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Tim Geithner; Herbert Hoover – Depression revisited

Unlike fellow Conflucian “headliner” Dakinkat (see her must-read post), I am not an economist, and I do not purport to have expertise in the field. I offer this post based on the claims of Paul Krugman and Barack Obama that the fiscal crisis facing the United States and its citizens today is more comparable to the conditions of the Great Depression than any other crisis faced since then. If that is true, no wonder I find the details of whiz-kid tax evader Tim Geithner’s newly dubbed Financial Stability Act (this is NOT the TARP redux bill just passed by the Senate) personally depressing. So, by the way, does Wall Street.

Treasury Secretary Timothy F. Geithner announced a vast new rescue plan for the financial sector. Stocks plunged following the unveiling of the program to use $1.5 trillion or more in public and private funds to bail out banks and financial institutions and thaw frozen credit markets. The plan would create a $500 billion fund to buy up toxic bank assets such as bad real estate loans and commit up to $1 trillion to reopen lending markets for consumer, student, small business, auto andcommercial loans.

The Dow Jones industrial average was down 383 points in afternoon trading. The tech-heavy Nasdaq plummeted 63 points, and the Standard & Poor’s 500-stock index dropped 43 points.

(source)

Here are the highlights of the Geithner plan, according to The New York Times:

0210-biz-GEITHNER-web

Now, read these excerpts from an overview of the Hoover administration’s approach to the Great Depression, which set in 6 to 8 years before Franklin Delano Roosevelt was first elected.

A) “The slump in automobile sales was paralleled by the decline in the construction of new housing, causing unemployment in the building trades. Fewer suburban houses meant fewer markets for appliances, wall coverings, and other activities related to home building.”

B) “The economy was in trouble but people, dazzled by a surging stock market, ignored it.
The consumer economy was slowing as incomes skewed to the rich. In 1929, the richest 10% of families received 39% of disposal personal income while the bottom 10% only got 2%.”

C) “People seemed to be forgetting that capitalism needs to expand, that demand for housing, clothes, automobiles, stoves, and many other consumer goods generates demand in other sectors of the economy. But mass production necessitates mass consumption. Mass consumption necessitates an income distribution that allows consumers to buy. Without the appropriate income distribution, warehouses will burst at their seams and production lines will clog.”

D) “Many of the wealthy, as well as others, joined the speculative stock market sending stock prices to greater and greater without regard to company performance; In October, 1929, the bubble burst. The crash meant the tremendous loss of capital as prices declined $74 billion from 1929 to 1932 and the repatriation of much of US investment abroad.”

E) “As historians Peter N. Carroll and David W. Noble note, Hoover feared that the collapse of the large corporations would bring down the entire US capitalist system. After all, one percent of the banks held 50% of banking assets. Three corporations—Ford, Chrysler, General Motors—manufactured 85% of the automobiles sold in the US. Chain stores dominated retail sales and their difficulties had national repercussions.

Business and industry met the crisis as they had always done—they cut production, lowered wages, reduced working hours, and fired workers. Unemployment rose from 1.5 million in 1929 to 13 million in 1933, a figure which represented 25% of the labor force. Even such a high percentage hid the dimensions of the problem because it did not what percentage had been forced the part-time work. Industrial wages fell from $425 a week to $17 a week, a decline of 32%.”

F) “To help the situation, the Hoover administration sept close to a billion dollars in public works programs but he would not go further. Nor would he argue for direct relief to the unemployed and starving because he feared that doing so would corrupt them.

G) “Hoover and the Republicans saw aid to corporations as being different. Whereas they believed that helping the individual citizen weather the Depression would corrupt him or her, aiding corporations and other business was different. To many, it appeared that the Republicans were only interested in the rich. The newly-created Reconstruction Finance Corporation aided only the large corporations.

