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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 2, 2009 at 9:50 AM

‘To big to fail’ continues to hold back U.S. recovery

Top of the News: A modest recovery is beginning some places. For example, China’s economy is expanding, and there’s growing evidence that the nation’s economic reach is such that it can recover even if the U.S. economy remains stagnant. But what about us?

Economists Simon Johnson, Peter Boone, and James Kwak lay out a good primer on The Baseline Scenario about what they consider the biggest threat to the American economy: continued sickness in the financial sector, and especially the unwillingness to address “too big to fail institutions.”

Thus far, the Obama administration has been unwilling to face this clear and present danger not only to recovery, but to falling into another crash. The big institutions are bigger than ever, and still playing with derivative dynamite. (I would add the risk of the whole shadow banking system, still largely unregulated and untransparent)

They write: “Our financial leaders have emphasized that our banks are well capitalized, and no new public funds are likely to be needed to support them. This is misleading. The current monetary stance is designed to ensure that deposit rates are low, and the spread between deposit rates and loan rates is high. This is a massive transfer of public funds to the private sector, and no one accounts for that properly.”

The Back Story: There has to be some head-shaking at Boeing operations around the Puget Sound as Ford — unsupported by a massive government bailout — swung to a profit, led by former career Boeing guy (and engineer) Alan Mulally. Who wouldn’t pass over an executive like this to lead Boeing when you can have somebody from the outfit that makes Post-It Notes. Ooops, this isn’t Snark Friday.

We’ll see how Mulally handles a potential strike by the United Auto Workers.

Today’s Econ Haiku:

Some good news today.

Bad tomorrow? Markets move

based on fear or greed

Comments | More in Aerospace/Boeing, Banking

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