Obama To Wall Street: I’ll Pencil You In, Lightly
Treasury Secretary Tim Geithner will provide some further detail on the bank rescue this week but, let’s face it, this thing is unlikely to make it through Congress, and certainly not quickly. Have you noticed that Treasury’s plodding ahead in a lower gear than the other parts of the Administration? They aren’t even staffed, for crying out loud. Word on the street is it’s Geithner and two other people in there.
For all of its swift action on other fronts, the Obama Administration has moved particularly slow on intervening to resolve the meltdown on Wall Street. That doubtless has to do with the fact that most ordinary Americans are livid about the extent of the banking bail-out under George Bush. But if Obama does not seem keenly interested in saving the banks, it’s because the financial industry was never a significant part of his vision for the future.
Take a look at what President Obama has done in his first few months in office. Right out of the blocks he enacted stricter rules for lobbyists seeking employment in the Administration. Then he signed the Lilly Ledbetter Fair Pay Act on January 29, which promoted fair pay regardless of gender, race, or age, fulfilling his campaign pledge to nullify Ledbetter v. Goodyear. Then he signed the American Recovery & Reinvestment Act, his landmark $787 billion stimulus and job creation bill. He also implemented a major mortgage foreclosure plan not to help Wall Street but to help Main Street Americans stay in their homes. This was followed by his ambitious budget which would implement virtually every one of his campaign promises on energy, health care and tax reform.
Along the way, of course, Treasury doled out some money to a few of the ailing mega-banks to help keep them afloat, based on the unavoidable reality that if they fail it could bog the country down in deep recession or depression for many years. But Obama never discussed the banks or Wall Street in his major addresses and press conferences, unless he had to (e.g., with the AIG bonuses). Treasury will get around to announcing the bank rescue next week, which will carefully emphasize private investors over the government with respect to creating a market for the “toxic” mortgage-backed securities held by the banks. But even then, given the populist anger over the AIG bonuses and the amount of money that’s already been throw at the zombie to no avail, it’s unlikely that Congress will sign off on it, which Obama knows.
Does this strike you as a President possessed of a vision to save the Wall Street mega-banks?
The obvious answer is No. Wall Steet is apparently at the bottom of the President’s To-Do list. And that is precisely what makes so many economists and commentators nervous. On the more reactionary side is the CNBC clan of stock market worshipers. Larry Kudlow of the Kudlow Report opined that the President was “waging a war against capital” by dilly-dallying with spending plans while failing to come up with a plan to help the banks. Based on the same premises, Jim Cramer, the spasmodic host of CNBC’s Mad Money who days before Bear Stearns went down in flames told his audience that “Bear Stearns is not in trouble,” accused Obama of “the greatest wealth destruction I’ve ever seen by a President,” offering hints on how to “Obama-proof your portfolio.” But even more moderate voices, like Newsweek’s Jonathan Alter, claim that saving the Wall Street banks is the key to resolving the crisis. “Help the megabanks,” Alter writes, “or it’s only a matter of time before we’re eating cat food.” Time reported that “Obama’s big reform agenda won’t get off the ground unless he fixes the banks first.”
But as with the day-to-day ebbs and flows of a wily stock market, Obama has refused to let this media “noise,” which was ultimately more about short-terms gains than long-term change, obscure his vision, and our vision. The question for Obama has never been just about getting the country on a road to recovery. The question is: What kind of recovery do we want? The commentators who argue that the Administration needs to make reviving the megabanks its top priority, are sidestepping this question altogether. For them we just need to fix the banks now, and worry about the rest later. But the subtext is that if we resolve the banking crisis, we won’t have to worry about the rest — once the banks come to, the argument goes, credit would flow again and the rest will just magically fall into place.
Thus just as Wall Street led us into the economic crisis, suppose the commentators, it can also lead us out.
Here’s the point: Our President takes issue with the above line of reasoning and, specifically, the underlying assumption that Wall Street should, or could, lead the country anywhere. For Obama, the fact Wall Street had led us into the meltdown means that it must not lead us out. Last week, while the outrage against the AIG bonuses continued unabated and as the talking heads dissected new overtures from Treasury about further bank aid, Obama made an appearance on The Tonight Show (a first for a sitting president) during which made some telling comments about his view on the United States financial industry:
Well, and part of what happened over the last 15, 20 years is that so much money was made in finance that about 40 percent, I think, of our overall growth, our overall economic growth was in the financial sector. Well, now what we’re finding out is a lot of that growth wasn’t real. It was paper money, paper profits on the books, but it could be easily wiped out.
This is what many economists refer to as the “financialization” of the economy. And it’s hurting us, not helping us.
As FDR put it in his first inaugural address in March 1933 in the midst of the Great Depression, the “money changers” had provided “false leadership” to the country. If that resonated with the public in 1933, it carries the brute force of an indisputable fact in 2009.
Wall Street will wait. We have bigger fish to fry. If many in the pundit class believe that if we heal the financial economy the real economy will follow, Obama believes the the reverse is true and must be the new course for the country. “The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit,” FDR told the county in 1933. So too Obama’s vision in 2009 — on health care, energy, the environment, education, science & technology — seeks to set aside the paper profits of Wall Street and put in place a new economy based on fairness, hard work and productive innovation. Wall Street may follow this new economy, but in the Obama Era it will lead no more.
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