Obama's Loyal Opposition
"Part of the Way with LBJ"
--Students for a Democratic Society button, circa 1964
Progressives now find themselves in an awkward position of simultaneously wishing Barack Obama well, but feeling dismayed by his policies on some key issues, most notably the banking bailout. If this were a normal economic situation, the posture of semi-opposition would not be that big a deal. We would simply gratefully accept the decent policies and keep pressing for bolder ones. But a failure to revive the banking system would be Obama's Vietnam. It would wreck everything else.
It's a too-familiar position for progressives, one that winds back through all of the postwar Democratic administrations of my adulthood. We wanted Lyndon Johnson to push harder for civil rights and anti-poverty and not ruin it all in Vietnam. We were appalled at Jimmy Carter's attacks on government, his failure to use his large Democratic majority in Congress to press for progressive legislation, his refusal to lift a finger on behalf of labor law reform. The memories of Bill Clinton are sufficiently recent that we need little reminder of the needless tilt to the right on economic issues from NAFTA to welfare reform to financial deregulation.
What makes this situation different is, first, our gratitude on so many fronts combined with the very high stakes of the financial rescue. Barack Obama is an exemplary leader in so many ways, the leader we've been waiting for. His commitment to restore constitutional government is no small achievement. Those fighting for anti-poverty efforts and children's initiatives have never seen increases in federal resources comparable to the present ones. His foreign policy initiatives, from his reaching out to Iran to his efforts on behalf of nuclear non-proliferation are a breath of fresh air. And speaking of which, Obama seems serious about reducing the carbon footprint.
But all of this promise could come to naught if the economy remains mired in recession. And despite large scale stimulus spending, the economy will remain stuck in first gear until the banking system is revived.
The economists whom I most respect, such as Joseph Stiglitz, Jeff Sachs, Simon Johnson, and Paul Krugman, all have grave doubts about whether the Geithner-Summers plan can work. The more details are revealed, the more curious it looks. If the plan did succeed in bringing zombie banks back to life, we might hold our noses at the fact that hedge funds and private equity companies were profiting, while taxpayers and the Federal Reserve bore the risk.
The problem, however, is that the plan is not just outrageous in terms of promoting a form of gambling with public subsidy, in which taxpayers bear most of the downside risk while the speculators get most of the upside gain. Nor is it problematic just because of the recently exposed conflicts of interest, which range from the large speaking fees given Larry Summers by some of the very firms that benefit from the bailout to the fact that the Geithner approach was literally designed not by the government but by Goldman Sachs, Pimco, and others that will directly benefit.
The more serious problem is that the plan is conceptually flawed. It presumes that it's possible to create a market that will bid up the value of securities that have lost most of their worth because the mortgages on which they were based will never be repaid at anything like their par value. Banks can play all kinds of games to try to increase the prices at which these securities trade. But unless the taxpayers and the Fed make up virtually the entire loss in banks' balance sheets, the trading games will not serve to recapitalize the banks.
And if a total taxpayer bailout is the real plan, it would be far better to do it straightforwardly with something like a Reconstruction Finance Corporation. A new RFC would conduct real audits of troubled banks (not "stress tests), determine how much capital they needed, and decide what combination of taxpayer and Federal Reserve assistance, coupled with sacrifices from bondholders and shareholders, would make up the gap.
The administration's approach to the auto rescue suggests the more robust strategy needed for the banks: take a hard look at the company's books; fire incumbent management; make all stakeholders take some sacrifices; and involve government directly in the design of a leaner and more efficient successor firm. But nothing of the sort is being done with the banks.
The political problem is that President Obama has decided to give the Geithner-Summers approach a bigtime try. And until the approach fails, there is little chance that Obama will turn to a Plan B.
But what does "failure" mean? A palpable failure would be that few deals get made, even with all of the taxpayer financing and loan guarantees. But the terms are so lucrative that there will surely be some deals. The most likely scenario is that the banks limp along, Japan style, while the Fed, Treasury, and FDIC dole out money in increments big enough to stave off insolvency, but not sufficiently large to bring the banking system fully back to life. In the meantime, unemployment keeps increasing at something like half a million a month, until it hits double digits. The continuing slump leaves the budget deficit even larger than projected. State and local government keep cutting programs and laying off workers because the stimulus package is not large enough to make up for their revenue gap--and these cutbacks and layoffs contribute to deepening recession.
