"Criticism from the left" or Republican spin?

The strange material advertised as economic "criticism from the left" since the start of 2009 has damaged public perception of the Obama administration and the Democratic party in a way that favors Republicans and has also displaced actual liberal economic proposals from public debate. The obvious example is the fate of the TARP funds which were originally a revolving fund that the Bush administration planned to distribute to Wall Street cronies. Under Obama and Geithner, TARP became a great success story of how Democratic administration deftly stopped a panic, made Wall Street pay, and performed emergency life-saving on the industrial economy. And TARP should have provided the Obama administration with funds to continue to invest in industrial development projects, environmental remediation, renewable energy plant construction and so on. But instead of pushing a competent centrist government to be more active in freeing the economy from the grip of finance and petro oligarchs, the "progressives", even those who were loudly decrying the inadequate funding for stimulus assisted the Republicans in shutting down TARP in a wave of faux-populism supposedly directed against banks.

Of the $245billion TARP gave to banks, Treasury has recovered about $244billion. Treasury is selling the $140 billion in "toxic assets" it acquired during the financial crisis and expecting a $10billion to $15billion profit. AIG has offered to buy back Maiden Lane II assets AIG transferred to the Fed during the crisis for a $1.5billion profit to the government. Other parties want to bid more. The Federal Reserve reports $80billion profit in investments ranging from the other assets the NYFed took over as Bear Stearns and AIG collapsed to the agency mortgage backed bonds purchased for quantitative easing. GM continues to reopen closed factories. Compared the the Reagan era Resolution Trust Find, TARP is stunning success for the public. We should have been advocating for TARP to be used as a revolving development bank, but instead we got stuff like this:
"Not only are the mop-headed weenie of a Treasury secretary's fingerprints on virtually all the gross giveaways in the new reform legislation, he's a living symbol of the Rubinite gangrene crawling up the leg of this administration. Putting Geithner against the wall and replacing him with an actual human being not recently employed by a Wall Street megabank would do a lot to prove that Obama was listening this past Election Day.
The things to notice about this passage is that it is entirely without any liberal economic content and is fully compatible with core Republican messaging.
Let's dig up the points Taibbi is making:
  1. "mop-headed weenie " - Democrats are effeminate and weak. Classic!
  2. " gross giveaways in the new reform legislation" - reform is a fraud, how's that hopey changey thing working out for you.
  3. "living symbol of the Rubinite gangrene crawling up the leg of this administration" - Bill Clinton is responsible for the economic collapse. Also note that, for example, Geithner presided over the auto rescue where the largest unionized industry was saved and bondholders were forced to take a back seat to union health/pension benefits. Hardly Rubinite, so ignored.
  4. Putting Geithner against the wall and replacing him with an actual human being" - violent and literally dehumanizing rhetoric.
  5. "replacing him with an actual human being not recently employed by a Wall Street megabank"Geithner actually has never worked for a "Wall Street megabank", he's a career civil servant, but that's the least of it.
  6. " would do a lot to prove that Obama was listening this past Election Day." - out of touch Democrats don't listen to the public
Right out of the Frank Luntz playbook - and Republican marketing has been so pervasive that Taibbi didn't even need to be aware of what he was doing. Just add out of control rhetoric to anger, mix in indifference to facts, and the Republican narrative takes control. Also as noted above, there is no progressive economics at all in this passage: it's barely a step up from "New York Jew bankers!". A realistic appraisal of Geithner's policies combined with some liberal economics would have been more compatible with a paragraph extolling the auto rescue and demanding that TARP funds be made available as funding for mass transport projects, school buildings, housing, green energy, or environmental remediation. Maybe a call for union management of GM would have been appropriate or a pitch for investing in the United Steel Workers/Mondragon experiment or in employee owned firms. But you won't find economics as far out of the right wing mainstream as even J K Galbraith in "progressive criticism from the left". What you'll find is reheated Republican propaganda, fragments of Chicago School economics tossed in randomly with demands that somebody be punished plus sloppy accounts of finance. And here's Taibbi again, from a diary on DKOS:
The losses from the Fed's purchase of distressed/crap Bear Stearns assets (Maiden Lane I) and AIG assets (MaidenLanes II and III) alone were as recently as late July calculated in the $8.6 billion range, and even that number is very conservative. Then there's the trillion or so dollars that the Fed used on buying up mortgage-backed securities and Treasuries; we don't know what their market value is now. And there are untold trillions more the ...
All of that was crap but shows the technique: a false claim that the Democratic administration has screwed up which can then be used to show that the explanations offered by the Democratic administration must be lies. The same technique can also see in the following snippet of wisdom from Duncan Black (Atrios). Here's a typical sample of his inspirational and suave approach:
