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Memory Lane on the Paulson/Goldman Stickup: What I wrote Sept 20, 2008 and why it matters today

2009 July 17
by Ian Welsh

Because sometimes, I told you so is necessary, in the hope that next time people might listen.  This is what I wrote September 20th, 2008:

This is a stickup. Paulson is trying to stampede the Congressional herd into giving him powers and money that he knows they would never give if they had time to think it through carefully. It worked with the Patriot Act. It worked with the AUMF. He’s betting it’ll work again. Create a crisis (or lie one into existence) then demand dictatorial powers and unlimited spending authority to deal with it.

Congress needs to not succumb to fear or to explicit or implicit blackmail. If the crisis was as severe as Paulson makes it out to be, virtually the end of market capitalism, he wouldn’t be quibbling over whether or not CEOs get to keep their golden parachutes.

In effect, that quibble is like you walking into your local bank and saying “I need you to loan me a million bucks. Here are the conditions I must insist are met before I let you lend me the money. First…”

Say what?

He’s given his tell, that he’s a liar, a thief and a scam artist.

Time for Congress to call his bluff, and to see that the financial crisis is dealt with on their terms, with strict oversight by people they can trust, not by a scam artist and liar like Paulson.

Of course, Congress didn’t call his bluff and Congress did fall for it.  But let’s remember our history.  The House voted against.  Nancy Pelosi indicated that she would not pass TARP unless Republicans voted for it in the same proportion as Democrats.  They weren’t going to do that, so TARP was dead.

Then Barack Obama stepped in and started twisting arms.  TARP is Obama’s baby.  If you like it, or don’t like it, remember, without Barack Obama it would have died.

This is the fundamental problem right now with Democrats.  They passed a lousy stimulus, they made TARP Democratic policy by passing it with majority Democratic votes and they are on their way to passing a lousy healthcare bill which won’t even kick in till 2013.

Bad policy leads to bad outcomes.  Bad outcomes get blamed on the incumbents (as they should).  TARP, the Stimulus, healthcare and the economy become less and less the Republican’s problem every month that passed.  Even if they screwed it up, Democrats control the House, Congress and the Presidency.  It’s up to them to fix George Bush’s mess, and if they don’t they will be judged as failures, and that judgment will be accurate and deserved.

And the outcomes are going to be bad.  The stimulus bill was both badly put together (too many tax cuts, not properly targeted) and too small.  The healthcare bill should be single payor, because single payor is proven to work and the witch’s brew that Congress has put together isn’t proven to work and they can’t afford to fail.  And TARP was, and is, a piece of crap, but the differences between Bush/Paulson financial policy and Obama/Geithner are so thin as to be largely cosmetic.

Policy has consequences.  The “compromise” position between “doing it right” and “doing it wrong” may work sometimes, but it doesn’t work when a nation is in crisis and has spent 30 years digging itself into a hole.

By the time Obama comes up for reelection, Americans won’t have better healthcare and they will have less jobs than before the recession and the stimulus.

That’s what he’ll be judged on, and all because he signed on for Paulson/Bush financial policies, and compromised his key domestic and economic policies to the point where they wouldn’t work.

5 Responses
  1. jbaspen permalink
    July 17, 2009

    Ian, you are a Charter Member of the “I told you So” Club! Alongside the likes of Roubini, James Grant and Ralph Nader. You saw this coming many years ago.

    On the present subject of “stick-ups”, Ian, is there any way to calculate what/how much has actually been GIVEN by the Federal Goverment to these “Gangs of New York”; ( leaving aside for the minute the myriad guarantees and the few billions that they have supposedly paid back) ??

  2. Skilly permalink
    July 17, 2009

    Back when you were regularly posting on FDL, you wrote a series of predictions for the Looming financial crisis. You then updated your predictions after 6 months or so, and I would love to see the latest recap of the predictions, and the forecast for the future of those predictions.

    BTW, I miss your regular post there.

  3. July 17, 2009

    I wrote this back in July of 2008:

    Leaving the Republicans in charge of the government has been like leaving Homer Simpson in charge of a nuclear reactor. It’s worse, in fact – you have to try to make a nuclear reactor do something dangerous, and in contrast to the Republicans he isn’t that ambitious.

    This all sounds like great news for the Democrats, doesn’t it? It does until you consider what the Democrats have done with their turn in the driver’s seat in Congress.

    As you’ve pointed out, things have mostly gotten worse since.

    They didn’t listen to me, either. Of course, I also pointed out a long time ago that electing more Democrats wasn’t going to fix things, unless we elected enough progressives that they could run the party caucus. Not many people were listening then, either.

    I’m tired of being right and not being listened to.

  4. Ian Welsh permalink
    July 17, 2009

    JB,

    the usual number I see cited is 15 trillion. That won’t all be spent, maybe 10%. But I’ve lost track of it all, there are so many different programs. And bear in mind that, say, becoming a bank is a huge subsidy, even if it isn’t counted as one.

  5. Ian Welsh permalink
    July 17, 2009

    Skilly,

    I never did a post with all my predictions for 2009, mostly because it was a lot less obvious. (I wasn’t yet willing to fully admit to myself just how bad the Obama administration was going to suck on economic affairs even though I suspected). My main predictions scattered through other posts that I remember were:

    1) a treasuries bubble (happened and I think now over)
    2) no recover in jobs this year
    3) at least one month of GDP growth by the end of the year (may lose on that one)
    4) the stimulus sucking wind (which I said the second Obama made his proposal, because it sucked)
    5) that money would go into oil (it has)
    6) a Dow bottom of 6K – which more or less happened (it bottomed around 6100, I’ll count that)
    I may put together a post of economic predictions going forward while I’m at Open Left.

    Cujo: you and me both.

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