Robert Scheer is the editor of Truthdig, where this article originally appeared. His latest book is The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America(Twelve).
It's not working. The Bush-Obama strategy of throwing trillions at the banks to solve the mortgage crisis is a huge bust. The financial moguls, while tickled pink to have $1.25 trillion in toxic assets covered by the feds, along with hundreds of billions in direct handouts, are not using that money to turn around the free fall in housing foreclosures.
As the Wall Street Journal reported Tuesday, "The Mortgage Bankers Association cut its forecast of home-mortgage lending this year by 27% amid deflating hopes for a boom in refinancing." The same association said that the total refinancing under the administration's much ballyhooed Home Affordable Refinance Program is "very low."
Aside from a tight mortgage market, the problem in preventing foreclosures has to do with homeowners losing their jobs. Here again the administration, continuing the Bush strategy, is working the wrong end of the problem. Although President Obama was wise enough to at least launch a job stimulus program, a far greater amount of federal funding benefits Wall Street as opposed to Main Street.
State and local governments have been forced into draconian budget cuts, firing workers who are among the most reliable in making their mortgage payments--when they have jobs. Yet the Obama administration won't spend even a small fraction of what it has wasted on the banks to cover state shortfalls.
California couldn't get the White House to guarantee $5.5 billion in short-term notes to avert severe cuts in state and local payrolls, from prison guards to schoolteachers. Compare that with the $50 billion already given to Citigroup, plus an astounding $300 billion to guarantee that institution's toxic assets. Citigroup benefits from being a bank "too big to fail," although through its irresponsible actions to get that large it did as much as any company to cause this mess.
How big a mess? According to the Federal Reserve's most recent report, seven straight quarters of declining household wealth have left Americans $14 trillion poorer. Many who thought they were middle class have now joined the ranks of the poor. Food banks are strapped and welfare rolls are dramatically on the rise, as the WSJ reports, with a 27 percent year-to-year increase in Oregon, 23 percent in South Carolina and 10 percent in California. And you have to be very poor to get on welfare, thanks to President Clinton's so-called welfare reform, which he signed into law before he ramped up the radical deregulation of the financial services industry, enabling our economic downturn.
Citigroup, the prime mover for ending the sensible restraints of the Glass-Steagall Act of 1933, is now a pathetic ward of the state. But back in the day President Clinton would tour the country with Citigroup founder Sandy Weill touting the wonderful work that Weill and other moguls were doing to invest in economically depressed communities. It wasn't really happening then, and now millions of folks in those communities have seen their houses snatched from them as if they were just pieces in a game of Monopoly that Clinton and his fat-cat buddy were playing.
Once Weill got the radical deregulation law he wanted, he issued a statement giving credit: "In particular, we congratulate President Clinton, Treasury Secretary Larry Summers, NEC (National Economic Council) Chairman Gene Sperling, Under Secretary of the Treasury Gary Gensler, Assistant Treasury Secretaries Linda Robertson and Greg Baer."
Summers is now Obama's top economic adviser, Sperling has been appointed legal counselor at Treasury, and Gensler, a former partner in Goldman Sachs, is head of the Commodity Futures Trading Commission, which he once attempted to prevent from regulating derivatives when it was run by Brooksley Born. Robertson worked for Summers in pushing through the Commodity Futures Modernization Act, which freed the derivatives market from adult supervision and contained the "Enron Loophole," permitting that company to go wild. Robertson then became the top Washington lobbyist for Enron and was recently appointed senior adviser to Fed Chair Ben S. Bernanke. Baer went to work as a corporate counsel for Bank of America, which announced his appointment with a press release crediting him with having "coordinated Treasury policy" during the Clinton years in getting Glass-Steagall repealed. As a result of deregulation, B of A too spiraled out of control and ended up as a beneficiary of the Treasury's welfare program.
Why was I so na&ium;ve as to have expected this Democratic president to not do the bidding of the banks, when the last president from that party joined the Republicans in giving the moguls everything they wanted? Please, Obama, prove me wrong.