEO's and corporate policies that kept the board room honest and the accounting procedures honest.

      Just because someone has a contract that is based upon the numbers from the accounting department, that doesn't mean the contract can't be declared null and void if the process by which the numbers were arrived at was faulty. This should also be retroactive to the dates that the policy changes initiated the inability for the generally acceptable accounting methods to clearly identify the correct values of a corporations risk free assets.

      Earning profits on nearly valueless paper is a criminal activity as far as I'm concerned. Once you detach a debt from its actual collateral it literally has no value upon which to draw profits.

  8. John says:

    If the government takes over any mnore banks, then the U.S. will turn into a Cold War Russia with everything under the governments control! already so many aspects of life have already been taken over by the new administration if the banks and money is the governments, then what will stop them from asking the people why and what you want your money for. If the government has control of life what makes us any better than Red China?

  9. Erich Vieth says:

    I confess that I don't know much about the "dirt" on Spitzer other than the call girl story. I do know that he was a ruthless prosecutor of white-collar crime, and we need that SORT of person running the Treasury Department. If not Spitzer, we need someone who will be non-stop aggressive, someone who is not going to play nice with the financial sector. Why? Because they aren't looking out for the public and the public coffers one bit. Bailing them out is merely going to invite more of the same, unless we have extremely aggressive oversight. My two cents.

    • John says:

      I agree with Erich, we need an uncorruptable person in charge of the Treasury Department, someone who is above suspicion and WILL NOT compromise onhis morals. The whole point is to NOT bail these companies out, our economic structure was never set up to have government intervention when the economy goes belly up, the rule of the "invisible hand" has and always will apply to a capitalist society. Unless the people of America wish to have a communist society with government control over everything, the government must not intervene.

  10. Conscience in boardrooms…that's an oxymoron.

    There's an ethical dilemma on display in this, which is basically a problem of competing obligations. Corporations are beholden to shareholders—first—and the common good second if at all. It is very easy for boards of directors to mistake shareholders for the common good, since shareholders seem to be no more than representatives of the General Public. It all works fine as long as someone is watching the wolves and things are going along swimmingly. But the instant things go south, shareholders separate themselves out as primary creditors and the Common Good be damned. And that's why a conscience in a board room is untenable. If you vote contrary to the best interests—short term—of your shareholders, you get ousted. The problem then compounds itself because your replacement will be he or she who is willing to screw morality in the name of quarterly dividends. You need someone—some entity—that is not "invested" like a shareholder to oversee all this, which is just plain common sense. But the Republican assault on government reliability for the last 30 years has resulted in the general public voting against its own best interests under the mistaken assumption that government oversite can't work. This is purely historical shortsightedness and political venality at its worst.

  11. John writes:—"Unless the people of America wish to have a communist society with government control over everything, the government must not intervene."

    There's only one thing to say to that—bullshit.

    We've been tortured by that boogeyman for decades and it is a false syllogism—government interference equals communism.

    Why?

    We had no government intervention in 1929 to prevent the down spiral caused by so-called free market overstimulation and abrupt contraction that it took 11 years and a world war to get us out of it. Let these companies go belly up and watch the unemployment rate skyrocket.

    It is well past time we got over the idea that government is always the problem—as far as recent history shows, lack of government is the problem.

    Go read an economics textbook before spreading canards like that.

    • John says:

      Mark during the Great Depression, Hoover did use government intervention to try and turn the economy around not only did it not work, but it created a bigger depression than leaving the economy alone would have done. I'm not implying that the government should'nt have no involvement in the economy, it SHOULD to give each business large or small and each person rich or poor an equal CHANCE. The government SHOULD NOT artificially use "Monopoly money" to try and buy ourselves out of debt. Where is the logic in buying yourself out of debt when we have no money?! The United States will be no better than Zimbabwe with wheelbarrows of money to buy bread or toilet paper!

    • Just my point. Hoover acted after the horse left the barn. And as for Paul Kennedy's thesis that leaving the economy alone would have helped more, that's a hypothesis without foundation. We had overproduction and underconsumption, coupled with the global meltdown of economies as a result of a series of payment and production debacles from WWI. Hoover acted at the wrong end—the top. The top had money, they just wouldn't lend it.

