Tuesday, December 15, 2009

Amity Shlaes: Obama Risks Worsening Economy By Attacking Bankers

Journalist and historian Amity Schlaes is always worth reading. Today she has an interesting column over at Bloomberg with a unique perspective, since she's the author of a superb history of the Great Depression "The Forgotten Man", and she notes a number of parallels in the situation today:

“Fat cats” is what President Barack Obama just called bankers. He also invited them to the White House this week.

The reason for the mixed message is that the president is cross with banks: they have refused to heed his orders to lend. The dynamic of preachy executive and elusive lenders recalls the mid-1930s, when a petulant Franklin Roosevelt gave a label to banks’ puzzling behavior: “capital strike.”

In the 1930s, the capital strike was followed by the depression of 1937-38 within the Depression. Today too, capital ponders going on strike. And without big policy changes the economy will face similar consequences.

Consider the parallels. In 2009 government seems to be spending enough for the cash to flow all around. The scope of this effort to drown the nation in money is unprecedented. In the mid-1930s Washington was also dumping dollars around in a then-unprecedented fashion. In 1936, federal outlays outpaced state and local spending for the first time with the nation not at war.

Another similarity: a government that won’t say when the spending will stop. The Obama administration is generous with timetables when it comes to foreign policy, but withholds them when it comes to domestic budgeting. {...}

What causes the strike? For one thing, White House assumptions that the banks are the same institutions that they were at the start of the economic crisis. Bear Stearns, Lehman Brothers and Countrywide Financial may be gone, but the bitterness of their experience has been internalized by commercial and investment banks alike. So they hesitate. {...}

High taxes, or the prospect of tax increases, do damage as well. In 1937, a tire company executive explained the effect of Roosevelt’s confiscatory rates upon the investor: “He will not risk financing new ventures if the government take is greater than that of the average gambling house.”

Read the whole thing.

1 comment:

Dinah Lord said...

I listened to this speech. In true Obama fashion, the President spoke out of both sides of his mouth.

First, he condemned the fatcat bankers for loaning too much and causing the financial crisis.

Then, he condemned the fatcat bankers for not loaning enough and extending the financial crisis.

Vintage obama.