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      A lot of mistakes come from assuming rationality means “thinks the same way I do” rather than “reasons from premises I might not share.” Left than 1/1000 economists predicted the financial collapse, because they reasoned from assumptions like “the market is self-correcting” or “housing prices never go down.” (Sometimes both at the same time, which is rarely […]
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Obama: Financial Crisis is all about me.

Yesterday at Obama’s appearance before the Business Roundtable (h/t msclutterbuck in comments),

Richard Parsons, chairman of beleaguered Citigroup Inc., asked if Obama could offer some help in a national battle “between confidence and fear.”

“A smidgen of good news and suddenly everything is doing great. A little bit of bad news and ooohh , we’re down on the dumps,” Obama said. “And I am obviously an object of this constantly varying assessment. I am the object in chief of this varying assessment.”

“I don’t think things are ever as good as they say, or ever as bad as they say,” Obama added. “Things two years ago were not as good as we thought because there were a lot of underlying weaknesses in the economy. They’re not as bad as we think they are now.”

Oh really? Does Dear Leader know about the Obamavilles popping up around the country?

Tent city, Sacramento, CA

Tent city, Sacramento, CA

The sea of tents along Sacramento’s American River is growing by the day. Newcomers just pick a spot and prop up a tent.

“Anywhere from 20 to 50 people a-week are showing up out here that just became homeless,” said one resident.

Does he know that people in Elkart, IN have been reduced to begging for food handouts?

Canned tomatoes for the hungry in Elkhart

Canned tomatoes for the hungry in Elkhart

Roughly 1,600 familes picked up food and other items sent by a charity to economically distressed Elkhart, Ind., which has an unemployment rate of 18.3 percent.

The 13 semitrailers that came to Elkhart carried more than $2.1 million worth of food, enough to help sustain about 5,200 families for a week. In addition to those who picked up supplies Tuesday, Feed the Children arranged for shipments to 3,600 northern Indiana families.

So no, Barack, it really isn’t all about you.

Meanwhile, Secretary of the Treasury Tim Geithner is heading a staff of one and quite a few people are asking why Obama isn’t finding him any help.

Treasury Secretary Tim Geithner is supposed to have 17 top deputies helping him run his massive department. But none have been confirmed [1].

“The secretary of the treasury is sitting there without a deputy, without any undersecretaries, without any, as far as I know, assistant secretaries responsible in substantive areas at a time of very severe crisis,” is how President Barack Obama’s economic adviser and former Fed chairman Paul Volcker put it a couple weeks ago [1]. He called it a “shameful” state of affairs.

To hear Treasury officials tell it [2], there’s no problem. Geithner hasn’t been short on new plans or new billions for the financial sector in his first weeks on the job, they say. And he still has time for his morning workout [3].

Well thank goodness Timmy can still find time for his morning workout. Maybe he and Barack should get together at the gym and come up with some names for those Treasury appointments? After all, even after they are chosen, they have to be confirmed by the Senate. And maybe they should try finding some nominees who weren’t in on causing the financial crisis in the first place–that might cut down on the vetting problems.

Frankly, I find it embarrassing that the U.S. response to the global crisis is becoming a laughing stock among financial experts. And why aren’t the phones being answered at Treasury? The Brits have been complaining about this for awhile now.

Check out this rant from Willem Buiter’s blog at the Financial Times.

Since the Obama administration took over on January 20, the US Treasury has effectively been out to lunch. As widely reported (see e.g. this account in the Financial Times), Sir Gus O’Donnell (as cabinet secretary the top UK civil servant) has attacked the “absolute madness’ of the US spoils system, where a new Federal administration replaces the entire top stratum of the civil service with new officials possessing the right political connections and leanings. Quite a few of these top officials need to be confirmed before they can start working. This can take months. Many of the new officials have no political, government or administrative experience and spend most of their first months in office trying to figure out where the washroom is instead of designing and implementing policy.

Buiter says the “spoils system” in the U.S. government which allows officials to appoint their unqualified cronies to positions that require real expertise has led to the “emasculation of US macroecononomic policy making.”

The price of the US spoils system has been high, if the quality of economic policy making in Washington DC by the Obama administration is anything to go by. The Obama administration’s handling of the financial crisis and the recession-verging-on-depression has been surprisingly fumbling and kak-handed. The economic team should have hit the ground running following a lengthy transition period and the appointment to the top positions of experienced economic policy makers like Tim Geithner, Larry Summers, Peter Orszag and Paul Volcker. But there is little evidence of coherent teamwork. Instead we are treated to repeated examples of the Unfinished Symphony (Geithner) or of A Night at the Improv (Summers).

In the US Treasury, Timothy Geithner has come up with a number of half-baked plans, under the grand umbrella of the Financial Stability Plan of February 10. These plans are not worked out to the point that they can even be evaluated properly, they are not costed properly and, except for the money left from the TARP and the funds approved by the Congress for the US$ 787 bn fiscal stimulus plan, they are not funded.

That the half-worked-out fiscal-financial rescue plans of the US government are not funded is due to a deeper flaw in the US political economy than the spoils system. It reflects the extreme polarisation of American society and of the polity. This may have started as early as the Vietnam War years, accelerated during the Reagan administrations and exploded during the George W. Bush administrations. Almost any departure from the status-quo is subject to de-facto veto from some well-organised and well-funded special interest coalition. During times of war and economic crisis, policy paralysis is costly.

But the fact that the economic plans of the administration are only half worked out is due to the fact that, except for the Treasury Secretary himself, the entire top of the Treasury is vacant. it is even possible that Geithner has to make his own coffee, a task normally delegated to a Deputy Secretary. This is an insane situation that no self-respecting country should allow to continue.

With Geithner under-supported and over-worked, Larry Summers, Director of the National Economic Council, has jumped into the macroeconomic policy fray with gusto, but not, unfortunately, with the benefit and backing of careful analysis.

Whew! That’s a scathing indictment if I ever saw one! Tim Geithner’s and Larry Summers’ ears must be burning. But I suppose if Obama read it, he’d just continue to preen and think it’s all about him. But while he’s focusing on “me, me, me,” the U.S. economy is crashing and burning. Is there anyone who can talk some sense into our narcissist in chief?