The Limits Of Monetary Policy In Addressing Today's Economic Crisis

Via Atrios (not sure what he thinks about this), the WSJ writes about the Fed's ability to lower interest rates has been rather ineffective at spurring demand:

The U.S. recovery is hobbled by an economic divide that separates Americans not by income or wealth but by their access to credit. The housing bust left behind millions of people with credit records damaged by plunging home prices, lost jobs, past overspending or bad luck. Many are now walled off from the low interest rates engineered by the Federal Reserve to spur the economy and remedy the aftereffects of the borrowing boom.

Shrunken access among credit have-nots is triggering more than personal plight. It has weakened the influence of the Fed—one of the best hopes for spurring stronger economic growth—and raised doubts within the central bank about whether it is doing much to reduce unemployment.

The credit divide factors into their thinking. Fed officials have been frustrated in the past year that low interest rate policies haven't reached enough Americans to spur stronger growth, the way economics textbooks say low rates should.

It never factored into the VSP's thinking about the housing and homeowner crisis. This is the failure of Tim Geithner especially, who blocked real help for homeowners while choosing to give free money to the banks.

The banks are fine now. The country is not.

Geithner remains a corrupt incompetent who, if Obama loses, will be the cause of the loss.

Speaking for me only

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    If Obama's relected... (5.00 / 1) (#1)
    by redwolf on Tue Jun 19, 2012 at 09:53:02 AM EST
    Won't we continue to see more of the same corruption we saw under Geithner?  What's the point of reelecting Obama when he's clearly owned by the banks?

    Indeed (5.00 / 1) (#2)
    by kmblue on Tue Jun 19, 2012 at 10:01:24 AM EST
    IMO, Obama needs a clear and simple message to get people to vote for him.  The last time he did was in 2008--"Hope and Change."

    The Supreme Court argument is not enough.  If you read the New Yorker article about how his staff sees the campaign, you'll be horrified.

    I think Obama will be shocked if he loses.  And at this point, I'll be shocked if he wins.


    Obama lost my vote a long time ago (5.00 / 1) (#4)
    by COgator95 on Tue Jun 19, 2012 at 10:31:57 AM EST
    for way to many reasons to list here.

    Maybe Obama's clear and simple message should be something like this...

    "I violate sovereignty of other nations on a whim and kill a lot of innocent civilians ahem.. I mean militants and that keeps America safe!"

    Also, if Obama is re-elected he will nominate justices that are just slightly to the left of Alito and Roberts. Which means they will be conservative just not bat shit crazy conservative.


    Funny (none / 0) (#12)
    by ScottW714 on Tue Jun 19, 2012 at 11:10:35 AM EST
    "I violate sovereignty of other nations on a whim and kill a lot of innocent civilians ahem.. I mean militants and that keeps America safe!"

    Have you seen his list of accomplishments JB posted, like half are about killing people.


    Because (none / 0) (#18)
    by cal1942 on Tue Jun 19, 2012 at 05:58:55 PM EST
    Anyone Romney appoints will be worse.

    What a huge disconnect in their thinking (5.00 / 1) (#13)
    by ruffian on Tue Jun 19, 2012 at 01:36:29 PM EST
    We've heard all of their weeping and gnashing of teeth over sub-prime borrowers with bad credit, people using their home equity as a cash machine, people with overextended credit cards and no savings, etc. What did they think was fueling demand during the boom years? How did they think they could recover the economy without somehow replacing that borrowed money and demand?

    Help with housing would have helped. So would cram down of credit card interest rates. So would a push for higher wages rather than austerity budgets.

    Wages were crashing for like.........forever (5.00 / 1) (#17)
    by Militarytracy on Tue Jun 19, 2012 at 03:07:41 PM EST
    But Wall Street was packaging and selling loose credit.  We were all going to pay off like slot machines.....even though we were all working for minimum wage :)

    When people couldn't get their wages to make ends meet they ran for all that almost free credit.  It was all over the place.

    I think there is an even filthier secret out there too now, and that is that mortgages that are no relation to the subprimes are failing now.  No jobs, no work, falling wages, more calculated debt payback that Wall Street handed out huge bonuses for can do nothing BUT fail.


