The façade of government confidence is crumbling. There is simply no way to hide the blatantly obvious any longer. So it should be no surprise that people of still good reputation are electing to jump on the "It Ain't Gonna Work" bandwagon as opposed to the alternative - going down with a sinking ship.
Granted, these characters are not embracing the Austrian Theory of the Business Cycle. But they are at least acknowledging that what has been tried has failed, and attempting to do the same - only on a bigger scale - is not going to have any better chance of success. Baby steps.
Nobel Prize winning neoclassical economist Joseph Stiglitz gave an interview to Bloomberg yesterday echoing some of my sentiments toward those in the Obama Administration. (emphases mine):
The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.
“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”
It's hard to know what to make of a situation where one minute you feel like the lone voice - written off as sensationalist, while in the next, eminent scholars are repeating you almost verbatim to the national media. Should one be honoured for the indirect affirmation, or skeptical of the motives? More from the article:
The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.
“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.
The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”
Rather than continually buying small stakes in banks, weaker banks should be put through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said.
It would have been nice to have a simple admission from Mr. Stiglitz that the Keynesian policy of economic stimulus was wrong all along, but his admission that "we don't have enough money" is actually another way of saying the same thing. It might not look like much, but that very sensible statement is a damning critique of 100 years of failed economic policy that suggests money grows on trees.
It should come as no surprise that big name economists are pulling subtle about-faces. After being the first to promote government interventionism as the be-all end-all cure for this crisis from day one, they can see how it has so miserably failed and are now faced with the raving mad public. People are fingering bankers, politicians, analysts, economists, the media and anyone that has anything to do with the financial industry.
Wednesday, an estimated 250,000-500,000 took to the streets in anger over wasted money and the rising taxes that will inevitably result from it. No economist wants to be implicated. An economist with a bad public image is an economist without a job.
Despite the media's best attempts to label these "Tea Party" events as a left vs. right thing (controversy sells), the truth of the matter is it is fairly bi-partisan. People are sick and tired of being stolen from and lied to. And even the most sedated (next to Canada of course) country in the world is taking to the streets in anger. Watch this video for not only the media's direct attempts to polarize people, but people catching them in the act and lecturing them on their terrible reporting tactics.
And some pictures from the protests:
(courtesy Lance Iverson / The Cronicle)
Expect these protests to intensify. And expect the government to cave on their demands eventually. Congressional midterm election campaigns are scheduled to begin in about 6 months. Anyone seen as complicit with government bailouts won't have a hope of being reelected.
Lastly, a prediction. Tim Geithner's position as Treasury Secretary won't hold through the summer. Larry Summers' position as economic advisor likely won't either. We are embarking on a new era of public outrage.
As we should be.
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