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Obama's Perilous Compromise with Looters
Looters have taken over America's Treasury. The executives who successfully ransacked their own banks, investment funds and insurance companies have set their eyes on Obama's stimulus. Tragically, the architects of the current economic fiasco have been placed in charge of America's recovery.
President Obama has made an enormous mistake. Instead of cracking down on serial looters and complicit regulators, he wants to guarantee the financial sector's obligations, which are several times larger than America's economy. This is a Ponzi scheme far beyond Bernie Madoff's imagination. Simply put: The government is breaking the rules of capitalism to reward the most reckless capitalists. Such is not the "creative destruction" Schumpeter hailed.
Is it unfair to criticize President Obama before he and his experienced team have a chance to enact new laws and regulations? For guidance on this question, let's turn to the father of capitalism, Adam Smith. Here's how Smith concludes Wealth of Nations, Book I:
"The proposal of any new law or regulation of commerce which comes from this order [the capitalists], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
Consider Obama's Economic Czar, Larry Summers, who comes fresh from heading a highly secretive hedge fund. As Clinton's Secretary of the Treasury, Summers championed the repeal of the Glass-Steagall Act, which led directly to the excessive risk-taking by newly enlarged financial entities deemed too big to fail when they failed. Additionally Summers and Robert Rubin lobbied intensely for legislation signed by Bill Clinton that forbid government oversight of derivatives, the toxic instruments that have poisoned balance sheets around the world. Summers' former deputy Tim Geithner, the new Secretary of the Treasury, has supervised more recent rip-offs. He bears significant responsibility for the Lehman Brothers' catastrophe and for the flawed Fannie Mae, Bear Stearns and AIG bailouts. At Geithner's confirmation hearing, he must be asked repeatedly why the looters were rewarded and why plans giving taxpayers more equity were rejected.
Sherlock Holmes was once famously asked by a Scotland Yard detective: "Is there any other point to which you would wish to draw my attention?" Holmes: "To the curious incident of the dog in the night-time." Detective: "The dog did nothing in the night-time." Holmes: "That was the curious incident."
Why haven't America's economists barked timely alarms? Are they blinded by their faith in markets? Perhaps the old saying should be reworked: In America, those who can, loot. Those who can't, teach wealth-friendly philosophies masquerading as hard science. In their mind-set, fraud is the province of Bernie Madoff, not Robert Rubin.
But what could be more criminal than Rubin's former employees, Hank Paulson and Tim Geithner, awarding the sweetest of all bailout deals to Citi, where Rubin sits as a highly-paid senior counselor and director. Throughout his career Rubin has pushed for more complex risk instruments and less government regulation. How stupid does the quintessential Wall Street/Washington wise man think people are when he claims never to have heard of Citi's most toxic assets? And to brag that he's been "very involved" at Citi, but blames the company's excessive risk-taking on a presentation made one day by an outside consultant? After confessing such failures of oversight, an honest man would have resigned his posts.
Yet it's not only Rubin's acolytes who are pushing Obama's recovery plan. Experts from both parties have also endorsed it. The only catch? These are the same experts who were blind-sided by the mortgage security frauds that led to the credit freeze that triggered the de-leveraging that's plunged the world close to a Depression.
Does all this sound like a simple-minded diatribe? Perhaps it is. But when analyzing America's financiers, a simple-minded (as opposed to a naïve) approach may be best. For example, Hank Paulson, Ben Bernanke and Tim Geithner thought that the banks they generously recapitalized with the taxpayers' money would begin lending again. Instead the banks used the bailout cash to buy other banks, issue dividends or simply profit on Treasury spreads - i.e., to make what bookies call their juice.
It's altogether possible that Barack Obama's recovery plan will bless sweetheart deals and generate enough public debt to destroy global confidence in our government's bonds. Foreigners, who own about half of all Treasuries, could stop funding America's deficit-driven recovery plan. During Obama's administration, the dollar might lose its reserve-currency premium.
Would all Americans then suffer equally? No. Those likely to profit most from Obama's stimulus before we go bust are his political allies, and especially his big donors. That's the nature of the doling-out beast. To minimize corruption, Obama must pro-actively prevent Chicago-style swindles. E.g., who owns the real estate adjacent to the infrastructure the government will build? What specific penalties will be incorporated into Obama's recovery plan to punish politically-connected profiteers?
If a spiraling out-of-control stimulus seems as if it's undermining the full faith and credit of the U.S. government, Obama's biggest donors will hedge their personal risk by parking some of their capital abroad. Have they've done so already? A senator should ask prospective nominees this question at their confirmation hearings.
Obama could be a different kind of president. His broad base of financial support ensures he won't lack funds for a reelection run. The dark side of Obama's presidency, however, is likely to come less from ethical failings than from his fondness for compromise.
