The Big Bank Mystery

Update: NYT:"Wall Street soared on Tuesday in its biggest rally of the year after investors found a glimmer of optimism in the financial sector.
The faint signs of hope came in several forms: a memorandum from Citigroup saying that the bank had been profitable in the first two months of the year; calls for regulatory reforms from the Federal Reserve chairman, and the possibility that the government would reinstate rules governing short sales of stocks."


Monday is a day worth celebrating for the return of science and sanity, with President Obama's lifting of bans on stem cell research made by Bush some 8 years ago as a sop to the hard right that put him close enough to the White House to steal it. The President did so with yet another strong statement on the commitment to science, even when it tells us "inconvenient" truths. Nice reference (or additional dig.)

But the economy remains the crucial and uneasy topic. Of the steps President Obama has outlined and taken to revive the economy and the economic future, I have high confidence in all but what his administration is doing to deal directly with the financial sector: the banks, Wall Street, AIG, etc. It's also the area I know least about, but judging from the misgivings of more expert people I find credible, it seems I'm not alone.

For instance, Paul Krugman's persistent criticism that the amount of federal stimulus is too small doesn't bother me, because if true, it can be remedied later, plus money can only be spent so fast, plus the political realities, all of which I somewhat understand. But when he notes that in his interview with the NY Times, President Obama didn't seem worried about the success of the current approach with the financial sector--that does worry me.

So why not some bolder, clearer action? Could be that it's the wrong thing. Or there may well be other considerations, like this one--a claim that Citibank, for one, maybe can't be legally taken over--or put in receivership-- by the federal government, because of their multinational ownership.

Some believe the economic team is too "centrist," too tied to the practices that screwed the economy in the first place (and Keith had a devastating narrative about that on Monday, which I will link to as soon as there's a transcript posted.) But Ross Douthat has a different take, which supports my feeling about this--or maybe my wishful thinking:

But there's a third answer as well--which is that the smart center-left, embodied by Larry Summers as much as anyone, has moved steadily leftward over the last ten years, as part of a broader Bush-era rapprochement between the Democratic Party's moderate and liberal factions. On health care, the environment, income inequality and other fronts, figures like Summers are closer to their erstwhile lefty antagonists than they used to be, sharing common ground even when they don't have identical policy preferences. "

Well, I hope so. And I hope it translates into some righteous anger against their Wall Street pals who screwed things up. But as this piece by Michael Scherer indicates, the perception that current efforts aren't clear and working--that Geithner may not be up to the job, etc.--are potentially damaging, whether they're accurate or not, because of the crucial role of confidence. Scherer begins by quoting Mark Zandi: "The difference between a recession, a very severe recession and a depression is a lack of confidence," he said. Scherer concludes: "If Obama has a single task before him, as the most celebrated communicator of his generation tasked with leading the economic recovery, it is to temper this rising contagion. Good speeches will not be enough. He will, over time, have to find a way to calm the markets, address the concerns of his responsible critics, and then use these successes to assure consumers everywhere that better days do, in fact, lie ahead, a claim that virtually every economist would endorse, though many disagree on the timing. Obama may be just the man for the job. (I can't really think of anyone else up to the task.) That is the hope, at least."

Again, I don't think this is a problem with spending initiatives and programs--stimulus, infrastructure, energy, health care. I think the American people are with Obama on these, and know that these will take time to work. But I think a lot of people are uneasy about the financial sector, particularly when there are so many stories about so much theft on such a huge scale.

Voter confidence on this may turn out to be crucial to ensure support for initiatives, particularly health care. That's going to be daunting enough without doubts left over from other matters. Opening up the debate while trying to find a common solution means that a lot of truth is going to be told, and that truth isn't very centrist. A good indication is this Joe Conason piece in Salon which references a new international study:

Documenting the gross "discrepancy" between the enormous amounts that Americans spend on healthcare and the value received for that expenditure, the study found that the United States ranks poorly among OECD countries on measures of life expectancy, infant mortality and reductions in "amenable mortality," meaning deaths "from certain causes that should not occur in the presence of timely and effective healthcare."

But perhaps any discussion of healthcare in the developed world ought to begin with a plain fact noted early in this study: Among the OECD's 30 members -- which include Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, South Korea, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, and the United Kingdom -- there are only three lacking universal health coverage. The other two happen to be Mexico and Turkey, which have the excuse of being poorer than the rest (and until the onset of the world economic crisis, Mexico was on the way to providing healthcare to all of its citizens). The third, of course, is us."

The U.S. is way behind in health care and in health. We're falling behind in education. We're behind in confronting the Climate Crisis, and maybe even in new energy technologies. But we still lead the western world in the number of prisoners we hold, and the number we kill. We've always been a country of mixed messages, but we're tipping the wrong way dangerously, and I doubt that our fall in the direction of transferring the national wealth to a few rich people is a coincidence. All this bears on the debate as well, like it or not.