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The crucial test - who Obama picks for Treasury Secretary

by NBBooks Thu Nov 6th, 2008 at 12:49:09 PM EST

Who Obama picks as a Treasury Secretary is going to tell us just about all we need to know about how far Obama is willing to break with the unfortunately named "neo-liberal" economic policies of free markets and free trade that have dominated U.S. economic policy since Ronald Reagan - even under Bill Clinton. At this moment, there is a diary on the recommended list on DailyKos, Summers' call for poisoning Developing World?, that quickly turned into a discussion of who might be an acceptable Treasury Secretary. Unfortunately, scanning through the DailyKos thread, it appears not too many people understand that the most important fight Obama can undertake -- with the financial system in ruins and the real economy sinking into depression (shadowstats.com reportedly now calculates the real U.S. unemployment to be approaching fifteen percent, with GDP shrinking at over two percent on an annual basis) - is to replace the reigning paradigm of "neo-liberal" economic policies with something more akin to Europe's social democratic policies.


At the very beginning of the DailyKos diary is a link to a Bloomberg report that includes a short list of people Obama is considering for Treasury Secretary and other economic policy positions. If the list reported by Bloomberg is accurate, then we are in for a huge disappointment, as Obama will have crippled his administration at the very beginning, and will be unable to respond effectively because he is simply unwilling to think outside the box of "neo-liberalism."

Let's run down the list name by name.

Larry Summers is pretty well critiqued in the original diary above, though failing to completelt and adequately outline the fundamental details of "neo-liberalism."

Timothy Geithner is president of the New York Federal Reserve Bank and is a career bureaucrat. As noted in comments here, he also worked for Kissinger & Associates - the shady but powerful influence-peddling frim run by Henry Kissinger. Geithner has been one of the three most important people, besides Paulson and Bernanke, in shaping the response to the financial crisis so far. If you therefore don't see immediately that the naming of Geithner would be a disaster, then you don't understand the true dynamics of the mess we are in. What Paulson, Bernanke, and Geithner have been trying to do is save the financial system as it existed before the crises began. In other words, they are trying to preserve the bubble economics that "neo-liberal" economic policies inevitably creates.

Robert Rubin, Clinton's Treasury Secretary you should know by now, is one of the key people who steered the deregulation of the 1980s and 1990s, which is what created the mess. (if you don't you need to read the New York Times and Washington Post articles from about two weeks ago that recounted some the history, which also discuss the role of Summers). Before serving under Clinton, he was co-chairman of Goldman Sachs. He now serves as chairman of Citibank. Unfortunately, Jared Bernstein, an economist at the EPI, recently co-authored a New York Times editorial with Rubin. My reading of it was that it was almost entirely Rubin, with very little of Bernstein in it. Why Bernstein agreed to it is beyond my understanding at this time.

Stirling Newberry summarized the editorial thus:

We need stimulus now, real wages need to rise in line with productivity, the benefits of trade must be used to offset the costs of trade - particularly to workers. But most importantly, and something that should have been obvious earlier: that the Wall Street and Main Street wings of the Democratic Party have the same interests. Wall Street provides liquidity and scale to Main Street, but ultimately Wall Street exists only if Main Street is better off with it than without it.

Newberry, I believe, has made a nice living working on or for Wall Street, so I think he is a good bit softer than I am. But then, Newberry is "successful," and I am not (i.e., I am constantly worrying about paying my bills and where the next dollar is going to come from; I suspect that Newberry is mostly free of these concerns). Personally, I would  Let Wall Street Burn.

On the other hand, my own recommendation for Treasury Secretary would be -- Stirling Newberry.

