Barack Obama: The oligarchs' president

http://www.salon.com/news/politics/war_room/2010/10/27/barack_obama_wall_street

WEDNESDAY, OCT 27, 2010 08:30 ET

Barack Obama: The oligarchs' president

The director of "Inside Job" writes about Obama's depressingly  
rational decision to give in to Wall Street
BY CHARLES FERGUSON

When I first decided to make a documentary about the financial crisis,  
in late 2008, my biggest question was how to handle Barack Obama.  
Alas, the answer rapidly became all too clear, as my film "Inside Job"  
shows in painful detail.
When Barack Obama was elected, he had an unprecedented opportunity to  
shape American history by bringing the country's new financial  
oligarchy under control. Elected on a platform of change and renewal  
by a nation in crisis and with strong majorities in both houses of  
Congress, his election celebrated throughout the world, Obama could  
have done great things. Instead, he gave us more of the same. America  
will be paying for his decision for a very long time.

The first troubling sign was his personnel appointments: Larry  
Summers, the man behind nearly every disastrous policy that created  
the crisis, fresh from making $20 million from hedge funds and  
investment banks while at Harvard, to become the director of the  
National Economic Council; Tim Geithner, plucked from the New York  
Federal Reserve Bank and put in charge at Treasury; as Geithner's  
chief of staff, Mark Patterson, a former Goldman Sachs lobbyist; to  
succeed Geithner at the New York Fed, William C. Dudley, who was chief  
economist of Goldman Sachs during the housing bubble years; Michael  
Froman, straight from Citigroup Alternative Investments, which lost  
billions while its executives became rich, to coordinate economic  
policy for the National Security Council; Jacob Lew, who was the CFO  
of Citigroup Alternative Investments, as deputy secretary of state  
(and now, Obama's nominee to run the Office of Management and Budget);  
Gary Gensler, a former Goldman executive who helped ban the regulation  
of over-the-counter derivatives, to lead the Commodity Futures Trading  
Commission, which regulates derivatives; Mary Shapiro, former head of  
the Financial Industry Regulatory Agency, the investment banking  
industry’s self-policing body, to run the Securities and Exchange  
Commission; reappointing Ben Bernanke. And on and on.

These moves were excused as the understandable actions of a president- 
elect without a background in finance turning to the most experienced  
people in a time of crisis. But even then, it was clear that these  
people had been part of the problem, not the solution, and that other  
highly competent but untainted candidates were available.

And now, nearly two years later, the Obama administration has  
established a clear record. Beginning almost immediately, the  
president consistently opposed any effort to control financial  
industry compensation -- even for firms receiving federal aid, as most  
were in 2009. Then came a long period of total inaction, followed by  
the toothless Wall Street reform bill passed this summer and the  
appointment of a former Fannie Mae lobbyist, Tom Donilon, as the new  
national security advisor. There was no action on the foreclosure  
crisis and no serious attempt to investigate the causes of the crisis.  
The SEC has brought only a handful of civil cases ending in trivial  
fines, with neither firms nor individuals required to admit any  
wrongdoing.

Most tellingly, there has not been a single criminal prosecution of  
any firm or any individual senior financial executive -- literally  
zero -- and, of course, no appointment of a special prosecutor. While  
we can debate the extent to which fraud caused the crisis, and  
precisely how much fraud was committed, the answer is clearly not  
zero. We already know that Lehman and other firms used fake accounting  
to hide liabilities and inflate assets; that lenders and securitizers  
frequently knew that the loans they sold and packaged were fraudulent  
or defective; and, of course, we also now know that Goldman Sachs and  
other investment banks sold securities they knew to be defective (they  
were often sold to pension funds for low-paid government employees, by  
the way) -- and that they designed many of these securities so that  
they could profit by betting against them after they were sold.  
Stunningly, this last practice was not ipso facto illegal; but as a  
practical matter, it’s pretty hard to do if you’re telling the truth.  
Yet nobody has been prosecuted, and only a very few individuals have  
even been sued in civil cases.

It is, in short, overwhelmingly clear that President Obama and his  
administration decided to side with the oligarchs -- or at least not  
to challenge them. This raises the question of why they have made this  
choice, and whether it is a correct (in the sense of rationally self- 
interested) calculation on their part.

