Obama's Big Sellout
The president has packed his economic
team with Wall Street insiders intent on turning the bailout into
an all-out giveaway
by Matt Tiabbi
www.rollingstone.com/, Dec 9,
Barack Obama ran for president as a man
of the people, standing up to Wall Street as the global economy
melted down in that fateful fall of 2008. He pushed a tax plan
to soak the rich, ripped NAFTA for hurting the middle class and
tore into John McCain for supporting a bankruptcy bill that sided
with wealthy bankers "at the expense of hardworking Americans."
Obama may not have run to the left of Samuel Gompers or Cesar
Chavez, but it's not like you saw him on the campaign trail flanked
by bankers from Citigroup and Goldman Sachs. What inspired supporters
who pushed him to his historic win was the sense that a genuine
outsider was finally breaking into an exclusive club, that walls
were being torn down, that things were, for lack of a better or
more specific term, changing.
Then he got elected.
What's taken place in the year since Obama
won the presidency has turned out to be one of the most dramatic
political about-faces in our history. Elected in the midst of
a crushing economic crisis brought on by a decade of orgiastic
deregulation and unchecked greed, Obama had a clear mandate to
rein in Wall Street and remake the entire structure of the American
economy. What he did instead was ship even his most marginally
progressive campaign advisers off to various bureaucratic Siberias,
while packing the key economic positions in his White House with
the very people who caused the crisis in the first place. This
new team of bubble-fattened ex-bankers and laissez-faire intellectuals
then proceeded to sell us all out, instituting a massive, trickle-up
bailout and systematically gutting regulatory reform from the
How could Obama let this happen? Is he
just a rookie in the political big leagues, hoodwinked by Beltway
old-timers? Or is the vacillating, ineffectual servant of banking
interests we've been seeing on TV this fall who Obama really is?
Whatever the president's real motives
are, the extensive series of loophole-rich financial "reforms"
that the Democrats are currently pushing may ultimately do more
harm than good. In fact, some parts of the new reforms border
on insanity, threatening to vastly amplify Wall Street's political
power by institutionalizing the taxpayer's role as a welfare provider
for the financial-services industry. At one point in the debate,
Obama's top economic advisers demanded the power to award future
bailouts without even going to Congress for approval - and without
providing taxpayers a single dime in equity on the deals.
How did we get here? It started just moments
after the election - and almost nobody noticed.
'Just look at the timeline of the Citigroup
deal," says one leading Democratic consultant. "Just
look at it. It's fucking amazing. Amazing! And nobody said a thing
Barack Obama was still just the president-elect
when it happened, but the revolting and inexcusable $306 billion
bailout that Citigroup received was the first major act of his
presidency. In order to grasp the full horror of what took place,
however, one needs to go back a few weeks before the actual bailout
- to November 5th, 2008, the day after Obama's election.
That was the day the jubilant Obama campaign
announced its transition team. Though many of the names were familiar
- former Bill Clinton chief of staff John Podesta, long-time Obama
confidante Valerie Jarrett - the list was most notable for who
was not on it, especially on the economic side. Austan Goolsbee,
a University of Chicago economist who had served as one of Obama's
chief advisers during the campaign, didn't make the cut. Neither
did Karen Kornbluh, who had served as Obama's policy director
and was instrumental in crafting the Democratic Party's platform.
Both had emphasized populist themes during the campaign: Kornbluh
was known for pushing Democrats to focus on the plight of the
poor and middle class, while Goolsbee was an aggressive critic
of Wall Street, declaring that AIG executives should receive "a
Nobel Prize - for evil."
But come November 5th, both were banished
from Obama's inner circle - and replaced with a group of Wall
Street bankers. Leading the search for the president's new economic
team was his close friend and Harvard Law classmate Michael Froman,
a high-ranking executive at Citigroup. During the campaign, Froman
had emerged as one of Obama's biggest fundraisers, bundling $200,000
in contributions and introducing the candidate to a host of heavy
hitters - chief among them his mentor Bob Rubin, the former co-chairman
of Goldman Sachs who served as Treasury secretary under Bill Clinton.
