I’m so offended by the latest Obama canard, that the financial crisis of 2007-2008 cost less than 1% of GDP, that I barely know where to begin. Not only does this Administration lie on a routine basis, it doesn’t even bother to tell credible lies. .And this one came directly from the top, not via minions. It’s not that this misrepresentation is earth-shaking, but that it epitomizes why the Obama Administration is well on its way to being an abject failure.
On the Jon Stewart Show (starting roughly at the 1:10 mark on this segment) Obama claims the cost of this crisis will be less than 1% of GDP, versus 2.5% for the savings and loan crisis (hat tip George Washington, sorry, no embed code, you need to go here):
The reason Obama makes such baldfacedly phony statements is twofold: first, his pattern of seeing PR as the preferred solution to all problems, and second, his resulting slavish devotion to smoke and mirrors over sound policy.
The savings & loan crisis led to FDIC takeovers of dud banks and the creation of a resolution authority to dispose of bad assets. That produced costs which were largely funded by the Federal government. I’ve heard economists repeatedly peg the costs at $110 to $120 billion; Wikipedia puts it at about $150 billion. This approach, of cleaning up and resolving banks, has been found repeatedly to be the fastest and least costly way to contend with a financial crisis.
The reason Obama can claim such phony figures is that many of the costs of saving the financial system are hidden, the biggest being the ongoing transfer from savers to banks of negative real interest rates, which is a covert way to rebuild bank equity.
The Obama Administration is also engaging in phony accounting on its expected TARP losses, the latest sleight of hand being magically reducing its expected losses from AIG by $40 billion through a reclassification process. But the biggest source of his false accounting is extend and pretend. The biggest banks are carrying second/junior mortgage portfolios at huge premiums to their real values, which is close to zero. Merely marking the seconds down to something a tad more realistic would easily create $150 billion of losses to Citigroup, JP Morgan, Bank of America, and Wells, in a worst case scenario, much more
$150 billion happens to be over 1% of GDP. And that’s before you get to the writedowns smaller banks need to take. Since the big banks have just under 50% of the total market for seconds, you can double that to $300 billion. Now of course, not all of those losses would necessarily lead to a government rescue, but the odds are high a big percentage would, if not in explicit rescues, then via continued hidden subsidies which ultimately do come out of our collective hide.
Then we get to the fact that regulators are engaging in other forms of regulatory forbearance (finance speak for letting them cook their books), plus asset values are generally artificially high due to near zero policy interest rates. So we have what amount to baked in losses if rates ever get back to something resembling normal levels.
And that’s before we add in the costs of yet another aspect of the financial crisis, the failure to come up with a decent mortgage mod process. If the powers that be had been willing to resolve and restructure the debt of homeowners who could have been saved, ironically, the widespread failing of the mortgage securitization process might never have come to light. But we are now instead having a slow motion train wreck in the biggest asset class in the world, US residential mortgages. Anyone who thinks this isn’t going to result in a real toll on the balance sheets of the biggest banks is unduly optimistic. Banking industry experts Josh Rosner and Chris Whalen each expect another bailout in the not-terribly-distant future. So add more to the ultimate cost of the financial crisis.
But Team Obama is no doubt rationalizing this chicanery: if they can keep from recognizing losses until the recovery takes place, then the ultimate damage will be lower. But Japan’s post bubble record shows that doesn’t work. You simply don’t get a recovery with a diseased financial system. You need to purge the bad assets, only then will meaningful growth resume.
And if you want a better tally of the true costs of the financial crisis, the Bank of England’s Andrew Haldane comes up with much greater damage, precisely because he also considers the costs citizens know all too well, such as painfully high unemployment and drastic state and local government budget cuts. He estimates the cost of the global financial crisis, when you include the biggest item, output losses, at one to five times global GDP. And remember further, because a lot of bad US assets, like mortgage securities and CDOs, were sold overseas, the US did not bear the full costs of the toxic product we created, again undermining Obama’s phony accounting:
"¦.these losses are multiples of the static costs, lying anywhere between one and five times annual GDP. Put in money terms, that is an output loss equivalent to between $60 trillion and $200 trillion for the world economy and between £1.8 trillion and £7.4 trillion for the UK. As Nobel-prize winning physicist Richard Feynman observed, to call these numbers "astronomical" would be to do astronomy a disservice: there are only hundreds of billions of stars in the galaxy. "Economical" might be a better description.
