Sunday, October 18, 2009

Krugman on the Banks

Here's a key bit out of Paul Krugman's latest op-ed in the NY Times:
You may recall that earlier this year there was a big debate about how to get the banks lending again. Some analysts, myself included, argued that at least some major banks needed a large injection of capital from taxpayers, and that the only way to do this was to temporarily nationalize the most troubled banks. The debate faded out, however, after Citigroup and Bank of America, the banking system’s weakest links, announced surprise profits. All was well, we were told, now that the banks were profitable again.

But a funny thing happened on the way back to a sound banking system: last week both Citi and BofA announced losses in the third quarter. What happened?

Part of the answer is that those earlier profits were in part a figment of the accountants’ imaginations. More broadly, however, we’re looking at payback from the real economy. In the first phase of the crisis, Main Street was punished for Wall Street’s misdeeds; now broad economic distress, especially persistent high unemployment, is leading to big losses on mortgage loans and credit cards.

And here’s the thing: The continuing weakness of many banks is helping to perpetuate that economic distress. Banks remain reluctant to lend, and tight credit, especially for small businesses, stands in the way of the strong recovery we need.
It is worth your while to read the whole article.

This point about Obama's administration not acting when it should to fix the financial industry is the reason why I've given up on Obama. He has sold his soul to Wall Street. He is a bought and paid politician.

Sadly, Krugman points out that the cost of the US dragging itself out of this recession is going to a lot more pain and a lot more time than it would have been if Obama had acted decisively when he got into office. He didn't. (Of course, the whole disaster could have been avoided if Bush hadn't been elected in 2000 and sensible financial regulations put in place. But that is old history.)

Sadly, the average American has no clue of how bad things will be and for how long because they don't follow the financial press and don't stay on top of the shenanigans of the politicians. I am horror-struck at how 30% of the US population still think Bush was a "good" leader. These people have no clue how bad he was and how many generations it will take to undo the harm he inflicted on the economy and the institutions of the US. Sad.

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