Obama should have listened to Paul Krugman

Obama should have listened to Paul Krugman

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Six reasons behind the debacle
Obama’s first mistake was to take responsibility for the economic crisis. In his quixotic quest for a bipartisan solution, he made George W. Bush’s problem his own. Margaret Thatcher and Ronald Reagan never made this mistake. They took no responsibility for the economic problems of the 1970s, heaping the blame entirely on their liberal predecessors and eschewing any bipartisan alliance with those they considered their ideological enemies. Roosevelt, too, slammed — and slammed hard — his ideological foes, those he termed ‘economic royalists.’

Insofar as Obama and his lieutenants identified villains, this was Wall Street. Yet saying the financial elite brought on the crisis while bailing out key Wall Street financial institutions such as Citigroup and AIG on the grounds that they were ‘too big to fail’ involved Obama in a terrible contradiction. The least that he could have done was to remove the existing boards and top managers of these organizations as a condition for government funds. Instead, unlike in the case of General Motors, the top dogs stayed on board and continued to collect sky-high bonuses to boot.

The strong sense of disconnect between word and deed was exacerbated rather than alleviated by the Democrats’ financial reform. The measure did not have the minimum conditions for a reform with real teeth: the banning of derivatives; a Glass–Steagall provision preventing commercial banks from doubling as investment banks; the imposition of a financial transactions or tobin tax; and a strong lid on executive pay, bonuses, and stock options.