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Bailing out Wall Street while the ship of State is sinking? (Part 2)

Published:Monday | January 25, 2010 | 12:00 AM

Matthew Kopka, Contributor



Obama's first year as president: Analysis Part 2

Exhibit 'A' for progressive Obama critics (for many 'teabag' right-wingers as well) was the US$787 billion Wall Street bailout, part of a sequence of con-troversial emergency actions set in train before the new president took office, as Bush neared the end of his disastrous second term.

Obama supporter and Pulitzer-prize winner, Eugene Robinson, has written that the bailout showered "irresponsible financial institutions with billions in public funds". (Washington Post, Nov 3)

The bailout might have saved the country from depression. It certainly saved some Wall Street firms from failure. Failure, on the other hand, might have brought reform, a galvanising consensus for the 'change' Obama's campaign cham-pioned. By placing his stamp on the measures, Obama wedded himself to Bush policies, the giveaway becoming better identified with his presidency than Bush's.

Many of the practices that caused the crisis hark back to Clinton-era financial deregulation that made the risky investments, and high-rolling profits, possible. Both developments of the derivatives at the heart of the crisis and deregulation were cham-pioned by Clinton economic adviser, Robert Rubin. Now Rubin acolytes, Tim Geithner and Lawrence Summers, who, with Rubin, resisted regulation of such stocks, were supervising the bailout and serving as Obama's chief economic consultants.

It is difficult to apprehend the full magnitude or meaning of the bailouts, both because terms were often unreported (sometimes negotiated in secret), because some would be repaid and, finally, because the sums were so astronomical. They were paid out even as stern lawmakers insisted there was no money for jobs, schools, health care, or mortgage stabilisation.

As businesses 'wrote down' their losses or walked away from them in bankruptcy proceedings, Obama urged homeowners to "do the right thing" and not abandon "underwater" mortgages where they owed more than their homes were worth, a legitimate response that consumer agencies advocated.

Bailout further knits business to Gov't

The bank bailout would be followed in February by a bailout of auto companies. Here, it was assumed that thousands of jobs must be shed for those companies to regain profitability. There had long been envy of auto-workers' job protection and health benefits; now they became a scapegoat. As once-proud Michigan manufacturing cities all but shut down, right-wing radio commen-tators asserted that workers - instrumental, historically, through their labour struggles in obtaining seven-day work weeks and 40-hour days for everyone - were getting their just desserts.

For students of history, the bailouts tokened an ever-more forbidding feature of the landscape: the accelerating integration of business with government. This had long been the case with arms and oil. The process was accelerating under Obama.

In a country where the gap between rich and poor had reached historic levels - where some redistri-bution of wealth of the kind made during the Great Depression was needed, even to jump-start businesses - the coffers of government had, instead, been opened to the brokers. America had entered a period of bizarre socialism where taxpayers assumed the bad debts of cor-porations without a share in the profits, and bankers celebrated by giving each other multimillion-dollar bonuses, sometimes straight from the pot.

At a January White House summit with Wall Street executives, called to discuss how their corporations could reignite the economy, many officials chose not to brave a foggy New York morning to fly to Washington, attending by speaker phone in what many saw as a sign of who held the cards.

On January 18, national holiday for civil rights martyr, Martin Luther King, New York Times columnist Herbert wrote that King's campaign for economic justice was nearly forgotten. While some worried that the poverty rate for black children might soon reach 50 per cent, "black leaders are much more interested in invitations to the White House, and positive profiles in mainstream publications, than in raising any kind of ruckus that might benefit people".

Few, in either party, cared to note the convergence of resentment that accompanied disaffection with Obama on the left and among participants in the tea parties. The racist hatred obscured the view.

The immediate danger for Obama, Democrats and democracy, however, was that the Republicans had an engine for exploiting the dissatis-faction. Amid ongoing purification of all but the most right-wing leaders, the tea baggers were taking over the Republican party, and would soon elect their first senator in Massa-chusetts. Democrats - stuck defending White House and con-gressional actions - were helpless to speak to the anger, let alone funnel it towards useful change.

Promises unkept

Almost as glaring were failures to act on issues once declared priorities by Obama's campaign. These included a measure - the Employee Free Choice Act - that would make it easier for employees to form unions, designed to help revive the union movement, now seemingly forgotten.