It is clear that banks would not have deep enough pockets to foot this bill. Assuming that a crisis occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of $1.5 trillion per year. The total market capitalisation of the largest global banks is currently only around $1.2 trillion. Fully internalising the output costs of financial crises would risk putting banks on the same trajectory as the dinosaurs, with the levy playing the role of the meteorite.
But unlike the UK, where regulators like Mervyn King, Haldane, and Adair Turner routinely say things that bear a pretty solid resemblance to the truth, in the US, trying to manipulate appearances in the hope outcomes will follow is the norm. In the 1960s, when the media realized that president Johnson was regularly telling whoppers, the expression “credibility gap” was born. While the press is giving Obama a free pass on his strained relationship with the reality, he is no more likely to succeed in the long run than LBJ did.
I think what disturbs me the most is that somehow all of this is about confidence. The only way to get real confidence (not this “and the stock market is going up, so we have confidence” nonsense) is to actually have some bottoming of the economy. People on the street are certainly not feeling that way now. At least not in the UK – and from what I can tell with friends in the US, it is the same.
Just to illustrate: I was at a retreat this weekend and out of the 10 people who work in the UK, 6 were having problems with either a) getting a crappy job, b)getting a job that they trained in (but they still have their crappy and soon to be crappier job), or c) being in danger of losing their job/wage & benefit cuts. How the hell can anyone have confidence when that sort of thing is happening to that many people? Those people are middle class and many of them with degrees or better. It’s like a slap in the face when someone says that really, everything is fine.
Under normal circumstances the liar is defeated by reality, for which there is no substitute; no matter how large the tissue of the falsehood that an experienced liar has to offer. It will never be large enough, even if he enlists the help of computers, to cover the immensity of factuality. The liar, who may get away with any number of single falsehoods, will find it impossible to get away with lying on principle. This is one of the lessons that could be learned from the totalitarian experiments and the totalitarian rulers' frightening confidence in the power of lying—-in their ability, for instance, to rewrite history again and again to adapt the past to the "political line" of the present moment or to eliminate data that did not fit their ideology"¦
The results of such experiments when undertaken by those in possession of the means of violence are terrible enough, but lasting deception is not among them. There always comes the point beyond which lying becomes counterproductive. This point is reached when the audience to which the lies are addressed is forced to disregard altogether the distinguishing line between truth and falsehood in order to be able to survive. –Hannah Arendt, Crises of the Republic
DownSouth – I need to read that book again. Next on my list. Thanks for reminding me.
“During times of universal deceit, telling the truth becomes a revolutionary act.” – George Orwell, _1984_
Yves, I think that the real reason is a good deal simpler: his self-identity is based on believing the lie, and so is that of the people who speak to him and whom he trusts. What we all see so clearly is a lie to him, because his vantage point is completely different – and because the type of person who is willing to take on this job is not able to believe that they are making fundamental mistakes.
But what I did note is how QUICKLY he claimed to have been using the pun consciously when he was called on saying Larry did a “heck of a job.” To use that idiom on purpose, he’d have to be slapping Larry Summers in the face: in effect, he’d have to be saying that he torpedoed his administration and pointed out that we’re now a hollow power. Naturally, Summers is Obama’s Brownie: but do you believe that Obama REALLY would say that on purpose, or as a joke even? We’re watching him morph into the Shrub before our very eyes.
He does seem to be losing one IQ point per week. I did give up on him when Summers and Taxcheatgeithner were selected.
Clearly he tried to cover his mistake with the pretense that it was some sort of joke but his sudden realization that what he said was a goof-up led him to second goof-up.
