In a speech in South Africa, former president Obama tried out his justification for making lying a central part of his Administration’s response to the global financial crisis.

Politicians have always lied

I never cease to be amazed by an unforced admission.  But I am getting ahead of myself here.

First, he tries to take credit for a successful response to the financial crisis.

And perhaps more than anything else, the devastating impact of the 2008 financial crisis, in which the reckless behavior of financial elites resulted in years of hardship for ordinary people all around the world, made all the previous assurances of experts ring hollow – all those assurances that somehow financial regulators knew what they were doing, that somebody was minding the store, that global economic integration was an unadulterated good. Because of the actions taken by governments during and after that crisis, including, I should add, by aggressive steps by my administration, the global economy has now returned to healthy growth. But the credibility of the international system, the faith in experts in places like Washington or Brussels, all that had taken a blow.

I am puzzled by one item in this comment.  Why has the faith in experts not been restored if we are now experiencing what he claims is the healthy growth brought about by his administration?  Why would people still not think the experts are credible?  Didn’t the experts have any role in shaping his administration’s response to the financial crisis?

Of course the so called experts were involved.  Unless Obama would have us believe the self-proclaimed Great Depression expert Ben Bernanke was not involved.

What people saw his administration do is protect the bankers from the legal and financial consequences of their misbehavior.  As he memorably said to the bankers, he was the only thing standing between them and the pitchforks.  They also saw the administration pursue policies that favored bank creditors over borrowers.  A central goal was foaming the runway so banks could take losses over long periods of times.  Of course, the cost of this was borne by the borrowers.  They also saw a rapid increase in inequality.  It was so bad the Occupy Wall Street movement formed to point out how the 99% were getting screwed over.  Finally, they saw an administration chose to avoid using the financial system as it is designed to protect the real economy, but rather use the real economy to protect the financial system.

Later in his speech, he moves on to the importance of facts.

we have to actually believe in an objective reality. This is another one of these things that I didn’t have to lecture about. You have to believe in facts. Without facts, there is no basis for cooperation. If I say this is a podium and you say this is an elephant, it’s going to be hard for us to cooperate.

This would suggest his administration should have pursued a response to the financial crisis based on facts, particularly those where there is a basis for cooperation.

Unfortunately, too much of politics today seems to reject the very concept of objective truth. People just make stuff up. They just make stuff up. We see it in state-sponsored propaganda; we see it in internet driven fabrications, we see it in the blurring of lines between news and entertainment, we see the utter loss of shame among political leaders where they’re caught in a lie and they just double down and they lie some more. Politicians have always lied, but it used to be if you caught them lying they’d be like, “Oh man.” Now they just keep on lying.

Wow!  This looks like exactly what happens with the Obama Administration’s response to the Great Financial Crisis.  The Obama Administration rejected the very concept of objective truth.  It just made stuff up.  It engaged in state-sponsored propaganda.

Exhibit A of lying being central to the Obama Administration’s response were the bank stress tests.

Prior to retiring from the Fed, Bernanke confessed the Fed and Treasury had lied about the 2009 stress test.  He acknowledge the Fed didn’t have the information it needed to know if the banks had passed the test or not.  They simply took the bankers’ word their banks passed the stress test.

Of course, market observers pointed out the Fed and Treasury were clearly lying about the financial health of the banks.  Market observers pointed to the fact the unsecured interbank lending market remained frozen after the results were announced.  If the banks were truly healthy like the Fed and Treasury said, the unsecured interbank lending market should have thawed.  Instead, it remained frozen.  Why?  The banks knew the Fed and Treasury were lying as each bank knew it was hiding significant levels of losses that made the Fed and Treasury’s claims false for at least themselves.  It was reasonable to assume if they lied about one bank, they lied about them all.

Undeterred, the Obama Administration just doubled down and lied some more.  We know this because in the same speech, Bernanke also confessed the Fed had been lying every year since about the stress test results and the financial condition of the banks.  And why was the Fed still lying?  At the time of his speech, the Fed still didn’t have access to the information it needed to verify the test results.

It appears the Obama Administration didn’t stop at “Oh man” when called out on its lies, but rather it just kept on lying.

One of the reasons our financial system is based on transparency is it prevents lying of this sort by politicians and financial regulators.  If market participants had access to each bank’s current exposure details, they too could run stress tests.  Stress tests that would have shown the results of the Fed and Treasury’s stress tests were poppycock.

By the way, this lying by the Obama Administration, the Treasury and the Fed was completely unnecessary.  In the 1930s, the US banking system had been redesigned so that commercial banks did not “collapse overnight”.  Deposit insurance makes the US taxpayer an insolvent bank’s silent equity partner.  Combine this with the Fed’s ability to end any liquidity runs by acting as a lender of last resort, and insolvent US banks literally can remain open indefinitely.  Nowhere was this more clearly shown than during the mid to late 1980s when the insolvent Savings & Loans continued to operate until the government shut them down years later.  No reason this wasn’t also true of the Wall Street commercial banks.

As you have probably guessed, the Obama Administration was an active Opacity Protection Team member.  Not only did it stand in the way of restoring transparency to banks and opaque structured finance securities, it actively tried to increase opacity.  Exhibit A of this was the Obama signed JOBS Act that virtually eliminated the disclosure requirements for companies going public.