Obama adviser Volcker: pain means gain

Well, it's all coming out now. The Bush administration was warned about the potential problems with the housing bubble and loans being made, considered regulation, but backed off under pressure from, guess who? Yes, the very banks being bailed out now.

Accountability means one thing for working people and another for the investment class.

Ideologists promoting market fundamentalism have served the greed and dishonesty of the wealthy for years. They called themselves economists, but were just peddling snake oil for the wealthy.

The Depression we are in is no accident. It built up over years based on the failures of the elites in this nation to govern in the interest of all, instead of a small, wealthy ruling class. And now we all pay.

Re Obama's stimulus plan for America: How does a public works program help women and most white-collar workers if the majority of public works jobs are in construction? Most women don't pour concrete, lay bricks or walk on steel beams fifty feet in the air. Obama's program could be unfair to women. The Bush/Cheney No Plan Plan has been unfair to all Americans. I hope that the trillions of dollars for public works and jobs go to American citizens--and will not not go to non-American construction workers who are out of work--the ones who should go back to their own country and use their nations recession tax dollars for employment. I hope that American citizens are going to build our nation's roads, bridges, schools, power grids, and tunnels--after training in the construction field. A program of the magnitude that Obama is talking about could get corrupted and darkened by bad design, bad transparency, and no accountability--like the Bush/Cheney corrupted "war".

Volker says Americans have been living above their means for too long... Why does Volker not say banks and bankers have been living above their means for too long? What, bankers can't make it while charging the interest mostly all upfront on millions of mortages? The upfront interest mortage should be illegal. Americans would have more fair equity for the months and years spent making payments. Unquestioned bailouts to Wall Street and banks=Bush/Cheney, Wall Street and bankers raiding the American treasury one last time before Bush and Cheney leave office. The House and Senate were supportive of this. Next election--vote out all who gave the unquestioned bailouts to the banks and Wall Street. It was hoops--and hate--for the blue collar jobs and the red carpet for white collar jobs.

The thing that gives me confidence in Obama is that he has chosen Paul Volcker to play a key role in his administration. Mr Volcker is a man of high integrity and is knowledgeable. I do not think that Mr Volcker will make public utterances that are deceptive or untrue to please the president.

Volcker's support for Obama along with Doug Kmiec's was a major reason that I had confidence that Obama's assertion that he would represent change was more than lip service. These two men of high integrity and intelligence supported him and their perspective politically was different.

Although we have quite a deal more financial distress to deal with and the economy still has a fair amount of downside yet, if we can get the economy moving again we could endure a series of crises without the economy plunging to the depths of the depression.

Paul Volker would be an advocate for a rational approach to regulation where avoidance of future catastrophes would be paramount but economic growth in the future would be considered. It would seem to me that if too big to fail is an issue, then making these financial companies smaller would be a better solution than relying too heavily on regulation.

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Posted by: Kendel Reed | December 8, 2008 2:45 PM
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Government 101: Lesson 2 - Unless the Constitution grants the President a power to act, and/or Congress has, in the exercise of its own constitutional powers, authorized the President to act, the President cannot act. This is was the holding of the U.S. Supreme Court in Youngstown Sheet & Tube Co. v. Sawyer, 343 U. S. 579, 585-589, 635-638 (1952). Or as Justice Jackson said in his concurring opinion, “Presidential powers are not fixed but fluctuate, depending on their disjunction or conjunction with those of Congress.” (Id., at 635.) This is still the rule of law today.
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The foregoing demonstrates that your assertions about the President and his failure to act are as incorrect as they are simplistic. It is irrelevant whether the President was informed of any particular situation unless he already had the power to act in the manner you suggest. I am unaware of any then-existing power, presidential or congressionally delegated, that wasn’t exercised. You haven’t identified any either. The contention has also been made - with a great deal of merit - that Congress was also informed of the rising crisis, but failed to take appropriate action. The failure of Congress to do something or to give the President more power to act is Congress’ failure, not the President’s. In addition, there is a very powerful non-governmental regulatory body that had the power to act in this situation, but failed to do so. I am referring, of course, to the Federal Reserve Bank - which I believe is the real culprit here. In short, the failure wasn’t that of the Bush administration. It was a total failure of both the government and the private sector.
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I agree with you that accountability has been made to mean two different things depending on whether one is am investor or a member of the working class. But the answer is not to give anyone a free pass and lower society’s demand for accountability. It would have been much better to allow more of these investment firms and banks to fail - to demonstrate the lesson that one who acts freely must bear responsibility for that action. That we have done otherwise has created a moral hazard in the economy, setting the example that one can escape from foolish behavior through government handouts. That has injected the seeds for undisciplined and careless behavior in the market that we cannot afford.
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What do you mean by “market fundamentalism”? If you mean to say that the principles of free market economics are somehow to blame, I must disagree. We haven’t had a truly free market in this country for a very long time. The market has been the subject of substantial governmental intervention for more than 50 years now. There is no such thing as a free market when the government decides which businesses will be competitive and which businesses won’t. If we didn’t have all of the market intervention - including all of the corporate welfare - and, instead, allowed market Darwinism to work its wonders, the greedy and deceitful would have learned long ago that their negligent and/or evil conduct would have doomed them to extinction. To talk now about the evils of a free market is a lot of piffle.
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Finally, you are right: Depressions are no accident. Both this one and the last one were caused by individuals and businesses demanding the right to live beyond their means and leverage into greater wealth through credit. This behavior was made possible in both instances by an excessive amount of cheap money floated into the market by the Federal Reserve Bank. That, in turn, tempted banks to lower their lending standards so they could turn a bigger profit. That temptation, as previously indicated, is what economists call “moral hazard.” If we want to stop this in the future, then we must either abolish the FRB or subject it to much greater governmental oversight. As of now, the FRB is a monumental failure in its task of controlling the money supply for the good of all.

