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In one way, Obama is not totally off the mark. In our current system credit is needed or you get businesses crashing from not being able to loan for investment, being unable to get temporary credit to solve liquidity problems etc. Even if the business has good solvency. And families might be unable to move because they can not borrow for housing, even if moving means getting a job that could pay for that loan.

He is however way off when if he thinks that flooding the banks with money will solve the problems. They will just repeat their schemes and come asking for more. See Hoover for examples of how not to do it.

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by A swedish kind of death on Thu Nov 19th, 2009 at 05:58:45 AM EST
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That is being unkind to Hoover. He didn't actually engage in massive bank bailouts. His fault was not that he failed to liquidate the big banks, but that he failed to follow up the shortfall of private expenditure with public works.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 19th, 2009 at 06:17:04 AM EST
[ Parent ]
I agree that he did not bailout, and that my critique was unfair as it was formulated.

But I remain under the impression that he failed to regulate banking, and liquidate bad banks, thus setting the stage for Roosevelt's Emergency Banking Act:

The Emergency Banking Act (the official title of which was the Emergency Banking Relief Act) was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933. The act allowed a plan that would close down insolvent banks and reorganize and reopen those banks strong enough to survive. In summary, the provisions of the act were as follows


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by A swedish kind of death on Thu Nov 19th, 2009 at 11:10:16 AM EST
[ Parent ]
Oh, yes.

But failure to do enough that is good is not quite the same thing as determination to do much that is bad.

Now, his determination to keep the budget balanced at all cost, on the other hand...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 19th, 2009 at 03:54:40 PM EST
[ Parent ]
A few new good businesses still have good solvency even with the downturn perspectives, a few families out there getting a promotion job. But on a massive scale, businesses have poor perspectives (for survival under debt and recession), families are loosing their jobs and homes. The debt to the GDP level is already highest ever. Banks wouldn't give out 10 trillion in loan even if they wished. Or eventually that would be another bad trillions in loans.

What is remarkable about economic theories is not only that they assume generally idealistic roles of money in the "business cycle", but that they keep mum about significance of debt. Apart from Minsky's Financial Instability Hypothesis, debt problems are never central in Keynesian or monetarist theories.

by das monde on Thu Nov 19th, 2009 at 08:06:31 PM EST
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