Obama’s Real Waterloo?

Much anger has been directed toward TARP—colloquially known as the bank bailout—and some of it is totally justified. 

In yesterday’s New York Times, Neil Barofsky, on his last day as special inspector general of the Troubled Asset Relief Program, wrote that the program,

failed to meet some of its most important goals.

Those goals, he argues, involved “protecting home values and preserving homeownership.”  He wrote:

These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.

The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.

Obviously, judging by the condition of the economy—significantly hamstrung by the home mortgage nightmare—not much was done in terms of purchasing mortgages and helping homeowners.  Instead,

Treasury’s plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.

Naturally, the promise to restore lending wasn’t backed up with an “effective policy or effort to compel the extension of credit“:

There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds.

Despite a feeble and mostly failed attempt in 2009 to help distressed homeowners, “foreclosures continue to mount, with 8 million to 13 million filings forecast over the program’s lifetime.”  And according to Barofsky, Tim Geithner and Treasury have no plans to change things.

On top of all that, Barofsky makes the sad claim that it appears the too-big-to-fail banks—who “no matter how reckless” “reasonably assume” taxpayers will bail them out again—are still too big to fail, the Treasury Department failing to “support real efforts at reform,” including efforts “to simplify or shrink the most complex financial institutions.”

As Barofsky notes,

The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever.

That statement is supported by the Wall Street Journal, which reported that all of the gains leading to record-setting fourth-quarter corporate profits were “in the financial sector“:

After rising like the Phoenix, the financial industry now accounts for about 30% of all operating profits. That’s an amazing share given that the sector accounts for less than 10% of the value added in the economy.

Here’s the dramatic swing, from the Journal article:

Look at that chart and remember the Journal‘s point:

That’s an amazing share given that the sector accounts for less than 10% of the value added in the economy.”  Less than 10%.

TARP was necessary to avoid a complete collapse of the financial system, Barofsky says, but its most lasting legacy may be that,

Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises.

If so, this may be Obama’s Waterloo.

Crass Ass Conservatism: The Real Republican Pledge to America

Paul Krugman wrote yesterday in the New York Times about the failure of the Obama administration to propose a large enough stimulus plan to combat the financial crisis the administration underestimated.

While admitting that the Recovery Act made things better than they would have been—he estimated unemployment would be near 12% without it—Krugman called the stimulus a “political catastrophe.”  “Voters respond to facts,” he said, “not counterfactuals, and the perception is that the administration’s policies have failed.”

He also said this:

The tragedy here is that if voters do turn on Democrats, they will in effect be voting to make things even worse.

The resurgent Republicans have learned nothing from the economic crisis, except that doing everything they can to undermine Mr. Obama is a winning political strategy.

It appears that we won’t have to wait until next January to find out if Krugman is right.  This morning on Morning Joe, I heard Major Garrett point out that Republican Mitch McConnell admitted to National Journal magazine the following:

MCCONNELL: We need to be honest with the public. This election is about them, not us. And we need to treat this election as the first step in retaking the government. We need to say to everyone on Election Day, “Those of you who helped make this a good day, you need to go out and help us finish the job.”

NATIONAL JOURNAL: What’s the job?

MCCONNELL: The single most important thing we want to achieve is for President Obama to be a one-term president.

“The single most important thing we want to achieve is for President Obama to be a one-term president.”

“The single most important thing we want to achieve is for President Obama to be a one-term president.”

“The single most important thing we want to achieve is for President Obama to be a one-term president.”

We have seen the de facto head of the Republican Party and conservative movement, Rush Limbaugh, in orgasmic anticipation, wish for the President of the United States to fail.

We have seen the de facto head of the Tea Party movement, Jim DeMint, say, with militaristic glee, that, “If we’re able to stop Obama…it will be his Waterloo. It will break him.”

And now we see the Republican Minority Leader in the United States Senate, Mitch McConnell, admit to the world, with uncharacteristic honesty, that the “most important thing” on his plate for the next two years is to make sure Republicans gain power.

What more evidence does anyone need that it is not only dumb to put Republicans back in charge of the government, it is dangerous?

This is Republican patriotism, my friends. Crass ass conservatism.

[Krugman photo: Jessica Kourkounis—The New York Times]
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