Hoover broke precedent because the national government assumed some responsibility for what happens during an economic depression but he was not willing to go far enough. He believed that the depression was part of the normal business cycle and had been caused by international factors and not US ones. to him, ‘prosperity was just around the corner.’ The best thing for the country to do would be to wait the crisis out.”

I am in no position to know just how deeply or robustly FDR’s New Deal reforms have insulated us from a new Great Depression. But with a Nobel Laureate and the President of the United States telling me that we are in a state of disaster, I find it depressing that the Treasury Secretary’s plan sounds much more Hooverian than FDR-like.

I know the economy is not going to do an about face on a dime. I do not need Secretary Geithner or President Obama to tell me that. But with trillions of dollars going to banking corporations and relatively little aid going to those who are rapidly falling into more dire straits than they imagined possible, I cannot help but feel as so many of us did when George W. Bush whisked us into war in Iraq. In the words of author Anne Lamott: “I don’t know who on the left can lead us away from the craziness and the barbarity: I’ve very confused now.”

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64 Responses

  1. From HuffPo:

    Administration officials were greeted with sarcasm and laughter Monday night when they briefed lawmakers and congressional staff on Treasury Secretary Tim Geithner’s new financial-sector bailout project, according to people who were in the room.

    The laughter was at its height when Obama officials explained that the White House planned to guarantee a wide swath of toxic assets — which they referred to as “legacy assets” — but wouldn’t be asking Congress for money. Rep. Brad Sherman (D-CA), a bailout opponent in the fall, asked the officials to give Congress the total dollar figure for which they were on the hook. The officials said that they couldn’t provide a number, a response met by chuckling that was bipartisan, but tilted toward the GOP side. By guaranteeing the assets, Geithner hopes he can persuade the private sector to purchase a portion of them.

    John Cole asks:

    So why exactly did team Obama rush out to make this announcement when it is pretty clear they are just making shit up as they go along? And is it possible that Tim Geithner could be the man that sinks the Obama presidency?

    Cole is one of the original angry chihuahuas of Obamanation. If he said that, the kool-aid must finally be wearing off.

  2. I had the block including the overview at the top of my screen, so initially missed the preface. I thought it was a list of current or recent events at first, until I saw “1929” and looked up. Uncanningly similar, except it’s being proposed by a “democrat”.

  3. lililam, on February 10th, 2009 at 6:27 pm Sai

    I know – it is eery.

  4. “Cole is one of the original angry chihuahuas of Obamanation.”

    That sentence is 2 words too long.

    I wouldn’t hire this Geithner creep to do my taxes. But he’s going to save us all. Let’s all share in the laughter.

  5. if we are going to go into recession, i guess we all ought to get really depressed before we end up there.

  6. In 1960 Historian John D. Hicks wrote in Republican Ascendency 1921-1933 that:

    “As later events seemed to prove, money poured in at the top of the economic system tended to stay there, whereas money poured in at the bottom tended to rise through all levels of business and to strengthen the economy as a whole.”

    IOW – Helping the rich helps only the rich, while helping the poor helps everbody.

  7. Will somebody please provide Geither with a clue? Enough with expecting the private sector/ free market to solve problems.

  8. Enough with expecting the private sector/ free market to solve problems.

    Geithner believes in government aid

    (to the rich)

  9. once the bill is out of committee and settled for a final vote, does it have to be debated again and is there a cloture vote taken again?

  10. “To help the situation, the Hoover administration sept close to a billion dollars in public works programs but he would not go further. Nor would he argue for direct relief to the unemployed and starving because he feared that doing so would corrupt them.“

    As Obama repeatedly says, we ordinary folks have to take responsibility and work harder, not like the privileged classes who have their pictures published on the cover of Vogue as the entire economic system crashes.

  11. Anne Lamott, another unfortunate koolaid drinking Obot afflicted with PDS. Sad….

    http://www.salon.com/mwt/feature/2008/09/16/anne_lamott/

  12. And we could have had Hillary and her FDResque policies of Trickle up economics!

    Trickle down sucks!

