Contributors

Monday, November 08, 2010

Saving Capitalism

Beginning when in the middle of FDR's first term, strict regulation and oversight of the financial sector of this country began. For nearly five decades, as a result of these policies, our nation's economy suffered no serious financial crises.

But then an era of deregulation began and financial crises have now become a cyclical thing. We have seen several over the last three decades and will continue to see them even with the new financial reform bill passed by the Democrats in Congress and President Obama. Certainly the bill is a start but it's nowhere close to the barriers we need to break the deadly interconnectivity between the various financial institutions in this country. The massive tide of greed and OCD we have in our culture towards money will be an Everest like mountain to conquer.

Adding insult to injury is the fact that deans and professors of our country's most respected economics schools (Harvard, Columbia, Yale) are all whores for the private financial sector--filling up the minds of students with drivel about the benefits of a truly free and unregulated market. The amount of money that these men make from the likes of AIG and Goldman Sachs in sitting on their boards is in direct conflict with their duty, as educators, to be impartial and unbiased when assessing economic trends.

These professors, along with their partners in crime (literally) on Wall Street, have set up a narrative which essentially paints the Democrats, and their leader President Obama, as being socialists who want to redistribute wealth and destroy free market capitalism. Ironic, because it was these same people who begged the United States government to be bailed out of their mess created by blind greed and compulsion. But this is a small irony compared to one very massive and titanic fact.

President Obama saved capitalism.

In a recent piece in the New York Times, Timothy Egan successfully argues that this is exactly what happened.

Suppose you had $100,000 to invest on the day Barack Obama was inaugurated....As of election day, Nov. 2, 2010, your $100,000 was worth about $177,000 if invested strictly in the NASDAQ average for the entirety of the Obama administration, and $148,000 if bet on the Standard & Poors 500 major companies. This works out to returns of 77 percent and 48 percent.

Not bad, hmmm? Imagine investing that money in January of 2007 and seeing the result on Election Day 2008. The drop would give even the strongest heart great pains.

Of course, markets aren't entirely a measure of what drives our economy, as Egan points out. So let's take a look at the banks and the auto industry--the "two motors that drive our economy."

The banking system was resuscitated by $700 billion in bailouts started by Bush (a fact unknown by a majority of Americans), and finished by Obama, with help from the Federal Reserve. It worked. The government is expected to break even on a risky bet to stabilize the global free market system. Had Obama followed the populist instincts of many in his party, the underpinnings of big capitalism could have collapsed. He did this without nationalizing banks, as other Democrats had urged.

These are indisputable facts. What is also not up for debate in how thankless the banks are. They know that they were part of the problem but don't want to admit to it. Nor do they want to admit that this small form of socialism saved their asses.

Saving the American auto industry, which has been a huge drag on Obama’s political capital, is a monumental achievement that few appreciate, unless you live in Michigan. After getting their taxpayer lifeline from Obama, both General Motors and Chrysler are now making money by making cars. New plants are even scheduled to open. More than 1 million jobs would have disappeared had the domestic auto sector been liquidated.

Also, completely indisputable facts although I'm sure many who are highly emotional and sensitive about the government will try.

“An apology is due Barack Obama,” wrote The Economist, which had opposed the $86 billion auto bailout. As for Government Motors: after emerging from bankruptcy, it will go public with a new stock offering in just a few weeks, and the United States government, with its 60 percent share of common stock, stands to make a profit. Yes, an industry was saved, and the government will probably make money on the deal — one of Obama’s signature economic successes.

Interest rates are at record lows. Corporate profits are lighting up boardrooms; it is one of the best years for earnings in a decade.

Profits indeed. Corporations are borrowing at record low rates but they aren't hiring. That's where the problem lies. Why is this? Well, greed is the overriding factor. The real reason, though, is they are seeing how long they can hold out on jobs and hopefully force the federal government to ease the new (and paltry) regulations. They want to see if they can get away with it and the latest election proves that they just might. The champions of deregulation have won again...even though that is the EXACT reason why things got so fucked up in the first place.


Really? Huh. I thought the Democrats were destroying capitalism and redistributing wealth. In reality, nothing could be further from the truth.

Profits have surged 62 percent from the start of 2009 to mid-2010, according to the Commerce Department. That is faster than any other year and a half in the Fabulous ’50s, the Go-Go ’60s or the booms under Presidents Ronald Reagan and Bill Clinton

Under another president, especially a Republican president, the data on corporate profits would be envied. George W. Bush, who dedicated a good deal of his presidency to tax cuts aimed at boosting business profits, probably would have loved such results. It took Bush nearly four years to post the gains that Obama has managed in less than half the time.


To answer the first question, yes, he does deserve the credit. The more accurate question is why isn't he getting it? The answer, thankfully, is simple.

His opponents don't like him, they hate being wrong, their chief goal is to win the argument regardless of facts, and they want him to fail. In other words, their frustration, which extends to many more emotional issues than just this list (more on that later), propels them to very narrow minded thinking. This tunnel vision is the guide to their pathological ideology.

Obama is wrong. No. Matter. What.

Egan carries this idea further.

All of the above is good for capitalism, and should end any serious-minded discussion about Obama the socialist. But more than anything, the fact that the president took on the structural flaws of a broken free enterprise system instead of focusing on things that the average voter could understand explains why his party was routed on Tuesday. Obama got on the wrong side of voter anxiety in a decade of diminished fortunes.