Paul Volcker has emerged as a wise old man, and has gotten good mention in many of Bonddad's diaries - all of which I vehemently disagree with as I quite unpopularly explained here:

By the late 1970s, the U.S. economy was beset with stagflation, a condition which mainstream economics had never thought possible. Probably because mainstream economics was still thinking in terms of a functioning industrial economy. So, when Volcker became Fed chairman in August 1979, a number of basic U.S. industries were in bad shape, particularly the bedrock industries: automobiles, steel, and machine tools. One of the Big Three car makers, Chrysler, was near  bankruptcy. At the same time, the Hunt brothers had attempt to corner the market for silver, but had failed and were failing to meet margin calls. What Grieder details in his book [The Secrets of the Temple: How the Federal Reserve Runs the Country] is how Volcker confirmed the fundamental shift in Federal Reserve policy of Burns, by choosing to help the Hunt brothers, while letting Chrysler twist slowly in the wind.  (Congress soon afterwards arranged an emergency loan for Chrysler). . . Volcker had fundamentally altered the rules of the game: it was now "What's good for Wall Street is good for the country." And the real, physical economy could go to hell -- and it has, taking millions of decent paying jobs and much of American prosperity with it.

So, again, I don't think Volcker is a person that will help lead us to an alternative to "neo-liberal" economics.

The situation as I see it is that Obama has that all-important first year to get real change enacted and signed into law. But if he names as Treasury Secretary someone who truly rejects "neo-liberal" economics, the financial markets are going to react extremely negatively, hundreds of millions of dollars will flood into conservative think tanks like American Enterprise Institute, and all sorts of lying and misleading crap about "socialism" and "communism" is going to be created and flung by the wrong-wing screech monkeys - all in the service of preventing a move from "neo-liberal" economics, which will severely limit the freedom, influence, power, and more importantly, the profits, of Wall Street and the financial markets.

On the other hand, I believe that the wrong-wing campaign of lying and misleading crap about "socialism" and "communism" is going to occur no matter what Obama does, so I think he should just make the break with  "neo-liberal" economics from the beginning, and incur the wrath and fury of Wall Street immediately by naming someone who clearly is not part of or sympathetic to Wall Street.

Display:
Corzine (Gov-NJ, GS alum) is on the MSM short-list, too.

Diversity is the key to economic and political evolution.
by Cat on Thu Nov 6th, 2008 at 03:17:56 PM EST
Would be an amazing pick!

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 6th, 2008 at 04:11:24 PM EST
European Tribune - The crucial test - who Obama picks for Treasury Secretary
On the other hand, my own recommendation for Treasury Secretary would be -- Stirling Newberry.

haha....best laugh of the day so far!

condi's gig is going to naomi klein, alexander cockburn for ambassador to israel, markos as secdef, change is coming...

seriously, stirling is a genius, he is writing often at the agonist, a better home for his talent than dkos, methinks, tho' less eyeballs.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 7th, 2008 at 05:58:52 AM EST
[ Parent ]
Krugman would an interesting choice and he already said he is available for this position.
by fredouil (fredouil@gmailgmailgmail.com) on Thu Nov 6th, 2008 at 04:28:19 PM EST
Oh? I thought he'd ruled himself out? Gotta link?

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 6th, 2008 at 04:38:05 PM EST
[ Parent ]
New York Magazine

Interview with Paul Krugman, Oct 19, 2008.

Would you be Barack Obama's Treasury secretary if he asked?

I would urge him very much to reconsider. I'm just temperamentally unsuited.

So you would blink.

Yes. I don't want the job. I don't want any kind of administration job. I think that it's better for me, the country, and general mental health to have me on the outside.



She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Nov 7th, 2008 at 01:49:11 AM EST
[ Parent ]
thanks

The podcasted conference I have had listen was from end of sept/begining oct.I think it was more a joke than a serious candidature but my feeling was that I tried to open a door at the time.

by fredouil (fredouil@gmailgmailgmail.com) on Fri Nov 7th, 2008 at 02:53:41 AM EST
[ Parent ]
My first choice is Galbraith.  The strong second was Krugmann.  