  13. Michelle Obama Quote of Jan 23rd 2010-

    “What do you mean the peasants have no bread why is that a bother can they not eat CAKE?”

  14. Conflusians-

    It is well dinner with the Obats time be back after the icecream is served!

    wish me luck!

  15. BB

    exactly.

  16. With the economy in the toilet and Obama plan woefully inadequate, I decide to check out CNN. First time in over 5 months that I have gone there. And Wolf Blitzer has a segment on how the Obamas may choose a Labradoodle as the first dog? I guess no real news happening today for CNN.

  17. FLVoter – CNN = Corporate News Network

  18. Geez….why don’t they just seize the assets of all American citizens (except those who are behind all this money grabbing) and get it over with.

    Their voracious appetite to suck all of the wealth out of our economy for their own pockets before the other countries come calling for their debt to be repaid is stunning to watch.

  19. Or maybe “Celebrity News Network”!

  20. Madamab,

    I learned my lesson to never wander over there again. I think my IQ dropped a couple of points by that brief exposure.

  21. LOL FLVoter!

    Well, if you read Sirota’s nonsense too, you might be in serious trouble. I recommend Gingko Biloba and a steady diet of PUMA!!

    🙂

  22. For once I’m thinking I may be better off being in debt up to my eyeballs and spending years on an education instead of having worked for all those years putting money into a 401K. At least the grasshopper gets to enjoy life for awhile before the darkness of winter closes in.

  23. i mentioned this on the prior thread but the Hoover Dam and the Golden Gate Bridge were among the projects that resulted from F.

  24. 600 pages of stimulus bill would be too hard to sift through……much easier to talk about labradoodles.

  25. bostonboomer, on February 10th, 2009 at 6:48 pm Said:

    You are right about Lamott – that’s why I quoted her.

  26. Very interesting article in the Financial Times. Is Dakinikat here to confirm or deny?

    Why Obama’s new Tarp will fail to rescue the banks
    By Martin Wolf

    Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

    What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

    Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.

    If this “progeny of the troubled asset relief programme” fails, Mr Obama’s credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.

    Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.

    By asking the wrong question, Mr Obama is taking a huge gamble. He should have resolved to cleanse these Augean banking stables. He needs to rethink, if it is not already too late.

    http://www.ft.com/cms/s/0/9ebea1b8-f794-11dd-81f7-000077b07658.html?nclick_check=1

  27. Well I’m off. I’m going to take my daughter to do some errands and then get us some ice cream. I did some 1 on one with my son the other day. It’s her turn.

  28. Wolf seems to be making the same argument that Krugman has been making.

  29. Madamab,

    Did you see my question about the census re: collecting info on the population in preparation for the crackdown? In the past I talked about this stuff semi-seriously. Now I think it’s really happening.

  30. dakinikat, on February 10th, 2009 at 7:13 pm Said:

    What I find so incredible is that projects like Hoover Dam and Golden Gate Bridge would not get by this admin and the Congressional Dems. Every bit of spending related to infrastructure has been eliminated as pork.

  31. I’m gonna drop this link and run – time to head home from work……

    http://hotair.com/archives/2009/02/10/obama-presser-does-obama-pay-attention/

    excerpt:

    When Barack Obama explained his economic package last night to the American people in a prime-time press conference, he made two flat-out false statements regarding his opposition. He also added a completely incorrect reading of history, one that turns out to be very instructive about his own economic incompetence.

    enjoy!!!

  32. “madamb”
    I read your comment on the prior post, comparing today with Germany of years ago.
    As a nurse I’m not a fan of the “single-payer” option; but I LOVED Hillary’s -2008 -UHC-proposal.
    About your point about the records…..”I’VE BEEN SHAKING ALL DAY”!!!!
    They’ll know EVERYTHING ABOUT US!!!!
    Between this / the census & ACORN getting funded instead of prosecuted….”WE ARE F@CKED”!!!
    I’m ready to PROTEST!!