Froman had served as chief of staff to Rubin at Treasury, and
had followed his boss when Rubin left the Clinton administration
to serve as a senior counselor to Citigroup (a massive new financial
conglomerate created by deregulatory moves pushed through by Rubin
Incredibly, Froman did not resign from
the bank when he went to work for Obama: He remained in the employ
of Citigroup for two more months, even as he helped appoint the
very people who would shape the future of his own firm. And to
help him pick Obama's economic team, Froman brought in none other
than Jamie Rubin, a former Clinton diplomat who happens to be
Bob Rubin's son. At the time, Jamie's dad was still earning roughly
$15 million a year working for Citigroup, which was in the midst
of a collapse brought on in part because Rubin had pushed the
bank to invest heavily in mortgage-backed CDOs and other risky
Now here's where it gets really interesting.
It's three weeks after the election. You have a lame-duck president
in George W. Bush - still nominally in charge, but in reality
already halfway to the golf-and-O'Doul's portion of his career
and more than happy to vacate the scene. Left to deal with the
still-reeling economy are lame-duck Treasury Secretary Henry Paulson,
a former head of Goldman Sachs, and New York Fed chief Timothy
Geithner, who served under Bob Rubin in the Clinton White House.
Running Obama's economic team are a still-employed Citigroup executive
and the son of another Citigroup executive, who himself joined
Obama's transition team that same month.
So on November 23rd, 2008, a deal is announced
in which the government will bail out Rubin's messes at Citigroup
with a massive buffet of taxpayer-funded cash and guarantees.
It is a terrible deal for the government, almost universally panned
by all serious economists, an outrage to anyone who pays taxes.
Under the deal, the bank gets $20 billion in cash, on top of the
$25 billion it had already received just weeks before as part
of the Troubled Asset Relief Program. But that's just the appetizer.
The government also agrees to charge taxpayers for up to $277
billion in losses on troubled Citi assets, many of them those
toxic CDOs that Rubin had pushed Citi to invest in. No Citi executives
are replaced, and few restrictions are placed on their compensation.
It's the sweetheart deal of the century, putting generations of
working-stiff taxpayers on the hook to pay off Bob Rubin's fuck-up-rich
tenure at Citi. "If you had any doubts at all about the primacy
of Wall Street over Main Street," former labor secretary
Robert Reich declares when the bailout is announced, "your
doubts should be laid to rest."
It is bad enough that one of Bob Rubin's
former protégés from the Clinton years, the New
York Fed chief Geithner, is intimately involved in the negotiations,
which unsurprisingly leave the Federal Reserve massively exposed
to future Citi losses. But the real stunner comes only hours after
the bailout deal is struck, when the Obama transition team makes
a cheerful announcement: Timothy Geithner is going to be Barack
Obama's Treasury secretary!
Geithner, in other words, is hired to
head the U.S. Treasury by an executive from Citigroup - Michael
Froman - before the ink is even dry on a massive government giveaway
to Citigroup that Geithner himself was instrumental in delivering.
In the annals of brazen political swindles, this one has to go
in the all-time Fuck-the-Optics Hall of Fame.
Wall Street loved the Citi bailout and
the Geithner nomination so much that the Dow immediately posted
its biggest two-day jump since 1987, rising 11.8 percent. Citi
shares jumped 58 percent in a single day, and JP Morgan Chase,
Merrill Lynch and Morgan Stanley soared more than 20 percent,
as Wall Street embraced the news that the government's bailout
generosity would not die with George W. Bush and Hank Paulson.
"Geithner assures a smooth transition between the Bush administration
and that of Obama, because he's already co-managing what's happening
now," observed Stephen Leeb, president of Leeb Capital Management.
Left unnoticed, however, was the fact
that Geithner had been hired by a sitting Citigroup executive
who still had a big bonus coming despite his proximity to Obama.
In January 2009, just over a month after the bailout, Citigroup
paid Froman a year-end bonus of $2.25 million. But as outrageous
as it was, that payoff would prove to be chump change for the
banker crowd, who were about to get everything they wanted - and
more - from the new president.
