Economic Darwinism

Letter to Obama: Losing Political Capital

Posted in Action, Barry Ritholtz, Bernanke, Geithner, Greenspan, Obama, Paulson, The Big Picture by Economic Darwinism on June 18, 2009

Dear President Obama,

I say this as a supporter and as someone who wishes you success as we face extreme challenges on many fronts. I work among conservative Republicans and actually had to sneak out of the office to watch your inauguration. It was a touching and historic moment I will never forget.

You are on the verge of losing whatever political capital you had coming into office due to your refusal to acknowledge that the people you are relying on for economic policy are the very people who are responsible for getting us into this situation. Greenspan, Bernanke, Paulson, and now Geithner (and Summers) all continue to fail to see the causes of the crisis. As a consquence, current proposed regulatory reform is bound to fail yet again.

At this point, the rapid loss of confidence in both Geithner and Bernanke are weakening your ability to push your agenda in other critical matters. You must do something to remove them both or you will  imperil your potential to accomplish lasting and necessary change.

Please listen to Barry Ritholtz*  and others such as Alan Blinder who actually understand what is happening. In particular, see Ritholtz’ article

Obama Reform Plan Fails to Fix Whats Broken

He enunciates six unacceptable weaknesses in your proposal:

1) No major changes for the ratings agencies!

2) Turn Derivatives into Ordinary Financial Products

3) If they are too big to fail, make them smaller.”

4) The Federal Reserve, Despite its Role in Causing the Crisis, Gets MORE Authority

5) Require leverage to be dialed back to its pre-2004 levels.

6) Restore Glass Steagall

All of which suggests that the status-quo-preserving, sacred-cow-loving, upward-failing duo of Lawrence Summers and Tim Geithner are still in control of economic policy. The more pragmatic David Axelrod and the take-no-prisoners, don’t-give-a-shit-about-Wall-Street Rahm Emmanuel have yet to assert authority over the finance sector.

All these should be considered uncompromising requirements of any regulatory reform. Anything less than these six items will have no positive effect and will likely lead to another crisis before the end of your first term.

You are running out of time.

*Author of Bailout Nation and the phenomenal blog The Big Picture.

2 Responses

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  1. TheArthurian said, on June 24, 2009 at 3:21 am

    I rather like Alan Blinder (but that’s not why I write). Hope I can say this with clarity:

    Every lib’ral on the planet can see that conser’tive policies have failed; but this is something conservatives cannot see. Every conser’tive on the planet knows that lib’ral policies do not work; but this no liberal can see. We have flies in our eyes, but we cannot see them because we have flies in our eyes.

    Obama needs to do something *different* than everyone expects him to do. As we move forward in time, we drift sometimes left, sometimes right. Spock once pointed out to Captain Kirk that Khan’s thinking was “two-dimensional.” So is ours.

  2. [...] if you really wanted to salvage your presidency (you know your political capital is waning quickly and you will need it for your other programs), then you might also consider [...]


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