Robert Reich's Blog

[dtotire]

March 13, 2009

Paul Volcker to Barack Obama

Former Fed Chair Paul Volcker is briefing President Obama today on how well the stimulus package is doing. I have no inside knowledge of what he's saying, but if I were Volcker (and I'm not -- he's almost two feet taller than I am), I'd say the following:

Mr. President, it's way too early to know exactly what the stimulus is doing because the money is barely out the door, but I've got to tell you I'm worried as hell. Unemployment is at 8 percent, and underemployment is over 14 percent of the workforce. The economy is shrinking much faster than it was when you put the stimulus together. It will be more than a trillion dollars short of its full capacity this year, and I have every reason to believe the same next. State governments alone are hundreds of billions in the hole, creating a huge drag. So your $787 billion over two years, only two-thirds of which is direct spending, isn't going to get us nearly far enough. I'd strongly recommend you make ready a second stimulus, about the same size, and get it enacted as soon as possible, with the proviso that it will be implemented if and when unemplyment hits 8.5 percent or underemployment reaches 15 percent.

Oh, and by the way, Mr. President. You may not want to hear this, but your Treasury Secretary is making things worse. His dithering on what to do about Wall Street, and his incapacity to speak clearly to the Street and to the public about what needs to be done, is spooking everyone. Why doesn't he just put the irrevocably insolvent banks into receivership under the FDIC, sell off their assets, protect depositors, and reimburse taxpayers with whatever remains? Let the rest of the banks fend for themselves -- working out their bad loans with their creditors. As to AIG, well, that's a complete basketcase. Put it out of its suffering. Take it over, sell its assets, protect policy holders (you'll need to create a big co-insurance plan with every other major insurer in the world), then get out.

[OwnedByFerrets]

1. K and R

[ashling]

2. Link?

Thanks

[stillcool]

3. here's one..

http://feeds2.feedburner.com/robertreich

[ashling]

4. Thank you

[katty]

5. that's my thought, way too early--geezus it just happened

[caseymoz]

6. I know it will create immediate problems, but Geithner should be sacked.

He looks like he's in over his head. We need the right man for the job in that position. I realize it might hurt things in the short-term, but how many times did Lincoln change Generals during the Civil War? It will create a loss of immediate confidence, but Obama cannot have the wrong guy in the Treasury Secretary position right now.

Either that, or for the immediate time, Obama could appoint an Under-Secretary or somebody in his Executive office or create a special position to do the real work with the Geithner being the mouthpiece and messenger. He won't like it, to be sure, but depending on Geithner's ego, he might be persuaded to do it for a while and resign later in the year, while Obama vets and prepares another appointment. They could thoroughly go through the guy's background.

Now, it could backfire, the Treasury Department is going to protect its turf, which is why it's just a band-aid until the real solution is made.