Americans watching the Obama drama on economic recovery can be excused if they’re having some trouble sorting truth from fiction. For one thing, we’re dealing not only with President Obama’s version of a new economic recovery bill, but also another measure to dole out the remaining $350 billion from President Bush’s failed financial bailout bill. Toss in another trillion bucks the Federal Reserve is contemplating dumping into financial institutions on its own, and there are a lot of multi-billion-dollar balls in the air at once—all distracting our eyes while the hands of the federal prestidigitators move unprecedented amounts of taxpayers’ money around.
It starts with Bush’s $700 billion bank and insurance company bailout bill. Newly appointed Treasury Secretary Timothy Geithner released details this week of what is being pedaled as a “public-private partnership” to buy toxic assets (more commonly known as bad investments) from troubled banks. The program, which is formally titled the Troubled Assets Relief Program (TARP), has received significant criticism for its failures so far. It has been virtually non-transparent, as pointed out by those who say Bush was merely pulling a TARP over the problems. Without sideboards or guidelines, hundreds of billions of dollars were simply dished out to the waiting hands of the very same Wall Street speculators who created this disaster in the first place. And what did they do with the money intended to help homeowners facing foreclosures? They used it to pay outrageous bonuses to their executives who should have been fired for their failures, to schedule executive retreats at luxury resorts for board members, to buy up other banks and to simply bolster their holdings. Homeowners, meanwhile, are left holding an empty bag—except, of course, for the fact that someone will eventually have to pay the piper for the giveaways.
If you believe Geithner, under his tenure the program will have accountability—but not too much or, as we’ve heard dozens of times before, businesses and private investment won’t want to participate. In his rollout announcement of the re-designed program, Geithner told reporters that “critical parts of our financial system are damaged. Instead of catalyzing recovery, the financial system is working against recovery and that’s the dangerous dynamic we need to change.” To do that, he continued: “We have to both jump-start job creation and private investment and we must get credit flowing again to businesses and families.”
Apparently, however, there are a lot of people who don’t have much faith in Geithner’s ability to do either—Wall Street for instance. The Dow-Jones Industrial Average fell more than 380 points after his announcement on Tuesday as traders and investors criticized the plan for a lack of specifics on how it’s funds could or would be used. Homeowner advocates likewise rejected the plan, with the chief executive of the National Community Reinvestment Coalition, John Taylor, telling reporters: “I’m not hearing anything I like. It sounds like they’re going to continue this kind of carrot approach and leave the sticks at home.”
But if Geithner’s plan seems to be on the rocks, Obama continues to push forward his new plan, significantly different versions of which have passed the House and Senate. The measure, which Obama claims is “pork free” because it contains specific project funding but not the usual congressional earmarks, will likely come in at somewhere around $850 billion and doles out a little something for everyone.
Unfortunately, Paul Krugman, the New York Times’ Nobel Prize winning economist, says that’s exactly the problem—too little spread too thin to do much good. If you believe Krugman, and they don’t give Nobel prizes out to people who are usually wrong, the package should be closer to $1.5 trillion to have any affect whatsoever on the nation’s economy. He predicts that the U.S. gross domestic product will actually lose $2 trillion in the coming year because of the economic collapse—far outpacing the stimulus package’s ability to offset the loss.
To further muddy the waters, the Republicans have apparently re-discovered their fiscal conservatism now that they’re no longer in charge of the purse strings, and are voting en masse against Obama’s bills. Not a single Republican voted for the House version of the measure and only two Republicans supported the Senate version. For what it’s worth, Sen. John McCain, R-Ariz., was blunt in his assessment that the massive spending was what he called “generational theft” on “Face the Nation” because it places a huge debt burden on future generations while simultaneously limiting their policy and budget choices. Those who note the blatant hypocrisy coming from one of the lawmakers who brought us Bush’s wars, tax cuts for the wealthy and the tragedy of deregulating the financial industry would be right on. But at the same time, McCain is not entirely wrong on where the tab for the massive spending will ultimately fall—on future generations.
Meanwhile, the House and Senate will have to convene a conference committee to iron out the differences in their versions of the stimulus package. While side-by-side comparisons are now becoming available, a quick look through the spending measures show significant discrepancies in spending priorities. For instance, the House measure contains twice as much money for food stamps and weatherization as the Senate version. On the other hand, the House version contains no money for non-defense environmental cleanups, while the Senate puts $483 million toward that goal. Considering the size of the total spending package and the vast number of programs and institutions, the conference committee negotiations are likely to be very spirited, to put it mildly.
How it will all turn out and what effect it will have, if any, on everyday Montanans remains to be seen. One thing, however, seems certain: Congress and Obama are preparing to spend staggering amounts of taxpayers’ money. Our only hope at this point is that present and future taxpayers will survive this bad asset trip.
Helena’s George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at email@example.com.