At some point, it will dawn on the President that the approach is not working, as it eventually dawned on the Japanese. But by the time Obama does propose something bolder, he will have burned through a lot of money and a lot of credibility, and the economic hole will be that much deeper.
So where does this leave all the dismayed progressives who want this administration to succeed as much as Obama himself does, but who fear that Wall Street is leading Obama off a cliff? Most Congressional Democrats feel they need to back their President, even as they use Geithner as a lightening rod. The leadership of the labor movement, though privately skeptical, desperately needs President Obama's goodwill if they stand a prayer of getting the Employee Free Choice Act. In recent weeks, I have been in several conversations with grass roots activists wondering how to organize regular people around something as convoluted and daunting as the details of the bank bailout. Nobody had any silver bullets.
About all that the loyal opposition can do is shed more light on the absurdity of the Summers/Geithner approach and help animate skepticism in the media, the public, and eventually the President. In Congress, one leader to watch is Rep. Carolyn Maloney, chair of the Joint Economic Committee. Her next hearing, scheduled for Tuesday, is must-viewing. It will feature Nobel Laureate Joseph Stiglitz; former IMF chief economist Simon Johnson, whose recent piece in the Atlantic Monthly compared the US to third-world kleptocracies, and Thomas Hoenig, the most outspokenly critical of the regional Federal Reserve Bank presidents.
Maloney is particular brave, since her suburban New York district would ordinarily make her a defender of almost anything Wall Street wanted, on the ground that what's good for Wall Street is good for New York's regional economy. Speaking of which, Maloney's Senate deputy chair is Chuck Schumer, Wall Street's leading water-carrier among Senate Democrats, which makes her doubly brave.
Other important loci of respectful opposition are the Congressional Oversight Panel, whose latest report is also a must-read. Other members of the opposition include Sen. Sherrod Brown, who recently became chair of a Senate Banking Subcommittee on economic affairs, and Paul Volcker, who heads a panel appointed by Obama (which has still not met) was keeping his own counsel for a time, but has begun to be more actively engaged again. This is all still a delicate balance act, less than ninety days into a new administration that progressives must wish well.
We have two big things on our side: reality--the fact that the plan is a Rube Goldberg contraption and a series of conflicts of interest; and Obama's own intelligence and desire not to fail. But it is not easy to play the role of loyal opposition to an attractive progressive president who at times seems almost willfully determined to let himself be captured by Wall Street.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His recent book is "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."
Newsweek's Krugman Cover Story: Obama's Loyal Opposition
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Why is Obama following Hoover instead of FDR on the Banksters, as FDR called them?
Obama is too smart and educated not to understand.
The bankers and the conservatives plotted to kill FDR and replace democracy with fascism. (smedly Butler). We have very good evidence of that conspiracy. There is also some evidence that several president were assassinated or it was attempted.
http://en.
http://con
How many hit men could you buy for a Billion dollars.
Cowardice? No. It would be a disaster for ALL Americans should Obama be assassinated, even the conservatives.
Add to that that Obama believes in respecting ALL people, and a possible conclusions is:
Obama cannot directly challenge the power of the Banksters.
Obama will be the bankers friend, for the sake of the country.
It is up congress, the legal system and the people to regulates, takes the banksters to court, convicts them of Fraud, takes away all their money and throws them in prison for life.
Thanks, Robert Kuttner, for naming names -- and groups-- on slate of Loyal Opposition to Obama's economic policy. In addition, I've read about meeting of Senators, perhaps spurred by Bernie Sanders, with the President late March, and Tom Harkin's name has also been mentioned as part of these contrarian Congressional members.
Where's the story on Obama's position on wiretapping (supports the same Bush policy).
I can't wait to see who the "opposition" to that is!!!
Your question, answered: http://www
I am not an economist .. far from it. But .. somehow to me .. President Obama (oh, how I love to write those two words !) seems to have put the 'foxes in charge of the hen house' .. and this never turns out to be beneficial for the chickens ..
There is so much to do to try and repair the ravages of the past 8 years ..
