Rage is Good

Hopefully, the demonstrations
planned on Wall Street April 4
will contribute to the global
uprising. Our president and Congress need the pressure.

The world has turned against American hegemony before: against the
Vietnam war, against the World Trade Organization and against the
invasion of Iraq. On all three occasions, the world was right and
Washington was wrong.

On this occasion, the global economy is being devastated by the Wall
Street crash. Hundreds of millions are are hurtling into extreme
poverty, export industries are collapsing, currencies being
destabilized.

As the conservative French president Nicolas Sarkozy says,
"Laissez-faire, ces't fini." (Laissez-faire is finished.)

As nations blame Wall Street and move to protect their people, the
protests need not be anti-American nor anti-Obama. Sarkozy cannot be
accused of being anti-US. Neither are Iceland nor Ukraine. The global
opposition might just may be what we need, an organized populist
counterforce to the business and banking lobbies entrenched in
Washington.

Obama's stimulus package and proposed budget are not the problem. They
represent the most progressive government initiatives in a half-century.
But as Franch Rich
noted
in the New York Times March 1, Obama "was fuzzy when it
came to what he wanted to do about" more bailouts. The Obama
administration is in trouble on the question of what to do about the
financial system andthe credit crisis. But Rich is wrong for once in
suggesting
that it's "bad news" for Obama that "the genuine populist rage in the
country...cannot be ignored or finessed."

The "bad news" is really an opportunity for progressives, unions and
Democrats to build a bottom-up populist alternative to the "greed is
good" politics of Wall Street, which has infested both parties. Obama
should privately welcome "populist rage" as a stimulus to reform. If he
does not, he may see right-wing populism making a comeback as soon as
2010.

Some progressives, including even Warren Beatty, think it's time to
introduce a discussion of socialism, if only to point out that our
present course is one of socialism for the banks and corporations. Obama
himself says good things about Sweden's nationalization of banks, but
quickly demurs that Americans are not "culturally" ready for such an
option. At the Washington Post, Harold Meyerson, a democratic
socialist
in the tradition of Michael Harrington, prefers re-regulation to either
nationalization or socialism at this point: "to avoid socialism (to
whatever extent throwing public money at banks is socialism) you need
liberalism (that is, the willingness to restrain capitalism from its
periodic self-destruction.)

My sense is that we are moving too rapidly towards economic hell for a
socialist ideology to catch up. While efforts to dust off and legitimize
the term will go on, Meyerson is right that the battlefield just ahead
is over reregulation, which may evolve into a contentious, awkward,
bureaucratic nationalization out of necessity. That is why the sturdier,
and heavily regulated Canadian and Swedish banking systems already are
being closely examined.

But Obama is not only post-Sixties, he is post-Thirties too. Coming of
age in the Reagan era, he was convinced that a healthy dose of President
Clinton's Rubinomics was the alternative to Reaganomics. It was the
Clinton administration who crusaded for the deregulation of Wall Street
at home and for neo-liberal privatizations in Latin America, Africa and
Asia. A whole generation of "new Democrats" came to believe in market
fundamentalism and magic bubbles. They privately dismissed those
Canadians and Swedes as girlie-bankers. Now they are busted.

Clinton deregulated the derivatives market and hedge funds, so called
because they are investment instruments designed to "hedge" against
risk,
where the supposed values are "derived" from underlying assets (for
example, when shaky home loans were bundled into securities and sold to
third parties as if they were AAA-rated.) Under Bush, between 2002 and
2008, the derivative market rose in estimated value from $106 trillion
to $531 trillion, 35 percent to 40 percent of all corporate profits with
no oversight, according to Obama Economic Advisory Chair Paul Volcker.
That was
because, under Clinton and his treasury secretaries Rubin and Alan
Greenspan, there was deliberate elimination of oversight when it was
proposed by Brooksley Born, head of the Commodity Futures Trading
Commission. She was fired for her efforts.