      Just so you know, though—all our money is "Monopoly Money" because its value is based mainly on faith.

  12. Erich Vieth says:

    The head of the European Union slammed President Barack Obama's plan to spend nearly $2 trillion to push the U.S. economy out of recession as "the road to hell" that EU governments must avoid.

    http://www.huffingtonpost.com/2009/03/25/mirek-to

  13. Karl says:

    Did any one read Nehemiah Chapter 5 yet?

    Does anyone understand what usury really is?

    Expecting to squeeze an orange incapable of giving you juice? Then blaming the pulp for your own greed.

  14. Karl says:

    The debacles of this past few years are an across the aisle affairs, and unless the individuals across the aisle start coming clean there will be little hope for the future of America as we have known it.

    Both Republicans and Democrats had numerous operatives on the "take" at Fannie Mae and Freddie Mac. Lehman brothers was allowed to fail because of their lack of political operatives/lobbyists. AIG was the cover for Fannie and Freddie's worthless paper so they couldn't fail or the whole fiasco would have been right in the laps of the Directors, CEO's and Congress that legislated the policies the lobbyists wanted.

    Wake-up people and stop pointing fingers at the other guys.

    If these corparate/public hybrid companies are a sign of our future we are all doomed.

    Sure Obama shows rage at recent AIG bonuses, but where is his rage at those in his own administration who "earned" millions from their Fannie Mae relationships.

    Where is is own rage over hybrid public/corporate "political" corporations being able to

    come back to the well over and over again without any clear investigation as to where the blame for the fiasco really is.

    We need an independent investigator that is not part of the past or current operations to set the records clear or it will happen again.

  15. Karl writes:—"If these corparate/public hybrid companies are a sign of our future we are all doomed."

    Doomed to what?

    —"those in his own administration who “earned” millions from their Fannie Mae relationships."

    Who? Please name names.

    —"Did any one read Nehemiah Chapter 5 yet?"

    Yeah, I did. There is either/or thinking here. Railing against lending at interest has become the battle cry of those who can't discern between a system that works and one that is being worked over. We are suffering now because of the latter, not because the idea of lending at interest is a bad idea.

    We had safeguards in place against what has transpired in the last 30 years, but they were eroded and set aside. Greed. Yes, indeed. But stupidity as well.

    Lazarus Long said "Stupidity cannot be cured with money, or through education, or by legislation. Stupidity is not a sin, the victim can't help being stupid. But stupidity is the only universal capital crime; the sentence is death, there is no appeal, and execution is carried out automatically and without pity."

    The only thing we know for certain about the current state of affairs is that we are in deep shit because the way we've been doing things has not worked very well. Things will be different. Doing nothing, which seems to be what some armchair libertarians are advocating, is worse than what has already happened, but ultimately just another form of the same stupidity.

    We don't know how this is going to come out. But people opposing Obama right now are acting out of sheer terror that things just won't ever be the same anymore. They're right. But even if Obama does nothing, that would be true.

  16. Karl says:

    Doomed how? Doomed to repeat the same mistakes!

    Saying we'll try and stop this from happening again is useless unless we know how and why it happened to begin with.

    Here are some references to the names from both sides of the aisle that were operatives in these financial dealings.

    http://www.slate.com/id/2200160/

    There are many others as well. Some of Obama's closest advisors are from this bunch of insiders. Same could have been true for McCain as well.

    Money follows money as they say.

    http://michellemalkin.com/2009/03/26/rahms-ill-go

    http://www.dailypundit.com/?p=34182

    http://tsfiles.wordpress.com/2008/09/20/former-cl

    http://topics.nytimes.com/top/reference/timestopi

    http://larryh.newsvine.com/_news/2008/09/16/18715

    http://www.chicagotribune.com/news/politics/obama

    http://www.chicagotribune.com/news/local/chi-rahm

    http://www.opensecrets.org/news/2008/07/top-senat

    http://www.msnbc.msn.com/id/21134540/vp=29911621&…

  17. Karl says:

    Here is a little more recent article on the topic.

    http://www.expressmilwaukee.com/article-5862-bush

  18. Karl writes:—"Saying we’ll try and stop this from happening again is useless unless we know how and why it happened to begin with."