My theory is that Obama made a deal with the Clintons in the lead-up to the convention. He had to yield something to them to keep them from turning the convention into a pitched battle, ergo we are stuck with Summers, Geithner, and a host of Clintonites in positions of power. Obama gets to be President, but ClintonCo gets to bleed the economy exactly the way their pal Paulson envisioned: huge covert cash handouts to members of the Fat Cats Club at the expense of American taxpayers.
ClintonCo will also see to it that the US Congress follows the orders of their true Commander in Chief - Binyamin Netanyahu - and be prepared to sacrifice everything including the lives of American soldiers and world peace in order to maintain Israel's nuclear monopoly in the Middle East. If Obama won't stop Iran, AIPAC will!
Obama chose those people and he will have to take the responsibility for that. They were his buddies. Trying to blame it on the Clintons just shows blind, illogical defense of Obama. That's not going to help him or us.
I get the loyal opposition thing, but then again, I am thinking back to the last 8 years, and even as the country was falling apart, the Republicans and the conservatives were killing themselves trying to defend the policies of their administration, and the Dems were attacking, but not to the extreme. Not very often did we hear the Republicans bitching about their President the way we do about Obama, and he's only been at it 10 weeks. Let the guy do his thing. Seems like we are too afraid to let him make any mistakes. Couldn't be any worse than Dubya, could it?
"Couldn't be any worse than Dubya, could it?"
This is a good argument for keeping your trap shut for four or even eight years?
Wha . . . . ???
I wouldn't know, I don't have a "trap". Why don't you enlighten me.
I didn't notice the "not to extreme" part....
The writer seems to be boxed in and shows us how we are boxed in by Obama's popularity (which can lead him anywhere he wants to go) and the need to get him to see reason.
I don't, myself, feel boxed in by 'the need to wish Obama well', however. Neither do the economists he mentioned. This article says it well, the dilemma for those of us who fear the economy's vulnerability and its conflict-o
The economy is important. But free or low-cost health care for each person who lives in America is at least as important and it's not being addressed either. So is massive help for millions of people who are at risk of foreclosure now.
our constituituon and declaration of independance is for us, the citizens. It is our DUTY to speak up when we see things we do not like.... this is not some time when we can just sit idly by and say " let them be, give them time," this is the time to speak up... time to write your representatives, time to write our president.
So... be happy we have a president who might listen to us for a change, and let him know that we are tired of being robbed and then paying again for the privelege of being robbed... just because it is a complicated issue does not mean that it cannot be understood.
People will be arguing left - right while their being dragged away by Homeland Security.
Cheers, William.
The problem for any "loyal opposition" from the liberal left is that Obama's getting so popular he doesn't have to listen to liberals anymore than Republicans. To a unique degree that dwarfs even FDR and Reagan, Obama's getting so successful and popular that he is literally in position to lead this country wherever he wants to take it, whether lefties or neocons, take your pick, like it or not. The amazing thing is that Obama's so popular now, he can even move independently of AIPAC, and be all the more popular with the masses for this Sister Souljah freedom from pressure groups of any kind.
I think we all should remember that the vast majority of these plans were put in motion by the previous administration. I have no idea what anyone can do given our deep reverence for 'contracts' (unless they are with labor, of course). Being handed a set of stupid plans with terms and conditions that are no longer recoverable would test the will of Job. I think we have to trust that this new administration is doing the best they can with what was deliberately set up to make the incoming folks simply look bad and to hog tie them from more realistic and sensible solutions.
after trillions of dollars of hardworking people's savings have been destroy, obama is using their tax dollars plus trillions of Fed fiat dollars to re-establish the SAME financial structure that allowed powerful capital interests to manipulate the system...
considering that the surge of fiat dollars will result in big time inflation down the road, obama's plan = a triple whammy for the little man...
not progressive by any stretch of the definition
ALL of the decision making power in our form of Government rests with ... the Congress.
The Congress ... as in, "not The President.
The very reason why we today find ourselves in this mess is because The Congress repealed laws that for seventy years prevented it, AND because they enacted laws that kept it from being stopped. Until those laws are restored and removed, the crime will continue. And, the Executive Branch will continue to operate within "the law as it is writ."
