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Obama’s Choice: Save the Economy or Save the Bankers

With the help of Dakinikat’s and Riverdaughter’s posts and my own reading, I’ve been trying to understand what is happening to our economy and how that is going to affect Americans. I came across an economist and historian named Michael Hudson who used to work on Wall Street and is now a Distinguished Research Professor at the University of Missouri, Kansas City (UMKC).

Hudson is really good at explaining the financial disaster we are going though, and he does it in plain English. In the interview posted below (taped yesterday in London) Hudson argues that governments around the world are deliberately shortchanging their own economies, because the financial sector give so much to politicians. Here’s the money quote (it appears about 4:54):

“…the largest contributor to the political campaigns is the financial sector, and the government has a choice: they can save the economy or or they can save the creditors who made the bad loans. They’ve said, ‘We don’t care about the economy; we’re bailing out the creditors. That’s our constituency.”

Here’s another interview with Hudson by Amy Goodman of Democracy Now. This one is from February 15. In this interview Hudson explains in more detail why Obama’s recovery plan is “awful.” It is the “greatest transfer of wealth in American history,” and it is turning the U.S. into an oligarchy with a whole new class of wealthy financiers.

In the end, says Hudson, the debts will have to be written off; because you simply can’t get blood from a stone. If people don’t have the money to pay their mortgages, they can’t pay them. In the meantime, Obama is pouring trillions of dollars of our tax money into the banks.

What can we do about it? I don’t know, but I agree with RD and Dakinikat that we all have to get up to speed on economics as best we can. This country is in real trouble, and the “vast majority of baby boomers have accumulated little to no wealth.” These people are close to retirement, and their houses have lost value and their 401Ks are in the crapper.

And the combination of falling house and stock values means that the vast majority of people near retirement have accumulated little or no wealth, meaning they will be almost completely reliant on Social Security and Medicare to support them in their retirement years.

These are the findings of “The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble,” a report by the Center for Economic and Policy Research (CEPR), a non-partisan research firm.

We cannot allow the rapidly developing Obamagarchy to destroy social security and medicare just as we are very likely headed into a Depression that could be worse than the Great Depression my parents lived through. And we are more poorly prepared now than people were at the time of the 1929 crash. In those days, people had some savings. We are really going to have to stick together as a people and remind ourselves again and again that this is our country. It doesn’t belong to Obama or to the bankers. This land is our land.

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72 Responses

  1. Periodically we all need a reminder who this country belongs to.

  2. Learning more about the economy
    Sticking together

    Two sound suggestions!

  3. Programming Alert

    At 8:00 pm on CNBC tonight: Sheila Bair is participating in a town-hall meeting tonight hosted by Jim Cramer and Erin Burnett called Who’s Protecting Our Money?

  4. Bernanke said during his congressional testimony earlier this week that the rate of savings has increased, but it would be bad if there is a steep increase in savings. Those in charge want people to keep spending since consumer spending fuels the economy. I guess I’m just unpatriotic driving my 1996 vehicle because it stll run and gets me from Point A to Point B in safely and in relative comfort.

    • I loved it when a representative from the Chinese government scolded Americans for spending too much money.

  5. Please be sure to watch the videos of Michael Hudson. He really is a good explainer. And he’s obviously a liberal, which I like.

    • Hudson was magnificent. This country needs more like him!

      • Hudson is AWESOME! Came across one of his Counterpunch posts recently (crossposted at blackagendareport.com) talking about who REALLY stands to gain from the current downturn in the long run.

        Having woked for some years in the financial services sector myself, his scenario is completely plausible, which makes it even creepier. Tha nk goodness ther are still some pepole out there who are unafraid to speak truth to power.

        Hudson’s definitely a keeper.

  6. These days, you can find a person who will say almost anything you want to hear. I despise the bankers as much as anyone, and I think many of them should and will go to jail. But saying save the bankers or save the economy is a false choice in my humble opinion.

    Many of the banks will fail on their own anyway, and the cost of their failure will hit both investors and taxpayers. Obama right now is taking the lead from Bernanke at the Fed and Geithner at the Treasury for the most part. Geithner in particular has been unsteady, and a lot must still happen. But to suggest this is some kind conspiracy to save the banks and let the rest of the country suffer is an oversimplification.