You can't compromise with America's looters. They're too opportunistic. The economics team Obama assembled betrays his respect for elites and a caution that may doom his presidency. A bolder politician would stimulate the economy and simultaneously expose the moral violations at the core of our economic predicament. Leaders who sent the cops home need to be shamed, not promoted. Financiers who misled investors should be prosecuted, not bailed out. Attorney General nominee Eric Holder, the man who pardoned Marc Rich, doesn't seem likely to take up these tasks.
On Inauguration Day, President Obama will surely deliver an inspirational address. But the confidence he inspires will be worthless until he calls out and cuts off the thieves.
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Jeffrey Klein if you know how to fix this Economy mess, why have you waited until now, i am sure President Bush would have welcome your knowledge on how to fix this mess and went out as a
HERO.
All the experts with LIP-SERVICE on what to do to FIX the Economy, where were you in DEC.07 when
it started.
My question to you is what kind Economy creditional do you have?.
But why?
If you had any doubts about the way things work in the US today this should clear it up. I agree, read Jeckyl Island. Author also has web site. freedomforce dot something...
I voted for Obama as a shipwreck victim clutches at anything that might be a life preserver.
I hoped for amelioration of two of the chief horrors of life under tyrannosauric capitalism:
(1)-the fact we are savaged by the most murderous “health care” system in the industrial world. National policy is obviously to exterminate “unprofitable” peoples -- those of us who are poor, disabled or elderly -- by deliberate denial of medical treatment: euthanasia-by-abandonment-and-neglect.
(2)-the fact -- demonstrating the extent to which the U.S. is a nation by, for and of the limousine aristocracy -- we are enslaved by the industrial world’s worst mass transit. Thus we are bled economically dry by the vampires of Big Oil and Big Automotive.
I had hoped Obama might -- just might -- somehow ease our oppression.
But it is increasingly evident there is no change forthcoming in either realm. Obama’s recovery proposals do not mention mass transit -- never mind environmental reality mandates fastest-possible construction of local and regional light-rail systems. Meanwhile the nature of the health care “reform” taking shape -- its economic cruelty actually intensified -- is revealed by a document authored by Peter Orszag, Obama’s choice for budget czar: “Budget Options, Volume 1: Health Care,” available at www.cbo.gov.
Thus -- to follow my shipwreck metaphor to its conclusion -- it is now obvious what I saw protruding from the electoral waters was not a life-preserver but rather the dorsal fin of a shark.
"it is now obvious what I saw protruding from the electoral waters was not a life-preserver but rather the dorsal fin of a shark."
If not so true, very funny.
Your vote and my vote, cast the same way. And we share (I believe) the same sense of dread over what Obama's administration will really be.
There is no "center" in American politics. You can't stand halfway between freedom and fascism, halfway between economic growth and economic decline; halfway between national security and wars over personal honor.
how sad how so many have been duped by hope/change. There was one person that knew where this was heading and had the remedy for it, nobody listened to him. Neither party deserves him, America does not deserve him, he is one of the rare independent thinkers of our time, and someone who believes dearly in the constitution - what we have strayed from, and exactly where we have gone wrong.
This is the just type of hype we need as we are trying to fix the economy. The guys hasn't even started and he has already failed? If you guys are so sharp predicting the future then you could have given us a heads up on the economic crash........Oh I forgot, your job is to stir bullshit and call it reasearch. Give the man a chance to succeed or fail as the actual President.
I thought this financial fiasco was aided by the blockage of Treasury and Federal Reserve Chairs to the SEC desire to move forward and restrict swaps and derivatives. Had the enforcement arm operated properly, that would have been the check and balance on the greed and "sleight of hands" maneuvering that lead to this crisis. The Obama proposed SEC gets high marks for enforcement, and if that IS TRUE, will provide the check on continued padding to banks without the approrpiate oversight.
I can't see the same actions continuing, when ALL eyes are opened and people are demanding the pound of flesh for bankrupting our economy.
"But the confidence he inspires will be worthless until he calls out and cuts off the thieves."
If any good comes from an Obama presidency, I don't know how you or anyone can call his inspiration "worthless" if he didn't meet one requirement that you expect of him.
Democrats seem to rate everyone one an "all or nothing" scale, which is why they rate most people as failures, and why so few Dems are elected as president. Who wants to elect someone when they're own supporters start dumping on them and claiming they've failed before they even have a chance to get into office?? There's ONE mistake you never see Republicans make...
America is now officially a Kleptocracy.
...and God help us all.
Thanks for your post, it provides plenty of food for thought. Perhaps leading the charge for the repeal of the Glass-Steagall Act would be a nice opening move for Obama? Even though the proverbial horses are out of the barn, it would send a strong signal he knows what went wrong and that he is willing to do something about it. As to Rubin and Co., in a perfect world they would be thoroughly tested at their confirmation hearings and rejected if they either cannot or will not answer the hard questions.
The Glass-Steagall Act was already repealed, Clinton signed it. Did you mean a repeal of the repeal?
This is really simple.... Whoever thinks Henry Waxman will "investigate" Robert Rubin raise their hands.....I didn't think so. It is politics as usual up on the hill. What did you expect?