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Posted by: John W. | December 8, 2008 5:16 PM
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"WASHINGTON - The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job."
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http://www.msnbc.msn.com/id/28001417/
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"In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.
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Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.
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Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.
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Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.
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Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president's signature."
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http://www.msnbc.msn.com/id/28001417/
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John W:

First off, I agree with almost all of your points, save for the first. Let me give you the lesson 101 on politics:

The dems (most of congress), has been hamstrung on doing anything, due to a disgusting pattern, that has been established by the swine pugs, of either vetoing or threateneing to veto any legistlation passed by the majority. So yes, I FULLY believe the bulk of this blame lays squarely on the pugs shoulders for their partisan politic game they have played, at the expense of our country.

We will all see how this theory plays out in the next year, when the dems will have a better grip on the wheel of how this country is run.

Yes, the FRB and the banks are a HUGE part of this problem.

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Posted by: Kendel Reed | December 8, 2008 6:04 PM
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Unlike you, I do not trust the veracity of the article or its author. The supposed “crackdowns” (a wildly exaggerated term if there ever was one) came in the form of proposed “Interagency Guidance on Nontraditional Mortgage Products” - and it wasn’t threatening, aggressive, nor even dire. You can find the “Guidance” online at http://www.fdic.gov/regulations/laws/federal/2005/05joint1229.html One can peruse this document in vain trying to find anything that hints of any sense of impending doom or meltdown in the home lending market. It’s just not there. None of the proposed guidelines actually prohibited any particular banking behavior. They simply stated special practices that banking management ought to undertake or monitor in order to engage in any of the questioned practices safely.
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In addition, the supposed pressure from lenders came in the form of comments that the agencies solicited from the banking industry. You can find those here: http://www.fdic.gov/regulations/laws/federal/2005/05comguide.html The comments were, at best, tepid. Therefore, to describe the final regulations as having been produced by regulators “buckling to pressure from some of the same banks that have now failed” - is fabulous exaggeration and propaganda on an Orwellian scale.
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The next problem I have with the article is that the author, who goes unnamed - doesn’t cite any of his sources for his material. He doesn’t even bother to cite the person who reviewed the alleged regulatory papers. I might add that many of the quotes from individuals included in the article are so short and fungible that there is no internal guarantee that their words haven’t been totally jerked out of context.
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The third reason I don’t trust the author or the article is the external environment in which that article was launched. One doesn’t have to be overly cynical to mistrust representations concerning the administration’s lack of action in the teeth of pending doom when it is well established that the administration did take actions with regard to what it viewed as the problem - and long before the release of the “guideline” described in the article you quoted. See the articles reproduced at http://sweetness-light.com/archive/bush-mccain-tried-to-reform-housing-finance Moreover, the fact that all those regulatory agencies would promote guidelines that never forbade or restricted any particular practice shows that the administrative agencies were aware of weaknesses in banking practices, but did not view them as dire or the central cause of the problem.
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Lastly, no one else has ever reported on the contents of this article. Every version of the article comes from the AP (which stands for “Always Propagandizing”). There have been no hearings or Congressional hearings in which these matters were ever raised as a problem. To the contrary, the House Joint Economic Committee came out with a report which outlined the cause of the financial meltdown, and you can’t even find the words “Bush” or “administration in it. You can find that four page report at: http://www.house.gov/jec/Research%20Reports/2008/rr110-26%20doc.pdf Oh, and did I mention that I think of MSNBC much the way many of you think of Fox News?
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So, go ahead and believe it if you want. To me, the apparent weirdness and inconsistency of the article seems to demand better fact checking and scrutiny before I credit its reliability.

