How Obama Saved Capitalism . . .

[lookin]

November 2, 2010, 11:59 PM

How Obama Saved Capitalism and Lost the Midterms

By TIMOTHY EGAN

If I were one of the big corporate donors who bankrolled the Republican tide that carried into office more than 50 new Republicans in the House, I would be wary of what you just bought.

For no matter your view of President Obama, he effectively saved capitalism. And for that, he paid a terrible political price.

Suppose you had $100,000 to invest on the day Barack Obama was inaugurated. Why bet on a liberal Democrat? Here's why: the presidency of George W. Bush produced the worst stock market decline of any president in history. The net worth of American households collapsed as Bush slipped away. And if you needed a loan to buy a house or stay in business, private sector borrowing was dead when he handed over power.

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.

But markets, though forward-looking, are not considered accurate measurements of the economy, and the Great Recession skewed the Bush numbers. O.K. How about looking at the big financial institutions that keep the motors of capitalism running — banks and auto companies?

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.

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.

"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.

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.

"We have done things that people don't even know about," Obama told Jon Stewart. Certainly. 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.

Of course, nobody gets credit for preventing a plane crash. "It could have been much worse!" is not a rallying cry. And, more telling, despite a meager uptick in job growth this year, the unemployment rate rose from 7.6 percent in the month Obama took office to 9.6 today.

Billions of profits, windfalls in the stock market, a stable banking system — but no jobs.

Of course, the big money interests who benefited from Obama's initiatives have shown no appreciation. Obama, as a senator, voted against the initial bailout of AIG, the reckless insurance giant. As president, he extended them treasury loans at a time when economists said he must — or risk further meltdown. Their response was to give themselves $165 million in executive bonuses, and funnel money to Republicans this year.

Money flows one way, to power, now held by the party that promises tax cuts and deregulation — which should please big business even more.

President Franklin Roosevelt also saved capitalism, in part by a bank "holiday" in 1933, at a time when the free enterprise system had failed. Unlike Obama, he was rewarded with midterm gains for his own party because a majority liked where he was taking the country. The bank holiday was incidental to a larger public works campaign.

Obama can recast himself as the consumer's best friend, and welcome the animus of Wall Street. He should hector the companies sitting on piles of cash but not hiring new workers. For those who do hire, and create new jobs, he can offer tax incentives. He should finger the financial giants for refusing to clean up their own mess in the foreclosure crisis. He should point to the long overdue protections for credit card holders that came with reform.

And he should veto, veto, veto any bill that attempts to roll back some of the basic protections for people against the institutions that have so much control over their lives – insurance companies, Wall Street and big oil.

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.

[RA1]

Great spin on things, but, is it true? Only time will tell.

Best regards,

RA1

[Lucky]

Once again we have RA1 taking a dump on what someone (here Egan) has to say. Is it true, he asks. Well, duh, much of it is provable at this very moment. Go ahead, be a skeptic naysayer, Captain, but it gets tiresome when you have nothing to offer but cynicism. If this is what being a libertarian is, I'll gladly be a liberal.

[TampaYankee]

Discuss the topics and not the posters, please. Everyone is entitled to an opinion and we appreciate their willingness to share it. That is the basis for informative discussion. If we all agreed it would be a boring world not to mention a very boring forum.

[TampaYankee]

It is a measure of Wall St. single-minded greed, that after having been saved by the Bush/Obama administrations and Congress, they showed their thanks not by reforming their operations and practices but by fighting financial reform to restore sound busness practices, not by lending a hand and money to help small business through the storm that Wall St caused after Wall St had been helped out of the hole it created, but by closing their doors effectively to lending to small business, not by writing off their bad debt to strengthen their underlying foundation but by buying back their own stock and giving their execs the biggest bonuses in history.

If it weren't for the fact that they would take the whole country with them, we should have let Wall St Financial circle the toilet bowl that they so richly deserved. The GOP by statements and actions support those Wall St actions. The Tea Party has invited the snake into their bed. Let them sleep with it now.

[lookin]

As usual, I think RA1 and Lucky are both right. There is much that has been done, and much to see ahead.

One of the things I've been wondering about is how our conservative gay brothers will line up on DADT when the new Congress takes its seat, so to speak.

Personally, I hope DADT is repealed in December under this Congress. But, even if it is, the Republican House will not be quiet about the issue. I think the new Tea Shirt members will see to that. At the least, I expect they will seek delay.

I don't have many any Republican gay friends, so I'm not sure what the reaction will be. I checked out the Log Cabin Republicans website and, to their credit, they began directly on message. But at the bottom of the page is the usual 'Obama-Broken-Promises' stuff. I think they will lose those talking points early next year, and will have to contend with some frontal assaults from their own party.

I'm looking forward to seeing how the spin morphs over the coming months, but I'm even more looking forward to them digging in their heels and confronting their own party. Who knows, maybe they'll even take a walk.

[Guest Matrix]

Everyone is entitled to an opinion and we appreciate their willingness to share it. That is the basis for informative discussion. If we all agreed it would be a boring world not to mention a very boring forum.

