Saturday, January 23, 2010

Changes in Obama’s Economic Team?

To start, Obama’s adoption of the Volker Ruler, weakens Tim Geithner’s influence.

volker-obama For much of last year, Paul Volcker wandered the country arguing for tougher restraints on big banks while the Obama administration pursued a more moderate regulatory agenda driven by Treasury Secretary Timothy F. Geithner.

Thursday morning at the White House, it seemed as if the two men had swapped places. A beaming Volcker stood at Obama's right as the president endorsed his proposal and branded it the "Volcker Rule." Geithner stood farther away, compelled to accommodate a stance he once considered less effective than his own.

The moment was the product of Volcker's persistence and a desire by the White House to impose sharper checks on the financial industry than Geithner had been advocating, according to some government sources and political analysts. It was Obama's most visible break yet from the reform philosophy that Geithner and his allies had been promoting earlier.

Senior administration officials say there is now broad consensus within the White House and the Treasury for the plan advanced by Volcker, who leads an outside economic advisory group for the president. At its heart, Volcker's plan restricts banks from making speculative investments that do not benefit their customers. He has argued that such speculative activity played a key role in the financial crisis. The administration also wants to limit the ability of the largest banks to use borrowed money to fund expansion plans.

The proposals, which require congressional approval, are the most explicit restrictions the administration has tried to impose on the banking industry. It will help to have Volcker, a legendary former Federal Reserve chairman who garners respect on both sides of the aisle, on Obama's side as the White House makes a final push for a financial reform bill on Capitol Hill, a senior official noted.

Advocates of Volcker's ideas were delighted. "This is a complete change of policy that was announced today. It's a fundamental shift," said Simon Johnson, a professor at MIT's Sloan School of Management. "This is coming from the political side. There are classic signs of major policy changes under pressure . . . but in a new and much more sensible direction."

Industry officials, however, said they were startled and disheartened that Geithner was overruled, in part because they supported the more moderate approach Geithner proposed last year... [emphasis added]

Inserted from <Washington Post>

If industry officials Banksters are disheartened, this is the most obvious indication that Volker’s plan is better for Main Street than Wall Street.

Obama still maintains his mistaken support for Bernanke, but his confirmation is now in doubt.'

BernankeBendOver Federal Reserve Board Chairman Ben Bernanke's prospects for a second term became shakier Friday as two Senate Democrats, furious at his stewardship during the nation's economic crisis, said they'd oppose him.

Both President Barack Obama and Senate Majority Leader Harry Reid renewed their support for Bernanke on Friday, but his performance since becoming chairman in early 2006 has become a rallying point for some lawmakers being bombarded by constituents frustrated about the economy's sluggish pace of recovery.

The Senate had been expected to act on the nomination this week, but there was no vote.

Reid's endorsement of Bernanke in a statement late Friday reflected the difficult politics of the confirmation, especially for senators who, like Reid, a Nevada Democrat, face uncertain re-election prospects.

"I made it clear that to merit confirmation, Chairman Bernanke must redouble his efforts to ensure families can access the credit they need to buy or keep their home, send their children to college or start a small business," Reid said, referring to a meeting he had Thursday with Bernanke.

"My support is not unconditional," Reid added. "I know Chairman Bernanke is committed to transparency and accountability, and that is why I will hold him to the highest standards of both."

However, he also credited for Bernanke for helping "steer us away" from a depression. "Conventional wisdom rarely credits those who averted disaster," the senator said, "but that's precisely what Chairman Bernanke did."

Skepticism about Bernanke, however, seemed to be growing on Capitol Hill.

Sen. Barbara Boxer, D-Calif., was among those who said she'd oppose a second term for Bernanke.

"It is time for a change," she said. "It is time for Main Street to have a champion at the Fed.

"Dr. Bernanke played a lead role in crafting the Bush administration's economic policies, which led to the current economic crisis. Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past."

Also coming out against Bernanke Friday was Sen. Russ Feingold, D-Wis.

"Under the watch of Ben Bernanke, the Federal Reserve permitted grossly irresponsible financial activities that led to the worst financial crisis since the Great Depression," he said.

The possibility that Bernanke might not be confirmed — he previously was thought to be a shoo-in — came as unease spread among the nation's bankers and investors over Obama's announcement Thursday that the administration would seek to limit the kinds of investments the nation's largest banks could make.

For a second day, the Dow Jones Industrial Average lost more than 200 points, dropping nearly 217 points, to end the day 10172.98. The Dow dropped 213 points on Thursday... [emphasis added]

Inserted from <McClatchy DC>

The rabid right is screaming that the dip on Wall Street reflects weakening in the economy.  It does not.  It reflects only fear among the greedy.  What they either do not understand or refuse to acknowledge is that Wall Street is not the economy.  Main street is the economy.  Wall Street’s job is to be the economy's facilitator.  Instead, they have become its predator.  Geithner, Bernanke and Summers have used their influence to maintain that predatory relationship.  They need to go.  How about replacing Bernanke with Paul Volker, Geithner with Elizabeth Warren, and Summers with Joseph Stiglitz?


the walking man said...

I think Volcker is on the right track but to be honest I would like to see the big 5 broken up. They are not a monopoly but it certainly seems as if they acted within a concerted effort for short term profit.

Jack Jodell said...

Ben and Jerry give us great ice cream; Ben and Timmy have given us crappy economic policy beneficial to Wall Street but no one else. I give the President credit for an about-face here.He has GOT to start doing something for Main Street (and that Main Street can fully recognize), or he can kiss any hope of enacting his agenda or even of a second term goodbye. This country needs JOBS and help for the poor, middle class, and small businesses. Big business had its chance under W. All it did was piss it all away on irresponsible speculation and the shipment of jobs overseas. GO OBAMA!