    Nobody likes the banks right now, even the politicians who got campaign contributions from them. The government is trying, not so effectively so far, to save the banks because they want to save the economy. The right question to ask is what is going to hurt average working people more (dollar for dollar): rescuing the financial system or letting it collapse. Whether “nationalism” constitutes the former or latter is still being debated.

    • And by the way, I asked Dakinikat to check this guy out before I used him as a source. She gave her approval.

      • I mentioned him in a thread the other day, and you had beaten me to it. Good call, bb!

    • I can’t completely agree with your assessment, Three Wickets. I believe Obama wants the financial system to collapse, so that he can revamp it. I’m not sure all the banksters are on the same side in all this. This feels like an industry/government tag team takedown/takeover. Not all pols or bankers are on board, nor do they need to be. But some of these “too big to fail” banks are going down, and others aren’t. I’m not sure that stress tests and the like have anything to do with it. Obama is looking for fundamental, systemic change, and that starts with holding the purse strings.

      • I agree, Cinie. It is a deliberate strategy. Whether Obama understands what he’s doing or if he’s just doing what he’s told to do, I don’t know.

        BTW, Paul Krugman doesn’t differ much from Hudson, except that Hudson thinks that “nationalization” is a scam, and Krugman thinks it will help solve the problem.

    • What I see isn’t so much a conspiracy to save the banks and let the rest of the country suffer as an unwillingness to concede that the present economic system is, in fact, doomed to collapse. If postponing the inevitable means a further wealth transfer from the have-nots to the haves, that’s all well and good as far as the elites are concerned, but their primary concern at present seems to to put off the day of reckoning for as long as possible.

      But since collapse is inevitable, I’d rather just go through it without an even greater share of the wealth being sucked upwards. We had enough of that during the Bush years.

      And, yes, I acknowledge that my analysis comes off as simplistic . But that’s how, in broad strokes, I see it.

      • Inky,

        You just summarized Hudson’s point of view.

        • I guess I’ve been reading and listening to Hudson a lot lately, as well as Krugman (of course), Mike Whitney, and FW Engdahl. Btw, it was you (indirectly) who turned me on the Engdahl, since you turned me on to the guilty pleasure of listening to Alex Jones, who recently had Engdahl as a guest. If you haven’t watched it, I recommend the following 4-part interview of Engdahl.

          Link

          He takes a wider-angle view than Hudson, but he reaches the same conclsuions re our present financial crisis. In short, his advice is let’s take our medicine, nationalize the banks, and prepare for 10 years of hell as we rebuild a productive economy.

  7. Three Wickets,

    Did you watch the videos? It’s really not that simple. I titled the post from a Hudson quote, but he has plenty more to say. He is basically saying the same thing that Dakinikat is saying. The longer we keep pouring money into failed banks, the longer we’re putting off doing what will have to be done in the end anyway.

  8. Great post and very well said, bostonboomer. I feel like those people in the ad on TV for structured settlements who keep yelling, “It’s my money and I want t it now.” Except I am yelling, “It’s my country and I want it back. NOW!!!”

  9. Myiq2xu,

    A thug cop in Chicago beats 5′ 1” bartender.

    • Wonder what’s with the men there who just watch this crap happen? Seems to me they could have come to the ladies aid or called 911 at least.

      • The older gentleman at the end did more or less step in, but the other young fat f*ck didn’t lift a finger. Maybe they were together? Still a giant asshat.

    • This attack happened two years ago. And it looks like the case still has not gone to trial.

  10. Interesting that banks have enuf moola to buy whatever they want – including prezzies but say they don’t have enuf to keep themselves afloat.

  11. I watched the first tape and it seems he’s saying we need to just cancel everyone’s bad debt – just wipe out all debts to people who made poor choices when purchasing homes and taking out loans.

    I’m not that liberal.

    • Jmac,

      He said it would have been cheaper to reduce the cost of the mortgages to the present value of the properties than to give money to the banks to try to reinflate the value of the properties which isn’t going to work. In the end, people will not be able to pay anyway, and they will not be able to buy anything either. Stores will continue going out of business and before long we are going to be in a new dark age. It really is headed in that direction.

