Grotesque Giantism: The Obama Domestic Legacy So Far

by Ryan Streeter on May 2, 2012. Follow Ryan on Twitter.

Fouad Ajami regularly writes forcefully about the need for a foreign policy that uses American strength to promote human rights and democracy abroad. So it was surprising to find him commenting on Obama’s domestic record in a Wall Street Journal op-ed today on Obama’s foreign policy (namely why his record of aloofness and weakness prevents him from running on his foreign policy record):

That General Motors has been rescued is true, but the price paid was far too high. Moreover, it set a precedent at variance with the economic tradition and values of our country. The markets, not the White House, should have administered the treatment. Nor can our national economy be reduced to the tale of GM. A presidency that gave us an unprecedented but largely ineffective stimulus of $825 billion, that hiked federal spending to 24.3% of GDP from 20.8%, and that is set to run a deficit of $1.3 trillion this year, is not one that can ask to be trusted with the store.

I don’t know if Ajami’s claim that the GM bailout was a price too high is referring to the IG report (PDF) last week, but the latter certainly backs up his claim. The report didn’t get the coverage it was due. It was a damning report, and in essence, a helpful distillation of the policy mindset and goals of the Obama administration. Here are a few keepers from the Executive Summary:

  • It is a widely held misconception that TARP will make a profit. The most recent cost estimate for TARP is a loss of $60 billion. Taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost).
  • A significant legacy of TARP is increased moral hazard and potentially disastrous consequences associated with institutions deemed “too big to fail.” TARP’s legacy also includes the impact on consumers and homeowners from the large banks’ failure to lend TARP funds.
  • According to the Federal Reserve economists, the loans that the bailed-out banks are making today are riskier than those of their non-bailed-out counterparts.
  • Many of the same large banks have greatly increased their executive compensation despite the fact that regulators have stated that compensa- tion played a role in causing the crisis by encouraging risky behavior.
  • Many of TARP’s goals have not been met. Even though the explicit goal of TARP’s Capital Purchase Program was to increase lending to U.S. consumers and businesses, the recent Federal Reserve working paper confirmed that the largest banks that received TARP funds did not increase their lending. In fact, these institutions have been lending less than their counterparts that did not receive a bailout.

Critics will say that TARP had its origins under Bush and that the IG report is talking more about banks than GM. Fair enough. But the inescapable reality is that Obama has not at all acted as though too-big-too-fail is a problem. He proposes to raise the taxes on the rich guys running these banks and car companies but says nothing about how they’ve gotten richer while failing the country with their (non-) use of TARP funds.

In short, Obama has grown smaller the more has has fanned the flames of all that is dangerously big: he’s piled up debt to historic proportions, he’s running a deficit that defies comprehension, and he’s presided over a grotesque giantism in our banking sector. And with each budget he submits (that his Democratic colleagues subsequently reject on account of unseriousness) and each speech he gives ridiculing reformers like Paul Ryan who are trying to do something about our deficit with tools Democrats once supported, he aids and abets everything that is wrong with America’s fiscal environment. Worse, there is virtually no domestic success he can point to that offsets the giantism all around us that he pretends not to see.

It’s hard for the media to cut through the residual fog left over from his 2008 gold dust campaign, but historians will surely look back at 2009-2012 as one of the most poorly executed presidencies on record.