Obama Administration currently is unwilling to take on the large banks politically.

[sansatman]

The Baseline Scenario

What happened to the global economy and what we can do about it
Baseline Scenario, 2/9/09

with 28 comments

Baseline Scenario for 2/9/2009 (11pm edition, February 8): link to pdf version

Peter Boone, Simon Johnson, and James Kwak, copyright of the authors.

Summary

1) The world is heading into a severe slump, with declining output in the near term and no clear turnaround in sight. We forecast a contraction of minus 1 percent in the world economy in 2009 (on a Q4-to-Q4 basis), making this by far the worst year for the global economy since the Great Depression. We further project no recovery on the horizon, so worldwide 2010 will be “flat” relative to 2009.

2) Consumers in the US and the nonfinancial corporate sector everywhere are trying to “rebuild their balance sheets,” which means they want to save more and spend less.

3) Governments have only a limited ability to offset this increase in desired private sector savings through dissaving (i.e., increased budget deficits that result from fiscal stimulus). Even the most prudent governments in industrialized countries did not run sufficiently countercyclical fiscal policy during the boom and now face balance sheet constraints. The U.S. will provide a moderate fiscal stimulus in 2009 and 2010, amounting to about 2 percent of GDP in each year.

4) The forthcoming (due this week) attempt to deal with banking system problems in the US will be insufficiently forceful. The structure of executive compensation caps introduced last week suggests the Obama Administration currently is unwilling to take on the large banks politically. The degree of recapitalization will be too small and the measures will help existing management stay in place. Large banks will remain “too big to fail” and shareholders will still be unable to constrain executive compensation. Lending will remain anemic...




http://baselinescenario.com/2009/02/08/baseline-scenario-2909/

[PSPS]

1. The piece lost me when it started shilling for more bailouts for the fatcats.

My response to this article is pretty well encapsulated by one of the comments, which I'll reprint below:

"But the crisis in the current form was not inevitable. The severity of today’s crisis is a direct result of the failure to bail out Lehman" - this statement alone destroys any semblance of credibility this site might possibly lay claim to.

The crisis in the current form was and is completely inevitable as a result of a boom built on debt.

Bingo.

[Demeter]

2. Declare a Bank Holiday, Nationalize the Big Losers, Open the sound Community Banks

and let's stop dancing around. There's a lot of work to be done, this is only the first step.

The GOP has never been weaker, now is the time to strike at the viper in our economy.