The Congress has unfettered power to create, revise, and repeal law; the President has none. We should maintain a ferocious level of pressure upon ... The Congress ... to eliminate the sources of these problems at their root causes.
That is absolutely true. Our beef should be with Congress and our lobbying should be with our individual members. Congress needs to end credit default swaps, derivatives, and most of all the continued interlocks and melding of various financial sectors. Bring back Glass-Steagall or something similar. That way if one sector screws up, it won't bring down all of the house. And then, let's put our corporate supports into going concerns rather than going out of business? We pay - PAY - corporations when they fail, no matter why. Let's go back to the original principle that we bail out businesses if and only if they fail due to circumstances beyond their control. Our laws on accelerated depreciation were written for liquor companies we put out of business with Prohibition - we can revive that notion and not hand out billions for incompetent actions. But it's not up to the President - it IS up to Congress.
So far. Mr. Obama seems fine with congress's actions.
Before success or failure is judged, doesn't one let the program actually begin and see what happens? Interesting thing this-- judging the effectiveness of something before the ink is even dry on a plan and before it is even implemente
the Fed pumping in trillions of fiat dollars will undoubtedly result in inflation down the road...
You noticed that too, huh?
There is not one thing Geithner or Summers could do that would please some on the left. They've been attacked since the names first came up.
rightly so. they are trying to fix a system that they broke at our expense.
"There is not one thing Geithner or Summers could do that would please some on the left. They've been attacked since the names first came up."
Know any reasons why not, Kim? " Cause I'd sure like to hear 'em.
You don't work for a "too big" bank in a position of trust, do you?
Yes and what of "transparency"?
And an April 4 New York Times story featuring the president's repeatedly broken promise reported: "[Obama Senior Adviser David] Axelrod said the president remained committed to openness and vowed that the government would grow more transparent. 'Have we achieved everything we want to achieve yet? No. We�ve actually been a little preoccupie
Transparency is a matter of pan-ideological popularity. Libertarians and limited-government conservatives believe that transparency will reveal excesses and waste in government, suggesting that private solutions are better. Liberals believe transparency will validate government programs and root out corruption. Transparency is a win-win bet. A functional, cleaner government is better than a dysfunctional, wasteful, and corrupt one—even to libertarians.
Rather than break a campaign promise hundreds of times over the course of his presidency, President Obama should implement his promise to post bills online for five days before signing them.
i wonder if Obama will put the kibosh on more transparency at the Fed???
One man's transparency is another man's opportunity to drum up stiff opposition. Transparency in Government is not all its cracked up to be. Like Big Government, who is to way what is enough transparency and what constitutes too much. Already, talking heads have been complaining about Obama's frequent appearances in the news discussing his policies. that is not a transparency issue but does speak to the issue of who should be the judge? I, for one, think the administration is about as transparent as i want them to be. the only ones complaining are those whose full time jobs are arranged around second guessing decisions even when they mostly agree. I'm sorry, we have enough naysayers.
Let's hope he doesn't end up like LBJ, with his reforms aborted and the door open to 30 more years of conservative rule. We have this chance for change in America once in a generation and we can't afford to waste it.
From my admittedly progressive point of view, Obama is the best president in my lifetime. Hands
down. He's got the Republicans ranting and raving, but right now they have no coherent plan to offer against his, just laissez faire ideology that was already discredited in 1910.
Obama could make the contrast stronger between the conservative era of the last 30 years--call it whatever you want--and the reforms he's trying to offer. He doesn't have to get too negative, which is not his style, just make some historical comparisons like a good professor.
He might want to contrast the New Deal with the 1920s of the Progressive Era with the First Gilded Age of the late-19th Century.
In other words, Obama should put himself and his administration in historical context more often, drawing the distinction between progressive reform and conservatism. Maybe he should start making more TV appearances from the Roosevelt Room,with a big picture of FDR in the background
Michael C. McHugh
http://www
Progressive? So far, he certainly doesn't deserve comparison with FDR, given his cozy relationship to the banksters through Summers and Geithner. And his DOJ maintaining and strengthening state secrets and lack of habeas corpus for detainees? So far, it's only lip service to progressive directions. He might be the most in your lifetime, but that's not saying much, given what we've had.
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