An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Thursday, September 24, 2009
Citigroup to scale back U.S. footprint; limit lending to wealthy
There is perhaps no greater trend emerging from the Obama Administration than the trend of wealth flowing to the top.
For a president that promised change and more equity for working people, this development is truly astonishing.
From Tarp to the forced bankruptcy of U.S. automakers to tariffs on tire imports from China to the Public Private Partnership initiative and above all...the complete absence of any middle class tax cut, this Administration has, either deliberately or unwittingly, engineered one of the greatest wealth transfers from the lower classes to the most wealthy.
This Citigroup story is just another example. The beleagured bank is being forced to pare back its mighty U.S. presence, where it served tens of millions of everyday Americans, including many small businesses, and now focus on lending money to the only ones who have any left: the wealthy.
Because the Administration, including the Federal Reserve, failed to understand the very nature of our own banking system--that commerical banks are already public/private partnerships and quasi-agents of the goverment--they were given support with huge strings attached when there shouldn't have been any. Moreover, because the government has failed in its obligation to sustain employment and output (yes...OBLIGATION!) banks have no choice but to go where the money is.
This is a terrible, terrible, abrogation of government's responsibility and worse, a weak and cowardly act by the president by going back on his promise to help working people.
There is plenty of history to show that large doses of government spending--broad and actual spending--are necessary to avoid economic collapse and, indeed, to sow the seeds for future long-term economic growth. A real leader would have overridden the wrong-headed advice of his political advisors and done what was necessary to restore jobs, incomes and a decent standard of living for all Americans, as promised, and not just the 1% at the top.
Mike,
ReplyDeleteThese are very good points. Why the Fed doesn't use nominal GDP targeting, I may never know. It's obvious that not nearly enough has been done to make the banking system healthy enough or to stimulate consumption and investment. The US has chosen a Japan-like muddle-through strategy which may doom us to a lost decade. It makes me sick.
I have serious issues with the nature of the bailouts too. Nationalization, or perhaps a guarantee not to let systemically critical financial institutions fail in 2007, coupled with new lending standards and reforms of that sector were other options that might have prevented much of the economic damage. Instead, the government chose to be pennywise and pound foolish.
Mike,
ReplyDeleteBanks are functionally agents of the gov't as their deposits are guaranteed by taxpayer money and their assets are regulated. They also have lifelines to the Fed. It would have been no issue at all to sustain them and allow them to "earn their way out" of their difficulties had the Fed initially understood its role: to lend on an unsecured basis in any quantity for as long as necessary. As it were, the Fed gradually came around to doing this--almost--but far too late.
What the government did that was dumb, in my opinion, was to use taxpayer funds to sustain a vast segment of the financial sector that contributes very little real value. I am talking about investment banks, brokers, insurance and finance companies and other intermediaries. Firms that fell under this category should have been allowed to fail if they weren't able to survive as going concerns. Instead the gov't threw many of them a lifeline and in so doing, helped to sustain the financial sector in the exact form it was prior to the collapse. That's just dumb. Countries do not need vast financial sectors comprised of thousands of unregulated intermediaries to be powerful. But we believe that's what we need to stay competitive. It's false.