QOTD: Mike Konczal
by digby
In his review of Geithner’s book “Stress Test” and Atif Mian and Amir Sufi’s “House of Debt”:
“The financial crisis left tragic pain and suffering in its wake,” Geithner tellingly says. “Financial crises always do.” Why would that be? Because of the “healing process” of deleveraging. For “House of Debt,” on the other hand, financial crises leave pain because they are associated with high debt levels, and with political efforts by creditors to make sure those debts are never reduced or eliminated. Deleveraging is driven in large part by foreclosures, a process that tends to cause even more damage. Besides harming communities, foreclosures also drive down housing prices, which in turn leads to a vicious cycle of even more people underwater, wallowing in debt and unwilling to spend money, which leads to unemployment, which leads to further foreclosures. There’s nothing “healing” about this process.
Well, in the long run we’ll probably have healing. And you know where we’ll all be in the long run …
Geithner might as well have said:
Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate…it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.
That was, of course, the advice given to Herbert Hoover by Andrew Mellon at the outset of the Great Depression. But then Geithner also thinks Roosevelt was a loser for failing to reach out in a gesture of bipartisan healing and work with Hoover:
Franklin Roosevelt had refused to lift a finger to help the outgoing administration relieve the suffering of the Depression, so he could draw a starker contrast with President Hoover after his own inauguration. Senator Obama did not follow this politically shrewd but costly example.
Yes, this worked out much better. For the banks.
As Liaquat Ahamed explains in “Lords of Finance,” Hoover asked FDR to issue “a formal statement … pledging himself to a balanced budget and eschewing inflation or devaluation.” In other words, to continue Hoover’s failed policies of austerity and tight money in the face of complete economic collapse. Now, this might have actually helped stop some of the bank runs that were going on then, in part, due to fears that FDR would ditch the gold standard. But it would have, at best, helped for a few months at the cost of making recovery impossible for a few years — if not longer. Roosevelt wisely refused.
Yes, but that would have let the healing begin. By bleeding the patient.
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