Lisa G. said...

I don't really like the architect in charge of the disaster being in charge. Even if he just looked the other way. Besides, Bernanke is a smug asshole and he's tainted by Bush.

I've liked what Volker is saying lately and I'm glad Obama is finally listening to him. That he has support on both sides bodes well for him. Otis likes him too; another good sign.

Oso said...

to hell with Obama.Why did he wait till now to act?
Why did he listen to Geithner and Summers?Volcker as well as I think it was Goolsbee and I believe Joe Stiglitz were offering advice but Obama chose Clinton retreads to listen to.
He's an empty suit and this is for public consumption to appear like he cares and is doing something.Once it's out of the news we'll be back to his original banker friendly policy.
Most we can hope for is he'll throw Timmy under the bus.
Obama is a political hack at the corporate trough and I'm through acting like I don't hate the bastard.
I voted for Nader and I'm proud of it.
Obama can go to hell.

themom said...

I'm saddened that Obama has been "playing the game" and not folowing thru on CHANGE. Bernanke should have gone a long time ago, and I have to admit I wouldn't miss Geithner either. Excellent post.

Holte Ender said...

Great last paragraph TomCat, go with new people, and stick with them.

Lisa G. said...

I hear you Oso. I held my nose when I voted for him.

Oso said...

otis forgive me but I love Lisa !

TomCat said...

Mark, I agree. Volker's plan does not go far enough, but it's a start.

Jack, I agree. It must so very clear, even to the least sophisticated voters, that Obama is on their side, that they will not believe the coming onslaught of corporate advertising lies.

I agree, Lisa.

Oso, I can disagree with you, but the problem is this. Until such time as there is a huge overhaul in this country, anyone who votes for a progressive third party candidate in a national race is effectively voting for the Republican. If Nader's voters in Florida had voted for Gore, Bush would not have been able to steal that election, and most of the crises we face now would not exist. Where Lisa is concerned, she's so lovable that I trust Otis is used to it.

Thanks Mom. It saddens me too.

Thanks, Holte. I appreciate that.

RealityZone said...

RealityZone said...

From these two clips, it looks like Helicopter Ben will stay. Hmmmmm. Same ol, same oil.

rjs said...

got about a dozen links & paragraphs each on geithner and bernanke on my weekly summary, including several about geithners AIG coverup...the volcker plan makes for good anti-bank theater, but like krugman, im from missouri, talk is cheap, show me...moreover, the re-regulation gotta get passed by a congress thats already done the banks bidding on consumer protection...

Jolly Roger said...

I hate to agree with "Keating Five" McCain, but a lot of things would be immediately corrected with a quick return to Glass-Steagall.

TomCat said...

Thanks for the links, RZ and RJ.

JR, I doubt that McConJob would agree with himself on this. He'd join the GOP filibuster against it.

rjs said...

simon johnson, former chief economist at the IMF, has a good new article on his blog, which wont hit my blog till next friday:
Is The “Volcker Rule” More Than A Marketing Slogan? - At the broadest level, Thursday’s announcement from the White House was encouraging – for the first time, the president endorsed potential new constraints on the scale and scope of our largest banks, and said he was ready for “a fight”. After a long tough argument, Paul Volcker appeared to have finally persuaded President Obama that the unconditional bailouts of 2008-2009 planted the seeds for another major economic crisis.But how deep does this conversion go? Increasingly, however, there are very real indications that the conversion is either superficial (on the economic side of the White House) or entirely a marketing ploy (on the political side). Here are the five top reasons to worry....
when you go to his site, youll also see he's advocating krugman for the Fed chair

RealityZone said...

Volcker was his adviser during the campaign. What happened?
Geithner, and Summers were given to Obama to continue this charade, and thievery. A bunch of Clinton retreads that helped get us into this mess in the first place. If Obama fires Geithner or Emanuel, he is admitting to failure. If he keeps every one on board which seems very likely. Then he has also failed.

rjs said...

from yves smith: Quelle Surprise! Proposed Restrictions on Proprietary Trading are a Joke -- True to form, the White House set forth a sketchy program to limit the proprietary trading activities of banks, and it is a vote for the status quo which is being tarted up as something else. I’m amazed that someone of Volcker’s stature is allowing himself to serve as the branding for ideas that are sound on a high-concept level, but are being gutted in implementation. The press reports have been suitably vague, but two ideas appear to be central, and they were confirmed by a press background briefing that a kind correspondent sent me. They serve to neuter this supposed reform (I am beginning to think we need to ban the use of the word “reform”; Team Obama has absconded with it. For them “reform” = “anything we do here that sounds important enough that a Cabinet member could talk about it for five minutes”. If they keep this up long enough, which they seem determined to do, the term will be utterly useless.) You can drive a supertanker though the loopholes in this proposal...

RealityZone said...

rjs: They are buying time. Problem----time is of the essence. 80% of that stimulus money has not been used. So, what are they waiting for?
If they do not pull this out quick, all ducks will be a limpin.

rjs said...

from Mish: Dump Bernanke: How You Can Help!

TomCat said...

Guys, it's east enough to claim that it's just marketing, but until we see how he carries through, there's no way that we can know whether or not that assumption is factual.

RJ, on the link, I support his idea that we call undecided Senators, but I reject his suggestion that we fraudulently represent ourselves as their constituents by giving bogus locales and zip codes. That's how Republicans act. We're better than that.