Wall Street, Geithner, and Defunct Economics Threaten Obama's Leadership

President Obama is in danger of making the same mistake Nelson Mandela made. Like Mandela he is abrogating power to shape a vision for the recovery of the US economy, and handing over the baton of leadership to Wall St. and lesser mortals.

Arianna is right, these mortals know nothing of leadership. They are the same economists and financiers applying the same bankrupt policies that got us into this mess in the first place.

They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish. (Franklin D. Roosevelt, 1933 Inaugural Speech.)

Like Mandela, Obama is a lawyer in awe, it appears, of economists. He is surrounded by members of the profession who are, we would contend, the slaves of a defunct economics. Defunct, but dangerously ingrained, since these men are clearly experiencing the most intense difficulty escaping from old ideas and policies, and developing new ones.

Nevertheless they have Obama's full support. This is because, like Mandela he is a man of integrity, and so humbles himself before people he believes know more than he does about how the system works.

Only they don't.

He has put his trust in the ability of Larry Summers, Tim Geithner and the more arms-length Robert Rubin to grapple with the dizzying complexity of finance and economics.

This trust is profoundly misplaced. As misplaced as the trust once placed in Mr. Alan Greenspan, a man until recently well-nigh worshiped by Larry Summers, Tim Geithner and Robert Rubin. A man held in awe by politicians, economists and by the whole of Wall St.

Senator Tom Harkin, in an interview in October, 2008 said of Greenspan that "he had a way of speaking that made you think he knew exactly what he was talking about at all times.... He was able to say things in a way that made people not want to question him on anything, like he knew it all. He was the Oracle, and who were you to question him?"

Who indeed? Senator Harkin was a representative of the people - and of all people he should have questioned Greenspan's dogmatic certainties that proved so cataclysmic for the global economy.

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says that he "always felt that the titans of our legislature didn't want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth....I don't recall anyone ever saying, "What do you mean by that, Alan?"

And so, for want of a simple question, Mr. Alan Greenspan was able to blind the 'titans of our legislature' with the 'science' of economics. He lulled politicians into complacency so that they ignored the gargantuan risk that grew into the monster that is now AIG. He did this by arguing - cogently - that "the general growth in large institutions has occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically - I should say, fully - hedged."

Fully hedged? Tell that to US taxpayers committing $170 billion of their own wealth and that of future generations to bailing out the bonus-greedy executives of AIG.

The world is awash with misguided Greenspans and their acolytes. That much we now know. What Wall St. and Geithner will never deliver is a vision, that is not self-seeking. One for a new, more equal, socially just and environmentally sustainable world.

When Robert Rubin was Treasury Secretary he refused to regulate derivatives because, he said, "all of the forces in the system were arrayed against it. The industry certainly didn't' want any increase (in regulation)...There was no potential for mobilizing public opinion."

In other words, Mr. Rubin did not have the courage to take on these forces and exercise leadership. The only thing he was capable of was 'followership.'

President Obama, I believe, is different. He has a vision of a more socially just world, and the courage to mobilise society behind it. He understands the threat of climate change. He has the mettle of a true leader. The people of the United States, and of the world, need him to assert that visionary leadership over the economists surrounding, and hurting him.

To do so he will need to look to others for practical day-to-day advice on the economy. In my next post I will respectfully suggest a list of such experts that may support his vision with more sound, just, and sustainable economics.

Comments

[bayside]

Funny the republicans and the lap dogs didnt vote for him ,but they should love Obama, as he thinks like they do..Why else would he surround himself with nothing but blue dogs and republicans if he didnt think like they do..

[pigsatthetrough]

The one problem with your article is really the basis of your article. Put a thousand economists in the room and they will all give you different plan. So Geithner and Summers may not be your choice, but having made the choice the President is standing behind their actions. To suggest he is in awe of Geithner or others of his ilk is not borne out by his actions nor your piece. Now lets get down, in your next piece to the alternate plans by the alternates you are going to suggest and what the perils of their plans will be to the real world of finance.

[jerrypl]

Ann always has clear and sensible things to say.

Geithner, Summers, and Bernanke are all Trojan Horses for the financial crime syndicate. They are setting Obama for a big fall if the private investors don't bite into the "legacy assets" now being auctioned off by the mega-banks.

