Despite its recent uptick, the stock market has plummeted since Barack Obama's January inauguration. The Republicans seek to blame the man and his policies, with which most Americans take issue. Still, it's more common for the hope invariably surrounding new presidents to spark a rally.
That was certainly true in the depths of the Great Depression and the 1932 presidential election. Back then, new chief executives took the oath in March, and Franklin D. Roosevelt's first months in office sent the battered stock market indexes soaring. People could almost smell the hope in the Spring air,. By June 1933 the battered Dow Jones Industrial Average had climbed by some fifty percent.
Democratic strategists and activists should be concerned over the contrast. Although it's too early to reach conclusions, it is useful to take a hard look at what's going on in the ever-changing politics of finance.
Back in early 2008, I published a book entitled Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism. It did well, and now is about to come out in a much-expanded and updated new post-election edition on March 31. Politically, it holds Wall Street, the Federal Reserve and the Republicans principally responsible for what went wrong over 25 years of financial greed and complicit Washington regulatory negligence. In party terms, the GOP gets 70 percent of the blame and the Democrats 30 percent. When I finished the new additions in January, however, I was skeptical about whether Obama would be able to bring about the needed changes and reforms in U.S. finance. His team had become too entangled with with the financial sector and its massive political contributions. Besides, too many of his top appointees were recycled senior Democrats from the Clinton administration's own tech mania, deregulation binge and stock bubble and crash of 1997-2000.
Still, I had voted for Obama in November. Even at New Year's, I hoped that the indications of the new administration's continuity with the failed financial bailout policies of the Bush administration would dissipate by Spring. I assumed that by the time I had to book tour in April, some long-neglected indictments of the financial sector would be on the table, and that debate over the bailout and over the disastrous misjudgments of the Federal Reserve Board would remain open. I would not have to criticize Obama himself.
Now, with April only two weeks away, that may be too hopeful.
The Obama financial program -- the rest of his agenda, remember, will almost certainly depend on his retooling failed finance -- shows hints of a flawed combination. Its first weakness, in both policy and retention of prior government officials, involves an appearance of extending the mismanagement and pro-Wall Street bias of the 2008 Bush regime bailout. Its second Achilles heel, rather than representing the hopes and demands for change from the Democratic Party's grassroots and net roots, involves re-enlisting and banking on the big names of the Clinton administration's regulatory and bubble-managing failures of the late 1990s, especially former treasury secretary Larry Summers and many proteges of former treasury secretary Bob Rubin.
This where the Democrats' 30 percent responsibility for the abuses of the last quarter century has its crippling 2009 relevance. The GOP's 70-percent blameworthiness, while centered in the 2001-2008 misrule of George W. Bush, also goes back to the George H.W. Bush years and the later Reagan regime. The Democrats' culpability, though, concentrates in the late 1990s go-go years, rife with technology mania, market worship, enthusiastic deregulation, massive financial borrowing and pervasive ethical laxity. The stock market bubble, of course, burst in the Spring of 2000, when Clinton was still president and Summers was treasury secretary. Rubin, in turn, was busy helping guide Citigroup to its contemporary disrepute.
Perhaps Obama doesn't understand this. Perhaps he does, but counts on the public not to remember (indeed, most voters probably don't). Neither explanation is cheering.
Early evidence of an unacknowledged Wall Street partnership strategy came when the new president named Clinton's chief fundraiser and late 1990s White House political director, Rahm Emanuel, as Obama's own White House chief of staff. Earlier this decade, Emanuel spent several years as an investment banker (managing director) at Wasserstein Perella in Chicago where he made $16 million arranging deals between politically-connected utilities. He also served as a director of the Chicago Mercantile Exchange. Emanuel understands how finance has been shifting its national political donations towards the Democrats.
