Will Obama forfeit a second term because of Wall Street?
With the defeat of the bill allowing judges to force mortgage restructuring on reluctant creditors, and now the defeat of the bill reintroducing limits on usury, the momentum toward real reform of the American financial system has clearly been stopped. There is now a rapidly growing danger that the lack of reform, coupled with the growing consensus in “the Village” that multiplying signs of economic “green shoots”signal that “the bottom is near” (see Arianna Huffington’s May 12, 2009 post, Wall Street, DC, and the New Financial Euphoria), will leave the majority of Americans who are not rich dealing with prolonged economic hardship.
About two weeks ago, Stirling Newberry warned "If the economic numbers are to be believed the plunge of this downturn is over," but all that has really happened is that "the financial system's willingness to do business with itself has been restored."
In other words, the banksters are now willing to renew their circle jerk -- and we’re supposed to hail it as the possible beginning of an economic recovery.
Struggling heroically to keep economic reality before the public eye, DailKos front pager Meteor Blades uncovers the troubling secret of employment as a "lagging economic indicator." In Grim Times (Before the Tide Turns) for American Workers , he notes that the past few recessions have been characterized by a lengthening of the amount of time that passes before employment begins to recovery. In eight out of the first ten economic recoveries since World War II, it took an average of four and a half months from the time a recession ended, until the time the unemployment rate began to decline. But in the recovery from the 1991-92 recession, it took 16 months after the recession ended before the unemployment rate began to decline. And after 2001 recession ended, it took 21 months for the employment numbers to begin improving. Meteor Blades writes:
The current recession has now begun its 17th month. It's already longer than any recession since the 1930s. If it were to end this month and the unemployment rate started dropping in line with the average timing of the two most recent recoveries, it would mean no relief for the jobless until Christmas 2011. And that would only mark the beginning of a drop in the unemployment rate.
Thirty-six percent of out-of-work Americans receive unemployment benefits, but without further government intervention, they will have long since exhausted them by 2011. The rest get nothing. And, of course, that bogus official rate of unemployment doesn't count either the underemployed or those so discouraged they've stop looking for a job.
What about the stimulus packages passed in February? The evidence is now coming in that critics such as Robert Reich and Paul Krugman were correct – the stimulus was not large enough. In the past two weeks, many states have begin laying off thousands of employees because the $135 billion portion of the stimulus package allocated for them just was not big enough to make up for rapidly collapsing revenues from sales and income taxes. Lawrence Mishel, president of the Economic Policy Institute is warning that if unemployment rate rises, as expected, to ten percent over the coming year, the poverty rate for children will likely increase from 18 percent in 2007, to a frightening 27.3 percent in 2010. For Afrfican-American children, the numbers are even worse: 34.5 percent in poverty in 2007 is likely to soar, EPI calculates to 50 percent or higher.
I also recently spoke at a convention of industrial construction companies. These are the people who build and maintain factories, power plants, and do other heavy industrial construction. I asked a room full of hundreds of executives how many saw signs of improvement in their order books. Not a single hand went up. Then I asked how many had had projects deferred because of difficulty getting financing. About two thirds of the people in the room raised their hands.
My guess is that the Obama administration will be back next fall, asking Congress for the money and authority to do the bank rescue right, after the current policy proves inadequate to restore the banking system and the economy to health. That would mean taking the insolvent banks into receivership, deciding how much public capital was required and where to get it, and then returning the banks to private ownership. Better late than never, but it's a pity to waste six months.
Chatting with the bankers in attendance at the Fed conference, mostly bankers from the heartland of the Midwest, I encountered resentment bordering on fury at the double standard. The big Wall Street banks are getting propped up with literally trillions of dollars in aid from the Treasury and the Federal Reserve, while community bankers that stuck to their knitting and did not go in for the sub-prime swindle are suffering collateral damage.
And in case you're one of those who dismiss Kuttner as a crank, here's the latest editorial from the magazine Industry Week:
Kevin Kearns, president of the USBIC, has written an open letter to Pres. Obama, which you can read here. The best line in the letter, in my opinion, is this one: "To date, your economic team's approach seems to be trillions for banks, but hardly a dime for manufacturing. You save wrong-doing financial houses from failure, but send good-faith, if sometimes poorly run, manufacturing companies into bankruptcy -- a formula for disaster."
As we pointed out in our pre-election coverage last fall, neither of the major candidates for U.S. President had much, if anything, to say about what they'd do to help the manufacturing industry recover, so it should hardly come as a surprise that, 100 days in, Pres. Obama has yet to address the topic. The more I observe the current Administration's attitude toward U.S. manufacturing, the more I keep hearing the lines of that famous song from The Who: "Meet the new boss, same as the old boss."