The irony of Bob Rubin: He's an unapologetic
arch-capitalist demagogue whose very career is proof that a free-market
meritocracy is a myth. Much like Alan Greenspan, a staggeringly
incompetent economic forecaster who was worshipped by four decades
of politicians because he once dated Barbara Walters, Rubin has
been held in awe by the American political elite for nearly 20
years despite having fucked up virtually every project he ever
got his hands on. He went from running Goldman Sachs (1990-1992)
to the Clinton White House (1993-1999) to Citigroup (1999-2009),
leaving behind a trail of historic gaffes that somehow boosted
his stature every step of the way.
As Treasury secretary under Clinton, Rubin
was the driving force behind two monstrous deregulatory actions
that would be primary causes of last year's financial crisis:
the repeal of the Glass-Steagall Act (passed specifically to legalize
the Citigroup megamerger) and the deregulation of the derivatives
market. Having set that time bomb, Rubin left government to join
Citi, which promptly expressed its gratitude by giving him $126
million in compensation over the next eight years (they don't
call it bribery in this country when they give you the money post
factum). After urging management to amp up its risky investments
in toxic vehicles, a strategy that very nearly destroyed the company,
Rubin blamed Citi's board for his screw-ups and complained that
he had been underpaid to boot. "I bet there's not a single
year where I couldn't have gone somewhere else and made more,"
Despite being perhaps more responsible
for last year's crash than any other single living person - his
colossally stupid decisions at both the highest levels of government
and the management of a private financial superpower make him
unique - Rubin was the man Barack Obama chose to build his White
There are four main ways to be connected
to Bob Rubin: through Goldman Sachs, the Clinton administration,
Citigroup and, finally, the Hamilton Project, a think tank Rubin
spearheaded under the auspices of the Brookings Institute to promote
his philosophy of balanced budgets, free trade and financial deregulation.
The team Obama put in place to run his economic policy after his
inauguration was dominated by people who boasted connections to
at least one of these four institutions - so much so that the
White House now looks like a backstage party for an episode of
Bob Rubin, This Is Your Life!
At Treasury, there is Geithner, who worked
under Rubin in the Clinton years. Serving as Geithner's "counselor"
- a made-up post not subject to Senate confirmation - is Lewis
Alexander, the former chief economist of Citigroup, who advised
Citi back in 2007 that the upcoming housing crash was nothing
to worry about. Two other top Geithner "counselors"
- Gene Sperling and Lael Brainard - worked under Rubin at the
National Economic Council, the key group that coordinates all
economic policymaking for the White House.
As director of the NEC, meanwhile, Obama
installed economic czar Larry Summers, who had served as Rubin's
protégé at Treasury. Just below Summers is Jason
Furman, who worked for Rubin in the Clinton White House and was
one of the first directors of Rubin's Hamilton Project. The appointment
of Furman - a persistent advocate of free-trade agreements like
NAFTA and the author of droolingly pro-globalization reports with
titles like "Walmart: A Progressive Success Story" -
provided one of the first clues that Obama had only been posturing
when he promised crowds of struggling Midwesterners during the
campaign that he would renegotiate NAFTA, which facilitated the
flight of blue-collar jobs to other countries. "NAFTA's shortcomings
were evident when signed, and we must now amend the agreement
to fix them," Obama declared. A few months after hiring Furman
to help shape its economic policy, however, the White House quietly
quashed any talk of renegotiating the trade deal. "The president
has said we will look at all of our options, but I think they
can be addressed without having to reopen the agreement,"
U.S. Trade Representative Ronald Kirk told reporters in a little-publicized
conference call last April.
The announcement was not so surprising,
given who Obama hired to serve alongside Furman at the NEC: management
consultant Diana Farrell, who worked under Rubin at Goldman Sachs.
In 2003, Farrell was the author of an infamous paper in which
she argued that sending American jobs overseas might be "as
beneficial to the U.S. as to the destination country, probably
Joining Summers, Furman and Farrell at
the NEC is Froman, who by then had been formally appointed to
a unique position: He is not only Obama's international finance
adviser at the National Economic Council, he simultaneously serves
as deputy national security adviser at the National Security Council.
The twin posts give Froman a direct line to the president, putting
him in a position to coordinate Obama's international economic
policy during a crisis. He'll have help from David Lipton, another
joint appointee to the economics and security councils who worked
with Rubin at Treasury and Citigroup, and from Jacob Lew, a former
Citi colleague of Rubin's whom Obama named as deputy director
at the State Department to focus on international finance.
