Paul Krugman: The economy is in grave danger because Wall Street was treated with kid gloves

[Better Believe It]

Op-Ed Columnist
The Big Squander
By Paul Krugman
November 19, 2009


Earlier this week, the inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility — and put the broader economy at risk.

For the A.I.G. rescue was part of a pattern: Throughout the financial crisis key officials — most notably Timothy Geithner, who was president of the New York Fed in 2008 and is now Treasury secretary — have shied away from doing anything that might rattle Wall Street. And the bitter paradox is that this play-it-safe approach has ended up undermining prospects for economic recovery. For the job of fixing the broken economy is far from done — yet finishing the job has become nearly impossible now that the public has lost faith in the government’s efforts, viewing them as little more than handouts to the people who got us into this mess.

So officials could have called on bankers to offer a better deal, for their own sake, and simultaneously threatened to name and shame those who balked. It was their choice not to do that, just as it was their choice not to push for more control over bailed-out banks in early 2009.

And, as I said, these seemingly safe choices have now placed the economy in grave danger.

For the economy is still in deep trouble and needs much more government help. Unemployment is in double-digits; we desperately need more government spending on job creation. Banks are still weak, and credit is still tight; we desperately need more government aid to the financial sector. But try to talk to an ordinary voter about this, and the response you’re likely to get is: “No way. All they’ll do is hand out more money to Wall Street.”

So here’s the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust.

Read the full article at:

http://www.nytimes.com/2009/11/20/opinion/20krugman.html?_r=2&ref=opinion

[paulsby]

1. GRAVE danger?

is there another kind?

[GreenPartyVoter]

3. *snarf* I love that movie

[denem]

2. Krugman changes his tune every month.

A couple of months ago it was - It's OK, but in the longer term the economy will be held back. Now it's Grave Danger Now!

[MannyGoldstein]

5. Do You Have A Link Showing This?

Thanks.

[Mithreal]

11. Krugman wields more nuance than that

maybe he should display one of those color code charts to satisfy the ad hominem fallacy crowd?

[denem]

13. Oh gawd. Look up Krugman - Averted Depression, recovery but high unemployment.

Basically he was saying - We can do better. Now back to 'dastardly' financial bailout that threatens 'Grave Danger'. His nuance gives him wiggle room. It's on record: He said growth in 4th quarter and 2010 but not enough to tame unemployment. Now it's back to doomsday.

The Dow trended down over the week. OMG depression.

[Mithreal]

14. Reread the article without your Krugman baggage

Last paragraph

"For the economy is still in deep trouble and needs much more government help. Unemployment is in double-digits; we desperately need more government spending on job creation. Banks are still weak, and credit is still tight; we desperately need more government aid to the financial sector. But try to talk to an ordinary voter about this, and the response you’re likely to get is: “No way. All they’ll do is hand out more money to Wall Street.”"

Krugman is not calling DOOMSDAY. Those are your words. He just laid out what is needed.

Why add all the melodrama?

[denem]

15. "Safe choices have now placed the economy in grave danger"

That's the quote. It's polemic, not analysis.

[Mithreal]

16. contentious? yes, and taken out of context

I don't know how often you talk to average people, but a lot of them are worried and believe the economy is in grave danger. If you watched Geithner yesterday talk back to a Republican. "You gave this President an economy falling off the cliff." (Nov. 19) That sounds pretty polemic too.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=385&topic_id=404391&mesg_id=404391

I don't think the President or Democrats in general have even begun to right what has gone wrong in the past 3 decades. That is contentious too.

[Telly Savalas]

17. It's a bit of hyperbole.

If we remove that single sentence from the editorial do you have any criticisms with the remainder of the content?

[denem]

24. The OP's title was 'a bit of hyperbole'.

You can't have it both ways.

[Mithreal]

25. Why all apoplectic over one word or phrase?

Telly makes an excellent point and addresses content. I wish you could address the substance of the op rather than get hung up on a phrase.

[Odin2005]

20. Some people don't do nuance, apparently!

:shrug:

[Mithreal]

26. George won't soon be forgotten.

[optimator]

4. maybe Krugman will stop kissing ass

and get serious.

[MannyGoldstein]

7. How Has He Been Kissing Ass???

He's been persona non grata in the Obama administration because he openly disagrees with them.

[SemiCharmedQuark]

10. Erm...what?

[MannyGoldstein]

6. Hopefully Krugman's Wrong

To date, the Obama Administration has ignored his (spot-on) predictions and marginalized him (and fellow Nobel winner Stiglitz) as the loony "left of the left".

I deeply hope that Krugman's wrong about this, but given his track record...

[democracy1st]

29. he's right from the very beginning this Goldman Sachs kiss ass bs hasn't made sense

[pansypoo53219]

8. we need a special goldman sucks tax.

99% on all wall street high up mucky mucks.

