July 16, 2010

Open Letter to President Obama

Mr. President:  The Gulf well has been capped, the Financial Reform Bill passed,

and you are off to a well-deserved vacation.  It’s been a good week.  The nagging

question is whether it will be enough for November.

The problem is one word: unemployment.  It continues to hover around ten

percent but that is only because the statistic drops discouraged workers who

give up looking for work.  If they are included, the figure is nearer a fifth of the

work fore and as much as a half in some subgroups.  As a result, people continue

to lose their homes, and these foreclosed houses continue to put a damper on

the housing market.

On the major issues, Sir, forgive me for saying so, but your rhetoric is directed to

appeal to the public while actual actions appease the large donors and powerful

interest groups.  This high-wire act lasted a while but the overwhelming

evidence is every day life plus some bad luck (the Gulf spill) has ended it.  Your

poll numbers now show the negative overtaking the positive.  If the Republicans

take over either legislative body in November, you can look forward to a series of

investigations, as appears to be the norm these days, causing more distraction

and demands on your time.

When you were about to dispense our tax money to the banks, many (including

this letter) warned you of the folly of dropping money into these financial black

holes.  They are still using that and their earnings to shore up their balance

sheets — through loss reserves to be used when they finally end the farce of

retaining worthless holdings at purchase price.  As you were warned, they have

not circulated the money into the economy.  But the sad fact remains that even if

they had, it would not have generated the well-paying manufacturing jobs of old,

just low-level service work plus some very high-level professional jobs in our

increasingly two-tiered economy.  Here is a statistic your advisors may not have

brought to your attention:  During the robust growth years from 2002-2006, 75% of

the increase in income went to the top one-percent in this country.

The Financial Reform Bill has everything except what is really necessary to

prevent a repeat of the financial catastrophe (despite assertions to the

contrary).  It omitted the Volcker rule limiting securities trading by commercial

banks, or, better still, the separation of commercial and investment banking

required by Glass-Steagall.  It is like having a car that is missing the differential

which transmits the engine’s power to the wheel.  The Bill places the onus, of

guarding the public interest and watching the banks, on regulators.  But as

economists have pointed out earlier, regulators are eventually almost always

compromised by the industry they regulate.  One doesn’t have far to look:  the

Gulf spill is a textbook example.  And the Goldman-Sachs fine of a half-billion

dollars (about two-weeks profit) is another.  Its stock shot up five percent on the

news.  Perhaps there is a chance for criminal prosecution but intent is always

difficult to prove in fraud cases.

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