Ponies In The Shitpile Aside from setting up an overly complicated plan to try to disguise what they're really doing, the utility of the Geithner plan rests (or pretends to rest, not sure) on one fundamental premise: that Big Shitpile is greatly undervalued by "the market" and that these mortgage securities really have expected revenues which justify higher prices. One could have reasonably believed this months ago, I have no idea why anyone would believe this now. The housing bubble burst, and now recession is here. There's a lot of shit to be eaten, the question is who will eat it? Timmeh wants to make sure it's not the banksters.
Points:
  1. "Aside from setting up an overly complicated plan to try to disguise what they're really doing" - the Democratic Administration is lying (note the absence of factual material introduced to support this claim)
  2. "Geithner plan rests (or pretends to rest, not sure)" - Obama's administration is dishonest
  3. "one fundamental premise: that Big Shitpile is greatly undervalued by "the market" " - The premise of this criticism is that in the middle of a panic "market value" means something about "actual value". Not only have events shown Geithner's analysis to be correct, but this theory would have made J K Galbraith and Keynes laugh hysterically. While followers of the "efficient market hypothesis" have insisted that financial markets have Godlike powers, the liberal idea has always been that financial markets are made up of people who are often motivated by errors, delusions, ideology, confusion, and bad data. Especially in the middle of a bubble or a panic, pricing has no relationship to any rational "value". In a panic, the irrational fears of investors are amplified as falling values for assets trigger demands of creditors for cash which must be met by selling assets which puts even more pressure on the market. Here we see an idea of the far right being used to belittle the programs of an essentially Keynsian centrist.
  4. "here's a lot of shit to be eaten, the question is who will eat it? Timmeh wants to make sure it's not the banksters." - another plug for the the banker conspiracy theory so fundamental to right wing populism plus that demeaning approach so characteristic of right wing PR.
Clearly, events have shown that the "shitpile" actually contained a lot of valuable assets that generate a lot of revenue. The "mop headed weenie" turns out to have been a highly competent and clear thinking public servant and the "progressive" critics were confused hysterics. The critics have fallen back on an argument that prices for this stuff have only gone up because the government has flooded the economy with cheap money and there is a desperate search for anything that can produce higher returns. This reflects two errors: the first is a profound failure to understand why these particular types of assets are so sought after in the first place, and the second more fundamental error is to believe that financial markets are ever independent of government action. The reason CDOs were so popular is that they attach a reasonably high interest rate to a pool of assets that spread risk and that generate income. "The market" stupidly believed that the pools eliminated all risk and that was wrong, but a little arithmetic shows why these things are great investments even during a recession. Suppose we purchase $100 of pooled mortgage bonds at "face value" and the pool is a set of mortgages that pay 5% year and, for simplicity, pay off principle at the end of 10 years. In theory at the end of ten years we will have received $150 - $50 of interest and $100 of our principal. Even if 20% of the mortgagees default, we still make money. Suppose they default on day 1, leaving $80 in the pool. 10x $4 = $40 of interest plus the $80 of principal and we still made $20. So if you bought it for $100 that you had borrowed from someone, then a market panic is trouble - the market price for your asset might collapse entirely and your lender wants more collateral, oops. But the Fed and Treasury were not in that position. And that's why AIG wants this stuff back now- because it cannot find similarly profitable assets on the market. Liberal economists recognize that money is a social construct - a person on a desert island will find that gold, diamonds, credit cards, and so on cannot purchase anything. Capital is a social construct and a functioning government can make it either cheap or expensive. Our government has made money cheap in order to stop the panic and reverse the recession just as Abraham Lincoln's government printed "greenbacks" to pay Union armies instead of asking for loans.

When the government prints money, it reduces the ability of investors/banks/etc to demand a high price for loans or investments. Amazingly, some of our "progressives" have joined with the Ron Paulists and goldbug nutbars to attack the Treasury and Federal Reserve bank for making money cheaper. Cheap money is the traditional demand of liberals. Cheap labor and expensive money is what the right wants. So, of course prices for high interest rate mortgage bonds have gone up when other sources of income from money have become scarcer - why is that bad? Since Mop Headed Weenie wasn't as stupid as Cool Matt or Cool Duncan, he didn't lose his head and panic too. And that helped us avoid a complete economic collapse. What it didn't do was create a significant initiative to build a fairer and more environmentally sustainable economy. For that you need popular pressure for reform. A popular campaign demanding for example that the public owned AIG offer low cost health insurance might get somewhere. A campaign for an end to the oil depletion allowance and tax credits for companies that move jobs abroad accompanied by demands for making capital available to manufacturers who pay decent wages has some chance of producing good results. On the other hand, a campaign demanding that "Banksters" go to jail and that the Democratic administration fire competent employees based on fake scandals and Republican themes has a good chance of producing good results for the far right. And that's what we got.


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