Posts filed under “Really, really bad calls”
Martin Wolf, who has been more right during the period leading up to the crisis, and thereafter, than anyone else I can think of, blames the present economic malaise on political timidity: Obama was too cautious in fearful times:
“Suppose that the US presidential election of 1932 had, in fact, taken place in 1930, at an early stage in the Great Depression. Suppose, too, that Franklin Delano Roosevelt had won then, though not by the landslide of 1932. How different subsequent events might have been. The president might have watched helplessly as output and employment collapsed. The decades of Democratic dominance might not have happened.
On such chances the wheel of history turns. But this time was different: the crisis brought Barack Obama to power close to the beginning of the economic collapse. I (among others) then argued that policy needed to be hugely aggressive. Alas, it was not. I noted on February 4 2009, at the beginning of the new presidency: “Instead of an overwhelming fiscal stimulus, what is emerging is too small, too wasteful and too ill-focused.” A week later, I asked: “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.” This was right.
The direction of policy was not wrong: policymakers – though not all economists – had learnt a great deal from the 1930s. Sensible people knew that aggressive monetary and fiscal expansion was needed, together with reconstruction of the financial sector.”
Wolf is, of course, exactly correct.
Consider the economic might brought to bear on the credit crisis — it was overwhelming force, nearly everything the Fed, Treasury and Congress could throw at a banking problem created by the private sector. The net result was a rescue, but at a cost of immense moral hazard and further unjust enrichment of the folks who caused the crisis in the first place.
When the credit crisis caused a similarly monstrous economic crisis, it was met with a lackluster, compromised, half-assed response. The response from the economy to such half-hearted political has been a yawn.
CrowdQuery: Should Obama have been more aggressive during the early days of 2009? Should he have focused on Finacial Reform and Economic stimulus, and put aside Health Care? Should there have been bigger broader infrastructure stimulus, more government spending?
What say ye?
Invictus here. Been a while. Been a bit busy and, frankly, not much to say of late. As a general rule, I’d say that folks should refrain from posting on things they know nothing about. The old saying (Abraham Lincoln, I believe, Mark Twain, according to commenters’ citations, attribution in dispute) comes to mind, “Better…Read More
In this morning’s NYT column — Lehman’s Last Hours — Andrew Ross Sorkin wrote: “But what is clear is that the politics of the moment played a factor — or at least was discussed among senior and junior staff — in the decision not to lend to Lehman Brothers, perhaps the greatest mistake of the…Read More
Amongst the items coming out of the FCIC hearings last week were new docs that revealed exactly how over-reliant LEH was on daily, short term funding to cover their longer terms costs. It was a recipe for disaster, a trailer park in search of a tornado. Here is the WSJ: “In looking last week at…Read More
I have been arguing for the government to step away from propping up the housing market for several years now. It seems that economists are finally catching up with the idea. Today’s NYT has an article, titled Housing Woes Bring New Cry: Let Market Fall. Only I would argue its not new at all, and…Read More
We know the major ratings agencies suck. We know their business model was payola. We know they sold ratings for cash, committed fraud on structured product investors. We know they hid significant modeling errors, and then hid these problems from the public and regulators. Might their free ride be coming to an end? The SEC…Read More
“Lehman was forced into bankruptcy not because it neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors and other nonfinancial firms in the ensuing days.” -Richard S. Fuld Jr., Lehman Brothers former…Read More
We have had a god-awful run of Housing data. New and Existing Home Sales, Defaults and Foreclosure data, even the Case Shiller report — all have been utterly horrific. In light of this, I want to make the following announcement: Attention RE Agents! The National Association of Realtors are doing you a terrible disservice. Consider…Read More
I am watching Squawk Box around 6:30am as I get dressed this morning. The conversation turns to various incentives in Germany, where firms are actually paid not to lay people off in a downturn. (Firms cut hours, but keep most of their staff). The lower German unemployment rate of 7% has less people with financial…Read More
What ever happened to the theme that Mortgage Defaults were driving consumer spending? Forget the anecdotes, I am compelled to point out that defaults, foreclosures and walkaways are at record levels, and retail sales have fallen dramatically. I am just asking . . .