  33. Madamab,

    No sh!t. PUMAs are the only ones to call it like it is. I am so thankful for all of the brave people that post here. It is brave to swim against the current. As for Sirota I refuse to read that sexist CDS suffering fool. Life is too short to waste even a minute on the likes of him.

  34. Fif – as we said in the primaries, “Hope is not a plan.”

    He’s still the same guy who doesn’t know what he’s doing. He learned nothing. He did not mature through campaigning. He does not care about abything but the immediate experiences of getting and keeping power.

    To those that thought he was only pretending to be a narcisstic, valueless joke, unfortunately, the joke appears to be on you.

  35. Updated version of this post is up at http://heidilipotpourri.com

  36. madamab: Hope is not a strategy either … that’s a famous wall street meme

  37. Sirota is a pretty good progressive writer as long as he stays away from anything connected to Bill and/or Hillary.

  38. BB – the census thing is all part and parcel of the Grand Plan to complete the final steps to fascism.

    Is it tinfoil hat Tuesday yet? I think we need it!

  39. Updated version of this post is now at Potpourri.

    Madamab, the census thing is what happens when you appoint a Repub to head an important cabinet post and then try to take power back into the White House directly. You are right about the totalitarian feel to this.

  40. Why does one have to be in ‘imminent danger of foreclosure’ to get some help in refi?

    Here’s where I’m at:

    I’m stuck. I can’t sell my house cuz I am in competition w/ foreclosed homes. I cant re-fi cuz it’s worth over $100k less than what I paid for it.

    What I wud like to see. And, what shud have been the terms of the bank bailout. Is that homeowners with good credit, who have faithfully paid their mtgs. Get the option of renegotiating terms on the loan amount and not the value of the house. The same bank that said our house was worth the money we paid for it says that it’s now worth $100k less AND just last month it dropped another $7k.

    Yeah, screw the homeowner with the good credit. Who pays the mortgage on time. Never mind the house that was purchased is fast approaching worthless.

  41. I love how the newspapers keep writing that Obama is campaigning on behalf of his economic policies. It seems that since the writers reason as follows:

    We want to say good things about Obama.
    We believe and are willing to say he is a good campaigner.
    We don’t believe his economic policies are good.
    So we’ll say he’s campaigning for them.

  42. I watched Obie talking live while at the Orthodontist yesterday and when asked about “percolate up” over “trickle down” given the steep rise in unemployment, he started talking about how when people are given the money they keep it so we need to cut taxes on middle-income people and stimulate growth at the same time.

    What he fails to understand is that as the pool of working Americans shrinks, so does the tax base. And as the pool of unemployed Americans grows, there’s no one to purchase the goods and services being offered. And it’s, you know, like a reeeeeeeaaaaaalllllyyyyy vicious cycle, dude. Geeze.

  43. myiq,

    If Sirota is unable to recognize President Bill Clinton or SOS Hillary Clinton as good Dems, then I waste no time with him. Willingly taking part in CDS and pushing right wing attacks does not make you a progressive in my book.

  44. What fvcked day. My mother in law started threw an horrific fit from 8:30 ’till 10 and I’ve been trembling all day. I’m so sick of living with crazy people.

  45. katiebird – what’s up with your mother-in-law? Are you ok?

  46. {{{{{{ Katiebird }}}}}}

    It sounds awful! I know what it’s like.

  47. Heidi, I’m OK. She’s just impossible. I keep her locked out if Mister isn’t awake and she wanted TO BE IN OUR HOUSE. She was screaming horrible stuff. She even called a locksmith. So Mister got to wake up to me saying, “Hey, your mom’s talking to a locksmith out there!”

  48. Thanks BostonBoomer. I really appreciate having you in my life!

  49. Hoover also approved a tax cut along with a billion in infrastructure stimulus—big money for the times. What this does not say about the times is that FDR and Dems campaigned in 1932 for a balanced budget and if need be, a tax increase. The belief in a laissez-faire policy was also bi-partisan.

