Nobody is happy about the performance of the U.S. economy and in particular, the lack of job creation. Obama is taking much of the blame, and there is no point in just "piling on." However, it is worth highlighting the President's most important mistakes in hopes that he will do something to remedy them.
Bad Personnel Choices and Delegation of Authority
A new President must make more than 3,000 political appointments when he comes into power, a tall order. In addition, he must rely on people in other branches of government. This is where Obama made a number of real blunders.
1. Tim Geithner is at the top of the list. Geithner cheated on his taxes, got caught, and paid fines. That in itself should have disqualified him for the Treasury Secretary position since the Internal Revenue Service is part of Treasury. What message does appointing him send to the American people? But there is more: Geithner was in charge at the
Federal Reserve Bank of New York
at the time of the
bailout (under the Bush presidency). You might remember that AIG staff thought they could get banks to agree to settle for 60 cents on the dollar. Geithner said no, pay the banks in full. That decision cost the American taxpayers $37 billion. Yet somehow, Geithner's track record was not enough to deter Obama from appointing him. A bonehead decision!
2. Larry Summers is Director of the White House National Economic Council. Summers started as an academic followed by senior positions in the Clinton administration. Following a short stint as president of Harvard University, Summers started working in the financial industry.
Glenn Greenwald reports
that before being appointed, Summers:
...collected roughly $5.2 million in compensation from hedge fund D.E. Shaw ...and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations. . . .Financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch paid Summers for speaking appearances in 2008. Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for a one-day visit to Goldman Sachs.
Both Geithner and Summers came to the Obama administration from the financial community and will go back to it when they leave government. What was Obama thinking in appointing them? The two operate as a team. They kept Volcker away from Obama and made sure the
Volcker Rule (banning proprietary trading by banks) was not included in the financial reform bill.
Geithner and Summers also made sure that Christina Romer, the now-resigned head of the Council of Economic Advisers, had little influence with Obama. Romer had estimated that a $1.2 billion stimulus package was needed.
Jeff Spross reports
that her resignation was:
driven largely by frustration over her lack of voice in Obama's economic team, and her inability to get input past the firewall of Larry Summers and Tim Geithner.
I am at a loss over why Obama made these two appointments. There are plenty of good economists without ties to the financial community. Things would be very different if Obama relied on James Galbraith, Paul Krugman, Robert Reich, Laura Tyson and/or Paul Volcker for economic policy.