Really? What a shit-full 180! #justsayin'

[lookin]

Once again, TY, you speak the truth.

Curious as to where where all these guys were before the election?

For that matter, where was Obama? I'm still a fan and I'm sure he was doing what he thought was best, or what he'd been advised to do, but a little more horn-tooting in October wouldn't have been such a bad thing.

[RA1]

I don't know why you have a bee in your bonnet, Lucky, because I know you don't just accept whatever the Demo's or liberals have to say without question. Neither do I.

I don't think very much in this article is currently "provable" and it will take time to know what the results are. We are still debating the efficacy and appropriateness of US president's actions or lack thereof as far back as FDR and everyone in between. Maybe HST gets a bit of a free ride?

When I am flying I am suspicious of every aspect of the flight. Any strange noises, any unusual guage indications, the weather, ATC, day or night; all those and more get my constant attention. Perhaps this carries over into my politics as well.

Best regards,

RA1

[Lucky]

I don't know why you have a bee in your bonnet, Lucky, because I know you don't just accept whatever the Demo's or liberals have to say without question. Neither do I.

I don't think very much in this article is currently "provable" and it will take time to know what the results are. We are still debating the efficacy and appropriateness of US president's actions or lack thereof as far back as FDR and everyone in between. Maybe HST gets a bit of a free ride?

When I am flying I am suspicious of every aspect of the flight. Any strange noises, any unusual guage indications, the weather, ATC, day or night; all those and more get my constant attention. Perhaps this carries over into my politics as well.

Best regards,

RA1

Well, of course, I was goading you. The article presented many verifiable facts, yet you respond that only time will tell. Why not tell us why the verifiable facts don't resolve any issues- if they don't, of course. You are right, in that I am also disappointed in so many things political. But the after-effect of the election seems to be that Obama has done more than he was given credit for, learned but I still wait for time to tell on others.

[Lucky]

Discuss the topics and not the posters, please. Everyone is entitled to an opinion and we appreciate their willingness to share it. That is the basis for informative discussion. If we all agreed it would be a boring world not to mention a very boring forum.

It doesn't really look to me like you read, or considered, what I wrote.

[lookin]

Matrix, mon ami, I had such high hopes for this thread, and now observe how quickly the breeze can shift.

Ah, well, no harm done! RA1 and Lucky have brought us back on steady course.

Anyway, can't wait to join you for a cocktail on Valentine's day!

[Guest Conway]

It is a measure of Wall St. single-minded greed, that after having been saved by the Bush/Obama administrations and Congress, they showed their thanks not by reforming their operations and practices but by fighting financial reform to restore sound busness practices, not by lending a hand and money to help small business through the storm that Wall St caused after Wall St had been helped out of the hole it created, but by closing their doors effectively to lending to small business, not by writing off their bad debt to strengthen their underlying foundation but by buying back their own stock and giving their execs the biggest bonuses in history.

If it weren't for the fact that they would take the whole country with them, we should have let Wall St Financial circle the toilet bowl that they so richly deserved. The GOP by statements and actions support those Wall St actions. The Tea Party has invited the snake into their bed. Let them sleep with it now.

I think that history will have a very different view of TARP.

Like many, I had the idea that TARP should be used by Banks to "marshal" bad assets and offer them for sale much like happened in the real estate crisis of the early 90s.

Like many, I had no clue that there would be such a long term liquidity issue plaguing our economy. The difference between the crisis of 1991 and the crisis of 2008 was available liquidity. The 1991 crisis effected largely Savings and Loans. Banks were in the market, were liquid, and provided the capital (mostly via debt) to allow investors to buy the marshaled assets out of the S&L's "Bad Bank" pools that were created to hold them.

That strategy would not have worked in this crisis because the entire system was under duress. There was, and to a certain degree, there still is little liquidity in the market. As a result, asset prices, are a fraction of what they were in the last crisis. That means bigger losses and a further erosion of capital for problem banks.

The TARP strategy of 2008 looks brilliant to me in retrospect. It allowed those banks that could be recapitalized to be so. It allowed those banks that could not be recapitalized to stay afloat long enough to not cause a panic.

Now, as we enter 2011, we see how this is going to work. The banks who used their TARP to strengthen their balance sheets are in a position to buy the non-survivors. A portion of the acquisition proceeds will go to repay the TARP of the acquired bank. A portion will go to the equity holders of the organization (the stockholders). The result is that the shareholders will take the biggest loss versus the taxpayer taking a bigger loss as it would in a classic bank failure.

My guess is that by 2013, when TARP dividends payable to the government rise from 5% to 10%, all banks that can repay TARP will do so. Thereafter, those that cannot will be taken in by those that used their now repaid TARP to stabilze their balance sheets way back in 2008-2009.

That will mean less cost to the taxpayer for Bank failures and dividends paid to the taxpayer on a large portion of TARP repaid to it.

That's as close to a win win as one could come up with from this crisis.