    “Mr. Hoover was able to find some solace in the thought that primary responsibility for regulating the Stock Exchange rested with the Governor of NY, FDR. Roosevelt , too, was following a laissez-faire policy, at least on the matter of the stock market.” (Galbraith, The Great Crash)

    The more I have been reading about the last Great Depression the more convinced I have become that FDR’s legacy from that time was immortally positive, not because he ended the economic depression but because he instituted social safety nets that are still in place and protect people from the Hoovervilles of those deep depression days. Every public building in this country that existed in the 1930’s and is still here today has murals, there are schools, bridges, train stations, dams and 1000s of public buildings that date from the late 1930’s. all fruits of the job stimulus he implemented. FDR branded this country; he may not have saved the economy with these ubiquitous projects but he saved the Democratic party.

  50. I’m so sorry, Katiebird.

  51. I’m so sick of living with crazy people

    Here’s a tip: It’s a lot easier when you’re the crazy one.

    Works for me anyway.

  52. MyIQ — that’s what I told my parents this morning (when I was whining at them about it) — Everything’s stacked in favor of the crazy person.

  53. Everything’s stacked in favor of the crazy person.

    Yep – do whatever you want and nobody says shit. The trick is to be just insane enough that you don’t get locked up.

  54. I was taught in H.S. and in College that WWII is what spurred the end of the Great Depression.

    It is only now that I am hearing differently. That doesn’t mean that it hasn’t been spoken of before or that it is right or wrong.

    Just an observation of mine.

  55. Taggles:

    That’s sorta true. The GD was almost over by the start of WWII, but the war finished it off.

  56. Taggles,

    I don’t want this one to end because of WWIII, but I have a sneaking suspicion that is what the ruling classes have in mind.

  57. The banks/financial institutions that reaped our tax dollars in the first half of the TARP are holding onto those dollars, refusing to loan the money and in fact are collecting interest on the $$$’s we gave them.

    Why can’t democratic leadership get a “pair” and demand these insititutions lend those funds to citizens as they were required to before receiving more $$$’s??

    Why should WE taxpayers guarantee that investers who purchase toxic assets owned by these banks will profit from them while citizens all over the country are losing their homes and no one gives a damn?

    According to an expert on NPR there will be little change between Geithner’s plan and Paulsons original bailout giveaway. However the Obama version has been “tweeked” to give the appearance it is a different.

    While democratic senators decry how republicans changed all the good stuff in the stimulous package Obama is out on the campaign trail praising how “his” stimulous legislation passed by the senate will solve our economic problems. Confusing??

  58. Calypso,

    Because the banks and financial institutions got Obama elected and they expect payback.

  59. How true!! Wish more democrats were aware of that fact.

    Financial institutions in spite of their current collapse also supplied most of the funding for O’s inauguration
    spectacular.

    As distasteful as it to me to feel this way about a democratic president I can’t stand to listen to or look at lying SOB. The man is totally without scruples.

    As for his bi-partisanship baloney that just means both sides will shoot us in the ass.

  60. Cole is one of the original angry chihuahuas of Obamanation. If he said that, the kool-aid must finally be wearing off.

    And Atrios the economist is disgusted with the stimulus package, TARP and the bad banks and if he’s pissed off the entire netroots will be.

  61. Greenwald is pretty alarmed at civil liberties and secret renditions. All good signs.

  62. Obama needs to do something radical and courageous to fix the economy. Even listening to Krugman won’t fix the economy. Nothing will but something radically progressive needs to be done.

  63. According to Cannonfire, even the rabid Omaniac Josh Marshall is starting to smell the coffee. He’s in a panic over Obama’s plans to “reform” entitlements (and a giant TOLDJASO to Josh there).

  64. Read this and be both enlightened and devastated — it’s by Paul Craig Roberts and lays it all out. No hopey changey here at all:

    http://www.counterpunch.org/roberts02092009.html

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