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Tuesday, March 24, 2009

Between A Rock And A Hard Place - Thomas B Edsall

The decision by the Bush and Obama administrations to use taxpayer money to prop up troubled financial institutions has produced a growing populist outcry that threatens to undermine the administration's ability to win Congressional approval for future legislation to counter the recession, and/or to win approval for the record-setting $3.55 trillion 2010 budget proposed by Obama on February 26.

In effect, the Obama administration has tied itself to a policy that shows every sign of becoming an inexorably-tightening hangman's noose around the president's neck.

Not only does public anger over the current bailout strategy threaten the administration's executive authority, but it also the carries the political risk of linking the White House to the now-loathed Wall Street establishment.

Democrat Robert Shapiro, former Under Secretary of Commerce for Economic Affairs during the Clinton administration, and chairman of the economic advisory firm Sonecon argues that, by generally deferring to Wall Street leaders, the administration has become the target of populist resentment, drawing attention to the fact that many in the administration came from the financial industry, or the New York Fed -- which is closely linked to the industry, including Larry Summers and Tim Geithner. Now, Shapiro added, Summers and Geithner are in position of virtually defending Wall Street - only backing off on the AIG bonus issue, for example, when the public rose up in fury.

Nobel laureate Paul Krugman, in turn, warned on March 21 in his New York Times blog that the new Treasury plan to use Federal Reserve money and FDIC insurance to encourage private purchasers of "toxic" bank holdings, which is expected to be announced Monday, represents the victory of "zombie ideas." Krugman ominously added, "when the plan fails, as it almost surely will, the administration will have shot its bolt: it won't be able to come back to Congress for a plan that might actually work. What an awful mess."


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