A clear example of "same as the old boss" was provided by masaccio yesterday, who pointed to a post by Yves Smith detailing how General Motors is being tugged into bankruptcy by the holders of credit default swaps on GM's debt. The financial predators are still fully in charge, and have as little regard as ever for the consequences of their actions on the real economy.
These dismal policy results are going to be with us for a very long time – unless there is a radical change of course by the Obama adminsyration. Considering the comic absurdity of the bank "stress tests," Lambert on correntewire this past Friday was led to rant:
I'm a little exasperated by the lack of coverage* on financial issues by the left in general, and even some of my favorite blogs (the ones I still read). It's a lot easier to get a real, or even vehement discussion going on issues that are trivial by comparison to this one. Versailles has given two trillion dollars to the banksters with no accountability and no transparency at all, and without even so much as a Congressional hearing. That decision is going to structure all of our policy choices for a very long time -- especially if it "fails," but even if it (by the bankster's standards) "succeeds." Whether your issue is Constitutional government and the rule of law, health care, patriarchy, the end of the empire, the media critique, global warming or anything else, following the money is central. Finance is not just another issue. For many -- and especially for the Versailles insiders -- it is the issue. In the finance blogosphere, there's a robust critique. In the left blogosphere -- let alone the "progressive" blogosphere -- there's no such thing. It's one thread among others. Why? This is exactly the kind of laziness and lack of curiousity that lets us sleepwalk into disaster.
A few days ago, Newberry posted The Depression that Hayek Built in which he writes that over the past three decades:
the fight, in economic ideology, was over how much of the investment in the future should be handled by a very wealthy elite, and what fraction should be handled by the public through government. The ideology of the time was that the wealthy elite . . . was always right, and the public was always wrong. This theory has been proven false. The economic destruction of the New Depression, and Depression is the correct word, will extend for years, and has wiped out the fictional gains of the last 30 years. We are now exactly where we would have been without this experiment in a dictatorship of the propertariat, and we have nothing to show for it but a surplus of posh apartments and private jets. The debt is not in money. The numbers being thrown around represent real work by real people and real sacrifices, to pay back that pool of money. It, and only it, has been declared to be off-limits. The theory of the day is that the rich own the world, and governments only rent it from them.
Also on FireDogLake a few days ago, masaccio wrote in Learning from the Cramdown Fight: Progressive Ideas Need Help:
Even the current administration thinks financial issues are too hard to be dealt with in the public arena, which makes me wonder why so many people want us to handle our own investments to prepare for retirement and educating our kids. All of the financial people in this administration come out of Wall Street and giant banks. Public discourse on the economy is trivial: stock market cheerleading and CEO worship. The people who are sucking the life out of the nation are in charge.
Former FireDogLake editor Ian Walsh, one of the best bloggers on issues of finance, and who now posts on his own blogsite, posted this observation:
When Diamond wrote his book on why societies collapse he came to the conclusion that it occurred when elites weren’t experiencing the same things as the majority of the society–when they were isolated from the problems and challenges the society was facing.
For 30 years ordinary Americans haven’t had a raise. And despite all the lies, Americans are beginning to get that. But for the people in charge the last thirty years have been absolutely wonderful. Seriously, things haven’t been this good since the 1890’s and the 1920’s. Everyone they know–their families, their mistresses and toyboys, their friends–is doing well. Wall Street paid even larger bonuses for 2007, the year they ran the ship into the shore, than they did in 2006 when their bonuses equalled the raises of 80 million Americans. Multiple CEOs walked away from companies they had bankrupted with golden parachutes in excess of 50 million. And if you can find a Senator who isn’t a millionaire (except maybe Bernie Sanders) you let me know.
Life has been great. The fact that America is physically unhealthy, falling behind technologically, hemorrhaging good jobs and that ordinary Americans are in debt up to their eyebrows, haven’t seen a raise in 30 years and live in mortal fear of getting ill–because even if they have insurance it doesn’t cover the necessary care–means nothing to the decision making part of America because it hasn’t experienced it. America’s elites are doing fine, thanks. All they can taste, or remember is the caviar and champagne they swill to celebrate how wonderful they are and how much they deserve all the money federal policy has given them.
This is the second insanity of the US–that the decision making apparatus in the US is disconnected from the results of their decisions.
So it was extremely interesting, and very instructive, to watch Charlie Rose interview Naomi Klein and William Greider earlier this week. What you must know, before you watch the interview, is that Rose married into the same family that Morgan Stanley CEO and Chairman of the Board John J. Mack married into. Rose has had Mack on his program at least twice the past few years, and calls Mack a close friend. So, pay close attention to Rose’s expressions and body language as he reacts to the true change -- a complete reformation of the banking and financial system -- advocated by Klein and Greider. Note especially when Rose explains why Klein and Greider have been invited onto his program:
But what I wanted to do is begin to make sure, as we heard from everybody, that we really heard from a critique. We know what Paul Krugman is. But I think yours is more severe.”
