Jessie Eisinger is simply wrong

1st, I apologize for auto correct typos that appeared in yesterday's post.  I have fixed them if anyone cares to reread it.

Jessie Eisinger blasted the Obama Administration and Timothy Geithner for a plethora of failings in revamping the economy from a liberal point of view in a column today in the NY Times.

Link to Column


I cannot begin to tally all the ways in which I disagree with his desires and will simply focus on certain key points.

It starts with his headline.  Consensus is bad.  Well, it might seem that way when you are battling Tea Party conservatives who have pushed all the moderates out of the GOP.  But the fact remains that the middle still determines state wide and national elections.  And the middle does not support a New York City style liberal agenda.  The success the Democrats have had since 1992 is completely based on middle of the road balancing, developing consensus, and accepting conservative ideas while advancing policies that help people.  Consensus is the only way while being true to policy direction.

When a country is in crisis as the U.S. was in January 2009, the 1st priority is to stabilize the system. That means focusing on stabilizing demand and making sure the environment is safe for peoples savings and the allocation of credit.  That means a stable banking system, which is a must for economic growth at all times.  You can't destroy the banking industry.

The banks that conducted the most heinous activities have failed.  The mortgage originators who committed the heinous activities have lost their jobs and hopefully suffered a great deal.  The only ones who continue to suffer are the shareholders as the banks that picked up the pieces, stabilized the system, and continue to allocate credit, are paying billions of dollars to various levels of government for activities that were conducted by the failed predecessor companies.  Of course, the shareholders benefit from these monies reducing the budget deficit and raising the P/E of industrial companies as investors avoid the banking system.

Mr. Eisinger ignores reality when it doesn't line-up with his view just like the GOP does much of the time.  If the liberals are not cognizant of the center, they will not appeal to the center and then we will have GOP administrations doing all kinds of damage to advance the conservative policies.

Mr. Eisinger states a lost opportunity for a host of theoretical solutions that would have had to been paid for by someone.  While he focuses on a hatred for the banks, he drags in the ACA.  Now I do support a single payer plan but the reality is that a few hundred thousand people work in the health insurance industry.   When the unemployment rate is above 10% and the long term unemployment rate is sky rocketing, you don't regulate the layoff of few hundred thousand people, who are probably unemployable.  You don't regulate the hiring of tens of thousands of people by Medicare.  You don't make the country intrude upon the private sector with a sudden shift.  Bad stuff happens and you lose the voters in the middle.

Just look at the angst in the middle the ACA has caused without changing anything other than the rules that the health insurance industry must comply with!  To believe that a single payer plan would have gone more smoothly is poppycock.

But Mr. Eisigner is really off base with his desire to put bank executives in jail.  I am as appalled as anyone by the anarchy in the mortgage origination market between 2004 and 2008.  It has cost me personally over a million dollars in lost income and investments and with that the certainty of being able to continue to live in the NY metro area forever.

But Mr. Eisinger is simplistic in his belief that you can prosecute people for general bad business decisions.  You have to prove fraud, deception and other things that specifically illegal.  Someone in the ivory tower who approves a broad business direction without approving specific acts down in the branches is guilty of only bad management which is not a crime.

If you really wanted to convict people who brought all this down on us, you would have to jail every real estate broker who helped someone buy a house they could not afford, you would have to jail every real estate loan broker who passed the paperwork on, you would have to jail everyone in the chain that processed that mortgage, you would have to jail everyone in the securitization business who sent those bad mortgages onto investors, you would have to jail the people in the rating agencies who rated the securities investment grade, you would have to jail the investment managers who bought those bonds and cost their investors money.

Real estate is a systemic issue and needs systemic regulation.  Putting people in jail is not the issue.  Good regulation is the issue.  And I do not understand why the new FHFA regulator is loosening standards at Fannie Mae and Freddie Mac.