Obama Isn't Doing Enough to Solve the Financial Crisis

Now that I have you attention :) , I snipped a section of this article relating to the banks, although a few other sections are also "disturbing":

http://www.motherjones.com/mojo/2009/02/james-galbraith-obama-isnt-doing-enough-solve-financial-crisis


"James Galbraith: Obama Isn't Doing Enough to Solve the Financial Crisis
Thu February 26, 2009 7:14 AM PST
The financial crisis is even worse than people think (and people already think it's pretty bad), and we aren't doing enough to stop it, economist and Mother Jones contributor James K. Galbraith told the House Financial Services Committee on Thursday morning. From his prepared testimony
The Obama administration's bank rescue plan is also fatally flawed, Galbraith says:
snip
The bank plan appears to turn on a metaphor. Credit is "blocked" or "frozen." It must be made to "flow again." Take a plunger to the toxic assets, a blowtorch to the pipes, it's said, and credit will flow. This will make the recession essentially normal, validating the baseline forecast. Add the stimulus to a normalization of credit, and the crisis will end. That's the thinking, so far as I can tell, of the Treasury department in this new administration.

But common sense begins by noting that the metaphor is wrong. Credit is not a flow. It is not something that can be forced downstream by clearing a pipe. Credit is a contract. It requires a borrower as well as a lender, a customer as well as a bank. The borrower must meet two conditions ... ... The "credit-flow" metaphor implies that people came flocking to the auto showrooms last November and were turned away because there were no loans to be had. This is not true. What happened was that people stopped coming in. And they stopped coming in because, suddenly, they felt poor, uncertain and afraid.

In this situation, stuffing the banks with money will not change their behavior... he bank chiefs have made it very clear, in testimony here and elsewhere: they will not return to ordinary commercial, industrial and residential lending until they can see a reasonable way to make money at it... More likely, they will hunker down, invest in Treasuries and prime corporate bonds, and rebuild capital for the long-term, as they did from 1989 to 1994. Only this time, with the yield curve as flat as it is and the insolvencies as deep as they are, it could take a decade or longer.
snip

The bottom line, Galbraith emphasizes, is that he believes "we are not in a temporary economic lull, an ordinary recession, from which we will emerge to return to business-as-usual." Instead, he says, "We are at the beginning of a long, profound, painful process of change." On that last bit, at least, Galbraith and the Obama administration can probably agree."



Below see the webcast of the House Financial Services Committee Hearing:
http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr022609.shtml


Below is a link to the full statement before the U.S. House of Representatives Financial Services Committee, Hearings on the Conduct of Monetary Policy, February 26, 2009
http://mrzine.monthlyreview.org/galbraith270209.html

The banks have run the show for decades, almost with an extortionist imabalance of power. If some bold solution becomes clearer, I think we'll act.

that borrowers or buyers probably won't be borrowing even if they have access to easier credit. People are afraid.

money to follow up.

not going to be short-lived, no matter how much money is thrown at them. We're undergoing fundamental economic change.

Because their mortgage had reset so they couldn't afford to buy anything else on credit, plus their homes are no longer worth as much as they owe. That's why they stopped buying. Reduce interest rates and reset mortgage values to better meet income. Then people will qualify for loans and shop again.

Or, boost incomes to where they should be to afford a decent home in the first place.

The problems are so immense though. I saw the figures by year for a five year period, 2002-2007, and the % of ARMs kept going up each year to where the ARMs were up to 60 or 70% of all morgages written by about 2006. I talked to a realtor who is working almost solely on foreclosures these days and she thought the problem would take about ten years to clear out of the system. I thought she was out of her gourd when she said that a few months ago. Now I am wondering.

& the super-rich got the money.

Duh.

the "long, profound, painful process of change" is the middle class adjusting to a mexican-style economy, with more poor people, fewer middle class people, & a conspicuously wealthy sector with razor wire around their villa walls.

although I can't imagine the Babylonian model will get any serious consideration

You got to love a little truth in his statements" The bottom line, Galbraith emphasizes, is that he believes "we are not in a temporary economic lull, an ordinary recession, from which we will emerge to return to business-as-usual." Instead, he says, "We are at the beginning of a long, profound, painful process of change."