"[Obama] is being failed by his economic team...We may have to sacrifice just two more jobs [Tim Geithner and Larry Summers] to get millions back for Americans." --Rep. Peter Defazio (D-OR), November 18, 2009
The economic leadership of the Obama administration and congressional Democrats has been marked by failed policies and a lack of transparency, worsening the nation's financial situation and causing a twenty-six year high in the unemployment rate. Rather than articulating sound economic policies for the nation, the Democrats have advocated policies that expand government's control of the marketplace and increase taxes, creating uncertainty for small businesses, restriction of credit on Main Street and higher costs for consumers. Below are several examples of the Democrats' failed leadership and policies.
ISSUES OF CONCERN:
Developed A Failed Economic Plan: Since the $1.138 trillion "stimulus" plan, including the cost of interest, was passed, 2.7 million jobs have been lost. The Congressional Black Caucus, an ally of the Obama administration, recently expressed disappointment with the administration's lack of effectiveness in creating jobs. The unemployment rate among black-Americans is over 16 percent and is nearly 50 percent for black-American teenagers. On January 21, 2010, the Associated Press reported, "A surprising jump in first-time claims for unemployment aid sent a painful reminder Thursday that jobs remain scarce..."
Piled Debt on the Backs of America's Children: Democrats passed the $410 billion FY09 omnibus appropriations bill and a $3.6 trillion FY2010 budget, including a 12 percent increase in nondefense spending, causing the national debt to swell to $12.32 trillion. On January 21, 2010, Senate Democrats proposed to increase the debt ceiling by $1.9 trillion, a record increase that would allow the national debt to rise above $14 trillion.
Helped Create the Financial Crisis: From 2003 until early 2009, Sec. Geithner served as president of the Federal Reserve Bank of New York (NY Fed). The NY Fed's primary responsibility is to oversee Wall Street. The NY Fed's regulatory failure, under Geithner's leadership, contributed to the recent financial crisis. In addition, as Dr. Mark Calabria noted in a recent article in the New York Post, "The New York Fed chief is a permanent member of the Federal Open Market Committee-the Fed body that determines monetary policy. And Geithner strongly supported the Fed policies of that era-particularly the overly expansionary monetary policy that directly contributed to the housing bubble." On September 11, 2003, The New York Times, quoting Rep. Barney Frank regarding the Bush administration's proposal to reign in the activities of Fannie Mae and Freddie Mac reported, "These two entities-Fannie Mae and Freddie Mac-are not facing any kind of financial crisis.... The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
Props Up Fannie and Freddie at Taxpayers' Expense: Secretary Geithner acknowledged that the failures of Fannie Mae and Freddie Mac were at the "epicenter" of the financial crisis. Yet, neither Geithner nor his Democrat allies in Congress have proposed a plan to rid the taxpayers of the GSEs. In fact, on Christmas Eve, Treasury issued a press release stating that it would remove the GSEs' $400 billion funding caps, essentially turning Fannie and Freddie into government agencies. Reporting on Treasury's action, The USA Today reported, "The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac." Also on Christmas Eve, Fannie and Freddie disclosed that they received approval to pay $42 million in compensation packages to 12 top executives (all federal government employees and payable in cash) for 2009. Interestingly, the Democrats, led by Geithner and Rep. Barney Frank (D-MA) have launched an all out attack on capitalism by attempting to restrict the compensation of Wall Street firms they deem to be too profitable. The approval of the GSEs multi-million dollar compensation packages contradicts the administration's position of reducing what it described as "excessive compensation" at financial institutions.
Supports Devaluing the Dollar: On March 26, 2009, the Wall Street Journal reported, "Treasury Secretary Timothy Geithner briefly unsettled currency markets when he appeared willing to entertain a Chinese proposal that an international currency supplant the U.S. dollar as the premier global reserve currency. Taking questions at the Council on Foreign Relations in New York, Mr. Geithner said he was ‘quite open' to the idea of a larger global-finance role for Special Drawing Rights, a melded currency used by the International Monetary Fund. Currency traders took the comment as implied support for a suggestion this week by People's Bank of China Gov. Zhou Xiaochuan that the SDR, or some other cross-border currency, take the dollar's place in central-bank reserves around the world." Also, the Democrats' spending policies, which increase the national debt, and the Fed's pumping massive amounts of money into the economy risk devaluing the dollar as investor confidence in the economy and the nation's ability to honor its obligations eventually declines.
