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Paul Krugman became a household name in the past few years for his strong criticisms of George W Bush’s economic policies. Now the Nobel Prize winning economist is setting his sights on Obama. What is Krugman’s beef with Obama’s economic stimulus package? He says that it will create “a market in which buyers have to be bribed to participate.” Not only is he right, but his article gets at the real heart of our economic problem- too many securities. This stimulus plan tries to protect a failed system of securitization, where banks lend way more money than they have while ignoring the risk. Under this plan, the government will buy a bunch of the bad loans that these banks made, and the banks can turn around and lend more money that they don’t have! All so that bankers can keep their jobs, while everyone else goes further into debt and loses out when they can’t pay back.

This financial system is a new beast, one that grew from only 4% of the economy in the 1960s to 17% in 2007. It all started with the deregulation under Reagan. After 1982, bankers and investors were allowed to lend money and trade securities, getting rid of a Great Depression-era law separating lending and trading institutions.

Reagan cut the richest Americans’ taxes from 72% to 28%, but he raised taxes on the lower brackets, and increased payroll taxes on Social Security and Medicare. And for all the money given to the rich, all the banking rules ignored, and all the damage done to the poor and middle classes, where did his system get us? Anyone remember the Savings & Loan Scandal of 1987?

It is the same song and dance this time around, in 2008. We saw the worst of deregulation in the Reagan and Bush years, but Clinton was guilty of doing nothing about it. Obama needs to let these gamblers deal with their addictions, instead of funding their habit. Some financial gambling is OK, but they’ve taken it way too far, and it’s time to cut them off. Obama should spend that money on education, infrastructure, manufacturing, technology development, and all the other industries that give people jobs and produce things we need and want.

Written 15 years ago, Arrogant Capital predicted how powerful financial institutions were not only jeopardizing our economic future, but also ruining our democracy. He shows how the growth of the financial sector, at the expense of manufacturing and industry, destroyed so many great nations and empires. It is a fun, but terrifying, read.

I love Obama, and I know he will impose some strict rules on these finance cats, but I want to see more than politicians plugging holes in a collapsing system. That game’s been played for way too long. For a change, let’s get that money to folks who will do more than just gamble with it. That would be some change I can believe in.

Links of interest:

President Obama’s American Recovery and Reinvestment Plan– Here’s the change I can believe in!

The Market Mystique– Krugman’s latest article on the stimulus

Good Nonsense’s Review of Arrogant Capital

The Thin Line Between Socialism & Capitalist Nirvana– Graph Shows the Changes in the Tax Rate on the Richest Americans Since 1920

U.S. Expands Plan to Buy Banks’ Troubled Assets– NYTimes Article on the Obama plan to buy toxic assets

Reagan Raised Taxes– Brew City Brawler provides some long forgotten facts about Reagan’s tax legacy