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 protégé;
• 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.
© 2009 The Nation