Gay-rights organisations, like unions big financial contributors to Democrats, were furious because Obama had failed to replace the military's failed "Don't ask, don't tell" policy with a measure to ban discrimination in the armed forces.

The administration's failure to help return President Manuel Zelaya to power after the Honduras coup - and decision to recognise the right-wing victor in the elections that followed - was interpreted in Latin America and elsewhere as a sign that Obama was committed, like his predecessors, to the vision of a dominant US in the region. Continued ex-pansion of the US military role in Colombia suggested that the US was preserving the possibility of intervention in Venezuela.

Early on, Obama had forbidden Israel to continue building "settler" housing on Palestinian land. But every month brought news of new construction, in open defiance of administration demands. A magnificent early Cairo speech about Mideast policy, in which Obama dedicated his administration to regional peace, was all but for-gotten. The construction not only undermined hope for peace but the potential for an eventual two-country settlement. Israel's defiance and Obama's inability to respond left analyst, Jonathan Freedland, in the November 3 (British) Guardian, asserting that the president had lost face, and with it the power to change anything in the region.

On October 9, 2009, the Nobel Committee announced that Obama would receive its annual peace prize. On December 1, he announced the new military commitment in Afghanistan. On the 10th, he flew from Washington to receive the peace prize, giving a speech that offered the notion that some wars are just, and defending historic US military actions.

Climate change

Apparently throwing his weight behind the drive for a climate accord, Obama announced he would show up on the last day of the Copenhagen summit - December 18 - to bring US weight to bear on the completion of a deal. The US had enraged many by negotiating an advance agreement with wealthy countries; poor countries faced pressure to sign or lose access to funding that would help them adapt to called-for changes. In a late flurry, a brief accord was announced, but it was so vague as to be unenforceable. The summit was a disaster, and left European intellectuals to proclaim 2009 the year when Earth's fate was sealed. (Back in the US few seemed to notice.)

What Copenhagen had shown was a stark difference in paradigms. The rich countries - the US among these - were moved to frame a deal in terms of capital, of its benefits to corporations (through carbon offsets, for example) or, at least, avoidance of any large-scale loss of profits. The poor countries were insistent that saving the planet required reshaping the system whose logic caused the harms.

The Obama style

There was a personal element in criticism of Obama, involving his cool demeanour, the affable, methodical, sometimes glacial pace of his consensus-seeking. The elegant and gracious black man had made his way by assuring people he was not a threat, through a highly appealing, conciliatory style.

There was a frank kernel in the awkward revelation of Democratic House Leader Harry Reid that he and fellow white leaders had been delighted by Obama's light skin, that he so spoke both white and Standard Black English so adroitly. White America has learned to enjoy a little occasional hellfire and brimstone from the black pulpit, but would it ever have accepted a fiery black president?

The stance the White House adopted - that the president should remain a magisterial presence, above the fray - would expose Congress more fully to voters' wrath. In this, as many things, Obama had come to look like Bill Clinton, whose stand-offishness with Congress sparked major Democratic losses in 1994, and left him with little power to push through legislation afterward.

Out on the hustings, in 'toss-up' districts, conservative Dems were running from Obama, too.

A new Progressive Lleft?

On Obama's victory it had been plausible to say that - however cautious or centrist Obama might prove - American progressivism was in revival. There was a new fighting spirit towards Republican extremism among Representatives like Florida's Alan Grayson, in a party long cowed by Republican aggressiveness. But Obama's alliance now looked fractured, as rancorous debates at places like the hugely popular Internet blog Daily Kos showed.

Though the rise of progressive Internet initiatives carried promise, one could see how the energy was still often more cybernetic - based in Internet fund-raising and middle-class opinion - than streetwise. Their anger was unlikely to influence Obama, whose chief of staff proclaimed publicly that such people had "nowhere else to go."

White House greetsthe New Year

By January things looked better for Obama, at least briefly. Support was back to 56 per cent. The conservative media hammered his handling of security breaches in a bombing attempt by a would-be teenage terrorist, but even Fox News polls showed Americans found his response appropriate.