So I had to pop the bubble with a:

:-(

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Nov 8th, 2008 at 08:43:27 PM EST
[ Parent ]
So Obama rolled out his transition team. Here's what Jake Tapper says:

Political Punch

* various economic experts ranging from liberal (former Labor Secretary Robert Reich, former Rep. David Bonior, D-Mich.) to more moderate (former Treasury Secretary Robert Rubin, former Treasury Secretary Larry Summers, former Commerce Secretary Bill Daley, former chairman of the President's Council of Economic Advisors Laura Tyson, former SEC Commissioner Roel Campos, former Vice Chairman of the Board of Governors of the Federal Reserve Roger Ferguson, and former Federal Reserve Chairman Paul Volcker.

2 Liberals. And if Tapper calls the others moderate you suspect that they're full-blown neoliberals.

I'm feeling the Bob Reich for Secretary of Commerce hype, though.

Steve Clemons, who is in the loop (sometimes just happens to be the wrong loop!) says:

Will Obama's First Term Really Just be a Hybrid of Clinton III and GW Bush III? - The Washington Note

There is a strong chance that Lawrence Summers is going to be returned to the post of Secretary of the Treasury. If so, he's pulling a "Donald Rumsfeld" who served as Secretary of Defense twice -- the first stint under Gerald Ford and then of course under George W. Bush.

Others in the running for the post first held by Alexander Hamilton are New York Fed Chief and Summers protege, Timothy Geithner. Former Fed Chairman Paul Volcker is on the list. Interestingly, many on the political left are making the case for former Bob Dole staffer and FDIC chief Sheila Bair, who has in the eyes of many performed brilliantly in organizing an FDIC response on the housing crisis. Laura D'Andrea Tyson is not much discussed in the news but has become close to Obama and would be a solid choice. New Jersey Governor and former Goldman Sachs executive Jon Corzine is also on the list and is the enthusiastic preference of the labor community.

I think that there are more and even better choices. Among the frontrunners, I'd prefer Geithner, Tyson, or Corzine.


Summers has recently 'seen the light' but has deeply conservative instincts. And no people skills. But: is Geithner really that bad? Would Tyson be better?
by nanne (zwaerdenmaecker@gmail.com) on Fri Nov 7th, 2008 at 05:19:14 AM EST
would be a pretty good choice. As apparently, Corzine (although it would be nice for a change to avoid a Goldman Sachs former chairman, just the one time).

Laura Tyson is seen as a not-horrible choice.

Sharon Bair, for her work at FDIC, might be ok too.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 7th, 2008 at 06:30:17 AM EST
[ Parent ]
Jerome, you understand the essential problem, overturning the Anglo disease. I do not think anyone else, even those you mention, understand the need to overturn the Anglo disease. So, seriously, until someone like you or Stirling are being considered, we'll know that it's just the same old same old.

What I expect is going to happen is that Obama and his team are going to waste the next year or two floundering about trying to apply various bandages to a nearly severed limb. At some point, they will either realize, or stumble into policies, that directly assail the Anglo disease, and the wrong-wingers will be mobilized to howl "socialism." The political geometry will shift quickly and dramatically, making many things possible that seem impossible or improbable today.

You'e an American, aren't you? Sorry, I'm not really sure.

by NBBooks on Fri Nov 7th, 2008 at 08:54:38 AM EST
[ Parent ]
NBBooks:
Jerome, you understand the essential problem, overturning the Anglo disease. I do not think anyone else, even those you mention, understand the need to overturn the Anglo disease.

Jerome diagnosis of the Anglo Disease is a major achievement, no doubt about that. Moreover, it is possible that the solutions he proposes - as I understand them - could contain the symptoms of the Disease in the same way that HIV can be contained.

But cure it? I fear not.

I believe that the underlying causes of the Anglo Disease are the toxic combination of Money issued as interest-bearing debt and Equity in the "Corporation".