      There are already suburban neighborhoods around the country that are turning into “ghost suburbs.” It has already reached that point in parts of Florida and Ohio. In Ohio there are squatters living in abandoned houses. This is a real meltdown, and people really need to start facing how serious it is.

      BTW, the bankers’ debts and mistakes *are* being forgiven. That is what is happening. But you don’t want to see that happen for individual Americans. If we take that attitude, we will be back in Grapes of Wrath Territory in 3-4 years. That’s what’s coming.

      • I understand where you’re coming from but aren’t we heading there anyway? As a nation we have lived well above the level we should have and overspending and not being fiscally responsible have led to this.

        I’ve always lived below my means. In forty years, I’ve never not paid a credit card debt off each month. We’ve had one tv in our house for 40 years, we drive our cars 12 to 15 years. Our home is paid for. I learned the lesson of being fiscally responsible from my parents and in-laws who lived through the great depression.

        I don’t know the answer to how to help us as a nation, but just wiping out everyone’s bad debt doesn’t seem to be the answer.

  12. He also takes a swipe at Bill Clinton. I know Bill Clinton wasn’t perfect, but after eight years of repeating the 1920’s and getting the same results, did he really have to pull Bill into it? To me this crisis rests mainly on the Republicans and Bush.

    • I now know why this guy was on Democracy Now, Barry Kool-aide HQ….he took a swipe at Bill Clinton

      • I disagree. I’m a regular listener, and they are OFTEN critical of Obama. Couldn’t listen to it otherwise. I think Amy really wanted the kool-aid, but in the end, couldn’t take the whole dose.

  13. In the end, says Hudson, the debts will have to be written off; because you simply can’t get blood from a stone. If people don’t have the money to pay their mortgages, they can’t pay them. In the meantime, Obama is pouring trillions of dollars of our tax money into the banks.

    Anyone think the IRS would be willing to write off the owed taxes by those who were trying to survive all last year on unemployment?

    • They wrote off a lot of Geithner’s taxes. Does he deserve better than an ordinary citizen in your mind? It depends on if you want to live in a third world country or recover something from all this mess.

  14. I’m watching the CNBC town hall with Shiela Bair. Even Cramer thinks adjustments should be made to keep people in their homes.

    • Gee, that’s funny. Isn’t this part of what Hillary was advocating for LAST FALL?

  15. It’s an interesting concept to reduce the cost of the mortgage to the present value of the property, but shouldn’t everyone’s loan be reduced to the present value if that’s the case?

    People who were responsible and didn’t take out loans (with balloon payments!!) will want to have their property and loan reduced also.

    And how about the guy who struggled to pay off his mortgage so he could retire. Will the government give him a check if his home is now worth less than he paid?

    • Jmac,

      Obviously none of this is going to happen, because Obama is choosing to bail out the people who gave him the money to run for President and then paid for much of his Inauguration. He has allotted a small amount of money to help people get more manageable mortgages, but it isn’t going to help that many people.

      According to the survey that I linked in the post the majority of people in the huge baby boomer generation that is approaching retirement have lost much of the value of their homes (if they had homes) and their 401K’s have lost 70% of their value. Who knows what will happen?

      Combine that with the fact that oil production in this country peaked in the 1970s, the fact that we don’t produce much of anything here anymore, our huge national debt, and all the jobs being shipped overseas, and we are really in serious trouble. It’s the end of the American Empire.

      Did you know that the President is now getting a PDB every day on the economic crisis, because it is now considered the biggest threat to our national security?

      http://www.washingtonpost.com/wp-dyn/content/article/2009/02/25/AR2009022503389.html

  16. I think there might be some confusion. We need to save the banking system which is more than saving “the banks”. There are still solid banks in this country that weren’t duped by the sub-primes, CDS and a host of other new fangled smoke and mirrors. Those banks need to be saved and the good assets left in the poorly run banks need to be transferred to them.

    We do need a banking system, just not the one we currently have.

