EconomicCrisis.US

Summary

President Obama’s proposed reform of US banks has not received universal acclaim. In particular, the UK government’s response has been rather lukewarm. What I think we are seeing are different responses to the same short term political challenge, ie bank bonuses that laugh in the face of suffering tax payers who have made the continued payment thereof possible. US and European (well, British) responses to this challenge are very different. They risk damaging consensus on global banking reform.
Analysis

President Obama signalled a significant change in direction last week, with his proposals to limit the activities of banks. He had previously shown little appetite to interfere with the structure of US banking groups, but simply identify those activities posing the greatest risk and use regulatory and market solutions (eg increased capital requirements) to increase control and/or decrease risk.
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The vast majority of the talking heads on television are still speaking of the current economic collapse as if it is a temporary “recession” that will soon be over. So far, the vast majority of the American people seem to believe this as well, although for many Americans there is a very deep gnawing in the pit of their stomachs that is telling them that there is something very, very wrong this time around. The truth is that the foundations of the U.S. economy have been destroyed by an orgy of government, corporate and individual debt that has gone on for decades. It was the greatest party in the history of the world, but now the party is over.
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The most gripping rescue story of 2009 was the tale of how Captain Chesley Sullenberger glided his Airbus A320 safely into the freezing waters of New York’s Hudson river. His calmness, which probably saved the 155 people on board, more than justified the appreciative call from Barack Obama the following evening. Yet the US president-elect himself was about to play a leading role in what has turned out to be another historic rescue story from 2009: the saving of an economy on the brink of a second Great Depression.

In the face of a nose-diving stock market, frozen credit flows, rising unemployment and rapidly contracting growth in gross domestic product, Mr Obama and progressives in Congress passed the most aggressive stimulus package in history – the $787bn American Recovery and Reinvestment Act – after only a few weeks in office. It is no coincidence that, 10 months on, political debate centres around ways to hasten a recovery already under way rather than measures to contend with an economic collapse all too plausible a short time ago. GDP growth has risen from -6.1 per cent in the first quarter of 2009 to 2.2 per cent in the third quarter. Job losses, which peaked at 700,000 in January 2009, slowed to just 11,000 in November.
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In 2008 and 2009, Washington strove to save the economy. In 2010, Americans will get a clearer picture of how Washington has changed the economy.

Only as the recession recedes will it become fully evident how permanently the state’s role has expanded and whether, as a consequence, a new, hybrid strain of American capitalism is emerging.

One thing is clear: The government is a much bigger force in today’s U.S. economy than it was before the financial crisis. “The frontier between the state and market has shifted,” says Daniel Yergin, whose 1998 book “Commanding Heights” chronicled the ascent of free-market forces starting in the 1980s. “The realm of the state has been enlarged.”
[USA INC]
Previously in USA Inc.
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