Friday, May 14, 2010

Obama, Congress and Bernanke did not save the world from a Great Depression

All they've done is delayed it. It's so sad.

Sorry, they simply did not. The baseline IMF forecast before the bailouts and before the stimulus bill tracks almost exactly what happened.

The bailouts were an actual net drag on the economy. Instead of cleaning up banks balance sheets, they allowed zombie banks to continue to exist, banks which are crippled when it comes to lending. In order to make sure these banks can pay down their bad debts, the Fed not only had to take on huge amounts of their paper at par when it was worth 20 cents at most, it has had to lend to them at concessionary rates, pay extra interest to them, and let them leverage that to make obscene profits from what lending they are doing (why did your credit card rate go up, that’s why?) and from trading on a captive market.

As best I can figure the stimulus was large enough to counteract the negative effect of the bailout.

The net, is a wash.

Furthermore, there were far, far more intelligent things which could have been done. The crisis was, as the tired phrase goes, also an opportunity to break the power of monied interests, so that ordinary Americans could prosper again and could reclaim their government. The stimulus was an opportunity to restructure the US economy to allow real, widespread growth in the future.

Both those opportunities were wasted, and they were wasted by Obama. TARP would not have passed without him, and once he was in power he could have demanded that Bernanke do as he commanded (break the banks) or step down, if Bernanke wouldn’t, he could have easily impeached him. The stimulus was his stimulus.

Obama, Congress, Bernanke, Geithner, Paulson—none of them saved anybody except the banks and the rich from apocalypse. I understand that partisan Democrats want to pretend Dems saved the world, but they did no such thing.

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