Obama’s claim of rescuing economy from brink stretches facts

Jon Ward Contributor
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Vice President Joe Biden’s recent comments taking credit for success in Iraq is just the most recent example of the Obama White House apparently claiming responsibility for a policy that originated during the Bush administration.

In numerous public statements during the past month, President Obama has said that actions he took staved off a second Great Depression. The problem is, most economists point to the $700 billion bailout passed in October 2008 — when George W. Bush was president — as the key government action that kept the financial markets from imploding.

There are, of course, shades of gray. Obama, as a senator, voted for the bailout, known as the Troubled Asset Relief Program, one month before the presidential election.

And Obama was involved in the decision-making that led up to the TARP bill’s passage. He spoke regularly with Bush’s treasury secretary, Hank Paulson, in the days leading up to TARP’s passage. Obama also played a leadership role at a key White House meeting with Bush, congressional leaders and Republican opponent John McCain in late September 2008.

But recent statements by the president make it sound as if he were president when TARP passed.

“When I took office … we had to throw a lifeline to some of the very firms that had helped cause this crisis in the first place. But it was the right thing to do,” Obama said at a town hall meeting in New Hampshire on Feb. 2 (see a full list of recent statements by the president here).

At an Ohio town hall on Jan. 22, Obama said this: “I walked into office a year ago in the middle of a raging economic storm that was wreaking devastation on your town and communities everywhere. We had to take some very difficult steps to deal with that mess, to stave off an even greater economic catastrophe. We had to stabilize the financial system, which, given the role of the big banks in creating this mess, was a pretty tough pill to swallow. I knew it would be unpopular — and rightly so. But I also knew that we had to do it because if they went down, your local banks would have gone down.”

It has become a mantra for the president over the last month, in fact, that because his administration “acted immediately and aggressively” he “averted another Depression.”

Obama also says his actions “broke the back” of the recession. This refers separately to his $787 billion stimulus, passed in February 2009, but also to the bailout of U.S. automakers with TARP funds, to “stress tests” of the major banks to determine their vulnerability to further crisis, as well as programs to stem home foreclosures and increase bank lending.

“TARP was indeed launched under the Bush administration and the president has made clear that he believes the overall approach was necessary,” said an Obama administration official, who asked that they not be identified. “However, it’s important to note that the expanded stabilization efforts that were introduced by this administration, which focus on small businesses and struggling homeowners, have been essential to the sustained recovery and growth we have seen over the past year.”

However, it is a blurring by the president of the distinction between preventing a total collapse of the economy and a recovery from recession that leaves him open, some said, to the charge that he is taking credit for a Bush-era decision.

“Both Bush and Obama did numerous things but Bush’s big thing was TARP and Obama’s big thing was stimulus and, of the the two, TARP more neatly fits the description of ‘lifeline’ and ‘rescue’ so, yes, Obama is being disingenuous at best and dishonest at worst,” said Jim Rickards, a financial analyst and executive at Omnis Inc.

“I guess what is striking is the continuity between the two administrations, in contrast to Obama’s efforts to treat Bush like a disaster and act like he is our salvation. This is true not only in the financial sector but also in Iraq, Afghanistan and the war on terror is many ways.”

In fact, Rickards said, the myriad of programs enacted by the government since 2007 “looks like one giant rescue program orchestrated by both administrations to keep the economy afloat.”

Whether Obama’s lack of clarity is intentional or not, it is not the first time lately that a White House official has touted as an accomplishment policies that took root under the Bush administration.

Biden last week said that the U.S. involvement in Iraq could be “one of the great achievements of this administration,” despite the fact that he and Obama both opposed Bush’s surge in 2007 that stabilized the country, and that the agreement with the Iraqi government to draw down forces was reached by the Bush administration.

Economists give Obama some credit for his moves on the economy, but overall judged the TARP to be the main move that staved off catastrophe.

“Without TARP there would have been a real mess, but more than TARP — as it stood on January 20, 2009 — was needed and delivered. Recall that markets continued to tank through early March,” said Edwin Truman, a former assistant treasury secretary under President Clinton, who reentered government in 2009 for a few months to help Treasury Secretary Geithner.

The stimulus, said economics professor Richard Sylla, “probably helped a little to avert another depression, and perhaps still is acting to promote recovery.”

“But I think the ‘decisive’ actions that averted another depression were mostly those of the [Federal Reserve], which doubled its balance sheet in fall 2009, along with the TARP injections of capital into floundering large financial institutions considered to be ‘too big to fail,’” said Sylla, who teaches at New York University’s Stern School of Business.

Vincent Reinhart, a former Federal Reserve official now at the American Enterprise Institute, said Obama has prevented “a more severe contraction in activity” by continuing Bush policies and by resisting the temptation to erect trade barriers, “which was a key accelerant in making the Great Depression so severe.”

Opinion among former Bush administration officials was mixed. Former Bush press secretary Dana Perino gave Obama some credit for TARP.

“There’s no doubt the rescue package, TARP, was the main element that saved the system from devolving into another great depression-like downturn. And both Bush and Obama supported it. Obama was vociferous, remember, and his support, as well as McCain’s, was critical,” Perino said. “But I’m not sure Obama gets much credit for bringing us back from the brink after that. If he means bailing out the autos, there’s an open debate on that.”

Tony Fratto, a former Bush White House and Treasury official, said that “all the decisive actions were taken by the Fed and the Bush administration.”

“The Obama administration likes to point to the stimulus bill as being decisive, but they also like to point out that only a third of the funding was spent by near the end of 2009. They can’t have it both ways,” Fratto said. “As for the financial actions the Obama administration took, in retrospect it’s clear their impact was very limited. “

Keith Hennessy, Bush’s national economic council director, distinguished clearly between averting catastrophic collapse, which he attributed to Bush, and recovery, which he said has been attempted under Obama.

“Most of the actions that prevented the collapse of financial institutions took place during President Bush’s term,” Hennessy said. “In the financial sector, many of the actions that began the recovery and rebuilding process, such as it is, occurred during President Obama’s term.”