"Deficits don't matter." When Vice President Dick Cheney uttered this famous line he was making a political judgment, not an economic one. In 2001, when the newly selected President George W. Bush and his posse rode into Washington they immediately began in earnest the chicanery, lying and recklessness that we came to expect throughout the subsequent eight years. They promised there'd be great benefits for our nation if the Republican Congress passed a massive tax cut aimed at Bush's wealthy friends, corporations, and campaign donors.
This call for fiscal abandon came after years where we heard squawking about the danger of budget deficits from Newt Gingrich and other Republicans, as well as from conservative pundits and Blue Dog Democrats. And one of the loudest voices decrying budget deficits in the pre-Bush years was the Chair of the Federal Reserve Alan Greenspan. The proposal coming from the Republican president and the Republican Congress was a tax giveaway to the wealthiest Americans and corporations that was certain to blow a hole in the federal budget and add $1.7 trillion to the national debt.
As head of the Federal Reserve it was Alan Greenspan's job to tell the Bush gang that after the sacrifices made to pay down the debt a new round of Reagan-style tax giveaways to the rich and corporations would be a bad idea. That line would have been the "conservative" position to take. Instead, as the high priest of all things economic, Greenspan testified to Congress giving his imprimatur to the Bush administration's kleptomania.
Greenspan's easy money policies aided and abetted Wall Street's pumping up "the mother of all bubbles." And along with the federal budget deficit he encouraged (and the Republicans' drunken spending spree that followed) the money ordinary Americans circulate was buried under a mountain of new debt and new claims on the money supply from Wall Street. By 2006, Wall Street was throwing around 7.5 times as much money ($10.299 trillion) than was being spent by Main Street ($1.367 trillion). Greenspan also sat back and watched when an exemption to the "net capital rule" was passed in 2004 that allowed investment banks to exceed the maximum debt to equity ratio of 12 to 1. Soon Bear Stearns' debt to equity ratio jumped to 33 to 1 and Merrill Lynch's ballooned to 40 to 1. And a lot of this leveraged debt was wrapped up in collateralized debt obligations (CDOs) and other toxic derivative sludge.
We all know how the story plays out: In October 2008 the Congress, with a gun to its head from Wall Street titans and in the middle of an election season, forked over $810 billion of the taxpayers' money to bailout some of the greediest and most short-sighted market players ever to exist in the history of capitalism.
Today, just over a year later, with Goldman Sachs and other bailed out financial institutions turning big profits and paying out bonuses to their luckiest gamblers we continue to see the "real economy" in free fall. There are about $70 billion in crappy mortgages due to be "reset" in the next eighteen months, so there's no end in sight to Americans being thrown out of their homes. Unemployment continues to climb (albeit at a slower rate) but the deep hole that needs to be filled to replace the jobs lost will take many years of robust economic growth. The Congress, always in hawk to Wall Street, is dragging its feet in passing anything near the sweeping regulatory restructuring that is needed if we are to prevent Goldman Sachs and the rest of the gang from exploiting their "moral hazard" by using the federal treasury as the mother of all "credit default swaps." We can't even get the Democratic Congress to create a Pecora Commission with subpoena power to explore the extent of the criminality that led to the current crisis with the aim of modernizing the Securities and Exchange Commission to challenge the kleptocracy.
At some point, as the journalist Matt Taibbi and others have pointed out, our nation's Treasury seems to have been usurped by the former Goldman Sachs CEOs and other executives who both Bill Clinton and George W. Bush thought would make great Treasury Secretaries.
President Barack Obama's economic team headed by Treasury Secretary Tim Geithner and presidential adviser Larry Summers, like Alan Greenspan, are the wrong people doing the wrong job at the wrong time. They are catering to the whims of Wall Street when they should be mad as hell and representing the interests of Main Street. When FDR tapped Joseph P. Kennedy to be the first chair of the SEC he did so because Kennedy understood the swindles that needed to be policed because he had practiced them himself. Geithner and Summers understand the problems but so far they have not shown the will or desire to do anything about them.
There is currently a lot of hand wringing about the possibility of the war in Afghanistan, as costs rise and public support wanes, destroying President Obama's domestic agenda just as the Vietnam War brought down Lyndon Johnson. But whatever Obama decides to do in Afghanistan is of little consequence compared to Wall Street's ongoing "plutonomy." Either President Obama and the Congress tame and bring under control the white collar criminals who run Goldman Sachs and other "too big to fail" institutions or else there isn't going to be a "domestic agenda."