As to the "why," several explanations have been proposed. One is that  
the president, as a matter of individual psychology, is extremely  
conflict-averse, preferring to avoid fights no matter how important. A  
second hypothesis is that the president is simply doing the most he  
can, given the political climate and the furious lobbying effort with  
which he is confronted. This explanation, however, is belied by the  
personnel appointments, among other evidence.

A more disturbing possibility is that the Obama administration has  
simply codified a new strategic equilibrium in American politics, one  
first devised by the Clinton administration, in which both parties are  
supine with regard to the financial sector and the wealthy.

The objection to this view is that there is some evidence, in  
conventional political terms, that the Obama strategy of giving in to  
Wall Street might be a mistake. The economy remains in bad shape, bad  
enough to be a major political handicap, and will likely stay that way  
for several years. Democrats are having trouble fundraising (from  
individuals, at least; interest group donors remain plentiful), union  
voters may desert them, and it looks like Republicans and the Tea  
Party will make substantial inroads in the midterm elections. The  
liberal media, most prominently the Huffington Post but many other  
outlets as well, have turned sharply critical of administration  
policy. And my own conversations with friends and colleagues have  
revealed a deep, angry disillusionment with Obama.

But consider the situation more broadly. If the two parties both lie  
down for Wall Street in roughly equal measure, but fight viciously  
over other issues, it is possible to construct a stable strategic  
equilibrium. At the margin, the Democrats are slightly less favorable  
to business, at least for unionized industries, but nobody upsets the  
financial sector apple cart.

This angers much of the Democratic base. But the Democrats avoid the  
epic confrontation that would surely ensue if they were to take on the  
financial sector, which would retaliate with a massively funded  
effort. Instead, the two parties fight furiously, or at least pretend  
to fight furiously, about a wide range of other social issues that  
affect many voters deeply -- abortion, gay rights, gun control, stem  
cell research, creationism, global warming, health insurance and so  
on. Each side can credibly warn its base that if it deserts the party,  
apocalypse may follow. So, while some citizens may register as  
independents, or stop voting, or stop donating to the system, the  
entrenched establishments of both parties will remain safe.

Of course, the sustainability of this strategic duopoly depends on the  
absence of truly independent challenges, such as third parties. Third  
parties can and do arise in America -- George Wallace, Ross Perot,  
Ralph Nader and, now (sort of), the Tea Party -- but they tend to be  
short-lived, in part because they face enormous structural obstacles  
in becoming a sustainable political force. For one, America doesn't  
have a parliamentary system, and most localities don’t use ranked- 
choice or "instant-runoff" voting. Plus, given the structure of  
American elections, the Obama administration can credibly warn,  
pointing to the example of Ralph Nader, that any splinter effort would  
hand the White House to the Republicans. And, given the enormous role  
now played by money in American elections, the logistical and  
financial efforts required to create a grass-roots third party would  
be huge. In contrast, the financial sector possesses the twin  
advantages of concentration and cohesion on the one hand, and of  
enormous financial resources on the other.

So, then, the Obama administration’s choices may be depressingly  
rational, given the "quiet coup," to use Simon Johnson’s term,  
constituted by the spectacular rise of the financial industry and the  
wealthy over the last quarter-century. This does not mean we should  
all despair; there have been times before in American history when the  
American people had to force their leaders to follow them. A century  
ago, the progressive movement achieved major reforms in the face of an  
economy even more concentrated than today. But it won’t be easy. To  
reverse the hegemony of the financial sector, and the danger it poses  
both to economic stability and to real democracy, will require an  
enormous outpouring of popular anger and organizational energy,  
probably a considerable period of time, and perhaps could be generated  
only by ... another, even worse, financial crisis, such as might well  
occur a decade hence, given the absence of real reform after this one…

Charles Ferguson’s new film, "Inside Job," a documentary about the  
financial crisis, is now in theaters nationwide. Ferguson holds a B.A.  
in mathematics from U.C. Berkeley, a Ph.D. In political science from  
MIT, and is the author of four books on various policy issues. "Inside  
Job" is his second film; his first, "No End in Sight," analyzed the  
occupation of Iraq and was nominated for an Academy Award in 2008.
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