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Posted by: Xcellentform | December 8, 2008 7:40 PM
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What you mean to say is that you disagree with the second half of my first point. The first half comes from the Constitution and what the U.S. Supreme Court has said about presidential power.
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I find much of the rest of your post incomprehensible. Over the past eight years, George W. Bush has vetoed a total of 12 bills, and four of those were overridden by Congress. That’s less than one-third the number of times Bill Clinton vetoed legislation. To me, a large part of what makes Bush a bad President is that he didn’t vetoed enough bills, especially those authorizing shameless levels of spending. How you can say that eight vetoes in as many years represents a pattern of obstruction and attempts at frustrating the Democratic agendum is a total mystery to me.
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If you meant to suggest that there was some action by Republicans in Congress, such as a few filibusters, I can understand that. Then again, Democrats have also played their partisan games when they weren’t in the majority. Just look at all the empty courtrooms due to the failure of Congress to confirm many of George Bush’s judicial appointments. That’s not frustrating? At one point, if you recall, Republicans had even offered to support repeal for the Senate filibuster rules to allow for more legislation to come to an up and down vote. The Democrat leadership turned down their offer. So, if you wish to complain about games, there is plenty of blame to go around.
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I will admit that Barack Obama has not attained the office of President under optimal conditions. And I will also say that I hope he does well for the sake of all of us. I would, however, be less than candid if I didn’t say that I have my doubts. I believe he means well, but I don’t think his plans are going to work. Especially when it comes to how we are going to pay for all of his proposals, the math simply doesn’t work. Yes, indeed, we will see if his ideas have legs. We are in for some interesting times.

John W,
There's a very good reason why you're always wrong. You're an ideologe who belives that conservatism never fails...in the face of one failure after another. Your team has been given opportunity after opportunity to insert your ideology into action and you've never succeeded. It's Obama and the Dems turn now and as much as that pains you, you have earned the fact that you're sitting on the sidelines looking in from the outside right now.

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Especially when it comes to how we are going to pay for all of his proposals, the math simply doesn’t work. Yes, indeed, we will see if his ideas have legs. We are in for some interesting times.

Posted by: John W. | December 9, 2008 4:18 AM
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The Republican brand is in the crapper. It went from big spreads in both the House and Senate and a dream of a "permanent republican majority" to a close to 20 seat deficit in the Senate (with more likely to come in 2010) and around 80 in the House. It lost the White House. Badly.

Its' core philosophies (and I am not buying this "the Bush year policies weren’t really republican or conservative" because when you have control of the entire government, you enact what you want) have destroyed our economy on a scale not seen in close to 100 years. Its aggressive and arrogantly ignorant foreign policy has ruined our credibility around the world (and nearly bankrupted us). The levels of cronyism have led to billions of dollars being "misplaced" or sent to friends on no-bid contracts for crappy work. The culture of corruption has led to indictment after indictment after indictment of republican Congressional officials, the politicizing of the Justice Department and the burrowing of wholly unqualified people into major policy, leadership and civil service roles.

It has presided over a crisis that has lost more jobs in decades, has fattened corporate wallets at the expense of We the People, has seen a decline in our educational standards (and scores), has enriched the pharmaceutical and insurance companies at the expense of affordable access to healthcare. It has let a major American city drown in what was nothing short of criminal negligence.

It allowed for the murder of thousands on 9/11 with the careless disregard for warning after warning. It allowed the deaths of many rescue workers, the death of close to 1,000,000 Iraqis for a "mistake" and the death of hundreds (if not more) in the Gulf Coast. It has failed to do anything meaningful about the root cause of terrorism and has made us less safe.

When finally in the minority in Congress, the republicans merely set a record for most filibusters of all time. And they did it in just one year.

It has alienated entire races of people, it has alienated immigrants, it has alienated same sex couples, it has alienated the lower class, the middle class and much of the upper class. Its members have lied, blown off subpoenas, have been convicted of sex crimes (many times over), covered up for sexual predators who were in charge of underage Congressional Pages, were convicted of election fraud and have tampered with elections on the Congressional and Presidential level in 2000, 2002, 2004 and 2006. And during the past six years, culminating with the recent Presidential campaign, it has thrived off of fear and loathing. Fear of anything that isn’t precisely like them, and loathing of anything that isn’t, well, precisely like them.

It is a party that felt its best way to win is to use violent rhetoric (at the worst possible time, of course) to rile up its base – based on lies and the most tenuous of "guilt by association". Most of all, it has shown that it has no vision, no ideas other than hate, and has demonstrated exactly what it would do if it could control all of government.

This was the third straight cycle (2004 and 2006 as well) that young voters came out for Democrats. And generally speaking, if someone votes for the same party in three straight cycles (especially their first three cycles), they pretty much stick with that party for life. The timing couldn’t be better for a long stretch of Democratic party dominance.