    He's saying (none / 0) (#5)
    by indy in sc on Tue Jun 19, 2012 at 10:33:28 AM EST
    that if Obama loses, Geithner will be the reason, in his opinion.  He is not advocating for Obama to lose the election nor is he advocating for another candidate to win.  The comment policy limits those arguing for why Obama should not be re-elected to 4 comments.

    The first couple of comments are the very thing that has been frustrating BTD and why he has been posting here less frequently.  Any post turns into Obama-bashing within seconds.

    Since when does the "comment policy" (none / 0) (#8)
    by oculus on Tue Jun 19, 2012 at 10:54:42 AM EST
    apply to the person who posts the diary?

    That too. (none / 0) (#11)
    by indy in sc on Tue Jun 19, 2012 at 11:07:04 AM EST
    Hello (none / 0) (#15)
    by kmblue on Tue Jun 19, 2012 at 02:02:26 PM EST
    Did I bash Obama personally?  I did not.  I offered some ideas about his campaign, and my opinion on how  he would feel if he loses.  So good luck with that.

    And they did that because the banks (none / 0) (#6)
    by Militarytracy on Tue Jun 19, 2012 at 10:44:20 AM EST
    had to earn their way out of the hole.  If they modify mortgages it creates a hole in a MBS somewhere. It shows up on the books today, it must be addressed today when you write down.  It is about new bookkeeping tricks right now and you know this, you must.

    Flooding the market with liquidity was supposed to spur lending, and it did.  The surest bets at this time are not me.  Bailing out TBTF means we have incentivized interinstitutional lending and derivatives gambling.  I am not as good a bet as Jamie Dimon.

    Not all of this is Geithners fault, he has Bernanke and Rubin and Summers and Dimon and everyone at Goldman Sachs demanding he do exactly what he is doing and conducting himself exactly how is conducting himself.  At this point, this is Obama's fault.

    I know Larry Summers wrote a nice piece about how the housing market needed to be healed, but did you notice that he had no idea how to exactly do that?  That is because this interconnectedness that was supposed to disperse risk, but ended up not valuing risk at all and a huge landslide of a collapse, is a concept that he fought for for years and years and he still believes in it.

    You can't heal the housing market though without everything that it is connected to taking a correction, and that will lead to a catastrophe.

    Housing fix (band aid) (5.00 / 2) (#10)
    by star on Tue Jun 19, 2012 at 10:56:57 AM EST
    will be next "speech" from rose garden. It will another 6 month fix expiring after November. After squandering his chances to 'FIX' a lot of things last 3.5 years (2 of which he had solid support from nation and legislature) I am not going to buy in to any fixes this campaigner in chief proposes between now and elections.

    I know a few UCF kids, who could benefit from O's latest Immigration gimmick. Not one of them planning to take advantage of it nor are they impressed. If anything they have more questions on how this is play out after Nov.(irrespective of who is the president). MSM as usual asks no questions.  


    Sad when YOU are the gimmick (none / 0) (#16)
    by Militarytracy on Tue Jun 19, 2012 at 02:59:50 PM EST
    I can't imagine trusting the powers that be, only to find myself in an ICE slammer headed off to God only knows where....a place that I don't know and that doesn't know me.

    Just for jollies..... (none / 0) (#24)
    by NYShooter on Fri Jun 22, 2012 at 12:04:55 PM EST
    One of the major causes of these increasingly frequent, bank induced, calamities is the extremely low reserve-to-risk ratios banks enjoy. And, one of the "smothering regulations" that gets CEO's like Jamie Dimon squealing like stuck pigs is asking them to increase those reserves slightly so as to mitigate the damage done in the next, inevitable crash.

    Anyway, "just for jollies," I would love to see the math for the cumulative dollar amount of top management bonuses over the past decade. Since, even during "bad" years Goldman Sach's  bonus pool approaches 15-20 Billion dollars, what would the total bonuses paid be for the top ten banks over the last ten years?

    I know, I know. We have to pay big bucks or all those geniuses would take their talent and move to Kyrgyzstan.


