July 16, 2010
Open Letter to President Obama
Mr. President: The Gulf well has been capped, the Financial Reform Bill passed,
and you are off to a well-deserved vacation. It’s been a good week. The nagging
question is whether it will be enough for November.
The problem is one word: unemployment. It continues to hover around ten
percent but that is only because the statistic drops discouraged workers who
give up looking for work. If they are included, the figure is nearer a fifth of the
work fore and as much as a half in some subgroups. As a result, people continue
to lose their homes, and these foreclosed houses continue to put a damper on
the housing market.
On the major issues, Sir, forgive me for saying so, but your rhetoric is directed to
appeal to the public while actual actions appease the large donors and powerful
interest groups. This high-wire act lasted a while but the overwhelming
evidence is every day life plus some bad luck (the Gulf spill) has ended it. Your
poll numbers now show the negative overtaking the positive. If the Republicans
take over either legislative body in November, you can look forward to a series of
investigations, as appears to be the norm these days, causing more distraction
and demands on your time.
When you were about to dispense our tax money to the banks, many (including
this letter) warned you of the folly of dropping money into these financial black
holes. They are still using that and their earnings to shore up their balance
sheets — through loss reserves to be used when they finally end the farce of
retaining worthless holdings at purchase price. As you were warned, they have
not circulated the money into the economy. But the sad fact remains that even if
they had, it would not have generated the well-paying manufacturing jobs of old,
just low-level service work plus some very high-level professional jobs in our
increasingly two-tiered economy. Here is a statistic your advisors may not have
brought to your attention: During the robust growth years from 2002-2006, 75% of
the increase in income went to the top one-percent in this country.
The Financial Reform Bill has everything except what is really necessary to
prevent a repeat of the financial catastrophe (despite assertions to the
contrary). It omitted the Volcker rule limiting securities trading by commercial
banks, or, better still, the separation of commercial and investment banking
required by Glass-Steagall. It is like having a car that is missing the differential
which transmits the engine’s power to the wheel. The Bill places the onus, of
guarding the public interest and watching the banks, on regulators. But as
economists have pointed out earlier, regulators are eventually almost always
compromised by the industry they regulate. One doesn’t have far to look: the
Gulf spill is a textbook example. And the Goldman-Sachs fine of a half-billion
dollars (about two-weeks profit) is another. Its stock shot up five percent on the
news. Perhaps there is a chance for criminal prosecution but intent is always
difficult to prove in fraud cases.
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