Fiasco that the AIG bonuses may be, they are only the most superficial indicator of how badly things have been misjudged so far, if you following the logic of this though-provoking article, which explains how team Obama still has yet to grasp just what kind of trouble we are in.
First, Galbraith explains, the CBO model of how bad the recession would be without any action is unreasonably optimistic--no worse than 1981, because that's the data it's built on. (Even though the economy as a whole is much worse off than back then.) Then he points out how the political compromising ensured a too-cautious gauging of the response. And he notes the desire to return to familiar terrain: cutting entitlements! A quick return to normalcy is not possible with mortgage wealth and 401(k)s flattened. But that's what Geitner is somehow expecting. Instead, Galbriath warns:
The most likely scenario, should the Geithner plan go through, is a combination of looting, fraud, and a renewed speculation in volatile commodity markets such as oil. Ultimately the losses fall on the public anyway, since deposits are largely insured. There is no chance that the banks will simply resume normal long-term lending. To whom would they lend? For what? Against what collateral? And if banks are recapitalized without changing their management, why should we expect them to change the behavior that caused the insolvency in the first place?
This is a prognosis perfectly in line with what we've seen with the AIG fiasco, only broadened out to encompass the entire economy. The existing incentive structures will not save us, the existing assumptions are flat-out wrong.
Sometimes this blogging stuff is too easy. Almost as easy as transcribing official lies. Today, for example, Salon had the following two stories in a headlined box together:
Watch this greatest hits compilation of the network's rah-rah fronting for the Bush economy and "losers" like Bear Stearns, Lehman and AIG
By Joan Walsh
Now, of course, Stewart's piece taking down CNBC is hysterically, wickedly on the money about how utterly clueless they are--and thus utterly useless as a source of financial information--their supposed reason for being:
But it also--accidentally, really--completely undermines the attempt to blame Obama for Wall Street's financial collapse. The attempt is absurd on its face: too many folks remember George W. Bush was President until just a few weeks ago. And so the right is trying to trace the fall of Wall Street back to Obama's clinching the nomination, or even, perhaps, his birth in 1961. But Stewart's bit also shows how--if that's the case--CNBC never even remotely noticed the evil badness for bidness back then, when Obama first started destroying all of Wall Street's hard-earned wealth.
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