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Tuesday, January 26, 2010

Support for Bernanke and health care "reform" damaging Obama

I've been reading with considerable chagrin the seemingly endless well of support Obama has for Bernanke. This from HuffPo:
"'He has my strongest support. I think he's done a good job,' Obama told ABC News.
"What we need is somebody at the Federal Reserve who can make sure that the progress that we've made in stabilizing the economy continues. I think Bernanke is the best person for that job,' the president said."

I may not be the greatest of political minds, but I don't see how Obama can tap popular political sentiments by supporting Bernanke. Obama seems to be apologist-in-chief for Wall Street and its shameless plug for public aid. I don't know where the President gets his news, but he must not know that Wall Street recorded record profits and bonuses last year.

Much advantage came out of sweetheart loans and credit facilities offered by the Federal Reserve, which dwarf the $700 billion TARP. Dumping toxic debt for US Treasuries is a great money-making proposition for Friends of the Fed, a group of private bankers spearheaded by Geithner. In these exchanges, taxpayers are left holding the losses, which are socialized. The profits, meanwhile, go to Geithner's and Bernanke's cronies on Wall Street.

Obama couldn't offer a juicier political plumb to the Republicans than his enduring support for Wall Street and its agents in his administration. The more difficult the economy, the more contrasting the opulent lifestyle of the New York banking elite with the mainstream popular consciousness. As millions go jobless and homes foreclose, the Bernie Madoff-type gamblers who control the Fed's money-making machine are feeding major discontentment. The scene from Gangs of New York where the homes of wealthy Upper West Siders are raided comes to mind...

Projecting infinite support for the bankers' allies inflames nearly infinite popular rage bubbling under the surface. In the past, this anti-incumbency may have been limited to groups like the tea-baggers. Yet the Republicans have considerable experience hijacking popular movements, and could easily direct the anti-Washington emotions into a far broader political force to use against the Demos.

According to the article, McCain advocates holding Bernanke to account. The Republicans' reaction to the bailout crisis has been shrewd. They've picked at Obama's close connections to Wall Street, without directly criticizing him they can take shots at Bernanke at Geithner, who really do make ideal punching bags, being insiders. Should any attempt at in the real economy recovery fail, the Republicans will be able to blame Obama's policies as favoring the elite Wall Street bankers at expense to the general public. Rather than create distance between himself and Wall Street, Obama's become their apologist. Obama received many millions from Wall Street, and the quid pro quo has been protection for their profits through the crisis, which was a product of their unchecked greed.

Bernanke was at the heart of the creation of the mess, the creation of the housing bubble.Bernanke and his predecessor Alan Greenspan encouraged easy money policies that allowed so much capital to flow into already inflated mortage securities markets. As chairman of the New York Fed, Geithner protected the interests of Wall Street prior to his selection as Treasury Secretary.

In one sense it doesn't matter whether Bernanke averted a larger crisis. The amount of money which flowed into privileged Wall Street firms like Goldman Sachs is a tremendous political liability. The American people are tired of being treated as second-class citizens and made to fork over billiosn for what's essentially a bankers' mistake (although of course the MSM packaged the collapse as a purely subprime phenomena--waiters getting McMansions--when in fact the derivatives trading based on mortgages was fifty times larger. Even today, the total notational amount of derivatives exceeds $260 trillion, I believe, an amount no bailout can cover in the event of default. Yes, you could argue that such a massive pile of IOUs constitutes a risk of systemic collapse, but not if the shadow banking system hadn't been created which made permissable such huge over-leveraged bets.

Already a year into his administration, perhaps Obama can no longer draw on Bush ineptness to blame for economic problems. Bush and his laissez faire regulatory policies may have helped set the circumstances that allowed mortgage fraud, but Congress--majority Democratic since '06--gutted the regulatory environment and Glass-Steagall.

Obama likely wants to keep Geithner around because their replacements create even more uncertainty, which Wall Street certainly doesn't like. It's highly unlikely that the political liability Obama created by supporting Bernanke will be worth whatever support Wall Street can provide in terms of future campaign donations. If however Obama is willing to sacrifice himself politically for the bankers, he will leave as his one-term legacy a new low in bowing to the corporate interest over his own.

The best summation of the case against Bernanke's re-nomination comes from Webster Tarpley (his website is here.) Tarpley includes a letter to be sent to one's Senators here.

So thorough has the Senate been compromised to Wall Street, I'm not sure if Bernanke can be opposed. According to another HuffPo article, through bureaucratic maneuvering Democratic Senators are lowering the bar to only 50 votes required for re-confirmation.

I am guessing a vote in support of Bernanke nomination might cost incumbents 5 points or more if they face election this year. That's assuming of course that they face populist opponents, or rivals who aren't as compromised in their loyalties to Wall Street. As we saw with Goldman Sachs, Wall Street insiders have a habit of winning no matter who wins.

Terrorizing the stock market

Geithner's threat that the stock markets would go down if Bernanke weren't re-nominated (video) has generated a myth central to the mainstream media's reporting on the crisis. The idea, just one in a tapestry of misinformation, is that Bernanke is good for stocks. With relentless spin, the financial media casts each day's market performance on the idea that Bernanke's will be re-nominated. When performance is bad, it's blamed on the "uncertainty" associated with Bernanke's failure to be confirmed.

A market so soft as to require coddling by the chairman of the Federal Reserve can't be so strong. Actually rejecting risky banking practices actually represents a helpful step towards economic self-healing. If we are to believe the economy needs more liquidity--i.e., the Fed purchasing more Treasuries--then the market is surely incapable of generating growth independent of the price of money--a bearish sign indeed. Constantly adding more debt--the dollar is really an IOU by the Fed--creates a bubble as those "assets" flow into markets, reinflating them.