What strikes me is the immediate inclination to cover. Why not simply say: “oh, that’s a poor choice of words, isn’t it? hehe.”
This is not peculiar to Obama. It is the nature of our politicians today.
Fuck Stewart. He couldn’t even bring himself to say “single payer”.
Very disappointed, especially at the lack of comedy.
Concur…theatrical representation should only occur with in the realm of our elected officials and not passing the time sitcoms.
Skippy…for you bob….lest we for get loving transgressions eh .
http://www.youtube.com/watch?v=1eeBIi88wVY&ob=av2e
Not surprised by Stewart at all. He is always VERY deferential to those in power when they come on his show. He is only tough (and/or funny) when they are out of power.
When I was out doing my errands yesterday I spoke with an acquaintance about “preparing”, everything I was reading told me a bank holiday might come next year & that she should buy foodstuffs & have some cash in the home & that OBAMA knew exactly what was coming & that he is really just an enforcer for the banking system ……….. I kid you not, this person is no longer my friend now. As I was telling her my thoughts, I could see that she was getting LIVID !! at ME !! p.s. I am a 60 year old white lady & she is about 50 years old, black lady. Many people do not want to hear it.
Interesting that the guy who campaigned on an honest dialog has turned out to be a bigger liar than Bush. maybe the most since Nixon. it is a chronic problem It is something out of the rowe playbook. just keep saying the lies, the press reports it because it comes fr0m an official. you saw it on the build up to the iraq war. worse the lessons of the iraq war and the use of the press remains inlearned by the press that continues to be used.
lets face it we are in a 1984 propaganda machine with banks owning the country, the media (being all big business) goes along. People don’t want to recognize we have become a facist state. Before you go crazy with the term, please look it up.
“Interesting that the guy who campaigned on an honest dialog has turned out to be a bigger liar than Bush.”
BS. All the elites lie about government policies that shovel money to the banks, their shareholders and bondholders. Obama isn’t any worse or better in that regard. Bush, in addition to the usual lying about our so-called free market in finance, lied about Iraq, leading to a grotesque criminal invasion.
Not to exculpate Obama. But he’s certainly no G. W. Bush when it comes to lying.
I don’t know – after all, Bush was very very honest about wanting to go out and kill people. He loved it and was honest about it in a very cowboy manner (i.e bloodthirsty). Obama? He talks around it/is vague/ insinuates, but like Bush is ordering people’s deaths and by virtue of Bagram airbase just as implicated in torture.
He is starting to develop that same vacant smile that Bush had whenever Bush looked into a TV camera. And it is only two years into his term.
That’s a face of a liar if I were saw one!
Yves freezes Obama with a slightly awry smile (vacant as Cedric says. Usually, Obama effects a convincing smile the way a good actor does, ‘feeling’ from the diaphragm that what he says is true, the way sociopaths or trained agents foil polygraphs by temporarily believing their own lies. But for most of us, insincerity is betrayed in the subtle micro expression framing the eyes and in the pupils (which you can’t see here). Cover just the smile here, and the eyes seem to betray something else.
I'm reading in a lot, but IMO, reality here is too intrusive for Obama to smother effectively, and the “heck of a job” Summers slip was a related verbal “tell”. A 1% hit on GDP (implying our entire economy)—while a third of homes are underwater in the foreclosure swamps, real unemployment is at 20%, and wars rage without end—is simply too grossly distorted for the Kool-Aid effect.
I actually felt sorry him in these clips. I suspect he’s playing at something similar to Madoff—if we can buoy confidence long enough while pumping counterfeit cash into banks and stocks, maybe the engine will catch and we’ll get lift-off before the cliff edge. I think fear is taking hold a week before the election.
What staggers me is that irrespective of one’s political leanings, all must surely agree that the President is being very badly advised!
It is sad…to consider…that the Presidency has devolved in to a condition of…stage orator on the Price is Right.
Skippy…please spade your pets…cough deadbeat home owners!
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