In an unsurprising yet detestable act of hubris, the Obama administration and its Treasury Department recently held yet another invitation only press briefing for select journalists. Apparently, the marching orders for the press this time around are to communicate to the public that the Bush and Obama reactions to the 2008 financial crisis, when compared to other industrialized nations, averted the cataclysmic disaster suffered by those with far less bold leadership. Assuming the standard is whether or not the United States did a better job of dealing with the financial crisis than say, Spain, then yes, we did a bang up job. If the standard is how we responded to the disaster when compared to say Canada, or Australia, two of the nations most economically and socially similar to the United States, then we butchered the response miserably.
Several journalists in attendance at the briefing were less than convinced that the Obama administration was offering anything new:
On Friday, the Treasury Department convened one of its semi-regular, invitation-only background press briefings for journalists. Senior Treasury officials spoke to us, answered our questions, and showed us a “deck,” which is annoying industry jargon for a Powerpoint presentation. “I just know this is going to be a fucking waste of time—another dog-and-pony show,” another journalist told me on our way into the meeting. The central message of the dog-and-pony show was that the US response to the 2008 financial collapse was pretty effective, especially when compared to how other countries reacted to different crises. The Powerpoint presentation used terms like “bank investment programs,” but what the Treasury gang was talking about was the highly unpopular financial bailouts (as opposed to the auto bailouts, which the Obama team views as a political winner).
This is more of the same old song and dance that the American People have been forced to choke down since 2008. The fable goes something like this: If Citibank or Bank of America were allowed to fail, and trillions of dollars were not directly given and loaned to large financial institutions and foreign investors, the United States economy would have been thrown into an apocalyptic tailspin that would have destroyed the world. The narrative included scare tactics that conflated a failure to funnel funds to the financial sector with the the problems facing Greece and Europe. Moreover, if interest rates were not kept at historically low levels–punishing savers, the elderly, and the middle class–banks would not lend and small businesses would fold in the hundreds of thousands. First, there is not one bit of evidence to back up these claims. Second, even if the claims have some merit, it does not excuse the wholesale disregarding of those most directly affected by the crisis: the people. Certainly something had to be done to stabilize the banking sector and the markets to avert further job losses. However, the contention that Europe suffered more significantly than the United States because it lacked bold leaders taking decisive action is specious at best. The reason Europe suffered to a greater degree was due to its centralized monetary policymaking which lacks a mechanism to tailor monetary policy for each individual member state. It had nothing to do with Timothy Geithner’s brilliance.
Politics is politics, so it would be naive to believe that the Obama administration is not playing to win the game. As such, these press spectacles are business as usual. It is also likely to bear fruit, as major media news outlets long for the “administration official” to agree to appear on its faux news programs, and bucking the administration’s talking points does not serve that end. However, unlike television news, we learned as schoolchildren that a hypothesis must be tested rather than assumed based upon conjecture. There is no evidence to support the notion that the the Bush and Obama administrations acted in such a way that averted the Four Horsemen’s arrival. Nor is there evidence to support the claim that the chosen course was the only means of stabilizing the economy.
Even assuming that the policy choices pursued by the current and past administrations averted a greater recession, it does not excuse the paralysis on jobs and housing. Germany for example has bolstered its recovery by pursuing practical jobs policies. Iceland has implemented a program under which it has forgiven household debt and mortgage debt acquired as part of the fraudulent run-up in housing prices. In the United States, the debts owed and employment problem are no different. Homeowners took on mortgages based upon what they believed to be the fair market value of the home. The value was fraudulent inflated, and therefore much different than a loan in which both parties act fairly and ethically. Politically, debt forgiveness is a win win. In the United States it would stimulate growth and job creation, as greater resources would be thrust into the economy as consumers are freed from the devastation of servicing mortgages, credit cards, and student loans currently absorbing the bulk of earned and Social Security income.
Sadly, debt forgiveness in nowhere on the radar in the United States. The ridiculously unique American belief that that contracts must be honored, even if based on fraud, places some blame for inaction at our own feet. However, the notion has not even be raised seriously by the President. Instead we continue to trudge along on a perfunctory path of half-measures and hope that the large banks will right their wrongs willingly. It is time for sound economic policy that forgives fraudulent debt and incentivises hiring. It is time for creative job training efforts between federal, state, and local colleges, vocational training centers, and employers. It is time for the banks to write-down mortgage debt and deal with customers fairly in return the gargantuan assistance provided by taxpayers. In short, it is time for as change.