    Two questions: (none / 0) (#7)
    by oculus on Tue Jun 19, 2012 at 10:52:49 AM EST
    1. What is "VSP"?; and
    2. What is the rationale for Atrios' title?

    answer to 1 (5.00 / 1) (#9)
    by CST on Tue Jun 19, 2012 at 10:56:36 AM EST
    very serious people

    as for 2 - no idea


    allow banks to foreclose on delinquent mortgages (none / 0) (#19)
    by Steve27 on Wed Jun 20, 2012 at 04:43:43 PM EST
    Obama made a huge mistake in the early years when he pressured banks to not foreclose on delinquent mortgages. The housing market needs to find its bottom before it can recover. And people have to get out of homes they cannot afford. And lenders have to have confidence they can get their property back once a borrower stops making payments.

    How are you (5.00 / 1) (#20)
    by Ga6thDem on Wed Jun 20, 2012 at 06:18:10 PM EST
    so sure that people cannot afford these homes? Of course, with your plan the banks will all go under. So really you should just admit that is what you want because there are not enough buyers for the available housing.

    can't make payments, can't afford the mortgage (none / 0) (#21)
    by Steve27 on Thu Jun 21, 2012 at 05:56:55 AM EST
    If the homeowner is not making mortgage payments that means they cannot afford the home. Sure, maybe the home is overpriced, but you do not know the actual value of the home until it is back on the market and buyers bid to buy it. Maybe the bank would renegotiate the mortgage with the homeowner. Maybe not. But not point in Obama and the democrat government interfering in the process.  The free market is much more fair than being subject to the whim of far away politicians.

    These two comments you have made (5.00 / 3) (#23)
    by Anne on Fri Jun 22, 2012 at 08:34:59 AM EST
    with respect to the mortgage mess reflect a near-complete lack of understanding of the entire problem, and seem to consist mostly of talking points and sound bites derived from watching wholly inadequate news broadcasts.

    Do you have any understanding of how the housing bubble was created, what banks and Wall Street did to inflate that bubble, the lending and servicing abuses and frauds that have and are, to some extent, still being committed?  Do you know the risk to bank balance sheets and RMBS (residential mortgage-backed securities) holders?

    It would not seem so.

    The problem is more complicated, complex and inter-related than I could ever do justice to, but there are some excellent resources online if you have any interest in educating yourself.  Read Yves Smith at naked capitalism, or David Dayen at FDL.  Look at the blog roll at naked capitalism for a long list of sites that reflect a wealth of information by well-known and well-respected experts.

    When I read this: "maybe the bank would renegotiate the mortgage with the homeowner," I almost fell off my chair.  You clearly have no idea what a bungled mess has been made of loan modifications, how modification efforts have cost financially-stressed homeowners even more than if they had continued to struggle with payments, how getting into the modification process has ruined the credit of thousands of homeowners who were looking for help and now are not only considered extremely poor credit risks because of the failures of lenders who were supposed to be helping, but have found themselves being foreclosed on.  Why?  Because, while they were trying to get these modifications, they weren't making payments at the instructions of the lenders, and then, when they were ultimately rejected for modification, lost their homes because they couldn't pay the arrearages that had been astronomically inflated with penalties, interest and servicer charges.  Given that servicers make a ton of money this way, there is zero incentive for modifications to be granted.

    And not one of the president's programs that were announced with much fanfare and promise have provided more than token, lip-service help.

    I'm sorry that I have to conclude that you are throwing around terms like "free market" without any concept or understanding of how that would work in this case.  None.

    Just a word of advice: sound bites and talking points will not get you anywhere here - the core commenting community here is one that it can be hard to keep up with, just because we demand sources for representations, links to information being provided, and there is little tolerance for those who can't be bothered to back up their opinions with the facts.


    The (none / 0) (#22)
    by Ga6thDem on Fri Jun 22, 2012 at 07:46:50 AM EST
    "Free market" is not "fair". The free market can be very brutal but apparently you're only concerned with it being brutal to the homeowners and not the banks.

    SITE VIOLATOR (none / 0) (#26)
    by Militarytracy on Wed Sep 10, 2014 at 08:24:03 AM EST