The only cure for the Anglo Disease is for the nature of financial capital itself to change, and I believe that this evolutionary process is already under way, driven by the direct connectivity of the Internet.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 7th, 2008 at 10:54:36 AM EST
[ Parent ]
But the epicenter of the Anglo Disease, the "financial markets", are not where money is issued in the process of creating new debt ... dominance of pure financial intermediaries over depository institutions is one  indicator of how badly advanced Anglo Disease is in a country.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Nov 7th, 2008 at 11:33:27 AM EST
[ Parent ]
I'm not sure I fully understand this: could you give me couple of examples?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Nov 7th, 2008 at 01:40:21 PM EST
[ Parent ]
England and the United States?

It is the well known distinction between "bank dominated" and "market dominated" financial sectors. The US and England are the two core examples of market dominated financial sectors.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 7th, 2008 at 01:58:48 PM EST
[ Parent ]
Geithner engineered the JPM-BSC merger and the Primary Dealer window (16 March 2008), the first of several new overnight and short-term credit facilities, accepting "troubled asset" collateral in exchange for US treasuries, that are operated by FRBNY on behalf of the Federal Reserve Board. At that time, Joe Mason, associate professor of finance at Drexel University in Philadelphia said of the Fed action, Bernanke and Geithner had "overstepped and altered the role of the government in financial markets... "It isn't innovative, it is taking a step back in time to a system of direct credit".

As early as 2006, however, Geithner had praised the innovation of and advocated for an expand market for complex, structured securities manufactured by US investment banks. (Speeches)

His nomination by the MSM to the office of US Treasurer is inexplicable -- except for the facts of his professional associations with former Treasurers Rubin and Summers as well as former Secretary of State Kissinger.

Diversity is the key to economic and political evolution.

by Cat on Fri Nov 7th, 2008 at 06:56:37 AM EST
[ Parent ]
a petition, including a few choice remarks about the MSM "candidate."

Diversity is the key to economic and political evolution.
by Cat on Fri Nov 7th, 2008 at 06:14:56 AM EST
... rather sorry range of choices ...

... of course, being "successful" in the US Financial System carries with it a very high probability of having Anglo Diseased Credentials.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 7th, 2008 at 11:38:04 AM EST
  I've looked this situation over for the last few months and I've got my own short list for treasury secretary:

Richard B. Riddick, Jason Bourne, or James Bond

  Not kidding, not even a little bit. We've got a mess of biblical proportion and we need an action adventure superhero type for the job. Bond would be smooth enough to fit in and still get things done, Bourne's confusion and mood swings mirrors the market nicely, and Riddick's murderous certainty will be needed, perhaps more often than not.

by SacredCowTipper (sct@strandedwind.org) on Fri Nov 7th, 2008 at 10:20:04 PM EST
I vote that he selects someone who makes Wall Street happy.

All the necessary changes are not going to come from the Treasury Sec's suggestions.

New regulations on derivatives, cap gains, new tax structure, all that stuff is to come in the future.

More importantly, a health care system is needed as well as new social pacts.

None of this will happen if the stock market doesn't get healthy again in the next year. The downsizing of the stock market is the downsizing of American corporations, which means lots of losses in jobs.

If the market doesn't get healthy, Obama's presidency is DOA.

So I don't care who he nominates for the position. It's a sucker's job anyway at this point, and it's only there to delude the Wall Street people into ante-ing up with their own money so we can get things moving again.

Systemic change can only happen through new legislation which brings the US gov't into accord with the social compacts that we see in, for instance, European countries. That's what Obama's presidency is about. But none of it happens if people aren't working, and if the market doesn't come back. It's got to be a Wall Street stalwart.

by Upstate NY on Sat Nov 8th, 2008 at 02:24:38 PM EST
I'm not convinced that bringing the stock markets back up will necessarily do anything much for the real economy. Stock markets - as we have seen over the last decade or two - can be brought back up through bad, old-fashioned Ponzi scams much easier (and, notably, much faster) than through a genuine revitalisation of the real economy.

