Going Berserk Over the Interview

Paul Krugman is going berserk (here and here) over the president's Business Week interview. The part where Obama equates bankers' bonuses with baseball stars' salaries seems to particularly piss him off. And when the president says this about J. P. Morgan's Jamie Dimon and Goldman Sachs' Llyod Blankfein:

Well, look, first of all, I know both those guys. They’re very savvy businessmen. And I, like most of the American people, don’t begrudge people success or wealth. That’s part of the free market system.

Krugman is ready to throw himself under the bus:

I mean, how hard is it for the White House to understand that it’s a really, really bad idea to be saying nice things about bailed-out bankers, Goldman Sachs in particular? Even if you think it’s a bad idea to come across too populist — and why, exactly? — be evasive and judicious, say something neutral. Do NOT praise Lloyd Blankfein’s savvy, OK?

Maybe it was a bit strong for me to say that we're doomed, but this really is shocking and dispiriting.

I don't know. I find Paul Krugman's reaction a little over the top and a little too reminiscent of the kind of reactions he used to have to some truly dispiriting things coming out of the Bush White House or that he has on a regular basis to the equally dispiriting things coming out of the Republican leadership.

He should keep in mind the context, the audience and the medium. The interview is basically framed as a response to the many people, a lot of whom voted for Obama but who tend to be independents, who think the president is anti-business. It very well may be that nothing Obama says will sway this particular group of people but to take his answers as proof that he is business's (and particularly the banks') lapdog as Paul Krugman seems to be doing pushes the boundaries of good faith.

Not only that but if one were to read the whole interview, one would come across this long, very long (sorry about that) statement, a statement that basically puts the lie to P.K.'s and other's assertion that O. just doesn't get it:

After what we have gone through, surely nobody in the business community thinks that the status quo, in terms of how we regulate the financial system, is adequate. I can't believe that there is anybody who is running a business out there who thinks that 60-to-1 leverage and folks making $100 million bonuses based on gambles on derivatives, takes comfort in that kind of system.

What we have said is that if you look at the holes in the system right now, we have got to have a way of monitoring the systemic risks. We have got to make sure that there is a way to wind down a firm that's in trouble that is quarantined from the rest of the system so that we don't have institutions that are too big to fail.

We think it is very important to have a consolidated and streamlined regulatory approach to things like derivatives and hedge funds, not just banks. We think it is important to have a consolidated and streamlined approach to consumer financial protection, because although it is true that the immediate cause of Lehman's [bankruptcy] may not have had to do with what was going on with credit cards, what is also true is that if you have consumers who are getting predatory loans that they don't understand, credit cards or debit-card rates that they don't understand, a lot of these financial instruments that drive huge profits, but leave consumers unprotected. That is not good for the system overall.

We think that increasing capital requirements for systemically significant firms is important. So all these things are of a piece—not designed to squelch innovation in the financial market, but designed to make sure that there is a level playing field, transparency, clarity in how this system operates.

Now, the Volcker Rule is part of this overall framework. And I think there has been some misunderstanding, at least in the popular press, about what we are proposing. What we are simply saying is that it makes sense if banks are getting cheap money through the discount window, if they've got assurances and guarantees from the government, that they don't simply take that cheap money, fully backed by the U.S. Treasury, and go out and just start rolling the dice in proprietary trading or other transactions that aren't designed to help raise money for their customers or designed to ensure investment and job growth, but basically, are just designed to boost their profits and their bonuses.

That is not something the government probably should be in the business of subsidizing. And that is the essence of the rule.

Whether we can get it through Congress is always a question because, as we have seen throughout this year, we have a political process in Washington right now that is a little dysfunctional.