Next came the choice of the new treasury secretary, Tim Geithner. He served in the late nineties as Clinton's Undersecretary of the Treasury for International Affairs, where he helped arrange some of the Asian currency bailouts and deals. He facilitated with such aplomb that several years later a special Wall Street committee recruited him to be the President of the New York Federal Reserve Bank. This is a key liaison position -- as in key to the candy store -- between the Fed and the New York financial community. Prior to Obama's election victory, Geithner was part of the troika (with former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke) managing the Bush administration's 2008 financial bailout. Geithner's particular focus involved the quarter-trillion-dollar combined relief packages for American International Group and Citigroup.
Obama then named Clinton's last treasury secretary, Lawrence Summers, to outrank Geithner as head of Obama's National Economic Council. Summers is remembered for helping to block federal regulation of financial derivatives and helping to orchestrate the 1999 repeal of federal legislation that was holding up the merger ambitions of Citigroup. After a stop at Harvard, Summers returned to the financial world in 2007 as managing director of D.E. Shaw Group, a secretive Boston hedge fund specializing in exotic mathematical strategies. Count him another bailout enthusiast.
Two other prominent Clinton-era financialistas were also tapped by Obama. Gary Gensler, a Wall Street investment banker who served as a treasury undersecretary from 1999 to 2000, is head of the Commodity Futures Regulatory Commission. For a number of weeks, Senate Agriculture Committee Chairman Tom Harkin held up the nomination because of Gensler's past bias towards deregulation. Mary Schapiro, appointed to head the Securities & Exchange Commission, back in 2008 received a $2.75 million salary for managing the Financial Industry Regulatory Authority. This, readers should understand, is the brokerage industry's self-regulatory body, which did about nothing in restraining toxic products and practices. Overall, these appointments suggest a bias towards collaborative and relatively weak new regulation.
Negative indicator number two lies in continuity with the departed Bush administration and its botched 2007-2008 financial bailout. Of that bailout's three top chiefs, two are still in office -- the hapless Geithner and Federal Reserve Board Chairman Bernanke. The latter's 2007-2008 misjudgments and multi-trillion-dollar commitments have unnerved some of his colleagues, who fear an inflationary grand finale for 2009-2010.
Yet Obama voices no criticism. Before Bernanke went to the Fed in 2006, for Pete's sake, he was chairman of the White House Council of Economic Advisers under George W. Bush. Imagine if FDR had retained Herbert Hoover's chief economic adviser and loyal Republican Fed Chairman in 1933. On top of which, since 1987 the bank-befriending Fed -- first under ex-chairman Alan Greenspan and then under Bernanke -- has been the center of Washington regulatory complicity with finance-sector malfeasance. To think that the pussycat Fed can be turned into a saber toothed regulatory tiger is a deception. Alas, the White House may share it.
Then there's the Treasury, formerly headed by Secretary Henry Paulson, Bush's man. Paulson has left, to be sure, but his spirit (and his aides) linger on under Geithner. Republican Comptroller of the Currency John C. Dugan, treasury's benign bank regulator, is staying on. Assistant Treasury Secretary Neel Kashkari, Paulson's top lieutenant in overpaying for the bank assets bought in late 2008 under TARP, just testified before Congress as an official of the Obama Treasury.
This doesn't quite seem like "real" change. Indeed, that may be because voters (including many grassroots Democrats) haven't fully grasped a different, underlying upheaval. In 2007-2008, Wall Streeters shifted a solid majority of the financial sector's campaign contributions from the Republicans to the Democrats. Obama himself outdrew GOP rival John McCain by $11 million to $8 million, and Congressional Democrats also led. According to the Nation magazine, a progressive beacon, "all told, Democrats netted $68 million in campaign funds from Wall Street." ("Dollars for Donkeys," The Nation, September 1, 2008). Arguably, this represents a latter day consummation of the old late 1990s strategy of Bill Clinton, Bob Rubin and Rahm Emanuel of pulling Wall Street and its donors into a Democratic alliance.
In the very different circumstances of 2009, however, this dalliance could prove fatal, especially if it tempts the White House into financial sector relief measures that work for Wall Street but not for the national economy or the American people.
Kevin Phillips' 2008 book, Bad Money, is coming out in a new post-election edition on March 31.