    That's rich. We know exactly how this happened. It's simple. Since 1981 we stripped ourselves of our capacity to oversee the market and clamp down on unethical and dangerous transactions. We're in fact worse than the generation of the Great Depression because we frickin' know better!

    But a bunch of money people have been feeding us this line that The Market—oh, the Holy of Holies!—must not be interfered with. But when you don't, you end up with a shithouse mess like this. The Market is a force that has no mind. The only controls are those we supposedly bring to it as intelligent creatures. It does not exist in nature, but those who want the government to stay out of it talk as if it does. Certainly there are some similarities to weather systems, but even when you can't control the weather you should know enough to build decent dikes, levies, dams, and shelters!

  19. Niklaus Pfirsig says:

    Anyone with even a passing knowledge of economics knows that an unregulated market eventually finds its homeostasis point as a monopolistic economy, which is anything but a free market.

    I've long held this notion that the majority of professional politicians are experts in getting elected and nothing else. Once in office, these people that can't run a successful business, can't balance a checkbook, and think of a Wesley Snipes movie when someone mentions "The Art of War", are tasked with controlling the economy, enhancing the well-being of their constituency, and providing for the defense of the people.

    Many of them know they don't know how to do any of this, and enlist the council of "industry experts" to advise them. The trouble here is that the experts usually have vested interests that are in conflict with whats in the best interest of the people.

    There are also a few that are former industry experts turned politician. who believe what good for them is good for everyone or are simply so arrogant as to place their lust for money and power above all else.

    And there are a very few that can take a critical self-examination of their actions and plan a new course of action that attempts to avoid past errors.

    Bush was definitely on the first group. Cheney, Wolfowitz and others close the Bush were in the second group.

    I think Obama is of the third type.

  20. Erich Vieth says:

    The economic team is far too tied into the entities they are supposed to regulate. According to MSNBC:

    Lawrence H. Summers, the top economic adviser to President Obama, earned more than $5 million last year from the hedge fund D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money, the White House disclosed Friday in releasing financial information about top officials.

    I understand the dilemma. How can you regulate a complex system when you don't have the background to understand it? To a total outsider, these financial entities are impenetrable. Then again, they've been intentionally designed to be impenetrable. Maybe we need to start from the ground up, abolishing many aspects of these entities, which have been designed not to add value to the American economy, but to game the system, pretending to add value. But once again, how would an outsider have the knowledge to even dismantle such a system? But, once again, can we trust outsiders to do the work?

  21. Erich Vieth says:

    Glenn Greenwald reports (quoting Bill Black):

    Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator. . .

  22. Erich Vieth says:

    Spitzer on the financial crisis, as reported by MSNBC:

    “If it is too big to fail, break it up,” he wrote in a recent Slate column. “We should not let any private institution become so big and central to the financial system that taxpayers become its guarantor … We have thrown a trillion dollars at the sector, and yet I honestly don’t yet see a new model of competition and a smaller financial services sector; smaller in terms of there not being these unbelievably large companies that are too big to fail.”

    He also criticized the greed that caused the crisis.

    “This was an enormous extraction of wealth by people who manipulated money back and forth but did not create anything for the economy. The toughest issue is where will we see value creation in our economy? Where will we create the goods and services to sell?” Spitzer said.

  23. Karl says:

    Hedge funds and derivatives thart make money simply off of the direction of a market are the gambling part of our economy that really need to be removed from ledger sheets.

    I can put down on my books that I've played the lottery for ten years but that doesn't make me any closer to winning it.

    Gambling with risk and calling it solid assets is plain foolish.

    • Hear hear! Absolutely. It's a (venal) misreading of Keynes and just because money has been made on such gambling in the past is no reason to expect it to continue. As an occasional one-off, there's nothing wrong with it—but when you start planning futures on it, well…

      What's that old dictum? never gamble more than you're comfortable losing…?

  24. Niklaus Pfirsig says:

    The further this goes, the more I stuff I see being done entirely bass-ackwards. They are throwing money at the financiers who are grabbing it with both hands and socking it away in offshore accounts, while at the same time taking steps to destroy the US auto industry, which employs thousands and is as much a victim of the investment fraud as it is an accomplice.

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