It may be testament to how frail our economy has become that we rely on so much "production" in the form of GDP from our financial services sector. If we had an economy making things, perhaps the Fed, or even interest rates--wouldn't be so vital. Instead, as our manufacturing economy has declines, it's been replaced with the service sector--a euphanism for underpaying, menial jobs, and the financial sector, whose share of GDP has risen to 40% or from approximately 15% in 1980. Not surprisingly, with this shift in economic priorities has come a media habit of Fed watching, reading the proverbial tea-leaves to divine the future direction of the economy.

Enough of all that. As I'm sure you know, things have gotten worse for all but the richest of Americans. It is worth noting the role the media plays in glossing over the real state of our economic decline, which of course ushers in greater apathy and complacency.

Health Care Reform spun by media

It's worth noting the media spun the Coakley defeat in the Massachusetts Senate race as a referendum on health care reform. Yet the health care reform presented to the Senate could hardly be considered progressive. The massive build-up in forcing people to buy private health insurance is better considered a coup for the for-profit insurance industry. Look no further than Evan Bayh (D-IN) for an indication of where health reform stands. Bayh's wife serves on the Board of Wellpoint, the largest health care insurance company in the U.S.. If Bayh supports the bill, it can hardly mean it threatens the status quo, or Wellpoint's profits.

I did read one article that properly characterized the Massachusetts vote as criticism of the so-called health care "reform." The Republican victor in the race, Scott Brown "built his entire surge against Coakley around his promise to be the 41st senator to block the bill -- this in Ted Kennedy's Massachusetts. He must be pretty confident that the bill has become politically radioactive, and he's right." (Robert Kuttner, "A Wake Up Call from Massachusetts", HuffPo 1-18-10)

Kuttner goes on to bring up Senator Byron Dorgan, who "began the year more than twenty points ahead in the polls of his most likely challenger, North Dakota Governor John Hoeven. By the time he decided to call it a day, Dorgan was running more than twenty points behind. The difference was the health bill, which North Dakotans oppose by nearly two to one."

I'd read that many progressives had stayed away from the polls. Participation was down. Also, as Bev conover points out, the hand-count favored Coakley. Black box voting means there's always a chance of election fraud.

In the end, health care pseudo-reform poses as a measly, inadequate replacement for a public option. Rather than represent real reform, the Obama compromise is weak, overpriced, and friendly to insurers. Posing as reform, the health care bill's demise represents a victory for common sense and a rejection of spiraling health care costs.

I do think we need reform, as do many Americans, so I'm not opposed to it outright like some are. I've heard many people, coincidentally those with jobs and health insurance, complain about "Obamacare." They've been thoroughly propagandized by hate radio and the Right to believe they're better off paying for it themselves, at least until they're 65 and Medicare will be there--theoretically--for them.

I wonder if the anti-Obamacare people will like paying these bloated costs when they're older. While they can complain about the inadequacies of the reforms, few are in a position to bear the costs of their retirement, much less the burdens associated with gaps in government-paid health care. While they're young and employed, they detest government-provided care. When they're old, less employable, will they so eagerly shun the safety net?

Looking at the numbers, there's no way Medicare will be able to cover all the projected health care expenses for the Baby Boomers. Coupled with worsening state budget situations, and a freeze on domestic spending proposed by Obama, a major crisis looms and hole in the safety net widens.

Already, a bigger and bigger chunk of Social Security payments go to feed the gap between what Medicare pays and what supplemental insurance provides. (Just check out an older's person's annual Social Security return.) Retirees will have to eat more and more of their own health care costs. All that money they'd paid into Social Security and Medicare has simply been absorbed.

Without cost controls and a major effort at wellness, the total costs of health care will continue to zoom. As a result premiums will increase. Theoretically, bringing more people onto health care insurance rolls can reduce the burden on Medicaid. Then again, if Massachusetts--the only state with mandatory health care insurance for all--is an example, premiums will sky-rocket.

The costs of health care are simply too high to be borne by the elderly. They will be met by higher taxes. In the absence of real change, get braced for the giant health care ripoff. Don't fret, just get ready to go abroad for treatment, if you can afford it.


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  • At 2:35 AM, Blogger jbpeebles said…

    Bernanke has been reconfirmed in a 70-30 vote.

    Simon Johnson has a good article at HuffPo, who have covered Bernanke and the unfolding AIG-Geithner story with the attention it deserves.

    The implications of rewarding Bernanke with a second term will be staggering. Johnson explains: "a Bernanke reappointment implies larger bailouts in the future - thus compromising our budget further with contingent liabilities, i.e., huge payments that we'll have to make next time there is a crisis."

    We've created a bailout state, which of course increases moral hazard--the belief among banks that they'll be bailed out, as they're too big to fail.

    If you dig around, you'll see that the banks have already begun speculating on exotic mortgage derivatives, again. With the inexhaustible reserves of the turned-for-profit Fed behind them, proprietary trading schemes will multiply as the bubble reflates. In the absence of a correction in commodity prices, we'll see massive inflation, perhaps as early as this summer. (This means the depressionary conditions alone won't be able to dampen "growth" to sustainable levels.)

    The market is crashing, not in response to the possibility of Bernanke's failure to be re-nominated but by the unstoppable momentum of reckless government spending. A monetary collapse will come after inflation increases--the dollar will probably be worse hit than the Euro, because of the mammoth overspending on the military.


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