Over at the Commodity Futures Trading
Commission, which is supposed to regulate derivatives trading,
Obama appointed Gary Gensler, a former Goldman banker who worked
under Rubin in the Clinton White House. Gensler had been instrumental
in helping to pass the infamous Commodity Futures Modernization
Act of 2000, which prevented deregulation of derivative instruments
like CDOs and credit-default swaps that played such a big role
in cratering the economy last year. And as head of the powerful
Office of Management and Budget, Obama named Peter Orszag, who
served as the first director of Rubin's Hamilton Project. Orszag
once succinctly summed up the project's ideology as a sort of
liberal spin on trickle-down Reaganomics: "Market competition
and globalization generate significant economic benefits."
Taken together, the rash of appointments
with ties to Bob Rubin may well represent the most sweeping influence
by a single Wall Street insider in the history of government.
"Rather than having a team of rivals, they've got a team
of Rubins," says Steven Clemons, director of the American
Strategy Program at the New America Foundation. "You see
that in policy choices that have resuscitated - but not reformed
- Wall Street."
While Rubin's allies and acolytes got
all the important jobs in the Obama administration, the academics
and progressives got banished to semi-meaningless, even comical
roles. Kornbluh was rewarded for being the chief policy architect
of Obama's meteoric rise by being outfitted with a pith helmet
and booted across the ocean to Paris, where she now serves as
America's never-again-to-be-seen-on-TV ambassador to the Organization
for Economic Cooperation and Development. Goolsbee, meanwhile,
was appointed as staff director of the President's Economic Recovery
Advisory Board, a kind of dumping ground for Wall Street critics
who had assisted Obama during the campaign; one top Democrat calls
the panel "Siberia."
Joining Goolsbee as chairman of the PERAB
gulag is former Fed chief Paul Volcker, who back in March 2008
helped candidate Obama write a speech declaring that the deregulatory
efforts of the Eighties and Nineties had "excused and even
embraced an ethic of greed, corner-cutting, insider dealing, things
that have always threatened the long-term stability of our economic
system." That speech met with rapturous applause, but the
commission Obama gave Volcker to manage is so toothless that it
didn't even meet for the first time until last May. The lone progressive
in the White House, economist Jared Bernstein, holds the impressive-sounding
title of chief economist and national policy adviser - except
that the man he is advising is Joe Biden, who seems more interested
in foreign policy than financial reform.
The significance of all of these appointments
isn't that the Wall Street types are now in a position to provide
direct favors to their former employers. It's that, with one or
two exceptions, they collectively offer a microcosm of what the
Democratic Party has come to stand for in the 21st century. Virtually
all of the Rubinites brought in to manage the economy under Obama
share the same fundamental political philosophy carefully articulated
for years by the Hamilton Project: Expand the safety net to protect
the poor, but let Wall Street do whatever it wants. "Bob
Rubin, these guys, they're classic limousine liberals," says
David Sirota, a former Democratic strategist. "These are
basically people who have made shitloads of money in the speculative
economy, but they want to call themselves good Democrats because
they're willing to give a little more to the poor. That's the
model for this Democratic Party: Let the rich do their thing,
but give a fraction more to everyone else."
Even the members of Obama's economic team
who have spent most of their lives in public office have managed
to make small fortunes on Wall Street. The president's economic
czar, Larry Summers, was paid more than $5.2 million in 2008 alone
as a managing director of the hedge fund D.E. Shaw, and pocketed
an additional $2.7 million in speaking fees from a smorgasbord
of future bailout recipients, including Goldman Sachs and Citigroup.
At Treasury, Geithner's aide Gene Sperling earned a staggering
$887,727 from Goldman Sachs last year for performing the punch-line-worthy
service of "advice on charitable giving." Sperling's
fellow Treasury appointee, Mark Patterson, received $637,492 as
a full-time lobbyist for Goldman Sachs, and another top Geithner
aide, Lee Sachs, made more than $3 million working for a New York
hedge fund called Mariner Investment Group. The list goes on and
on. Even Obama's chief of staff, Rahm Emanuel, who has been out
of government for only 30 months of his adult life, managed to
collect $18 million during his private-sector stint with a Wall
Street firm called Wasserstein-Perella.