    Bill Clinton listened to Alan Greenspan. The Republicans listened to/worshiped Alan Greenspan. I wonder if Alan Greenspan invested in any of the new unregulated debt financial instruments he was so gung ho about creating. Now it looks like Volker is back in the game. Lord help us.

    There is a problem in that if things are left as they are, those who have sufficient capital tucked away will buy up everything else. This happened after 1873 when the banks here and in Europe went belly up. The Gilded Age of even Greater Obscene Wealth in the hands of a few was underway.

    • Exactly.

      • Yes, but this time there will be even more pain. The next Gilded age will be nastier and meaner. American companies now think of themselves as ‘Global Companies” not American at all.

  17. Sibelius chosen for Health and Human Resources:

    http://www.politico.com/news/stories/0209/19447.html

  18. Forty six states could face bankruptcy in the next two years.

    http://jraccountant.blogspot.com/2009/02/46-states-could-face-bankruptcy-in.html

    • yikes! Maybe we should all move to Nebraska, North Dakota, Montana or Texas. They’re evidently solvent, and they have lots of unoccupied space!

      • I was born in North Dakota, and I have thought about it. They are looking for people to fill jobs up there, and they recently discovered a lot of oil in the Western part of the state too. The winters aren’t as bad as they used to be either.

        • LOL! I was born & raised in Nebraska! True, the winters there are nothing to what they used to be when I was growing up. But (whine) I’ve lived in NC for 40+ yrs now and am just a wee bit spoiled (she said, as winter storm is coming in).

          Truly, if my sons would move back there with me, I’m there. My mom & 5 sibs still live in NE.

          • For now, I’m planning to move back closer to my family in Indiana. I figure if the worst happens, we can plow my parents 3/4 acre and grow food.

      • yikes! is right. The 2010 elections should be very interesting, to say the least.

      • You can forget Texas, Sherry – we’re in the midst of a mega-drought with no end in sight. We may not be broke, but we’re gonna be real hungry real soon.

    • So far, so good. End of 2008, Texas had an $11 billion surplus. Unless it’s changed in the last couple of week, they predict a $6-7 billion rainy day fund at the end of 2009. That’s with no income tax, though our property taxes tend high.

      http://www.dallasnews.com/sharedcontent/dws/news/texassouthwest/stories/112408dntextxbudget.34b53a7.html

      Of course, it could all change on a dime but, so far, we’ve been spared most of the sub-prime crisis. Until the last few years, state regulations made home equity loans illegal for instance. That was probably a very good thing.

      Democrats and the GOP are fiscally conservative, in the old fashioned sense. They don’t like to spend money they don’t have.

  19. “Bill Clinton listened to Alan Greenspan. The Republicans listened to/worshiped Alan Greenspan.”

    I think it might be the other way around – Alan Greenspan is a Republican and it seems to me he went deaf, dumb and blind when W. came into office. I don’t think he would have let Bill Clinton do what he let Bush get away with.

    • Jmac,

      I think you’re right about that.

    • For sure. As I recall, BC begged AG to ease up on money in 3Q 2000, when all the Repubs were screaming RECESSION (I particularly remember Cheney pushing the R-word all over the talk shows), and Greenspan flatly refused. That is, until W was assured the WH by SCOTUS, but by then it was too late to save the dot-coms.

      Greenspan was/is despicable.

  20. Alan Greenspan was encouraging even more securitization of debt. I think that it was Bill Clinton that put some brakes on Alan Greenspan if anything. Dubya was OK with whatever Greenspan said was OK.

    However, I am not sure if any president had any control over the Fed Chairman…It does seem though that Alan Greenspan believed in the value of economic bubbles since he thought nothing was wrong with the tech bubble and believes that the housing bubble was a good thing.

  21. Oh boy…the good news just keeps on coming. Cyanide caps are starting to look like plan B. 😦

    • We will live through this like our parents and our grandparents did.

      I do see the “destruction” of the nuclear family. Not a bad thing mind you, but a return to inter generational families. Something like the Amish, only with electricity and flush toilets…I hope

  22. My computer is barely slogging through 😦 — I’ve been trying to comment for nearly a half hour.

  23. I just wonder what in the world Robert Reich is thinking now. He supported Obama over Hillary.

  24. Larry Johnson has a pretty interesting post up at No Quarter. He says a lot of lawyers in DC are getting laid off. What Obama needs to do is create jobs. We need a modern day WPA!

