Paul,

When I was at your house on Sunday, you said the stimulus was not going to be enough, and faulted Bernanke for not backing additional stimulus.

But additional stimulus would have to be voted by the Congress.  And all the political folk say there is “no political will” for more stimulus.  Furthermore I mentioned the Bernanke confirmation hearings, which are surprising in the intensity of their vitriol, Senators attacking th Fed chairman.

These Senators and Congresspeople are just reflecting what their folks at home are saying.  The constituents are feeling ripped off.  Their own standard of living is going down, but as taxpayers they bailed out the banks and investment banks because the “systemic risk” was so great, and now the partners and officers of those banks are about to get billions in bonuses.  No wonder there is no “political will” for more stimulus.

So we come back to these questions:

1) The economic heart attack last fall was a product of, among other things, excessive leverage — debt.  What has been done about that?

2) The peddlers of the mortgages now known as “toxic waste” were aided aided by the rating agencies, Standard & Poor’s, Moody’s, Fitch.  These rating agencies were worthless.  What is being done about the rating agencies?  They gave AAA ratings to the “toxic waste” because they get their fees — their livelihoods — from the people they are rating.  That’s a huge flaw in the system. They should either be nationalized and be an agency like the FDIC or be totally independent and get their fees from a broad-based assessment of all the partipants. They should not be paid for delivering AAA ratings.

3) The big banks were bailed-out because of “systemic risk,” because they were “too big to fail.”  Yet now, through attrition, forced mergers and the bailout, the big banks have gotten even bigger.  We can’t continue to have “too big to fail” institutions keep growing, and have the government guarantee them, and pay their leaders billions in bonuses. What is being done about “too big to fail?”

I could go on, but the point is, until people get the feeling that real reforms have been instituted, that the morass has been cleaned up, there isn’t going to be the”political will” to support an optimum strategy.  We will have an economy that slides as the stimulus wanes.

Don’t you agree that the financial sector needs a “New Deal?”

j