The point is that an economic team made
up exclusively of callous millionaire-assholes has absolutely
zero interest in reforming the gamed system that made them rich
in the first place. "You can't expect these people to do
anything other than protect Wall Street," says Rep. Cliff
Stearns, a Republican from Florida. That thinking was clear from
Obama's first address to Congress, when he stressed the importance
of getting Americans to borrow like crazy again. "Credit
is the lifeblood of the economy," he declared, pledging "the
full force of the federal government to ensure that the major
banks that Americans depend on have enough confidence and enough
money." A president elected on a platform of change was announcing,
in so many words, that he planned to change nothing fundamental
when it came to the economy. Rather than doing what FDR had done
during the Great Depression and institute stringent new rules
to curb financial abuses, Obama planned to institutionalize the
policy, firmly established during the Bush years, of keeping a
few megafirms rich at the expense of everyone else.
Obama hasn't always toed the Rubin line
when it comes to economic policy. Despite being surrounded by
a team that is powerfully opposed to deficit spending - balanced
budgets and deficit reduction have always been central to the
Rubin way of thinking - Obama came out of the gate with a huge
stimulus plan designed to kick-start the economy and address the
job losses brought on by the 2008 crisis. "You have to give
him credit there," says Sen. Bernie Sanders, an advocate
of using government resources to address unemployment. "It's
a very significant piece of legislation, and $787 billion is a
lot of money."
But whatever jobs the stimulus has created
or preserved so far - 640,329, according to an absurdly precise
and already debunked calculation by the White House - the aid
that Obama has provided to real people has been dwarfed in size
and scope by the taxpayer money that has been handed over to America's
financial giants. "They spent $75 billion on mortgage relief,
but come on - look at how much they gave Wall Street," says
a leading Democratic strategist. Neil Barofsky, the inspector
general charged with overseeing TARP, estimates that the total
cost of the Wall Street bailouts could eventually reach $23.7
trillion. And while the government continues to dole out big money
to big banks, Obama and his team of Rubinites have done almost
nothing to reform the warped financial system responsible for
imploding the global economy in the first place.
The push for reform seemed to get off
to a promising start. In the House, the charge was led by Rep.
Barney Frank, the outspoken chair of the House Financial Services
Committee, who emerged during last year's Bush bailouts as a sharp-tongued
critic of Wall Street. Back when Obama was still a senator, he
and Frank even worked together to introduce a populist bill targeting
executive compensation. Last spring, with the economy shattered,
Frank began to hold hearings on a host of reforms, crafted with
significant input from the White House, that initially contained
some very good elements. There were measures to curb abusive credit-card
lending, prevent banks from charging excessive fees, force publicly
traded firms to conduct meaningful risk assessment and allow shareholders
to vote on executive compensation. There were even measures to
crack down on risky derivatives and to bar firms like AIG from
picking their own regulators.
Then the committee went to work - and
the loopholes started to appear.
The most notable of these came in the
proposal to regulate derivatives like credit-default swaps. Even
Gary Gensler, the former Goldmanite whom Obama put in charge of
commodities regulation, was pushing to make these normally obscure
investments more transparent, enabling regulators and investors
to identify speculative bubbles sooner. But in August, a month
after Gensler came out in favor of reform, Geithner slapped him
down by issuing a 115-page paper called "Improvements to
Regulation of Over-the-Counter Derivatives Markets" that
called for a series of exemptions for "end users" -
i.e., almost all of the clients who buy derivatives from banks
like Goldman Sachs and Morgan Stanley. Even more stunning, Frank's
bill included a blanket exception to the rules for currency swaps
traded on foreign exchanges - the very instruments that had triggered
the Long-Term Capital Management meltdown in the late 1990s.