The "GOOD OLD BOYS CLUB" in the Senate is in need of a dramatic shake-up!
When virtually all Senators on the Sunday talk shows say the same thing about the IS-Pal conflict you know something is at work here.
It is time to get the "DA*MN Lobbyists" out of the Congress and get some FREE THINKERS into the CONGRESS!
We can not afford to be run in the ground politically and militarily as we were on Wall Street. "FREE THINKING" Senators are our only salvation!
Free thinkers are ridiculed in the U.S. If they are heeded, like Tom Paine once was, they are eventually discarded and live and die in misery.
Jeffery,
It takes a thief to catch a thief. I trust Obama.
JFD
Sir,
Thank you so much for this post. I have been growing increasingly worried about his economic team and puzzled as to why he froze out Stiglitz. Why hasn't he sought counsel from other economists than Summers or Rubin who are in part responsible for this whole crash.
When I thought of change from Obama, I thought of the return of the rule of law and regulations to protect Americans from looters and corporate greed. I never considered that Obama's idea of change was to make nice with them. I sure hope my interpretation of change is closer to what we see but judging from Obama's economic team I fear it's not.
A group of large contributors to the Obama campaign were lawyers representing Wall Street. Thats why I supported Hillary. Still better than McCain.
Amen. Thanks, Jeffrey. I despair if the left cannot take its blinders off to evaluate Obama critically. There is no ambiguity here - Obama has rewarded the corporate felons who have led us into a depression. Change no one can believe in.
Agreed. We've apparently decided that the problem was not ENOUGH foxes guarding the chicken coop.
How do you get to be one of the foxes?
Jeffery Klein:
Alan Greenspan called the banking and housing failures as a “once-in-a-century credit tsunami”. Greenspan saw it as a breakdown in how the free market system functions. According to Congressman, Henry Waxman, he declared “The list of regulatory mistakes and misjudgments is long,”.
Greenspan said that “A critical pillar to market competition and free markets did break down; I still do not fully understand why it happened.” Greenspan, 82, acknowledged under questioning that he had made a “mistake” in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that “a flaw in the model ... that defines how the world works.”
It is clear that these men like Alan Greenspan made honest mistakes from what they thought were correct assumptions. The issue now should be how to fix the broken system rather than name calling.
"It is clear that these men like Alan Greenspan made honest mistakes from what they thought were correct assumptions. The issue now should be how to fix the broken system rather than name calling."
There is so much corruption and so much malfeasance that a very detailed investigation needs to be placed. We need to punish the people who need to be punished. You can't ruin a country and expect people not to be upset. I believe it is unbelievable that you think that he is name calling.
On Cha nge. G ov the #1 Question received nearly 20,000 votes and asks
"Will you appoint a Special Prosecutor - ideally Patrick Fitzgerald - to independently investigate the gravest crimes of the Bush Administration, including torture and warrantless wiretapping?" I feel sure the intent was to include the Wall Street Corruption!
#2 Question received over 17,00 votes:
"I'm concerned about the banks who received tax payers money and have had no accountability. Will this be corrected after President elect Obaham is in office?"
http://change.gov/page/content/openforquestions20081229/
I see two possibilities to explain the involvement of people like Greenspan, Summers, Geithner, et al, in the recent economic disaster: incompetence or corruption.
In my work like, I am partially responsible for the financial health of my company. If the company went bankrupt because of my bad decisions, I would be fired. If the company went bankrupt while my own bank account grew and grew, I would be fired AND investigated for corruption.
The economic situation of our country is vastly more complicated, but our response to these people who have been involved in this disaster should be similar or the same.
Wall Street's response to the Geithner appointment was jubilation, because they know that their fat bank accounts will be safeguarded by one of their own.
We need some new ideas from progressive economists--at least they should be IN THE MIX. What I see right now is more of the same.
"Change we can't believe in"?
I'd like to see SMU Professor of Economics Dr. Ravi Batra offer that progressive view to Obama's administration.
Greenspan is a student of history. He knows without a doubt that the same climate of deregulation prior to the Great Depression led directly to it, and still he advocated for greater "free market" economic policy this time around. Blaming the current depression on a "flaw in the model" is Ayn Rand speak for don't ask us to be accountable, we're too busy spending Your money!
LESSION LEARNED: Self Regulation is a myth in Greenspan's mind! Real regulations help control corruption but is not enough!
"As long as there is Greed, history tells us, there should be Fear to Balance it out. Its when that Balance gets tipped in one direction someone pays the price," from CNN Special, SCAM OF THE CENTURY
When GREED has NO Penalty we can NOT Stop it:
TRUTHS:
1. If Greed > Fear then Greed WINS and AMERICA Loses
2. If Fear > Greed then Greed is STOPPED in its TRACKS and AMERICA wins
3. Fear = Justified Punishment for Crimes
Prosecute the Corrupt!
If you believe that I have a piece of real estate in Northeast Nevada I would like to sell you. Once banks learned they could shred, bundle and sell mortgages they originated just days after writing them up, the game was on!
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