Larry Summers Exit Provides An Opportunity for Obama

We have learned today that Larry Summers will be leaving the Obama administration after the elections. This means the departure of three of the four members of the nation’s worst economic team. White House Chief of Staff Rahm Emmanuel will be also be leaving and chief political adviser David Axelrod is another rumored departure.
This will allow the President to make significant changes in the aftermath of the electoral setback.
Bill Clinton radically changed course after the 1994 GOP victory, and perhaps Obama will react in the same manner. The exit of Summers and Romer will hopefully bring an end to more stimulus spending. Orszag is now telling the President to continue all of the Bush tax cuts for at least two years.
The President’s bipartisan commission on deficit reduction will issue their report on December 1st. It will hopefully not advocate tax increases and it should outline cuts which at a minimum will bring the nation back to 2008 levels. The President would be wise to follow this course, but he has rejected excellent advice in the past from Congressional blue dogs, the Democratic Leadership Council and PAYGO advocates. Gov. Phil Bredesen (D-TN), former Gov. Roy Barnes (D-GA) and Rep. Marion Berry (D-AR) are all telling him to immediately roll back federal spending.
We all know there is an election in 2012, but if the President makes a firm commitment to deficit reduction and economic growth policies, he will have enthusiastic allies in the Republican Party. If he continues the same policies a double dip recession is a real possibility. As Bill Clinton proved after the 1994 election, an unpopular President can remake his administration in a short period of time. Clinton replaced his entire political team and brought in Congressman Leon Panetta (D-CA) as Chief of Staff who helped to guide the administration to the center. They went along with GOP policies to expand the nation’s economic pie rather than dividing it up.
What Caused The Economic Crisis of 2008?
The Obama team wants to pretend Democrats are blameless for the September 2008 economic crisis. Many factors contributed to this. Alan Greenspan, the Chairman of the Federal Reserve Board during the Clinton years did not do anything substantive about the “irrational exuberance” he correctly identified in the equities markets. Andrew Cuomo, Clinton’s HUD Secretary was suing and threatening to sue banks based on “disparate impact” concepts. Even banks not subject to the well-meaning but fundamentally-flawed CRA were forced to make loans to significant numbers of significantly underqualified borrowers. Fannie Mae and Freddie Mac, too, are part of this. In pursuit of profits, rather than of their mandate to bring predictability and liquidity to the mortgage markets. Those GSAs started dealing in junkier loan, which in turn made it increasingly possible for the bankers to sell-off their riskier loans without having to work to get the loans repaid.
Bush’s team, especially at the SEC, failed to identify or deal with problems, and they deserve blame to that extent. But many of those problems stemmed from these and other causes. There is also the matter of individual responsibility. Just because politicians tell you it’s important to own a home doesn’t mean your financial advisor would recommend it. Just because the bank says you can afford a house that costs five, eight or ten times your “stated income” doesn’t mean you have to sign the papers.

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