Felicia Muftic: Romney is no economic genius
May 22, 2012
We live in a short-hand, sloganeered and sound bite world but it is worth our time to get into the weeds, especially when complex issues of the economy are involved.
I took a deeper look at some recent sound bites regarding the auto bailouts, Wall Street regulation, and debt/budgets and came out of the wonky weeds shaking my head. Mitt Romney’s expertise has not translated into good judgment, or good public policy, or even good banking practices.
Let’s look at Romney’s claim that a private sector auto industry bankruptcy would have been better than the Obama bailout. It is fundamental to his claim he was a fixer of the economy’s problems and a job creator and it illustrates why a banking perspective does not always make for good public policy. The number of jobs that could have been lost in 2009 if GM and Chrysler went under (including the ripple effects to parts suppliers and others), would have been 3 million, auto executives predicted. If Obama had not fixed it with the government bailout, we would still be looking at an unemployment rate in 2012 much higher than 8.1 percent.
The fix Romney advocated publicly in 2009 and still defends was to let the private sector provide the capital for a structured bankruptcy. There must be capital provided by investors in a managed bankruptcy, or the enterprise has no way to pay its workers, parts suppliers, or any other costs of doing business. It padlocks the gates and employees become the unemployed.
The reality in 2009 was there was no private capital to do it. Either Romney was being deceptive to make a political point or he was blind to the investment climate. Even when challenged later to name any private investors willing and able, he couldn’t. The Obama administration understood that and provided the capital by the way of government money (the bailout) so the factory gates remained open while needed changes were made. The U.S. auto industry has roared back and many of those laid off are now back to work.
This month JP Morgan-Chase lost over $2 billion in proprietary trades gone bad. Luckily JPM is strong enough to survive, but the same could not be said for other banks. Had Wall Street Reform (Dodd-Frank) with its Volcker rule been implemented, it may have prevented certain kinds of proprietary trades that risk a bank’s own funds. If trades were simply bad judgment calls that could take down a bank, the reform would provide a way to wind down a big bank without taking down other banks, avoiding what caused the 2008 crash and bailouts. The financial service lobbyists have successfully delayed implementation of Wall Street reform that includes the Volcker rule. Romney’s position? Repeal Wall Street reform. Bad business, Mitt Romney.
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Coming to a head this summer is the Ryan plan and GOP’s extreme reliance on austerity as the solution to both the budget and debt. Romney has called this approach “marvelous.” The GOP’s reliance on cuts in social programs while increasing Pentagon spending has been condemned as immoral by the Catholic Bishops because it cuts into the poor’s safety net. This is the same single-minded reliance on cuts to recover from the 2008 crash that Europe has tried, with Great Britain and seven countries in the Euro Zone now facing a double dip recession, higher debt, and no growth.
The GOP scares the pants off of voters, pointing to the Greek situation with “we too could go their way if we do not get our debt under control.” Even Democrats agree we must solve the debt problem. The question is “how?” The GOP identifies the right problem and advocates the wrong solution. To tackle debt takes a balanced approach like Simpson-Bowles of some stimulus and some austerity as Obama has done. Relying on cuts alone cripples recovery. That is the lesson Romney and the GOP should take from Europe.
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