The Clinton era, with its modest increase in most family incomes while
the rich became the super-rich, apparently had a deep effect on Obama
and most certainly on his generation of Democrats. Last year Obama
raised nearly $7 million from Wall Street investment firms. Wall Street
became a cash cow for Democrats who looked the other way. As a centrist,
Obama toyed with notions of "nudging" the Wall Street firms into better
behavior by designing a better "choice architecture" in place of
traditional regulation (the term is that of his close University of
Chicago friend Cass Sunstein.)

Obama has filled his most senior economic positions with people directly
responsible for the deregulation policies that contributed to the
unfolding catastrophe. They include:

* Top economic adviser Larry Summers, who as treasury
secretary in 2002 championed the law de-regulating derivatives which,
according to the New York Times, "spread the financial losses
from
reckless lending around the world;"

* Treasury Secretary Tim Geithner, who worked for two
Republican administrations and Henry Kissinger's private consulting
firm, then orchestrated the recent bailouts of Rubin's Citigroup and
American International Group, the insurance giant;

* Budget Director Peter Orszag, another Rubin
protege;

* Michael Froman, another Rubin student, was Obama's transition
team point person on the economy (The transition team also included
Rubin's son, James Rubin);

* Securities and Exchange Commission Director Mary Schapiro has
made a reputation for self-regulation. An appointee of Ronald Reagan,
George H. W. Bush, and Bill Clinton, she ran the industry-dominated
Financial Industry Regulatory Authority (FINRA) which oversees Wall
Street self-regulation--and missed the Bernard Madoff scandal;

* Gary Gensler, the new director of Obama's CFTC, drafted the 1992
law exempting derivatives from oversight by the agency he now heads.

These are only brief snapshots of the tangled conflicts of interest that
make a profound re-regulation of Wall Street unlikely at this point. If
a street gang member in Los Angeles had conspired to rob an investment
banker of a few thousand dollars, he would receive a multi-year prison
term with added time for being a gang "associate." But some of the
people
responsible for the greatest financial scandal in many decades are
flying high in high government offices, their friends colleagues
rewarded with
million dollar bonuses or mega-billion dollar bailouts, while some
complain, incredibly, that a cap of $500,000 on executive compensation
is not only unfair but will cause a talent drain from Wall Street.

The logical question is why Obama has appointed such people to key
decision-making positions in the first place. No one can know the answer
to such a question. Franklin Roosevelt, when asked why he appointed
Joseph Kennedy to a leading regulatory position, is said to have
replied, "It takes a crook to catch a crook." (A defective gene pool
from
long years of Ivy League inbreeding comes to mind, but that would be
unkind.)

In this crisis, Obama seems to be at the progressive end of the
political spectrum in Washington, not his preferred position in the
center. Where is the movement to push him? Congressional liberals seem
uncomfortable criticizing the new president's appointees. This
reluctance runs deeper than partisan politics, involving what Rep.
Barney
Frank describes as an overwhelming desire to preserve the financial
institutions. For one example, without naming names, when asked how he
could have voted for Henry Paulson's massive bailout package, a leading
liberal Congressman said "when the experts look you in the eye and tell
you the whole system is going to collapse, it's hard to be a no vote."

The blogosphere usually can be counted on to raise hell, but its middle
class whiteness and affinity for Obama make them unlikely leaders of a
populist economic revolt. Organized labor has the capacity to fill the
streets and generate heat in Congressional districts, but it is
delighted with the president's stimulus and budget packages and the
appointment of Hilda Solis as Labor Secretary, so are likely to hold its
fire for a time.

It's not clear what has happened to the anti-globalization movement of
the past decade, but the opportunity now exists to argue for a system of
global financial regulations, including capital controls, and a global
living wage. Otherwise, financial capital will flow towards banking
havens which are the least regulated, and threatened governments will
move towards protecting their constituencies from unregulated global
capitalism.

That is why the potential threat of worldwide anger in the streets,
including the streets of American financial districts, is so important
as the only strategic pressure point that that might cause Obama to
ride herd on his recovering deregulators while a progressive populism
comes alive in American politics.

Rage is good.