[Raster]

18. Germaine to this dicussion....

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=4154772&mesg_id=4154942

[Odin2005]

21. +1,000,000,000,000

[indepat]

22. Seem to recall Goldman received a $12.9 billion windfall, courtesy of the AIG bailout which was

necessary to protect the counter-parties, i.e., Goldman et al. If I were a betting man, I would bet $50 to a donut that Goldman did not have one-half that amount of money at risk. Any money that Goldman and others received from the AIG bailout in excess of their own investment at risk was a pure de gift courtesy of the American taxpayer. Should my thesis have any merit, off with their proverbial heads. :P

[SemiCharmedQuark]

9. K&R for Krugman!

[Mithreal]

12. second that

[Odin2005]

19. This is exactly why I'm getting pissed off and depressed.

Double-Dip Recession hear we come! :cry:

Can we waterboard Larry Summers?

[ProSense]

23. Such a gloomy prediction

From the OP:

For the economy is still in deep trouble and needs much more government help. Unemployment is in double-digits; we desperately need more government spending on job creation. Banks are still weak, and credit is still tight; we desperately need more government aid to the financial sector. But try to talk to an ordinary voter about this, and the response you’re likely to get is: “No way. All they’ll do is hand out more money to Wall Street.”

So here’s the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust.

It will be good when everyone stops conflating TARP and stimulus, even in writing. Krugman's doomsday scenario, much like the one he made in March, is based on the notion that TARP effects will preclude more stimulus. He's basically saying that we need more stimulus, but it might not happen.

Given that all the TARP funds haven't been spent. In fact, there are people probably still criticizing Obama for saying he would consider using the funds for a) small business lending or b) deficit reduction.

Second, all the stimulus money hasn't been handed out, a lot of it has been allocated, but not all of it has been distributed.

Not sure what advocating more stimulus has to do with whether or not TARP worked. Is the argument that the TARP funds should have gone to the stimulus? These are two separate issues, and both are important to economic recovery. They're interrelated because bank lending will also stimulate the economy, but the stimulus as passed and now proposed, has nothing to do with TARP.

[scentopine]

27. So gloomy that the right wing will begin to say things were better...

under bush. Wall Street is pissing on us with record bonuses while we are on track to push past 11% unemployment.

When you can't eat, when in the last nine months wages have plummeted, heath care costs sky rocketing, a war ratcheting up while wall street is as fat as ever with the three stooges at the helm (Geithner, Summers and Bernie "you are doing a heck of a job") then things are indeed dead nuts gloomy.

With health care just another "free market" bailout, the democratic leadership is lining things up for a big fucking disaster. Health care reform will be a disaster bigger than energy reform/Enron, bigger than banking reform and the first S&L disaster, bigger than banking reform and the second banking disaster. One sure trend with our corporate proxy style government is that the "reform" disasters get bigger and bigger. Like FEMA reform and the response to Katrina. Well, the economy and health care is Obama's Katrina. It should have been his place to shine. instead it has been a miserable and weak performance.

Yep - way to go democratic leadership! Nothing but fuck-yous coming from Washington to grass roots support who put you fuckers in office. Guess who isn't going to be there next time around. Who needs real people when Rahm has a few key states and corporate sponsorship.

Watch what happens Prosense - we have a do nothing legacy being written right now. Your tireless support for the administration is admirable. Or put another way, you are very brave to correct us using a bunch of jargon and semantics on whether tarp has been spent or not - it really doesn't matter when you are losing your job, house and health. The rich got their stimulus cash - just look at Wall Street pay. The poor got their bailout too - you just have to go to Afghanistan or Iraq to collect it.

BTW - If your buddies in Washington need help handing out the money - let me know. I have a few ideas about where to spend it. Amazing that you would argue things aren't so bad and we haven't even dispersed the money ... WELL ANY DAY NOW WOULD BE A REALLY GREAT FUCKING TIME TO START STIMULATING THE ECONOMY.

We can start small. Let's buy some pikes on which to mount the heads of Wall Street CEOs and Washington politicians who are nothing but corporate whores for Fortune 500. Once their heads are on series of Pikes we can take a page from the Tea Bag express and call it the "Douche Bag Express" and drive around the country with these heads on a pike as a warning to those who might be inclined to get rich quick by gaming the system. A new machine design to slice heads off in a most efficient manner would be a welcome innovation and worthy of some stimulus money.

As the rich get richer and the poor get poorer, the magic of the free market will create opportunities for innovations to fill a demand for justice as pressure for justice builds from both political extremes. Yep, the corporate centrist douche bags are doing nothing but building resentment from all sides. I'm name calling. I don't give a damn. We stuffed Washington with corporate speak douche bags. Long on fancy business-speak, but not a single one of them is interested in America as a nation. Its all about their wallets.

Proactive divestiture siphoning dividends in an aggressive regulatory climate is a counter stimulus variable in a growth engine model. See? I can talk like a democratic leader too!

This will be the lasting legacy of the extreme corporate democratic "centrist" which really means far right but not as right wing as Rush Limbaugh and Sean Hanity. It will set back democrats for the next 20 years.

Disgusting. Simply disgusting.

[democracy1st]

28. Wall St has played the Pres for a fool

[Vidar]

30. K&R

[branders seine]

31. day one job one should have been

to break up any bank or insurance company that was "too big to fail."

Job two should have been to regulate their remaining carcasses back into the socialism that made this country great.