Rewarded Wall Street's Failure: While initially denying any involvement in granting bonuses for AIG executives, Sen. Dodd, on March 18, 2009, reluctantly admitted to including language in a bill granting permission for the bonuses to be paid. However, Dodd claimed the request was made by Sec. Geithner's Treasury. On March 17, 2009, The Politico reported, "Sen. Robert Menendez (D-NJ) blamed Treasury Secretary Timothy Geithner for letting bailed-out insurance giant American International Group pay $165 million in bonuses to its employees..." On March 20, 2009, Roll Call reported, "House Majority Leader Steny Hoyer (D-MD) added a fresh welt to the bruised political hide of Treasury Secretary Timothy Geithner...Hoyer criticized his failure to stop the bailed-out American International Group from going forward with $165 million in retention bonuses to executives who helped drive the finance giant into the ground."
Picked Winners and Losers: As president of the NY Fed, Geithner was the primary architect of the plan to bailout some Wall Street firms. While Bear Sterns, a Goldman Sachs' competitor, was allowed to fail, Goldman Sachs received massive amounts of government aid. For example, according to the Wall Street Journal, "The initial $85 billion provided to AIG enabled it to pay a portion of $8.1 billion it owed to Goldman, stemming from past trading agreements. By the end of the year, Goldman had gotten all of the $8.1 billion as AIG received more government aid." Bloomberg reported, "[Goldman Sachs] received $10 billion in capital, guarantees on about $30 billion of debt and the ability to borrow cheaply from the Fed. The Fed's bailout of American International Group Inc., and its decision to pay the insurer's counterparties in full, funneled an additional $12.9 billion to Goldman Sachs."
Politicizes the Economy: The Democrats' financial regulatory reform plan, H.R. 4173, creates a political economy by making permanent the authority to bailout large politically connected firms. In a political economy, politics and government officials, rather than the market, determine which firms succeed and fail. Politically connected firms grow (or get bailouts) by carrying an implicit government guarantee, making it harder for businesses without such privileges to compete. According to a recent study by professors at the University of Michigan, "U.S. banks that spent more money on lobbying were more likely to get government bailout money...Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds." Kansas City Federal Reserve Board economists said the authority vested in the Treasury Department by HR 4173 could lead to "greater political interference." The UAW supported then-candidate Obama's presidential campaign and beat out senior creditors in the Chrysler bankruptcy. In January 2009, the Wall Street Journal reported that after Treasury stated that it would only give TARP money to healthy banks to generate more lending, OneUnited, a bank "that had seen most of its capital evaporate" and "was under attack from its regulator for allegations of poor lending practices" received $12 million from TARP "after the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee." Rep. Barney Frank also "saved" a GM plant in Massachusetts. The NY Fed's chairman, Stephen Friedman, sat on the board of Goldman Sachs. In October 2008, Goldman received $10 billion in TARP funds and, as noted above, Goldman Sachs received $12.9 billion as an AIG derivative counter-party. According to columnist Timothy Carney, writing in the Washington Examiner, "For his presidential campaign in which Wall Street regulation was a mantra, Obama's top source of funds was investment bank giant Goldman Sachs, whose employees, partners, and executives gave him $995,000-that's the most any politician has raised from any one company in a single election since the age of "soft money' ended."
Increases Moral Hazard: H.R. 4173 proposes to create more Fannies and Freddies by increasing the moral hazard for firms deemed "too big to fail" at the whim of unelected government bureaucrats. Moral hazard occurs when an institution is protected from exposure to certain market risks and behaves without restraint as a result. Designating firms as being "too big to fail" would significantly increase the moral hazard by making it clear that the federal government would bailout firms with the special designation. In an October 21, 2009 interview with CNN Money, SIGTARP's Neil Barofsky stated, "With the potential of moral hazard and 'too big to fail,' the government could be setting itself up for an even more dangerous crisis in the future..."
Allows Deceptive Claims to be Reported as Facts: The Obama administration has no reliable way to measure jobs they claim to have "saved." Their numbers rely heavily on vague claims by recipients of jobs "saved" that are based on confusing reporting requirements and susceptible to political spin. As Senate Finance Committee Chairman Max Baucus (D-MT) said when addressing Treasury Secretary Timothy Geithner, on March 4, 2009, "You created a situation where you cannot be wrong... If the economy loses two million jobs over the next few years, you can say yes, but it would've lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs. You've given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct." Reports now show that many of the jobs claimed to have been saved were never in jeopardy.