Obama's Budget Banter Omission: The Banks Broke the Bank

Since the White House announced its 2012 budget, the requisite punditry stream has been breaking down its specific pluses and minuses. I could grab illustrative quotes from various places and people, or add to the analytical details, but for the most part, it boils down to something like this:

GOP and GOP supporters: Obama didn't make enough spending cuts, he's not taking this whole budget thing seriously. Oh, and about the cuts he did suggest with regard to corporate tax benefits, high-end mortgage-holder deductions and (his-own) extension of wealthy individual Bushian tax breaks - well, that's just plain anti-American and - will kill jobs. (The fact that corporations were contributing just 6.6% and 7.2% in 2009 and 2010, of the total federal tax receipts, a 50% drop relative to the rate before the financial crisis, or about $150 billion per year, isn't relevant in the scheme of things.) Now, where can we cut another $100 billion? 

DEMs and DEM supporters: Obama inherited a bum economy, bum budget and bum deficit from Bush. And, he's turning around the crap hand he was dealt, slowly.  That means he has to cut back on some important programs, but he's gonna champion a high-speed railway, electric cars (to drive along side the high-speed railway?), and clean energy initiatives, and those will most certainly put millions of people back to work. Yes, he appointed Tim Geithner, one of the lead bank bailout builders, whose Treasury department colluded with the Fed, under Ben Bernanke, the other guy Obama kept on deck to help the economy, to increase the amount of US Treasury debt to $9.4 trillion from $5.4 trillion since the financial system began inhaling subsidies in the fall of 2008, and went on to post record bonuses and profits. But, he had no choice.

The intent of the actual discourse kind of makes me imagine a burning building across the street, raging flames, engulfing smoke, crumbling over its foundation, and there are two people watching, one's a Democrat and one's a Republican. While the fire intensifies, they are arguing over whether it's better to use a thimble or a teaspoon of water as an extinguisher aid. Somewhere, off in the distance, is an engineer trying to figure out how to rebuild the building over its ashes.

The sad truth is that the budget deficit is a direct outcome of the economic policies that were adopted by both parties over the years. National debt nearly doubled under Bush, and continued to grow under Obama, while the financial system pillaged the country for trillions of dollars twice - first, during the leveraged build-up to the economic collapse, and then, via a stockpile of creative subsidization awards afterwards, the underlying debt build-up for which, lingers like a bad hangover.

Unless the real economy becomes healthier, more people are employed and we institute a far more progressive tax and distribution structure, there is simply no mathematical way, to balance this budget.

So, there is no silver bullet amount of spending cuts that is sufficient to balance it either, particularly as long as we are only looking at, and debating about, the spending side of the US balance sheet, and only a portion of the non-discretionary component, at that. Quibbling over whether Obama is cutting enough or not enough, is quibbling over the wrong question. Obama showcasing just the cuts as these 'hard choices' that will get us more towards balance, is meaningless. It is equally misleading for the GOP  to focus on a separate subset of potential spending cuts, and conclude that this extra $100 billion will do the trick. Making $1.1 trillion of cuts over ten years, all things equal, with a projected deficit per year that's higher than that, won't balance any budget, for any political party.

You know what would have been really cool?

If Obama had just said - you know what - the budget can't be balanced, deal with it. And you know why? Because over the past two years, the economy, that was trashed by the banking sector, still sucks. And, during the entirety of the Bush administration, while prepping the economy to suck, debt to pay for wars and tax cuts kept growing. And, when the banking system was facing the abyss, we opened our checkbooks, we stimulated the hell out of it, but we did it mostly through issuing Treasury debt and the magical Fed printing machines - so it doesn't show up in the budget that we're all debating, except for a couple hundred billion to Fannie and Freddie and what remains of the stellar TARP project. And you know what? I admit that was a stupid thing to do. It was stupid when it started under Bush, and it was stupid when it continued under me and the economic team I appointed to keep it going. The bailout binge increased our public debt by 50% under my reckless economic advisors, Treasury Secretary, the Federal Reserve. And, hell if other countries decide to dump Treasuries in bulk, and their interest rates rise, and Bernanke can't QE them down fast enough, our budget deficit will gap like the Grand Canyon. 

Meanwhile folks, we need revenue. Just like banks need profits to pay bonuses. And, that's something that can only be remedied through a healthier economy - not just for corporations, stock market investors and banks - that are sitting on $2 trillion in cash, with $1 trillion parked at the Fed  - but for the general population that still counts 26 million people under or unemployed, not to mention a historically high 48.9% unemployment rate for youth, rising food and basic needs costs, continued foreclosures on entire families, and health insurance rates that will double within the next three years. You know what, when this country needed revenue in the past, Republican presidents and congresses did the math. Now, it's my turn. Let the GOP explain exactly how a lower corporate tax contribution created more jobs in the past two years, and while they're trying to figure that out, I'm gonna show some real leadership, and do everything I can - not to balance the budget - but to balance our economy.

