Friday, July 17, 2009

An Impending Obama Train Wreck

Having time to kill in Logan Airport this morning, I gave more than usual attention to the front section of the New York Times. There seems to be a theme. Here's Graham Bowley on Goldman and JP Morgan Chase as the survivors of the late uproar, richer and more powerful than ever. Here's Krugman saying it'll be worse next time. Here's Julie Crewswell and Michael J. de la Merced, on how the nation's largest lendr-to-small-business is still shopping for an angel. And here's Stephanie Rosenbloom on how losing that lender-to-small-businesses would count as just one more insult to retail. Oh, and here is Bernie Becker, tell us how the House is taking action to prevent the closing of auto dealerships.

And here's Buce with the day's wrapup. Say what you will, I think there is good evidence that we dodged a meteor last fall: that we came within a gnat's eyebrow of total worldwide credit paralysis and the full meaning of that (hypothetical) impact is just too awful to imagine. We did it by hurling great gobs of money at rich people. It was a good thing to do. So pin a rose on Ben Bernanke.

The trouble is, nobody remembers. The bankers themselves have certainly forgotten as they go all into a hissy fit about how mean it was for that nasty government to give them all that money. The public remembers the giveaway part. They can't remember (maybe they could never really see) the deflected meteor. Krugman is certainly right that we seem to be blowing a chance for some sensible regulation, and that in the long run, this failure to act is likely to make things worse.

He's right, but politically, at least in the short term, that seems to me beside the point. Recall that we've got two parallel economies here--financial and real--with two parallel problems. "Financial" it seems we have solved in the short term, and even if it comes back again, that maybe won't happen until after 2016. The "real" problem--high unemployment, sluggish job creation--is just as real as it was last month, and perhaps even getting realer.

That last stuff, people notice. So far, they can see (a) that the bankers are getting richer with (b) taxpayer--i.e., "their"--money; while (c) they are getting bubkas. The longer this goes on, the more clearly they can see it.

This is all entirelyperfectly understandable, and in large part rational. But add another factor: clear-eyed as people may be about the shape of the problem they aren't nearly as coherent when it comes to figuring out what to do about it. They really don't have any idea what would amount to good bank regulation (aside from "hang the bums"). They find discussionos of bank regulation tedious and confusing. Their mind wanders. Meanwhile, they are happy to get behind measures like saving the car dealers (for extra credit: how many of the Cognressmen who are hot to save the car dealers are also among those who howl about he evils of govesrnment running a bank?).

Which brings me around to the lender-to-small-businesses, i.e., CIT. It now looks like (a) the government will let CIT fall off the cliff; and (b) some unknowable number of borrowers will be pushed into trouble as a result; oh, and (c) an unknowable but perhaps larger number of debtors will claim that heir problems were caused by the failure of CIT (I see that Blomberg has a story up tonight about an Alabama tool supplier, apparently the first company to blame its Chaper 11 on CIT--I have no idea whether justly or not).

You can see where I am going with this. The Chrysler dealers are just a blip. If business start going broke in asssorted Congressional districts; if they can claim with any degree of plausibility that it was CIT wot did it; and if the story catches on that the government pushed them off the cliff--why the howls from the pitchfork-and-tarbucket set will be loud enough to make the welkin ring.

I am not in any way delighted with this prospect. I voted for Obama and I would vote for him today. And like all grandstand kibitzers, I don't have anything like a plausible recipe for a different result. But if things keep going this way, the Presidency over the next few months is going to start looking a lot less fun.

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