ET TU, OBAMA ... WHERE'S OUR TALF RELIEF?

A few posts back I suggested that President Obama needs to get on the side of Main Street and should enact an immediate payroll tax cut, spend hundreds of billions on infrastructure projects, and then go after Wall Street. I still think he needs to this. This Robert Reich post offers two other proposals that I like.

(1) Enact a second stimulus. It should mainly focus on bailing out state and local governments that are now cutting services and raising taxes, and squeezing the middle class. This would be the best way to reinvigorate the economy quickly.

(2) Help distressed homeowners by allowing them to include their mortgage debt in personal bankruptcy — which will give them far more bargaining leverage with morgage lenders. (Wall Street hates this.)

There's a reason why Wall Street hates the second proposal. It would force them to renegotiate with homeowners in a fashion that the big banks were able to negotiate with Washington when they had their economic meltdown. In many ways it would force the banks to consider negotiating TALF-like loans for homeowners, which would allow homeowners to get new loans by using their "legacy assets" as collateral.

More simply, it would allow homeowners to claim that, in their world, their house and their lives are too big to fail so they deserve help. Just like the big banks homeowners would be able to secure a new, lower value, loan on their home, as long as they stay in the home for a certain period. The loan would be made by the banks, and guaranteed by the federal government (like the TALF loans are). The argument, which was "all good" when Wall Street's financiers were going under, is not viewed as legitimate when it comes to Main Street. Nice.

Apparently, in the grand scheme of things, President Obama isn't going to put the effort into helping Main Street that he put into bailing out Wall Street. He's going to propose a three-year freeze on a large portion of discretionary spending, which will make it virtually impossible for him to stand up for Main Street's immediate needs, or it's interests. Economist (and frequent guest on my program) Mark Thoma calls it a "cheap political trick." I agree. This recession isn't your Great-Grandfather's depression. And, as Robert Reich points out, it's not the recessions Reagan or Clinton had to deal with either.

Of course Wall Street's happy as a bug in a rug because it signals that President Obama isn't going to put any teeth into taxing or reining in Wall Street's greed and stupidity. Main Street is the only sector that's going to take the hit on the recovery. This is all we need to know that President Obama's proposal stinks.

Like Julius Caesar, I get the strange feeling that our friends are stabbing us in the back, again. I'll have more to say on this later.

Sigh ...

- Mark