    • bostonboomer, I appreciate the debate and discussion. It is a good one and a necessary one. Such open dialogue from the point of view of the people is rare, on the web or in the msm.

      I do believe more help should be going to housing. Not only to help people, but because righting housing could maybe over a few years (perhaps not ten) get the financial system and the economy back on track. I’m still holding the view for now that government, while keeping the banks from drowning, should have a gun to the banks’ head and require them to: 1) address housing adjustments at the retail level, 2) get nasty with hedge funds and private equity to force their hand, 3) proactively facilitate the creation of a secondary market to activate TALF for consumer/business loans, 4) willingly work with government to overhaul regulatory and compensation systems at the banks to address moral hazard. No I don’t buy that the government and banks are aiming to create a cartel. I think we need a sonavab!tch running treasury and scaring banks, and Geithner is not it. Because if the government (executive and Congress) can’t get these things done, then Hudson is right. We’re just throwing good money after bad.

      If it is true, as Congress determined four weeks ago, that the government taking on all the bad assets at fair value would cost up to 4 trillion dollars, that’s some reality check. And the part that upsets the most is that subsidizing or socializing such debt would place a greater relative burden on working people than they deserve for the mess, for years to come. Social programs, entitlements, taxes, jobs, you name it. You can’t just bury such a debt load in the government’s balance sheet. And all this could be the result if the government is not able to get sadistic with the banks and force them to act. They play or go to jail.

      That said, I am continuing to study and process all this.

      • Back from drinks. I missed Michael Hudson’s second clip before. He says the solution to all this is for the government to write down and thereby wipe away 12 trillion in debt, an amount equivalent to the country’s entire national debt. That’s called a complete national default, on about equal parts: 1) Social Security, 2) Medicare, Medicaid, 3) private domestic investments (pensions, retirement savings, insurance, etc), and 4) foreign investments (private, sovereign). Hudson does not talk about the ramifications. Says as in the time of Babylon, we should just clean the slate. There are more troubling examples in recent history when nations defaulted and tried cleaning the slate.

        Bankers make money on fees, salaries and bonuses. The investments themselves are more often than not our money. Cleaning the slate on the national debt will, in relative terms, hurt the woman/man on the street far more than bankers.

        • Thanks for your always great input, Three Wickets. I’m trying to research and understand this stuff. I’m poor as all get out and I don’t know what will happen to me. But I have no choice but to look at this as another opportunity to learn and grow in my life. I believe I’ll have a better chance to survive and help my family surivive if I educate myself as best I can.

  25. Two book recommendations for those trying to get a deeper handle on the economy:
    The Speculation Economy by Larry Mitchell and The Ascent of Money by Niall Ferguson. I ‘m reading The Ascent of Money now and it is deeply informative, and puts things in wonderful historical perspective – as it is a historical overview of the development of modern financial instruments, going back centuries.

    We do need to understand as much as we can because if we don’t like the gov’t – banking collaborative we seem to be getting we are going to have to be prepared to explain WHY come 2010 and the Congressional elections.

  26. Hi Heidi Li,

    I’m reading “When Giants Fall,” by Michael Panzner. It’s very interesting though disturbing.

  27. Obamagarchy. Awesome: accurate, succinct, engaging. I’m tired of seeing that vapid git and/or his wife on celeb mags in the grocery store as we hurtle to the bottom.

    This land is indeed our land. Certain parties need a strong reminder. I feel like hurtling some tea, at the very least.

  28. Those videos are really good BB.

    I was looking through the Economist yesterday and came upon this charming article on “Age and Californian cities” which argues that “old people make excellent defences against recession”

    http://www.economist.com/displayStory.cfm?story_id=13185560

    • Old people make an excellent defense against recession, because these old people lived through the depression and WWII. They generally did not use their homes as a piggy bank to buy things they didn’t need.

    • Thanks, Laurie. That’s an interesting article! I’m going to send it to my parents. That reinforces my belief that a small town in the midwest is going to be a good place to be for the next ten years or so.

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