Perhaps reading the tea leaves, the administration announced it would seek new regulation of bank activity, and to more heavily tax bank profits. (Some, sure such legislation would never pass, decried this as cynical.) After declaring at a December jobs summit that there was no money to create jobs, the administration made a turnaround, announcing that returned bailout money would be used for just such a programme.

But things looked worse for America. Home foreclosures were again rising, predicted not to peak until late in 2010. Commercial real estate was collapsing. A federal report that Democrats had believed would show job gain instead showed substan-tial losses.

One poll found most whites thought that Obama's first year as president had been "mainly a failure". (New York Times, January 15). He had the lowest approval rating among whites of any president in 30 years. A plurality thought he was a worse president than George Bush.

Despite this, Obama remained more popular than Congress, or any congressional figure.

Health care

Congress had spent much of the second half of the year working to create a health-care reform package, a crucial legislative initiative of Obama's first year.

Though the plan would extend care to 30 million people, the policies created would be with private companies, and joining mandatory. Many people would be condemned to extremely limited coverage while the policies consumed 10 per cent of their salaries, and dangerously, the plan would be paid for by taxes on middle class and wealthy people's existing health plans. Not only wasn't the plan public, it did not contain the "public option" even Obama had conceded would keep costs down.

The new law would also forbid the import of generic drugs that helps drive costs down in other countries. While criticising the drug industry, the Obama adminis-tration had held secret negotiations with its representatives to frame this agreement, a sign - some said - of its true allegiances. At every turn it had signalled compromise, the willing-ness to accept a less potent bill.

The bill led to bitter arguments among those who worked hardest for it, with some saying any bill was better than none, "a start", others sure it would be used to hang Democrats politically. In reaching a compromise, the White House and Congressional officials had outraged women - as individuals, the Democratic party's biggest financial backers - introducing provisions that would prevent coverage of abortions. Women had been a pawn in horse-trading for a very poor deal.

The US$100 million a month the US was spending in Afghanistan would almost cover the bill's cost. As often, the country's strategic priorities trumped the needs of its working people.

The Massachusetts Senate vote

Democrats had taken so long to decide the health bill that they now seemed primed to let it slip away. A special election loomed to replace the recently deceased Massachusetts Senator, Edward Kennedy, who had campaigned for decades for universal health care.

Kennedy had held his seat for 50 years, but the Democrat tabbed to replace him, a lacklustre campaigner named Martha Coakley, was in danger of flubbing the election. Without her, Democrats might not have the votes to pass the final bill.

Massachusetts is among the most Democratic states. Republican challenger Scott Brown came right from the 'tea-bag' ranks. As the January 19 election loomed, Brown surged to a lead in polls.

The White House announced that Obama would go to Massachusetts to campaign. Coakley aides worried privately that - with antagonism so strong - he would inspire greater turnout for the challenger. The prospect loomed - one year into Obama's presidency - that the president might become the kind of toxic political presence George Bush had become late in his presidency.

In Boston on January 17, Obama accused the challenger of "backing his truck up to Wall Street", taking money from special interests intent on killing health care. Obama was railing against people he had spent the last year huddled with; the charges rang hollow.

On January 20 - a year to the day after Obama took office - Coakley went down against Republican challenger Brown. Astonishingly, 82 per cent of those who voted for Brown said they supported a public health-care option and opposed the health bill because it "didn't go far enough." They agreed that Democrats were putting "special interests ahead of the little guy", and said they wanted greater regulation of Wall Street. The White House had misread public anger.

Just as amazingly, next day, the White House offered to water the bill down further to gain Republican votes.

"I'm pretty close to giving up on Mr Obama," wrote Nobel-prize economist, Paul Krugman, in the New York Times. He "seems determined to confirm every doubt I, and others, ever had about whether he was ready to fight for what his supporters believed in". Krugman's opinion, which would have spread shock two months before, now attested to a loss of support in many quarters.

Throughout 2009, this writer had insisted that there was no way Obama could lose a 2012 bid for reelection however conservative he turned out to be. The Republicans were too angry, too racist, too out of step. Suddenly, that seemed far less certain.

Matthew Kopka is a political ecologist. He has been writing for The Gleaner since the eve of the US Iraq invasion in 2002, and has lived in Jamaica during three periods, first visiting the country in 1976.