Given that derivatives were at the heart
of the financial meltdown last year, the decision to gut derivatives
reform sent some legislators howling with disgust. Sen. Maria
Cantwell of Washington, who estimates that as much as 90 percent
of all derivatives could remain unregulated under the new rules,
went so far as to say the new laws would make things worse. "Current
law with its loopholes might actually be better than these loopholes,"
An even bigger loophole could do far worse
damage to the economy. Under the original bill, the Securities
and Exchange Commission and the Commodity Futures Trading Commission
were granted the power to ban any credit swaps deemed to be "detrimental
to the stability of a financial market or of participants in a
financial market." By the time Frank's committee was done
with the bill, however, the SEC and the CFTC were left with no
authority to do anything about abusive derivatives other than
to send a report to Congress. The move, in effect, would leave
the kind of credit-default swaps that brought down AIG largely
Why would leading congressional Democrats,
working closely with the Obama administration, agree to leave
one of the riskiest of all financial instruments unregulated,
even before the issue could be debated by the House? "There
was concern that a broad grant to ban abusive swaps would be unsettling,"
Unsettling to whom? Certainly not to you
and me - but then again, actual people are not really part of
the calculus when it comes to finance reform. According to those
close to the markup process, Frank's committee inserted loopholes
under pressure from "constituents" - by which they mean
anyone "who can afford a lobbyist," says Michael Greenberger,
the former head of trading at the CFTC under Clinton.
This pattern would repeat itself over
and over again throughout the fall. Take the centerpiece of Obama's
reform proposal: the much-ballyhooed creation of a Consumer Finance
Protection Agency to protect the little guy from abusive bank
practices. Like the derivatives bill, the debate over the CFPA
ended up being dominated by horse-trading for loopholes. In the
end, Frank not only agreed to exempt some 8,000 of the nation's
8,200 banks from oversight by the castrated-in-advance agency,
leaving most consumers unprotected, he allowed the committee to
pass the exemption by voice vote, meaning that congressmen could
side with the banks without actually attaching their name to their
To win the support of conservative Democrats,
Frank also backed down on another issue that seemed like a slam-dunk:
a requirement that all banks offer so-called "plain vanilla"
products, such as no-frills mortgages, to give consumers an alternative
to deceptive, "fully loaded" deals like adjustable-rate
loans. Frank's last-minute reversal - made in consultation with
Geithner - was such a transparent giveaway to the banks that even
an economics writer for Reuters, hardly a far-left source, called
it "the beginning of the end of meaningful regulatory reform."
But the real kicker came when Frank's
committee took up what is known as "resolution authority"
- government-speak for "Who the hell is in charge the next
time somebody at AIG or Lehman Brothers decides to vaporize the
economy?" What the committee initially introduced bore a
striking resemblance to a proposal written by Geithner earlier
in the summer. A masterpiece of legislative chicanery, the measure
would have given the White House permanent and unlimited authority
to execute future bailouts of megaconglomerates like Citigroup
and Bear Stearns.
Democrats pushed the move as politically
uncontroversial, claiming that the bill will force Wall Street
to pay for any future bailouts and "doesn't use taxpayer
money." In reality, that was complete bullshit. The way the
bill was written, the FDIC would basically borrow money from the
Treasury - i.e., from ordinary taxpayers - to bail out any of
the nation's two dozen or so largest financial companies that
the president deems in need of government assistance. After the
bailout is executed, the president would then levy a tax on financial
firms with assets of more than $10 billion to repay the Treasury
within 60 months - unless, that is, the president decides he doesn't
want to! "They can wait indefinitely to repay," says
Rep. Brad Sherman of California, who dubbed the early version
of the bill "TARP on steroids."
The new bailout authority also mandated
that future bailouts would not include an exchange of equity "in
any form" - meaning that taxpayers would get nothing in return
for underwriting Wall Street's mistakes. Even more outrageous,
it specifically prohibited Congress from rejecting tax giveaways
to Wall Street, as it did last year, by removing all congressional
oversight of future bailouts. In fact, the resolution authority
proposed by Frank was such a slurpingly obvious blow job of Wall
Street that it provoked a revolt among his own committee members,
with junior Democrats waging a spirited fight that restored congressional
oversight to future bailouts, requires equity for taxpayer money
and caps assistance to troubled firms at $150 billion. Another
amendment to force companies with more than $50 billion in assets
to pay into a rainy-day fund for bailouts passed by a resounding
vote of 52 to 17 - with the "Nays" all coming from Frank
and other senior Democrats loyal to the administration.
Even as amended, however, resolution authority
still has the potential to be truly revolutionary legislation.