Krugman is right, this Geithner PPP will likely fail. If this happens, that means Obama was set up to look like a fool.

http://eye-on-washington.blogspot.com

[Alexander Hamilton]

Fire Larry Summers!

Larry Summers was Clinton Treasury Secretary. Just prior to moving up to the post of Treasury Secretary, Summers became a singular and strong advocate inside the Clinton Administration for what was nothing less than a time bomb - Phil Gramm"s other measure that let these banking-co­nglomerate­s-in-the-m­aking create and trade derivatives without regulation.

Indeed, during a 1998 Senate hearing, Summers testified against the regulation of the derivatives market on the grounds that we could trust Wall Street! "The parties to these kinds of contract," he said, "are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws." He continued to defend over-the-counter derivatives and block all moves to regulate them up through 2000, calling them "an important component of the American capital markets and a powerful symbol of the kind of innovation and technology that has made the American financial system as strong as it is today."

It would be hard to make assumptions that turned out to be more wrong. Larry Summers was either the most corrupt and sinister Treasury Secretary in our nation"s history, or the most incompetent one. However, his high level managing position for D.E. Shaw, one of the most secretive of hedge funds, upon leaving office, would tend to argue in favor of the former.

[pat the engineer]

Ann:
I look forward to your upcoming suggestions of who you would like to see advising the current Administration on economic matters. I am wondering if there actually is anyone here who can be objective, without the burden of outside influence from the financial or political sectors, to actually straighten this mess out. Perhaps an "open letter to the President" would be in order?

As I have only become interested in these economic matters last year, while wondering "how did a few bad mortgages take down the entire global economy?", I forced myself to research the causes of this. To me, it seems all paths lead to derivatives. That, and the changes instituted in the late 90's which essentially changed the lexicon from "banking" to "financial products". And, even further back, to what you so explain so well regarding the ditching of the Bretton Woods agreement, and the Nixon Shock.

America's, and the world's problems have been smoldering in the background for many years now. Everyone is angered regarding AIG; do they know AIG is basically using our bailout money to pay Goldman Sachs? Was Greenspan wrong about everything, or did he really believe there was no way the CEO's and controllers of our economy would ever sell out the shareholdes? Where Democrats say Roosevelt and Keynes, and Republicans say Reagan and Friedman, what should we say with Obama?

[bighat]

My comment is not against Obama, Bush, or the Congress. I am simply one american that is wondering why we are bailing out companies. Just who are these people who are holding the toxic assets. I feel I am being led to believe that if we did not bailout these companies all ordinary americans will lose their jobs, pension plans, 401ks or whatever.

I feel there is more to the story. The stock market is down so I have already lost a great deal of my savings. Once again who is holding the toxic assets. If we do not bailout AIG, CITI will I be worse off. Would not other companies that were better run pick up the slack and hire many of the people that have lost their jobs.

Once again, I ask who is holding these toxic assets. Is it foreign countries, the wealthy, institutions and others who are all big with the campaign contribution.

If these companies were simply allowed to fail would it affect me. Would the market go to zero?

When someone runs a company into the ground and the people we elected to take of our country not only rescue these companies but keep all of the senior managment and no one is fired I feel there is more to the story.

Paul Harvey is gone. Someone please tell me the rest of the story.

[lady49]

Ms. Pettifor,

I agree with you in the sense that President Obama should have both dissenting but knowledgable Republicans and Independents at his "table of discussions".
I believe his efforts were thwarted because spines of most of our illustrious Republicans( in the house and the senate) are filled with "sinew" instead of calcium.
Here are my 3 observations:
1.While your analysis is on point- you offer no alternative economists that you feel should offer their expertise.

2.President Obama is a brilliant man who recognizes that the change in the economy must be built on
solid foundations. That is exceptionally tricky with a new administration. Trust his judgement. You'll see -It will be alright.

3. The comment that you credited President Franklin Rossevelt with originally comes from the Bible:

Proverbs 29:18
Where there is no vision, the people perish: but he that keepeth the law, happy is he.
King James Bible

But thanks for being so astute.-Please take the opportunity to join the nation in asking President Obama questions directly at this forum:

"Open for Questions" is an opportunity to open up the White House to all Americans.