The three signature accomplishments of his first two years — a health care law that will make life easier for millions of people, financial reform that attempts to level the playing field with Wall Street, and the $814 billion stimulus package — have all been recast as big government blunders, rejected by the emerging majority.

But each of them, in its way, should strengthen the system. The health law will hold costs down, while giving millions the chance at getting care, according to the nonpartisan Congressional Budget Office. Financial reform seeks to prevent the kind of meltdown that caused the global economic collapse. And the stimulus, though it drastically raised the deficit, saved about 3 million jobs, again according to the CBO. It also gave a majority of taxpayers a one-time cut — even if 90 percent of Americans don’t know that, either.

I disagree with him on the financial reform package in light of the evidence presented in Inside Job. But the fact remains that the president took all of the actions that he did to save capitalism-just as FDR did with even more stringent regulations.

And, even though no one has noticed yet, he has accomplished that goal.

They will whine a fierce storm, the manipulators of great wealth. A war on business, they will claim. Not even close. Obama saved them, and the biggest cost was to him.

9 comments:

oojc said...

Cue the "winning the argument" points which will completely ignore these facts.

One would think that a president who has made a tremendous amount of money for them, as detailed eloquently here, would flip right wingers.

Nope.

blk said...

The reason the right wingers don't give Obama credit for policies that actually work is that they want him to fail, so that they can elect their own guy. Their tactic is to claim everything Obama is bad no matter what, because that would be giving aid and comfort to the enemy and would weaken the resolve of their robotic minions.

Their own guy will then tear down those regulations and then businesses will take insanely stupid risks and trash the economy again for their own gain.

The real problem is that CEOs and other people in charge of corporations do not look at the long-term health of the company or the economy. They are interested solely in the short-term increase in their salaries and stock price. Everyone involved is guilty: shareholders, the boards of directors (who are usually CEOs of other giant corporations or former government officials), and regulatory officials who are in the revolving door between business and government.

There are very few serious economic players who invest in companies anymore for the long term. Most of them don't give a damn whether a company makes corn flakes or software. They just care that the stock price goes up, and that they will be able to flip that stock just before it starts to go down in the buy-low/sell-high cycle. The management team buys into that because they're hired by people who want it to work that way, and they're given incentives to make it happen.

The vast majority of large corporations are no longer owned or run by the people who started them, so very few people have any vested interest in their long-term viability. When the owners of a company don't care about its long-term prospects, they don't care about its employees or the effects of the company on the economy at large.

The exception to this rule are outfits that have a virtual monopoly on some sector of the economy (think oil companies), and are essentially larger and more powerful than countries the size of Sweden and Ireland.

It's no accident that serious economic meltdowns started when deregulation became de rigeur in the Reagan administration, in the 1920s and in the 1890s. We did have some serious problems in the post-war era due to disruptions in the oil supply in the early seventies, which precipitated high inflation in the late seventies, but nothing on the scale that we had with the savings and loan debacle orchestrated during the Reagan administration and the recession of the Bush administration.

The best thing we could do would be to remove tax incentives for investors to flip stocks. People should be buying into companies because they believe in the products that they sell and want them to succeed in the long run. Right now the majority of investors only care about unloading a stock before it tanks.

We should be using the tax system to reward people who make long-term investments in this country, not rewarding stock flippers who can literally manufacture their own huge profits with innuendo and rumor.

drawls said...

Robotic minions. I love it.

juris imprudent said...

For nearly five decades, as a result of these policies, our nation's economy suffered no serious financial crises.

Let me guess, you weren't around in the early 70s, were you?

One would think that a president who has made a tremendous amount of money for them, as detailed eloquently here, would flip right wingers.

Perhaps they aren't as easily bought as left-wingers?

We should be using the tax system to reward people who make long-term investments in this country, not rewarding stock flippers who can literally manufacture their own huge profits with innuendo and rumor.

Like Soros and his currency speculations?

Anonymous said...

Repubics jsut hate the President because he is black.

Anonymous said...

Step right up, folks! Get your tickets!!

Come on in and for just 2 bits, BLK will read your mind!

No gimmicks! No wires! He just knows!

Tess said...

@Juris, do you honestly think that the problems we had in the 1970s even come close to losing 20 trillion dollars in 2008?

GuardDuck said...

Tess,

Reading comprehension lesson, please follow along.

A) Mark starts a paragraph that begins, in part - "Beginning when in the middle of FDR's first term..."

FDR was a president of the US taking office in 1933. The middle of his first four year term would be two years, or 1935.


B) Mark's very next sentence is - "For nearly five decades, as a result of these policies, our nation's economy suffered no serious financial crises."

The part reading "five decades" is not referencing the five decades following Noah's flood, or the fall of the Roman empire or even the Declaration of Independence. Based upon normal grade school reading skills the follow on sentence is obviously directly referencing the preceding sentence. That means the "five decades" are those following "the middle of FDR's first term". That meaning "five decades" following 1935. Since a decade is ten years, that would be the fifty years following 1935, or from 1935 to 1985.

Juris was obviously dissenting with Mark's assertation about the economy from 1935 to 1985.

Activities occurring in the year 2008 are not within the years under discussion and as such are not relevant to Juris' post.

juris imprudent said...

Thanks Duck! That was way more patience then I was prepared to show.