The Senate version still grants the president unlimited power
over equity-free bailouts, and the amended House bill still institutionalizes
a system of taxpayer support for the 20 to 25 biggest banks in
the country. It would essentially grant economic immortality to
those top few megafirms, who will continually gobble up greater
and greater slices of market share as money becomes cheaper and
cheaper for them to borrow (after all, who wouldn't lend to a
company permanently backstopped by the federal government?). It
would also formalize the government's role in the global economy
and turn the presidential-appointment process into an important
part of every big firm's business strategy. "If this passes,
the very first thing these companies are going to do in the future
is ask themselves, 'How do we make sure that one of our executives
becomes assistant Treasury secretary?'" says Sherman.
On the Senate side, finance reform has
yet to make it through the markup process, but there's every reason
to believe that its final bill will be as watered down as the
House version by the time it comes to a vote. The original measure,
drafted by chairman Christopher Dodd of the Senate Banking Committee,
is surprisingly tough on Wall Street - a fact that almost everyone
in town chalks up to Dodd's desperation to shake the bad publicity
he incurred by accepting a sweetheart mortgage from the notorious
lender Countrywide. "He's got to do the shake-his-fist-at-Wall
Street thing because of his, you know, problems," says a
Democratic Senate aide. "So that's why the bill is starting
out kind of tough."
The aide pauses. "The question is,
though, what will it end up looking like?"
He's right - that is the question. Because
the way it works is that all of these great-sounding reforms get
whittled down bit by bit as they move through the committee markup
process, until finally there's nothing left but the exceptions.
In one example, a measure that would have forced financial companies
to be more accountable to shareholders by holding elections for
their entire boards every year has already been watered down to
preserve the current system of staggered votes. In other cases,
this being the Senate, loopholes were inserted before the debate
even began: The Dodd bill included the exemption for foreign-currency
swaps - a gift to Wall Street that only appeared in the Frank
bill during the course of hearings - from the very outset.
The White House's refusal to push for
real reform stands in stark contrast to what it should be doing.
It was left to Rep. Pete Kanjorski in the House and Bernie Sanders
in the Senate to propose bills to break up the so-called "too
big to fail" banks. Both measures would give Congress the
power to dismantle those pseudomonopolies controlling almost the
entire derivatives market (Goldman, Citi, Chase, Morgan Stanley
and Bank of America control 95 percent of the $290 trillion over-the-counter
market) and the consumer-lending market (Citi, Chase, Bank of
America and Wells Fargo issue one of every two mortgages, and
two of every three credit cards). On November 18th, in a move
that demonstrates just how nervous Democrats are getting about
the growing outrage over taxpayer giveaways, Barney Frank's committee
actually passed Kanjorski's measure. "It's a beginning,"
Kanjorski says hopefully. "We're on our way." But even
if the Senate follows suit, big banks could well survive - depending
on whom the president appoints to sit on the new regulatory board
mandated by the measure. An oversight body filled with executives
of the type Obama has favored to date from Citi and Goldman Sachs
hardly seems like a strong bet to start taking an ax to concentrated
wealth. And given the new bailout provisions that provide these
megafirms a market advantage over smaller banks (those Paul Volcker
calls "too small to save"), the failure to break them
up qualifies as a major policy decision with potentially disastrous
"They should be doing what Teddy
Roosevelt did," says Sanders. "They should be busting
That probably won't happen anytime soon.
But at a minimum, Obama should start on the road back to sanity
by making a long-overdue move: firing Geithner. Not only are the
mop-headed weenie of a Treasury secretary's fingerprints on virtually
all the gross giveaways in the new reform legislation, he's a
living symbol of the Rubinite gangrene crawling up the leg of
this administration. Putting Geithner against the wall and replacing
him with an actual human being not recently employed by a Wall
Street megabank would do a lot to prove that Obama was listening
this past Election Day. And while there are some who think Geithner
is about to go - "he almost has to," says one Democratic
strategist - at the moment, the president is still letting Wall
Street do his talking.
Morning, the National Mall, November 5th.
A year to the day after Obama named Michael Froman to his transition
team, his political "opposition" has descended upon
the city. Republican teabaggers from all 50 states have showed
up, a vast horde of frowning, pissed-off middle-aged white people
with their idiot placards in hand, ready to do cultural battle.
