Belmont Club

The 2 hundred million ton penny drops

A Posteriori. Revising what you know about something based on the observed evidence. Recalculating your probabilities on the strength of how the coin turned out. The arithmetic should be simple: eight hundred billion dollars and the fact that a penny weighs 2.5 grams means that a two hundred million ton penny has dropped. It’s the size of two thousand aircraft carriers. Even solid Obama supporters are slowly approaching the gigantic coin to see if has turned up heads or tails.

Jan 29, 2009 — “I don’t want to get over your head here but why in the world aren’t we doing what they said they were going to do – build bridges, factory jobs, replace the smell of decay with the smell of construction, the cranes out, the trucks out?” [Chris] Matthews said to Cramer. “Why don’t they spend all the money either on tax cuts for people who need the money and/or building stuff? Why is it all going into the cats-and-dogs programs?”

Feb 2, 2009 — “Until the Obama administration starts listening, until they start paying attention to what you’re watching – to the stock market, until they realize that their agenda is destroying the life savings of millions of Americans – then all I can give you is caution.” (Jim Cramer)

Of course, those who were doubtful of Obama to start with are finding even more evidence for their a priori beliefs. Charlie Gasparino at the Daily Beast says you ain’t seen nothing yet, so wake up and smell the coffee. Indeed, some of his Wall Street friends have and the coffee is burning.

If you want to understand why, despite his popularity with the general public, Barack Obama is losing the confidence of Wall Street, all you really have to do is speak to his supporters on the Street. There are many, contradicting the long-held myth that the bankers, investors, and hedge-fund traders who inordinately profited during the past two-plus decades of unfettered capitalism don’t always vote as unfettered capitalists. They were a vital part of Bill Clinton’s coalition, were cozying up to Hillary, but bolted for Obama the minute they heard him speak about social justice, the need to reform the nation’s energy policy, the necessity to end the war in Iraq, and most of all, how the past eight years of George W. Bush elevated mediocrity to new heights.

Obama was anything but mediocre, they told me time and again, as the financial crisis devastated the markets and ushered in one nasty recession. And these days they are a sorry lot because they now admit they really didn’t listen to Obama. Yes, their man was elected, and they still defend their choice for president based on his obvious intelligence, grace under pressure, and for the simple fact that they couldn’t bring themselves to vote for the erratic John McCain, and the novice Sarah Palin.

But for all of that they can’t believe what they are witnessing: an economic agenda that is contradictory at best, and possibly reckless in its extreme. Policies that will certainly make a very bad situation even worse, and when things do get better, they will certainly not be better enough to compensate for the pain we are experiencing. … And yet, while the end of the financial world may not be at hand, there is a growing sense among people who understand the markets that things could still get dramatically worse, even as the Dow Jones Industrial Average hovers around 7,000, about half the level of its high point before the crisis began two years ago.

Roger Kimball thinks it’s time to look under the hood or at least call things by their names. He thinks “stimulus package” is really another name for a 21st century version of Lyndon Johnson’s War on Poverty program.

Many people, I believe, have been stunned by the President’s behavior in his first weeks in office. It’s been a shock and awe performance. Historians of this period will look back in wonder: how ever did a new President waltz into office and, before he had even finished unpacking, extract $800,000,000,000 from taxpayers for partisan spending programs? Partly, it was a matter of successful rebranding: the President managed to convince some important people that his spending package was really a stimulus package, i.e., something that would help the economy, not hobble it. We know better now, having just suffered the largest post-inauguration market rout in history. But those historians will note with interest how, even at the beginning of March, some reputable commentators still referred to the President’s poverty program as “stimulus package.” … We’re still in the first act of the President’s melodrama. A few weeks ago, he warned of “catastrophe” if taxpayers didn’t fork over $800,000,000,000 instanter. In fact, the catastrophe of this drama is yet to come.

And Lyndon Johnson did other things besides, for folly once set loose, does not confine itself to particular acts of mischief. But schadenfreude is a dangerous thing. Whether or not people have the collective responsibility for the current administration’s blunders, they will without a doubt collectively suffer its consequences. When the Titanic sinks, everybody without a lifeboat drowns. Even Reuters is getting that sinking feeling, if you’ll pardon the pun.

WASHINGTON (Reuters) – U.S. companies, consumers and communities may grow so addicted to government financial help that cutting them off could trigger another recession soon after the current one ends. … But there is increasing concern that when the flow of public money subsides — beginning next year when much of that stimulus package is spent — the economy still won’t be strong enough to stand on its own.

“The stuttering attempts to repair the banking and lending mechanisms so far by the new administration suggests that by late 2010, the specter of a second dip into recession will be looming large,” said Merrill Lynch economist Sheryl King.

The latest evidence of the government’s ever-changing plans came on Monday when insurer American International Group Inc got its third bailout, each with different terms.  That did nothing to improve confidence on Wall Street, where investors dumped stocks amid fears that the financial crisis was worsening.

The time for recriminations comes later. Kimball knows this and warns against the Tertullian heresy, which holds that one of the delights in heaven is watching the damned burn in hell. That’s wrong; even professional soldiers know better. They let defeated generals keep their swords. Right now the important thing is to realize we’re in a hole and to stop digging. Paradoxically, the apparent vindication of those who called for a closer look at the Lightworker will make it harder for those who voted for him to get up on national TV and eat crow.  It’s just too humiliating. Although Cramer and even Matthews may get to the point where they substantively criticize Obama’s policies, they’ll dance around BHO for a while, because I don’t see them coming on the air in sackcloth and ashes. Nobody wants to say he was wrong in general, but they don’t mind admitting they were mistaken in particulars. For example, Martin Peretz has been on a campaign to attack Obama’s choice for chairman of the National Intelligence Council, Chas Freeman, as a Saudi stooge. There should be no need to go further. That should be enough of a plank on which to build bridges.

If conservatives are astute they should be building mini-coalitions with Obama supporters who have seen the penny — the two hundred million ton penny — drop. On them.