The politics of an economic nightmare

[David Farber <dave () farber net>]

Begin forwarded message:

From: dewayne () warpspeed com (Dewayne Hendricks)
Date: January 23, 2008 8:00:02 AM EST
To: Dewayne-Net Technology List <xyzzy () warpspeed com>
Subject: [Dewayne-Net] The politics of an economic nightmare

The politics of an economic nightmare
No U.S. leader wants to admit how bad the damage may get from the one- 
two punch of the credit crunch and housing slump.

By Robert B. Reich
<http://www.salon.com/opinion/feature/2008/01/23/reich_economy/print.html 
>

Jan. 23, 2008 | A possible economic meltdown is worrisome enough, but  
a possible meltdown in an election year is downright frightening. For  
months now, Republicans have been pushing the White House to take some  
action that looked and sounded big enough to give them some cover if  
and when things got worse. President Bush has now responded with a  
stimulus package more than twice as large as the one Bill Clinton  
briefly entertained at the start of 1993 but couldn't get passed.

Not to be outdone, Democrats want to appear at least as bold, which  
means they'll suspend pay-go rules and throw fiscal responsibility out  
the window. In other words, hold your noses, because the "bipartisan"  
stimulus package that's about to be introduced could be a real  
stinker, including tax cuts for everyone and everything under the sun  
-- except, perhaps, for the key group of lower-income Americans. These  
are the people who don't earn enough to pay much if any income taxes,  
but who are the most likely to spend whatever extra money they get and  
therefore are most likely to stimulate the economy. The real behind- 
the-scenes battle will be over whose constituencies get what tax cuts,  
and for how long. Don't be surprised if the only thing Congress really  
stimulates is campaign contributions.

Meanwhile, Fed chairman Ben Bernanke and Co. have surprised everyone  
with a rate cut larger and sooner than expected. The three-quarters of  
a percentage point ("75 basis points" in biz-speak) cut announced  
Tuesday morning may not sound like much, but it's bigger than any rate  
cut in decades. The politics here are more subtle because Bernanke and  
his Federal Reserve governors are supposed to be independent of  
politics. But as witnessed under the reign of previous chairman Alan  
"it's prudent to reduce the surplus with a tax cut" Greenspan, Fed  
chairs can have political agendas. Bernanke has been under a lot of  
pressure lately to cut rates big-time -- and the pressure has come not  
only from Washington Republicans but from panicked Wall Street  
Democrats, including, apparently, my old colleague Robert Rubin,  
formerly President Clinton's treasury secretary. (By the way, what  
could Rubin have been thinking when he allowed Citicorp to sell all  
those fancy securitized debt instruments, while agreeing to buy them  
back if they couldn't be resold?) Expect lots and lots more Washington  
activity -- enough seemingly bold strokes to convince voters that our  
nation's capital is doing whatever is necessary to stop whatever seems  
to be going wrong with the economy.

The problem is, people have different views about what's going wrong.  
Wall Street sees it as a credit crisis -- a mess that seems never to  
reach bottom because nobody on Wall Street has any idea how many bad  
loans are out there. Therefore, nobody knows how big the losses are  
likely to be when the bottom is finally reached. And precisely because  
nobody knows, nobody wants to lend any more money. A rate cut won't  
change this. It's like offering a 10-pound lobster to someone so  
constipated he can't take in another mouthful.

[snip]


-------------------------------------------
Archives: http://v2.listbox.com/member/archive/247/=now
RSS Feed: http://v2.listbox.com/member/archive/rss/247/
Powered by Listbox: http://www.listbox.com