Business Times - 27 Nov 2009
Will unemployment be Obama's Katrina?
After 22 months of job losses, Geithner has become a convenient target for populist rage
By LEON HADAR
THERE have been some encouraging signs of recovery in parts of the American economy recently. Hence, the National Association of Realtors reported this week that sales of existing homes were up by more than 10 per cent in October, hitting the highest levels in two-and-a-half years.
At the same time, the Dow Jones Industrial Average has been hovering above 10,000 for a while and retailers are hoping that more confident American consumers will spend more time - and money - in the shopping malls during the coming holiday season.
Indeed, most economists seem to agree that the Great Recession is over. But then, the same economists are also predicting several quarters of substandard growth and rising unemployment. Currently, the unemployment rate stands at 10.2 per cent, the highest level in 26 years, after 22 straight months of job losses.
But if one considers the broadest measure of unemployment which includes the number of those who are 'underemployed' (those who have stopped looking for full-time jobs), then about roughly 17.5 per cent of Americans are either without a job or underemployed. And the figures are even higher when it comes to young people under 25, including college graduates and African-Americans and Hispanics.
While Obama administration officials explain that employment has always been a 'lagging indicator' during economic recoveries, they recognise that as the nation prepares for the critical 2010 mid-term Congressional races, the unemployment figures could end up determining the outcomes of these elections.
To put it in simple terms, if unemployment continues to rise in the coming months, the Democrats could lose their control of Congress and President Barack Obama could be transformed into an ineffective lame duck president.
'Just as Katrina exposed critical weaknesses in the priorities and competence of the Bush administration, the unfolding unemployment disaster is threatening to do the same for the Obama White House,' suggested Arianna Huffington, an influential political analyst and a supporter of Mr Obama.
Ms Huffington, who is also the publisher of the Huffington Post, has written that the Obama administration's 'lackadaisical response to what job losses are doing to multiple great American cities raises the question: will unemployment be Barack Obama's Katrina?'
There may be one small piece of good news about unemployment: It has been growing at a slower pace. According to the statistics, about 600,000 people were filing for unemployment insurance each week early this year. That number has fallen to 500,000 per week. But it has to be fewer than 350,000 per week before economists can conclude that unemployment is really falling.
There is clearly a depressed mood around the country, especially in areas such as Michigan, where unemployment has been higher than the national average. A new ABC/Washington Post poll reported that 30 per cent of Americans say that someone in their home has lost a job. And as the media continue to mingle reports about rising unemployment with stories about the current upbeat mood in Wall Street and the big severance pays for former executives in companies bailed out by American taxpayers, these taxpayers are getting angry and are pressing their representatives on Capitol Hill to deliver their populist message.
It was not surprising therefore, that US Treasury Secretary, a veteran Wall Street player, and Federal Reserve chairman Ben Bernanke, the main driving force behind Washington's efforts to bail out Wall Street, have been a convenient target for this populist rage.
In fact, some lawmakers and pundits have started calling for the resignation of Mr Geithner. Republicans as well as some Democrats want to impose stringent scrutiny on the Fed. The House of Representatives' Financial Services Committee voted, 43-26, last week to approve a measure sponsored by Texas libertarian Republican Ron Paul, to direct the congressional Government Accountability Office (GAO) to expand its audits of the Fed to include decisions about interest rates and lending to individual banks. The Fed, backed by President Obama, has opposed the measure which, it says, could threaten the central bank's independence to make monetary policy without political interference by Congress.
At the same time, Mr Geithner has come under fire from both Republican and liberal Democratic lawmakers, with some of them calling for his immediate resignation. 'The public has lost all confidence in your ability to do the job,' said Representative Kevin Brady, a Republican from Texas, during a hearing at the Joint Economic Committee, last week. He was joined by Representative Peter DeFazio, a liberal Democrat from Oregon, who argued that Mr Geithner was 'too close' to Wall Street.
The Treasury Secretary's chumminess with the Wall Street crowd has been highlighted in a recent congressional oversight report about the government's efforts to rescue American International Group (AIG). The report suggested that the New York Fed, under Mr Geithner's leadership then, gave in to demands from Goldman Sachs and other big banks and paid them in full for deals that they had made with the bankrupted giant insurer.
In the eyes of many angry Americans, Mr Geithner has become a symbol of the intimate and toxic personal and political ties between Washington and Wall Street that may have created the conditions for the financial crisis and resulted in the government's costly bailout of several leading failed banks.
The Rasmussen opinion survey reported that 42 per cent of Americans think that Mr Geithner has done a 'poor job' in handling the credit crisis and bailouts, versus only 20 per cent who found Mr Geithner's performance 'good' or 'excellent'.
The growing criticism of Mr Geithner has resulted in rumours that President Obama was planning to fire Mr Geithner and replace him with JP Morgan CEO Jamie Dimon who rescued Bear Stearns and Washington Mutual. Obama administration officials denied the reports and issued a new public endorsement of the Treasury Secretary last week.
But against the backdrop of rising unemployment and mounting criticism of Mr Geithner, President Obama would have to demonstrate to the American people that he is dealing with the unemployment problem in a more effective way that his predecessor handled Katrina.
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