It's an experiment designed to encourage transparency and accountability by giving you a direct line to the White House.

Americans deserve to know what their government is doing to get our economy back on track. But it's up to you to participate .

Join the discussion now:

http://whitehouse.gov/OpenForQuestions

Thursday March 26, 2009 watch the President answer questions live.

[venusvictrix]

Ms. Pettifor is absolutely correct.

In order to solve the current economic crisis and build a road to a more stable financial future, Pres. Obama must stop insulating himself from ideas outside of Wall Street and its banking titans, whose persistent inability to admit failure is analogous to the myopia afflicting the 17th century papacy when confronted with Galileo’s evidence contradicting the geocentric universe.

It took the Church almost 400 years to officially concede. Thankfully they were not in a position to interfere with the course of scientific inquiry in the interim, or civilization as we know it would not exist.

The public should continue to demand real answers to hard questions, and not settle for simplistic platitudes or proclamations that “the problem is too complicated” for the common citizen to understand. Religious and monarchal authority has used that claim to maintain power throughout the ages. We won’t buy it from our political leaders, appointees, or corrupt executives; nor should they expect us to condescend with blind faith to their grandiosities of perception.

[research]

Please Obama, you need a team of Rivals on the economy,

instead you have a gang of Wall Street Banksters.

Where's the Kucinich and the Kurgman types in you economic team?

[Over50WhiteWoman]

And so why didn't you run for office if you have it all figured out?

You are not an expert either. All the rules have changed and there really are no experts now. Reagan and the R's followed Milton Friedman over this cliff and they are still trying to hold their territory. Now D's are trying to do the same thing--except they know even less.

I trust Obama. The guy is brilliant--as shown in his press conference where he demonstrates knowledge on so many levels and with such depth it is stunning. Is it just possible he has actually studied economics in college? I did. Maybe he has actually applied his own problem-solving skills to the problem, and is not just a stooge for Larry Summers. Give the guy some credit. He is not Bush.

I know the critics want to help. Age and experience have taught this old project manager that things are never as bad as they seem. You all have been letting the media hype and sensationalism and 'tsunami' language scare you. It's a crisis, but it is not Armageddon. Even Krugman admits the Plans will help and have good points. They are shrewd and acceptable to both political sides. Already, there's more money in paychecks, money for homebuying, increases in construction. Today is day 62.

Barack Obama is probably the best President the country has ever had, including Jefferson, and Washington, and Lincoln. Stop second-guessing him.

[viflyer]

Geez, another Obama cult worshiper. We just exchange one set of ditto heads for another.

[UKOH]

Yesterday watching Obama's press conference I was left with the distinct feeling that, like a chess grand master, Obama is thinking 5 moves ahead and may actually be leaving all the critisizing classes behind in check mate. That does include his economic moves although my head tells me the HuffPost articles critisizing Geitner et al make a lot of sense.

This is far more a "gut feel" than anything based on logic or reality. I really just hope I am right, for all our sakes!

[Charlie M]

Mss Pittifor is so correct ; President Obama is on thin ice installing wall street types to regulate the banks and insurance. Kind if like putting a fox in the hen house to fix the problem with the chickens .
We need people other than bankers to straighten out this mess . Top professors ,Union leaders, etc. ; Persons that understand finance from the bottom up ,people that know what it means to work for a living. Not these wall street types.

[Libbety]

Ann, I value your opinion, but feel that on this one we need to ride it out a little longer before forming opinions. Obama has vision and is taking drastic steps to get things moving. I have no doubt that many policies will be tweaked along the way as areas surface that need attention. My only beef with the whole bail out plan, is that it doesn't seem to offer relief for the people like me who still have a job, are barely able to make my mortgage payments on time as I watch the value of my property plummet. I need to refinance at a fixed rate of interest that will help me hang in there until the credit / lending can resume. I think the majority of Americans are in situtations similar to mine. We need some relief to lift our spirits so we can continue to pay the tax dollars necessary to fund all these programs and bailouts.

[overd0g1]

Keep the dream alive, comrade.

[GardenerNorCal]

I'd like to know exactly what these toxic assets are, and why anyone would wish to buy them. I see this as just another round of insuring the rich against risk, while letting the working poor become just plain poor because we are losing our jobs, while they feather their nests with our feathers.