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Obama’s Two-Year Economic Report Card
Posted on Dec 31, 2010
By Nomi Prins
There are two potential ways to measure the economic performance of a political leader. One is by the profitability, stock prices and executive bonuses of a nation’s corporations. The other is by the financial condition of the majority of its population. Since he came to power, President Obama and his economic team have propped up the former and failed miserably to aid the latter. (For the record, ever since the first paragraph of Obama’s pre-primary website economics plan put free markets before people, this is where we were going, but it still hurts to get there.)
The S&P 500 index is up 50% since Obama took office. But unemployment remains higher than it was when he entered the White House, home foreclosures continue to mount to the detriment of borrowers and entire neighborhoods, health insurance companies responded to his health care “reform” bill by raising premiums, and the financial system’s largest banks continue to prosper in the wake of a multi-trillion dollar bailout with no strings attached to share their subsidizations with the rest of American citizens. To top it all off, as he approaches the midpoint of his first, and likely last, term, Obama bowed to the pressure of the Republican Party and extended tax cuts for the richest Americans in order to be able to also extend them for everyone else more sorely in need. There’s only so long you can blame another administration for your actions.
Obama’s economic policies have either been continuations of his predecessor’s, as in the case of taxes and bank bailouts, or bills so watered down to appease corporations, notably banks and insurance companies, that they are ineffective. In the process, he continues to alienate his supporters—individual voters, not the companies that funded his candidacy—leaving their economy in shambles. Here’s the recap.
Just in time for Christmas, we got Obama’s big tax-cut compromise. Obama’s reverse Robin Hood deal with the Republicans disproportionally takes from the poor to give to the rich. The plan adds another $1 trillion to the record United States deficit, $700 billion of which would be the cost of extending tax breaks to the wealthiest 2 percent of the country, the rest going toward jobless benefits—necessary to help those victims of the wider economic problems, but not complemented with a job-creation program.
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Even though the majority of his own Democratic Party supported extending cuts only to Americans making less than $250,000 a year (on TV anyway, apparently not at their seats once the compromise was inked, notables with balls like Sen. Bernie Sanders aside), Republican “all-or-nothing” pressure was met by Obama’s capitulation. He could have bargained harder—say by suggesting that tax cuts not be extended for people making more than a million dollars, rather than punting the tax cut issue into the 2012 presidential election period.
What Obama effectively did was adopt George W. Bush’s tax policy in total rather than come up with a better deal, even though the Bush tax cuts increased the net worth of the wealthiest Americans while the wages of the rest of Americans (the ones that had jobs) stagnated or decreased per hour worked. The Republicans obviously considered the deal a victory, to hell with any Republican voters in the bottom 98 percent of the country. Wall Street thought it was better than expected. Jamie Dimon was all but salivating. Even though the majority of Americans wanted to end tax breaks for the wealthiest, plus extend unemployment benefits, Obama couldn’t pull it off.
Obama’s $75 billion Home Affordable Modification Program (HAMP) was an unmitigated disaster for the borrowers who tried to take part, despite his promises that it would help 3 to 4 million struggling borrowers keep their homes.
On Dec. 15, I spoke at a mortgage fraud seminar in Ontario, Calif., and, let me tell you, there’s more fraud going on in modification-land than there was in loan-origination-land. The next day, over in Washington, Tim Geithner spoke glowingly of everything the administration has done to help the financial system, gloating laboriously over the bells and whistles of the various asset purchase and loan extension bank bailout programs and how much money we taxpayers made as a result. As for borrowers—you know, the little people—he stressed the number of modification applications in the pipeline instead of actual permanent modifications. This was primarily because it was a voluntary program on the part of the banks, which had no incentive, economic or legal, to work with borrowers. In the meantime, 8 million to 13 million foreclosures are expected to have taken place from the time the banks got their bailouts until 2012. If you figure on average there are three people living in each home, we’re talking 24 million to 39 million displaced people.
I really wish Geithner could have been standing in front of the borrowers at the seminar I attended, if only to get a clue.
Half of the 1.4 million borrowers that entered the HAMP program were kicked out. Only 2 percent of the loan modifications so far have involved lasting principal reductions. Most of the rest were given temporary reprieve, only to see their payments rise at the end of their trial periods or their banks rush to foreclose on them anyway.
To fix this problem, Obama has just created a $14 billion principal reduction program – something that should have been done on a far grander scale about two years ago. It remains to be seen whether this will be any more effective than the larger initial program, since participation is equally voluntary on the part of lenders, notably the biggest five banks that control two-thirds of the nation’s mortgages. I’m not holding my breath.
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