No. Oh, wait, was that a rhetorical question? ;)
Good for Galbraith. He picks up that, so far, Obama is not following FDR, but Hoover.
But this exposes a huge problem for the left--a problem that could be an opportunity, but is unfortunately, right now, simply a huge problem. When the falsely-but-still-popularly-identified "left" Obama fails, as appears likely, and the situation is materially worse for millions more, to what alternative do the people turn?
Not a rhetorical question. Yet. I hope.
On Sat, Feb 14, 2009 at 9:47 AM, Shane Taylor <shane.taylor at verizon.net>wrote:
> [James Galbraith reviews on Eric Rauchway's pocket history of the Great
> Depression and the New Deal:]
>
> The new Treasury, like the old one, remains in a Hoover mind-set, fixed on
> the chance of a top-down solution that would, in a phrase we hear
> constantly, "get credit flowing again." The idea is to stuff the banks with
> money, in the hope that they will burst and the manna will rain down.
>
> But banks are not moneylenders! They do not need money, in order to lend!
> Banks create money. And they do it, when they want to. They lend, in other
> words, when there is a reason to lend. And not otherwise. The testimony of
> the bank chiefs yesterday made this very clear.
>
> Or to put it another way, credit is not a flow. It is a contract. It
> requires a borrower as well as a lender. And the borrower must be both
> optimistic and solvent. These are the conditions that are not met today, and
> that cannot be met by stuffing money into the banks.
>
> FDR realized two things. First, that the banks were bust. They had to be
> closed, reorganized and rebuilt. And second, that credit would revive only
> if the balance sheets and business prospects of the borrowers -- that is to
> say, of the American population -- were restored. The first he accomplished
> immediately. The second took through World War II, which (through victory
> bonds) massively recapitalized the American family. Meanwhile, for nine
> years New Deal spending kept Americans fed and economic activity alive.
>
> What Secretary Geithner needs to do is, is assign teams to examine the
> banks. He must do this, before taking the fatal step of guaranteeing their
> assets. Examination, as in, look at the loan tapes underlying the
> mortgage-backed securities. Look at them. This is called "due diligence."
> Or, not buying a pig in a poke.
>
> It will become clear that the banks either (a) do not have the loan tapes,
> and hence can say nothing about the quality of the underlying mortgages, or
> (b) where they do have the loan tapes, that sub-prime securities are deeply
> infected by fraud and misrepresentation.
>
> We know this, because of the losses already incurred, and some evidence
> from inspections that have actually occurred.
>
> When this becomes plain, it will be clear that there is no upside to these
> assets. They cannot recover. They are, essentially and for the most part,
> doomed to default. Therefore it is wrong to speak of the taxpayer "assuming
> the risk." The Treasury is proposing to take on a sure loss, thus to make a
> massive transfer to bank stockholders and incumbent management. With no
> effect on the balance sheets of the American public - and therefore no
> chance that credit and credit-fueled economic activity will revive.
>
> That, so far as I understand it, is the economics of the Geithner plan.
>
> Perhaps the Treasury has a clear and persuasive answer to this argument.
> But if they do, they have not made it. And their constant use of a bad
> metaphor - "credit flow" - raises grave doubts. Does the Treasury team
> really understand, in a way that clearly separates the public interest from
> that of the bankers, the situation we are in?
>
> <http://tpmcafe.talkingpointsmemo.com/2009/02/13/due_diligence_damn_it/>
>
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>