Also noteworthy is when Grieder – twice – insists that the financial bailout is a severe moral question. Finally, note how Rose tries to force Klein and Greider to attack President Obama. Here is the video. Following are a few highlights
CHARLIE ROSE: Yes, but what are you prepared to do to, in a sense, hold the president accountable for what was your belief in him and his intentions and his governing philosophy?
NAOMI KLEIN: But I also think it is a difference between, you know, Bill Greider and Barack Obama, but it’s also a difference between President Obama and candidate Obama, because he won this election and really started connecting with voters when he started talking about the ideology of deregulation that has gripped this country for eight years. We would argue that it was much longer than eight years, but you know, that was really -- that was the turning point, you know? I think it’s really worth remembering that before the financial crisis, Barack Obama was behind in the poles and McCain and Palin were moving ahead. And it was only when he -- when the crisis hit and when he started using this language of talking about the failure of trickle-down economics and needing to rebuild Main Street instead of Wall Street, that he started connecting with voters. . .
. . . . personally, I don’t feel any sense of betrayal about President Obama. I think this is all a question of whether there’s a grass-roots movement that is putting pressure on him from below. We know he’s under enormous pressure from above. And we just saw the defeat of a bill in the Senate that would have really helped home owners who are facing foreclosure. And it was Dick Durbin who said, you know, the banking industry owns Capitol Hill.
CHARLIE ROSE: You wrote, I think, once that the populist rage could devour the Obama presidency.
NAOMI KLEIN: Well, I worry, because there is so much anger. And I think it’s deserved anger at corporate greed, at AIG bonuses, at the double standards for the bailouts for the banks versus the bailout, say, for Detroit. And I think that kind of rage is an asset. And if you look at what FDR did, he used that rage to get Glass-Steagall, to get key pieces of regulation. He turned it into something constructive. I think it’s a resource rage. I don’t just dismiss it and say, oh, it’s populist, it’s ugly. But the issue with rage is that it’s going to go somewhere. You know, so if it doesn’t get funneled into a project to build a more equitable society, to address these core issues that created the crisis, then it’s kind of free floating and anyone can use it. And I think we’re already seeing some -- a rise in really ugly rhetoric directed at immigrants, and even directing it at the president himself as the first African-American president.
WILLIAM GREIDER: Go back and read the history of the New Deal. As Naomi said, from 1932 to 1936 -- don’t hold me to these numbers, I’m sure they’re wrong -- there were 1,000 or 2,000 labor actions around the country. Sit-in strikes...
NAOMI KLEIN: Yes, 1934, 4,000 strikes in one year.
WILLIAM GREIDER: You had in California in the early ’30s a movement for what was called something different, but amounted to a Social Security for this country. Roosevelt was not for that. He was compelled to listen because this movement began spreading across the country. What I am predicting, somewhat recklessly, is that you are going to see something like that in this country, if, a big if, the cheerleaders are wrong, as I think they are. And the people -- let’s leave aside Goldman Sachs and J.P. Morgan Chase, because they say they’re OK and they don’t have any crisis -- but the rest of us are going to be in this crisis not for a quarter or two more, but for years more. And the economists will be able to explain that actually we have got a little bit of growth back and profits are coming up and so forth, but the fact is the crisis will endure in the way people’s lives are being changed by these circumstances, and out of that, I believe, I hope -- it’s what my book is about -- we will see a new politics. It will be a rejuvenation that is not anchored in this stale two-party rivalry, which you know, we’ve now got 39 percent of the country doesn’t want to be either a Democrat or a Republican.
In July 2004, I believe it was, Thomas Frank, author of What's The Matter With Kansas?, and more recently The Wrecking Crew: How Conservatives Rule, explained on the Bill Moyers Journal why the Democratic Party lost the so-called Reagan Democrats. Basically, neither the Republicans nor the Democrats agreed with the economic concerns of working Americans. Both Republicans and Democrats supported deregulation; both Republicans and Democrats supported free trade; both Republicans and Democrats abhorred the idea of an industrial policy. Given this political situation, in which their economic concerns were being ignored by both parties, working Americans decided to support the party that at least mouthed support for their social concerns, such as law and order, and opposition to abortion and gay rights. The stupidity of Democrats in the 1980s, in turning their backs on the economic concerns of working Americans, helped usher in an entire era of conservative rule. My fear now is that President Obama’s apparent “regulatory capture” by the banksters will bring us a repeat performance of the Democratic disaster of the 1980s.
Maybe that’s the only warning Obama will understand.