It seems that Summers is congratulating himself for having saved the world from the Great Depression:
The Obama administration has helped pull the U.S. economy back from the “abyss” with aggressive efforts to spur growth and stabilize financial markets, a top White House adviser said on Monday…
…”Thanks largely to the Recovery Act, alongside an aggressive financial stabilization plan and a program to keep responsible homeowners in their homes, we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery,” Summers wrote to House Republican leader John Boehner.
All they did was throw cash at the problem, without dealing with the underlying issues, which is why they didn’t manage (as Jerome points out) to kickstart ANY net private spending. They didn’t break up major banks. They didn’t allow bankruptcy judges to rewrite mortgages. Their mortgage program kept hardly anyone in the house. And their money for financial firms did not increase lending by one cent.
So, as a Stirling Newberry likes to say “the economy breathes fine, as long as we don’t unplug the life support machines”.
That’s all they did – throw the economy on life support by hooking it up to a money spigot, then wander off and have a cup of coffee and tell each other how brilliant they were, not noticing that they hadn’t actually cured the patient.
This is going to be the wost “recovery” of your lifetime, unless you’re in the financial sector at a relatively high level. Bank profits have recovered but ordinary people are not, in a generation, going to see a full recovery from this clusterfuck – employment will not recover to pre-recession levels before the next recession, and I don’t expect it to recover after that recession either.
At this point, in fact, I am expecting this to turn into a double dip recession—this “recovery” will not have any significant legs.
Anyone who believes Summer when he pats himself on his back should remember that Summers record of being wrong about everything of significance is awe inspiring in its completeness. This is the man who helped create the necessary preconditions for the financial crisis through radical deregulation of financial markets, then didn’t see the crisis coming till it was already well underway.
Oh, and one reason any peaceniks reading this kiss any chance of the Afghan war ending is that Obama needs the war stimulus to keep the economy on life support and military Keynesianism is the type of stimulus Republicans and Blue Dogs won’t vote against.
Welcome to endless war, money for rich people, and trickle down for you. The future looks an awful lot like the past, doesn’t it?
jbaspen
Ian, it’s beyond anything arrogant. It’s simply mindblowing! Here is the individual (along with Rubin, Greenspan and (Phil) Gramm) primarily reponsible for nosebleed leverage (>30 to one), repeal of Glass Steagal and complete de-regulation of those “instruments of mass destruction” (Buffett) derivatives. In China, such a thoroughly disgraced individual might be assigned to teach high school civics in the Western Provinces- that is, if he didn’t “jump” from the 9th Floor of some mental hospital. In Japan, he’d contemplate ritual Seppuku. In America… I’m sorry Ian, but this is REALLY Orwellian!!
My Democratic friends (and Obama supporters) observe things as enlightened Democratics vs. right wing-nut cretins (i.e., Republicans). They are a formidable problem, but are they the salient problem?? Reminds me of the late Roman empire, trying to defend itself from the Germanic “hordes”; not knowing that there was a far more powerful adversary right behind them (i.e., the Huns – now called the “Gangs of New York”).
tjfxh
Actually, the world was saved from Great Depression II, but that was on Bush’s watch when his team’s policies led to the great credit freeze up that the Paulson Plan was to unfreeze. To his credit Obama brokered a deal with the Democrats and the administration that avoided the Great Liquidation that the GOP congress was fine with. The Great Liquidation would have resulted in widespread suffering of untold proportions worldwide.
However, the deal that was brokered and which Obama extended was based on the assumption that the finance is the infrastructure of the economy and therefore must be rescued whole and intact if the system is to recover. That meant allocating the bulk of funds to reflating the bubble in order to make the bankers whole, with no accountability. While the stim was a small step in the right direction, it was too small, because the bailout was too big. Basically, funding was misallocated.
Larry Summers and Tim Geithner were brought aboard precisely because, like Obama, they were intellectually captured by this ideology and would do what it takes to implement it, even though it is at odds with core democratic and Democratic principles.
The result has been disastrous. In the first place, contrary to the fundamental principle of capitalism, bad behavior was handsomely rewarded, and there was no responsibility or accountability for mistakes. Related to this, it perpetuated a double standard of justice in the US, where a privileged few are above the law.
Secondly, it simply extended and consolidated a broken system, resulting in the same behavior and the same result. As Australian economist Steve Keen observed recently, doing the same thing and expecting different results is the psychological definition of insanity.
The result has been a massive transfer of wealth to the top at taxpayer expense, which has served to increase inequality and misallocate funds that are needed to relieve unemployment, provide personal debt relief to people who where scammed, and ease the financial burden on individuals and small firms due to spill over of the financial crisis to the real economy. This failure of both markets and government is leading to a populist backlash on the left and right, and rising social unrest, at the same time that new asset bubbles are being blown with the excess liquidity provided to paper over rotten private debt. Meanwhile, we are watching a currency crisis unfold.
There is an old Vietnamese proverb: The dung remains the same; only the flies change. Larry Summers is one of the flies.
Lex
Larry Summers is one of the most despicable humans on the face of the planet. (I’d really like to phrase that differently, but won’t subject Ian’s blog to that kind of language.) And i lost all faith in Obama the minute Summers was given his position. I saw, firsthand, what he did to Russia and i have no doubt that he’ll do a similar thing to us.
tc
I just want to know when the next leg down starts.
That list of despicability is very crowded. I’m just wondering what, if anything, it would take to wake up the people of this country to do something about the multiple enormous messes we’re in. If they were human, I would say they all deserve blindfolds and cigarettes, but that wouldn’t hit them where it hurts. Bring back 90% marginal tax rates on any income over $1 million per annum!
And, Ian, you can wipe that smug scowl off your face. We already knew last year that Obama would do nothing about ending either war. He doesn’t need military Keynesianism for an excuse. We could have peacetime military Keynesianism just trying to repair and rebuild the military after what it’s been thru in the last 8 years. Whether he wants to end it or not (I don’t presume to know) it doesn’t matter, because he hasn’t got the balls to stand up to anybody except DFH bloggers in pyjamas. So be careful. Canadian’s in PJs are the new runny cheese eating surrender monkeys.
Ian Welsh
TJXFH: you know, I’m not so sure. I know Barry Ritholz, for one, thinks that simply letting the FDIC take various banks over would have been a better solution. What I think is that there were a myriad of better solutions, and they chose practically the worst possible one.
TC: Peacetime military Keynesianism would be a good idea. But it ain’t gonna happen, as we both know.
whiskyrebellion
O(h)bama seems more and more like a place holder president. The next Republican president will be even worse, i really dont think we have hit the bottom yet. Gore Vidal thinks that we will eventually become a military dictatorship, well its the illogical conclusion to the path we have been following for half a century i guess. This seems about right:
http://www.dtic.mil/doctrine/jel/research_pubs/p087.pdf