They are here to protest Obama's "socialist" health
care bill - you know, the one that even a bloodsucking capitalist
interest group like Big Pharma spent $150 million to get passed.
These teabaggers don't know that, however.
All they know is that a big government program might end up using
tax dollars to pay the medical bills of rapidly breeding Dominican
immigrants. So they hate it. They're also in a groove, knowing
that at the polls a few days earlier, people like themselves had
a big hand in ousting several Obama-allied Democrats, including
a governor of New Jersey who just happened to be the former CEO
of Goldman Sachs. A sign held up by New Jersey protesters bears
the warning, "If You Vote For Obamacare, We Will Corzine
I approach a woman named Pat Defillipis
from Toms River, New Jersey, and ask her why she's here. "To
protest health care," she answers. "And then amnesty.
You know, immigration amnesty."
I ask her if she's aware that there's
a big hearing going on in the House today, where Barney Frank's
committee is marking up a bill to reform the financial regulatory
system. She recognizes Frank's name, wincing, but the rest of
my question leaves her staring at me like I'm an alien.
"Do you care at all about economic
regulation?" I ask. "There was sort of a big economic
collapse last year. Do you have any ideas about how that whole
deal should be fixed?"
"We got to slow down on spending,"
she says. "We can't afford it."
"But what do we do about the rules
governing Wall Street . . ."
She walks away. She doesn't give a fuck.
People like Pat aren't aware of it, but they're the best friends
Obama has. They hate him, sure, but they don't hate him for any
reasons that make sense. When it comes down to it, most of them
hate the president for all the usual reasons they hate "liberals"
- because he uses big words, doesn't believe in hell and doesn't
flip out at the sight of gay people holding hands. Additionally,
of course, he's black, and wasn't born in America, and is married
to a woman who secretly hates our country.
These are the kinds of voters whom Obama's
gang of Wall Street advisers is counting on: idiots. People whose
votes depend not on whether the party in power delivers them jobs
or protects them from economic villains, but on what cultural
markers the candidate flashes on TV. Finance reform has become
to Obama what Iraq War coffins were to Bush: something to be tucked
safely out of sight.
Around the same time that finance reform
was being watered down in Congress at the behest of his Treasury
secretary, Obama was making a pit stop to raise money from Wall
Street. On October 20th, the president went to the Mandarin Oriental
Hotel in New York and addressed some 200 financiers and business
moguls, each of whom paid the maximum allowable contribution of
$30,400 to the Democratic Party. But an organizer of the event,
Daniel Fass, announced in advance that support for the president
might be lighter than expected - bailed-out firms like JP Morgan
Chase and Goldman Sachs were expected to contribute a meager $91,000
to the event - because bankers were tired of being lectured about
"The investment community feels very
put-upon," Fass explained. "They feel there is no reason
why they shouldn't earn $1 million to $200 million a year, and
they don't want to be held responsible for the global financial
Which makes sense. Shit, who could blame
the investment community for the meltdown? What kind of assholes
are we to put any of this on them?
This is the kind of person who is working
for the Obama administration, which makes it unsurprising that
we're getting no real reform of the finance industry. There's
no other way to say it: Barack Obama, a once-in-a-generation political
talent whose graceful conquest of America's racial dragons en
route to the White House inspired the entire world, has for some
reason allowed his presidency to be hijacked by sniveling, low-rent
shitheads. Instead of reining in Wall Street, Obama has allowed
himself to be seduced by it, leaving even his erstwhile campaign
adviser, ex-Fed chief Paul Volcker, concerned about a "moral
hazard" creeping over his administration.
"The obvious danger is that with
the passage of time, risk-taking will be encouraged and efforts
at prudential restraint will be resisted," Volcker told Congress
in September, expressing concerns about all the regulatory loopholes
in Frank's bill. "Ultimately, the possibility of further
crises - even greater crises - will increase."
What's most troubling is that we don't
know if Obama has changed, or if the influence of Wall Street
is simply a fundamental and ineradicable element of our electoral
system. What we do know is that Barack Obama pulled a bait-and-switch
on us. If it were any other politician, we wouldn't be surprised.
Maybe it's our fault, for thinking he was different.