If, OTOH, he lets Wall Street burn and focuses on revigourating the real economy, a functioning stock market can always be re-built at some later date. A real economy gets you through times of no stock markets much better than stock markets get you through times of no real economy...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 8th, 2008 at 04:24:20 PM EST
[ Parent ]
In the USA, the stock market IS the real economy.

There is a LOT of money standing on the sidelines. The sooner the money jumps back in, the sooner jobs can be saved.

A company's cash position is directly related to its stock price. The power to raise funds, the power to invest in research and development, etc., is all determined by the stock price. The consumer's confidence and ability to buy goods and services is similarly a product of their savings. In short, the recovery of the market means the recovery of jobs.

As for inflating prices so the market can go up, that's not what I'm talking about. By any historical measure, the market is severely deflated here (if you go by price to earnings ratios). One can argue that the market was only marginally inflated before the crisis. Most of the damage has been done in anticipation of the most severe slowdown in 80 years. Companies are downsizing (firing people) in direct reaction to their reduced cash position as a result of their chopped market value.

Even liberal economist Krugman is on record as saying we should ignore budget deficits in this environment and concentrate instead on bringing the stock markets back. Why? Because companies are very undervalued even on a recessionary basis, and there is no confidence to go back into the market.

by Upstate NY on Sat Nov 8th, 2008 at 06:01:07 PM EST
[ Parent ]
In the USA, the stock market IS the real economy.

And that's your problem in a nutshell: Wall Street is driving the real economy, when it should be the other way around. Pandering to Wall Street is unlikely to solve that problem, I think.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 9th, 2008 at 06:11:41 AM EST
[ Parent ]
By the time this country changes everything around and regulates it correctly, we'll be greeting Pres. Sarah Palin.

I'd as soon prefer that Obama gets the illusion going again and then precedes to regulate and rights the ship.

Trust me, inside Wall Street, the word is: business will never be the same again no matter what. They know it's coming. The only question is, how soon will it come?

by Upstate NY on Sun Nov 9th, 2008 at 12:46:05 PM EST
[ Parent ]
... dominated finance sector rather than a bank dominated finance sector.

OTOH, during a recession, if its a matter of companies who do not wish to borrow for real investment not being able to, removing one of those constraints is not sufficient for real investment to take place.

And if markets cannot provide finance but banks can, then that would be an opportunity to edge away from our dangerous over-reliance on pure financial intermediation.

So far more important than what is happening on Wall Street is what is happening in the banking sector. When there is a desire on the part of companies to engage in real investment, will they be able to lend?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Nov 9th, 2008 at 12:18:03 PM EST
[ Parent ]
... means the downsizing of US corporations as going concerns ... only the downsizing of the total amount of money bet on their future prospects.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Nov 9th, 2008 at 12:12:48 PM EST
[ Parent ]
What about stock offerings, buy-ins, stock purchases, cash-raising, corporate bonds, etc.?

Seems to me the stock price has a great deal to do with actual operating cash, anyway you cut it. Even R&D relies on stock price.

by Upstate NY on Sun Nov 9th, 2008 at 12:43:49 PM EST
[ Parent ]
I meant secondary offerings.
by Upstate NY on Sun Nov 9th, 2008 at 12:44:04 PM EST
[ Parent ]
Bonds are sold in bond markets ... as far as all the wonderful financial "tools" to economize on the interest expenses that will be, if the banking sector returns to solvency, much lower in the aftermath of the recession than during the housing bubble years ...

... well, yes, changing the ways things are done will involve things being done in different ways.

However, the Anglo Disease countries do not lack for precedent on how corporations can raise funds without  such excessive reliance on financial markets ... corporations domiciled in Japan and the Eurozone were already raising funds with far less reliance on financial markets, and a substantially higher share of banking operations.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Nov 9th, 2008 at 02:09:02 PM EST
[ Parent ]


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