There are many factors associated with Barack Obama’s plunging popularity. Botched health care reform certainly hasn’t helped. Neither has a near double-digit national jobless rate, nor a $1.6 trillion budget deficit. But what outrages American voters most is the billions of dollars given to Wall Street investment bankers, who continue to live la dolce vita and flaunt their arrogance in taxpayers’ faces.

As I’ve argued before in this blog and in chapter 7 of my book, it wasn’t too-big-to-fail financial institutions but the interest rate shock from soaring oil prices that deep-sixed the economies of both the US and the rest of the oil-guzzling world. Interest rates didn’t just rise from around one per cent to almost six per cent because no one was minding the store at the Federal Reserve Board. It was soaring oil prices that did all that heavy lifting.

Not only is rescuing failed investment banks a total misread of what put the economy into this recession in the first place, but the huge deficits needed to fund those huge corporate welfare checks all but preclude any further economic stimulus in the future.

In fact, they’ll do just the opposite. Reining in the deficits that follow from Wall Street’s bailout will lead to years of fiscal restraint and a burden on future economic growth. Job-creation rhetoric aside, the President is already stepping on the brakes, and Congress will surely want him to press much harder on them over the balance of his term, as Washington struggles to get the nation’s exploding debt under control.

As their taxes inevitably rise and their social security entitlements inexorably shrink, American taxpayers will increasingly wonder what they have gotten for their tax dollars. And they will no doubt ask themselves why it is that, if they have to own Merrill Lynch and Bank of America now, at the bottom of the cycle, they don’t also get to own these same institutions at the top of the cycle.

Henry Paulson, the recent Treasury Secretary, along with all the other ex-Goldman Sachs folks still at the Treasury Department, will quickly chime in that private ownership is essential to encouraging risk-taking.

But what really encourages risk-taking on Wall Street is when the losses from bad bets can be socialized and left to taxpayers, while the gains from good bets can be paid out to partners at bonus time. And it’s precisely this type of risk-taking that will soon bring back the regulatory barriers than once separated brokerage houses and investment banks from deposit-taking institutions.

Wall Street has always eschewed regulation, pointing to the willingness of the rest of the world to fund it. But the only flow of funds coming in these days is from the American taxpayer, and that, in a nutshell, has been the reason for President Obama’s quick fall from grace.

  • BR

    Jeff -

    I'm disappointed that someone as bright as you is making the same error of timeline that the mainstream media likes to make by implying that the bank bailout happened on Obama's watch. It didn't. It happened under Bush, with broad bipartisan support.

    While I agree that he should have pushed harder for regulating the banks (and seems to be finally getting around to it), faulting him for simply finishing the TARP program that was already many months underway when he took office doesn't make sense.

  • S Hutchinson

    Finally someone who believes that Obama is just a great talker! But with no experience in politics and then people putting him in, well we get the same as the Ottawa Mayor (0 means 0)
    guy with no political experience……all they've done is cost us big $$!!

  • MarkGoldes

    Water will be the inexpensive fuel of the future!

    A thus far hard to believe and little known energy source, fractional Hydrogen, lets a barrel of ordinary water become the energy equivalent of 200 barrels of oil.

    If automotive and heating applications of this revolutionary breakthrough are developed rapidly enough, the projected increase in the price of oil might be dramatically halted and conceivably reversed.

    Thus far, since the science is not yet generally accepted, the White House and the U.S. Department of Energy have ignored this urgent work.

    Our competitor, BlackLight Power, is the subject of a recent article. Read it at: The title is: Newly Discovered Hydrinos can Provide Cheap Power for the World.

    They call fractional Hydrogen hydrinos. We call it ECHO – Energy from Collapsing Hydrogen Orbits. ECHO makes possible SPICE – a Self Powered Internal Combustion Engine.

    A car with a hybrid SPICE fueled by ECHO is expected to travel 1,000 miles on a gallon of distilled water.

    Even better, the engine can run when the vehicle is parked, spinning a generator and selling electricity to the local utility. No wires required. Such cars and trucks can be expected to pay for themselves!

    Two laboratories have validated the BlackLight work to date. More should do so without delay.

    If this development, and an even harder to believe magnetic parallel, can be put on a 24/7 footing without delay, the economic impact might be monumental.

    If it rapidly attracts government support in the U.S., President Obama might find his falling fortunes reversed.

  • Rojelio

    Hi Jeff,

    I'm a fan of yours due to the magic of on-line videos and I can't wait to read your book. Interestingly, Richard Branson from Virgin Atlantic gave a recent interview to CNN warning about peak oil in about 2015. From what I cant tell you are forecasting a much earlier triple digit oil price scenario. Since 5 years is a long time, I'm wondering if you guys are looking at the same data and how much standard error there is built into these timelines?

    Thank you and others in advance for any feedback on this.

  • Rob Taylor

    I read the book and I think the analysis is sound. One thing I would have to disagree with – you say that migration from countries in poverty offer a 'critical safety valve' while you say earlier that now Britain is only allowing people with at least master's degrees to work in the country. That 'critical safty valve' is actually the lifeline of the country – the professional class – bailing out. I remember hearing the guy on the news from Saskatoon getting cranky that it was taking so long to get the South African doctors accredited to work in Canada. I am sure that doctors are in MUCH shorter supply in South Africa than Saskatoon. The third world would in fact be much better off if we kept our aid and they kept their professional class. Other than that – Great book !!

  • NL

    Faulting President Obama for “finishing” the TARP program that Senator Obama voted for makes perfect sense.

  • NL

    Faulting President Obama for “finishing” the TARP program that Senator Obama voted for makes perfect sense.

  • Pingback: We’re All PIGS Now | Jeff Rubin