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Despite tea partiers and many liberals savaging President Obama for bailing out the banks, for the most part this has been the province of the Federal Reserve. The Obama White House actually hasn’t used most of the TARP money inherited by them from the $700 billion dollar bailout passed by Congress in 2008 and signed by President Bush. At last count over $210 billion remained, with another $50 billion expected to come back in over the next year.
There was discussion a few weeks ago of Obama using that money to give to community banks for the purposes of lending to small businesses, which could create jobs and finance new projects. With a lending drought continuing, this seemed like an excellent idea. However, today the White House floated a different plan, taking over half the remaining TARP money and just plugging it back into the budget to fill the deficit.
The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.
The administration wants to keep some of the unspent funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter. It is also expected to lower the projected long-term cost of the program — the amount it expects to lose — to as little as $200 billion from $341 billion estimated in August.
The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation’s mounting deficit levels. Still, the potential move illustrates how the Obama administration is trying to find any way it can to bring down the deficit, which is turning into a political as well as an economic liability.
Actually, it’s ONLY a political liability, and only among deficit scolds. Among serious economists, it’s well-understood that job loss can only be staunched by continued public investment. Even indirect investment like a small-business lending program could create jobs. But socking away hundreds of billions of appropriated dollars when the economy is still struggling is reckless and smacks of nobody as much as Hoover.
Holding a jobs summit and talking about “getting America working again” won’t do anything to the unemployment rate. Transforming the economy will, and that requires some public investment. Right now job loss remains too high to retract back to fiscal austerity.
Politically speaking, this could be a nod to the deficit scolds who have threatened to throw the nation into default unless they get a commission to cut Medicare, Medicaid and Social Security to the bone. Perhaps using TARP money to pay down the deficit will calm them.
But that answers a political question, not a policy one. And it won’t matter that the White House will avoid a “tax and spend liberal” label, which Rahm Emanuel says in this Wall Street Journal piece (and to believe that, you’d have to think that Republicans make their charges based on facts), if unemployment is still at double digits next year. The other nugget in this article is a proposed budget freeze or even cut:
The White House is in the early stages of considering what bigger moves it might make for next year’s budget. The Office of Management and Budget has asked all cabinet agencies, except defense and veterans affairs, to prepare two budget proposals for fiscal 2011, which begins Oct 1, 2010. One would freeze spending at current levels. The other would cut spending by 5%.
OMB is also reviewing a host of tax changes. The President’s Economic Recovery Advisory Board will submit tax-policy options by Dec. 5, including simplifying the tax code and revamping the corporate tax code.
Presidential budgets actually mean little, in the end. But the mentality of fiscal austerity at a time when public investment is still necessary is extremely distressing.
UPDATE: Matt Yglesias has a good perspective on this.
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Obama’s White House appears spastic. Certainly, there are many who will simply sit on their hands going forward when it comes to this version of the Democratic party because of this St. Vitus Dance style of leadership. He has at every turn talked like a DNC member and then behaved like a member of the Bush family. Obama pledged a transparent government…only he meant government you cannot see because it takes place behind closed doors. This White House has behaved just like Cheney. Obama is the rooster who invites the foxes into the hen house and closes the door so we the farmer are left to trust the rooster is making a deal with the foxes which will not result in the destruction of the eggs or the egg makers. At every turn, the White House has chosen the perpetrators and excluded the victims of these tragic events. Additionally, this White House has behave in two manners which have permanently undermined their leadership and authority. The float a position and then immediate pull back to placate the opposition. They have completely mismanaged the opposition and strengthened them at every turn. Then they refused to support those who have aligned themselves with the administration and who have taken a stand.
HCR will end up being a mandate to by an increasingly more expensive product which will become less and less valuable. The only regulation added to the insurance industry will be applied to the consumers. When all is said and done, the insurance industry will still be allowed to discriminate against those who need it the most and those who can afford it the least. Main Street has been completely screwed by this administration while the crooks of Wall Street and Corporate world are given every hand out and reward for the damage they perpetuate.
I keep thinking of the seen in Animal House where one character is getting smacked with a cricket bat in arse and retorts under the pain of the blow, “Thank you, may I have another!”
What an amazingly stupid idea.
These idiots really have rejected Keynes.
They are utterly, totally wrong.
The way to maximize both economic and political returns is to make a huge production out of putting some small fraction of this money toward deficit reduction (say $15 billion, which is just enough to sound like a lot of money to people who don’t really know what’s going on, and just enough to clear the “non-trivial” bar for people who do), while quietly putting the rest toward stimulus and pretending that the resulting jobs were created by the original stimulus package (to avoid the political liability for that package having been too small).