We need to understand past mistakes in order to avoid repeating them in the future. And to design a recovery we need to delve into the systemic problems at the root of the credit crisis, as they could limit the effectiveness of any recovery proposal.
With so many systemic problems, any steps our government might take carry a great deal of political baggage, pork, and uncertainty of outcome. Any recovery emerges from a culture of corruption in the capital, where politicians cavort with corporations and operate within the confines of the Establishment and Washington consensus.
These people responsible for any solution, who represent not the people's best interests but those of corporations with the most influence. The people responsible for the economic crisis remain in positions of power and authority. No CEO at a major bank has been fired, nor has the Federal Reserve Chairman been replaced.
We do have a new Treasury Secretary, but he was chosen from the most powerful branch of the Federal Reserve out of New York, which played a huge role in setting the Fed's easy money policies, a important contributor to the crisis. Like his predecessor, Geithner is part of the establishment that cheered on deregulation and easy money policies leading to the crisis.
Obama's proposal to end the crisis is Keynesian, which is an economic school of thought that advocates government spending in times of economic contraction. Lord Keynes also held that government should save and cut spending during times of economic expansion, but we didn't do too well in that regard, at least after Clinton left office.
In pure Keynesian terms, more government spending is good, yes. But we haven't been able to see the effects of TARP. And Keynes was talking more about spending that helps our economy like infrastructure, not just letting public money disappear into the hands of people who led us into this mess.
Obama's budget bill jacks up spending by trillions, including up to $750 billion for financial services companies, on top of TARP funding, Freddie and Fannie, and other credit facilities. Its sheer size makes his budget a juicy political target.
The administration justifies the spending basically on the grounds things could get worse in the broader economy if financial services companies fail--which brings up the question of what will happen if they keep throwing money at them. After years of fear-mongering about terror after 9/11, the American public has grown weary of this tactic.
Political reality dictates that the budget needs to be acceptable, and the presence of so many earmarks really makes a mockery of John McCain's pledge to cut earmarks--one echoed by Obama during the election campaign.
As long as the corporate lobbyists can dictate how stimulus and budget money will be spent, the extra spending could engender resistance to the proposed budget, and spell disaster for any relief package, even one with well deserved relief for the debt-burdened masses and troubled homeowners.
Also, our two party system limits the competition. If you don't like the incumbent, you have only one alternative, unless you happen to live in Vermont, whose Senator Bernie Sanders is a rare socialist (the media refers to him as an "I", or Independent.) See this article from The Nation by John Nichols for more on Bernie Sanders.
A different set of rules seems to apply in the Granite State where rather than impose a choice of lesser evils, voters can pick Bernie. Sanders seems insulated from the plague of big money politics controlling the choice of candidates elesewhere.
Considered a threat to the status quo by powerful corporate forces in government and the media, Sanders is largely ignored. Whatever their ire, Sanders' position might be safe from political from outside the state. Corporate support aimed at unseating Sanders would necessarily be split between any potential Republican and Democrat candidates opposing him, making Sanders all the harder to unseat.
It's a heckuva lot easier to own a politician if you own their sole competitor. The two-party system reinforces this status quo, much to the benefit of entrenched interests. Third party candidates appear to be about the only way to get real change. Throughout the blogosphere supporters of Ralph Nader and Cynthia McKinney told us not to trust the "main" parties and their candidates, and perhaps we should have listened to them. Even if we had, could we have let McCain win, on the grounds our votes for Obama would have gone elsewhere?
Perhaps the best evidence that the two-party system has failed us has been the behavior of the Democrats, the opposition party in name only over the past nine years. Afraid of losing popularity in the post-9/11 political climate, and, the Democrats were content to go along and fund Iraq, without condition instead of opposing Bush on principle, like any real opposition party would.