Obama, The Wrong Man At The Wrong Time

The Fatal Flaw Crippling Recovery

By Bernie Reeves

There is a fatal flaw that occurred early on during the financial meltdown that helps explain why the economy remains in a stall -- or, as one analyst put in quantitative terms: the so-called recovery  is measuring at one-half former post-recession upticks.  This slow pace has never happened before, but it is now -- and the suffering and anger are rising to the top.

Except for the vulgar rich, the malaise is deep and wide and our clueless leader Barack Obama is the wrong man at the wrong time.  Not only is he a hologram you can put your hand straight through, he is ideologically handicapped, relying on advice from leftist economic theorists who obviously cannot comprehend the true nature of the American system.

Only recently, as the worries increased, has Obama backpedaled furiously to act like he and hisapparat realize that this country runs on small businesses who create all the new jobs in the economy.  No wonder the unemployment rate remains dangerously high three years after the banking scandal brought down the American dream.  Obama bailed out Wall Street and left Main Street stranded.

As Ben Bernanke stated, capitalism runs on credit; without credit, there is no economy.  And credit is what we are out of, all going back to TARP and the "stimulus" hatched out of the mating games concocted by former Secretary of the Treasury Hank Paulson.  The cruel irony of Paulson's remedies is that the answer to recovering the economy was right in front of him around the conference table he commandeered at the office of the New York fed as the crisis went critical.

He summoned the chiefs of the top banks to convince them to pony up a billion or more each to purchase the bad real estate holdings of besieged Lehman Brothers and place them in a holding fund.  This cleaned up Lehman's portfolio enough to make it saleable to Barclay's bank of UK, which was ready to go with the deal.  But cruel fate intervened in the person of England's bank regulator, who refused to let the deal go through without a properly called  meeting of Barclay's shareholders.  For Paulson, that was too long to wait to save Lehman.

The next decision was indeed fatal.  Instead of using public funds to save Lehman after the Barclay debacle, he let them fail, stating it was a case of "moral hazard": if companies knew they would be bailed out, they would act recklessly, causing the financial house of cards to tumble.  Paulson actually believed the markets would approve annihilating Lehman because he demonstrated courage and resolve under the mantle of  this doctrine.  At the opening bell on the New York Stock Exchange the Monday after last rites were performed for Lehman, Paulson appeared to be right. Hours later he was proved sadly wrong.  The panic was on.

Had Paulson gone ahead and saved Lehman, the crisis may have been substantially less catastrophic. But the tragic development was Paulson not seeing that the extent of the damage from the meltdown -- still causing dangerous consequences today -- could have been avoided if he had applied the model he successfully sold to the big bankers in the Fed conference room that fateful weekend before Lehman was thrown to  the dogs.  And he must have known there was a model for this strategy right in front of his eyes: the creation of the Resolution Trust Corporation in 1989 that played the decisive role in the recovery after the crash created by savings and loan scandals.

The RTC acted as a receiver of sorts in bankruptcy cases by purchasing toxic real estate assets at a huge discount, using government funds, from S&L's and banks across the country, leaving them able to lend and stimulate business growth if they passed muster as a "good bank" after their balance sheets were cleansed.  Some didn't make it, but those "good banks" that did played a role in the subsequent booming recovery by providing credit for business investment.

Today, the Wall Street Pharisees and Sadducees are back at it, defiling the temple of free-market capitalism by borrowing money hourly from money center banks saved by the bailout to place bets  on investments for clients and themselves -- including shorting stocks to bring down good companies.  But on Main Street, where the real economy lives -- the one that creates jobs -- there is no credit.  Commercial banks everywhere are loaded with bad assets that could have been removed if Paulson and the rest of the economic gurus in Washington had simply copied the RTC model as Paulson imitated unwittingly to attempt to save Lehman.

They did not, and today banking regulators have ordered banks to keep their assets high enough to cover the bad loans they made in the lead-up to the meltdown.  The result: commercial banks will not lend as remaining toxic debt has been allowed to metastasize throughout the entire industry.  Instead of cleansing the bad assets via an RTC model, this lingering, widespread financial cancer  is slowly killing the recovery.