Oh well.

Obama: "Shellacked" but already capitulating

The Republicans stormed the House, but Wall Street really won.

Last night, as I obsessively flipped around cable TV channels, I noted that whether I landed on Fox or CNBC or MSNBC, the same two main coverage items were being debated: 1) the Tea Party, and 2) the victorious Republicans (including the ones also labeled Tea Party candidates – even though they were not actually running as a separate Party – a trick that progressives have never managed to pull off). All the TPGOP's were singing from the same song sheet: extend Bush’s tax cuts, kill what they refer to as Obamacare, and cut spending in some manner devoid of specific detail – and of course, get Americans back to work – the free-market way – by reducing government constraints on businesses so they can stop worrying about rules and thus somehow spontaneously start hiring more. (Note: to underscore this strategy, CNBC paraded a bunch of CEO’s on screen throughout the night.)

The TPGOP left the innocuous financial reform bill alone for the most part, except to make clear, as Incoming House Majority whip (aka 2012 contender), Eric Cantor did, that they don’t want onerous regulations (much better to wait until the next leg of this crisis and the loss of more jobs and homes, apparently.)

There was far less discourse about what the winning Democrats wanted, because beyond mentioning how this vote was really a referendum on Obama anyway. Though, let’s face it, we’re all tired of the promises anyway, not because we’re impatient – it takes time to create jobs – but because it’s no fun being lied to.

Here’s what wasn’t mentioned – first, as many other have noted, the cost and logic of two wars, and second, the cost and logic of bailing out  and now, propping up, Wall Street as it heads decisively (despite Obama and Pelosi’s promises of ‘those days of fill-in-the-blank being over'.) No winning Republican mentioned repealing the financial reform bill, since it doesn’t really reform finance. Score 1 for Wall Street. No winning Democrat thought that maybe since the Republican Tea Partiers were so anti bailouts, they should suggest a strategy that dials back ongoing support for the banking sector that continues to foreclose on homes, deny mass lending restructuring despite their federal windfall, and rake in trading profits, or underscore commitment to put the Fed in check. The Democrats can’t suggest that, because they were complicit. Score 2 for Wall Street.

In other words, nothing will change. And that, more than the disillusionment of his supporters that he would actually stand by his campaign rhetoric, is why, Obama will lose the White House in 2012.

Post election day, the Dow shot to a 2010 high, bank stocks rallied 2% on average, and the Fed announced they’d buy (read: shift to their books) another $600 billion of Treasury bonds (read: our debt.) The fictional boosting of the financial economy, absent the real boosting of the general economy marches on sans debate.

This morning, Obama had the chance to at least attempt to re-engage the voters who believed in his mantra of change. In his contrition speech, he took responsibility (read: apologized) for making it seem like he extended government too much (thereby taking on the language of the Republican opponents) explaining that we were in an emergency situation (not that the banks screwed up and stole the life rafts). He ensured businesses he was still on their side (in case the fact that he’s keeping Wall-Street lackey, Treasury Secretary, Tim Geithner on, and extolled Larry Summers on the Jon Stewart show, wasn’t enough of a sign).

It is likely, the Democrats will fear losing their seats in 2012, and vote more with the pro-business center going forward. That would be a mistake for them, and bad for the country. It would be better to be honest with themselves. The health care bill, for example, really did lead to a 14% increase in premiums this year for 90 million Americans (and that's just counting the ones covered by the Blue Cross /Blue Shield complex.) The solution to this hike shouldn’t be repealing the bill as the Republicans want, but capping costs (like every one wants) and providing single payer to all, which will force a competitive pricing structure relative to the private insurers – at thus, reduce an endlessly growing business and personal cost. The financial reform bill still leaves the biggest banks, too big. 

Sadly, Obama showed preemptive signs of capitulation with two words; ‘free market.’ Towards the end of the Q&A session following his speech, Obama said that the free market has to be “nurtured and cultivated”, and that he had to take responsibility to make clear to the business community and the country that the most important thing we can do is boost and encourage our business sector and make sure that they are hiring. His facial expression was as hollow as his words. He added that “we” (I’m assuming him and Geithner) have been talking to CEO’s constantly (and don’t we all feel good about that?) – and that next week in Asia, his whole focus is how to open up markets, so “we can prosper, sell more goods and create more jobs in the United States” (that playbook is from Bush’s Treasury Secretary, Hank Paulson, because that policy works so well). He pointed out that a whole bunch of corporate executives will join “us”.

And that, is the second reason he will not be re-elected, businesses won’t need to fund him, when they can fund the Republicans, now that they are back in vogue, they will just extract what they can meanwhile, and Obama will see this in 2012, if he doesn’t now. He could go all out and ignore those CEOs and focus on the general populace, but it doesn't seem like it. Whether he has learned something or not from this election about loyalties to his votes, he isn’t showing it. So maybe progressives should stop defending him and start yelling at him. Or seriously look for another 2012 candidate to run against Sarah Palin.