The fragile and faltering state of American democracy.
If the Justice Department wants to get serious about investigating financial fraud by Wall Street big boys, it ought to drop by the White House and interview Jeffrey Immelt, CEO of General Electric. Immelt is chair of President Obama’s jobs and competitive council, where he strategizes about how to revive American manufacturing. In some other places, only thirty miles from the White House, Immelt is known as the subprime foreclosure king.
General Electric preyed upon low-income minorities—people of color and immigrants—with notorious subprime mortgages designed to fail. And fail they did. GE Capital’s mortgage subsidiary originated some $700 million in housing loans to families in Prince William and Manasses—high-cost, predatory loans of which $218 million wound up in foreclosure. GE, well known for its inventiveness, pioneered online loan origination in which borrowers did not have to prove they had any income. Naturally, they were charged sky-high interest rates and sold weird mortgages with variable rates that went up but never went down.
Nearly 50 percent of Prince William homeowners are still “underwater” on their mortgages, still struggling to hold on their houses. The county has particular meaning for this year’s presidential election because Prince William is the first county in Virginia to have a “minority majority”—voters who are non-white. They are especially meaningful for Obama because he needs to win big again in Prince William to have any hope of carrying Virginia as he did 2008.
Mortgage-making was a messy but lucrative business for GE. It became the tenth-largest subprime lender in the nation. Its failure rate was the highest among the big-name banks working the northern Virginia territory. But GE made sure it got out before the borrowers failed. WMC Mortgage, the GE subsidiary that originated the dubious loans, immediately sold them to other companies or packaged them as mortgage-backed securities and sold them to Fannie Mae and Freddie Mac, the federally guaranteed housing finance companies now in conservatorship. Some minor portion of the $150 billion in losses Fannie and Freddie have dumped on the taxpayers can be credited to Jeffrey Immelt’s brilliant banking. When the mortgage scam became a national scandal, GE sold the company that had done its dirty work.
The federal government has not shown much interest. The Federal Housing Finance Agency that now oversees Fannie and Freddie did belatedly sue GE last fall for misrepresenting the quality of the mortgage securities it sold the government. This spring, with White House trumpets and flourishes, the Justice Department announced a major investigative task force to hunt down the swindlers (the second time such a task force was announced).
When government fails to do its duty, citizens have to step up and defend themselves, any which way they can. This month and next, we are seeing an impressive swarm of home-grown protests and nonviolent clashes around the country, citizens confronting bankers and demanding justice. The story makes the local news but has usually been ignored so far by national media.
In Prince William County, citizens are pursuing justice in a more methodical manner. Churches of nearly every persuasion, white and black, Latino and Asian, have organized a new interfaith force for community action they call VOICE—Virginians Organized for Interfaith Community Engagement. Instead of calling on government, which leaders assumed would be unresponsive, VOICE decided to go after the financial big boys up close and personal. After considerable canvassing research and helpful advice from housing advocates, the preachers and priests put Jeffrey Immelt at the top of their list.
First, they wanted a meeting with him. GE blew them off. When they asked its mortgage subsidiary to take responsibility for the damage it had done, its chief executive explained it could not help because it no longer owned the loans and GE can’t help because it no longer owned the company. “Again, we are sorry WMC is not in a position to work with your members,” James Zollo told one of the ministers.
So the people marched downtown to GE’s office on Pennsylvania Avenue with a new demand—Obama should fire Immelt as head of the White House council. Immelt is “unfit to advise the president as long as he does not take real responsibility for his lending that devastated communities and families,” VOICE leaders declared. They identified GE as the “worst lender” in the county. Now they demand that GE help finance the restoration.
Two other predator banks—JP MorganChase and Bank of America—have already agreed to begin negotiations with VOICE which leaves GE all alone. VOICE wants the three banks to finance a major reinvestment fund—$300 to $500 million—that will help finance debt reduction for still imperiled homeowners, build affordable housing and provide zero-interest second mortgages pioneered by affiliated interfaith organizations in other cities (the network known as IAF for Industrial Areas Foundation). Other IAF organizations in major cities have years of experience providing low-cost housing and home ownership to people of modest means through complex financial arrangements they call Nehemiah homes. They are the opposite of the quick-buck fraud bankers spread around the country, boosting profits and ending in ruin.
None of these proposals is assured of a positive outcome, but neither do the pastors and priests intend to settle easily. The political momentum is changing as citizens push back in varied ways. The big banks are beginning to understand that. After a little more heat, GE’s Jeffrey Immelt agreed to meet with VOICE leaders on May 14. Meanwhile, the next time Immelt goes to the White House to talk about manufacturing, the president will pull him aside and ask, “Jeffrey, tell me about the mortgage mess you created in Prince William County.”
The august Federal Reserve is not given to slapstick humor, but sometimes it can’t resist. Dylan Ratigan, the spirited talker from MSNBC, and the Huffington Post joined forces to assault the traditional secrecy of the central bank. Months ago, they filed a freedom of information request, asking the Fed to make available the meeting minutes of Fed decision makers from 2007 to 2010. Those were the critical years of financial collapse and massive bailouts when the Fed dispensed trillions of dollars to comfort the panicky financial system and prop up insolvent banks.
At this late date, the request seems reasonable. After all, the banking crisis is long over—or so they say—and by now the public ought to be able to examine how and why the Fed governors decided to launch their extravagant rescue of Wall Street. Normally, the Fed keeps the records of these official deliberations secret for five years before releasing them. But the last five years were not normal. They remain the source of popular anger and political upheaval.
Months passed. Finally, a big package was delivered to the two media outlets—513 pages of verbatim discussions by the Federal Open Market Committee, the decision makers who set monetary policy and authorize the big-ticket loans and guarantees for troubled financial institutions. Imagine the high drama those pages would reveal.
“Good morning, everybody,” Chairman Ben Bernanke announced. The page went blank, actually gray. The only words that appeared were the names of the numerous participants, followed by page after page of empty gray space. At the bottom each page it said in bold type “Authorized for Public Release.” Then Bernanke spoke again. “So we’ve had a motion without objection. Okay, then the swap lines are approved. Let’s turn now to the economic situation.” Etc., etc. More empty gray pages—roughly 500 of them.
Do you get the Fed’s joke? This is how the central bank informs the public in a timely manner—by erasing all “substantive discussions and deliberations among the committee participants during these critical years.” It acts like the CIA for money. It invokes fine-print exceptions with no effort to justify the suppression. If you want to know more, wait around five years. By then the information should be quite harmless for the policy makers.
A few months ago, the Fed released the decision-making deliberations for 2006 and that record truly did produce a lot of laughs—bitter and sardonic laughter. The distinguished governors were indulging in happy talk and self-congratulations, utterly unaware of the catastrophe that was about to befall the financial system and the economy.
If those discussions had been made public six months or a year after the meetings, the citizenry would have rightly been infuriated.
The only reason the Fed governors insist on this arbitrary rule of secrecy is to protect themselves—to keep the public uniformed of their errors and false predictions. In the meantime, Chairman Bernanke takes pride in claiming greater transparency at the institution—also infuriating.
This issue is an essential reform for the central bank, and relatively easy to accomplish. First, I hope MSNBC and the Huffington Post will continue their valiant legal battle—appealing to a federal court where a judge can examine in private some of the material the Federal Reserve hopes to suppress. Recall that Bloomberg led a similar lawsuit that succeeded. A federal judge compelled the Fed to disclose in detail the vast financial wealth it dispensed during crisis. Recall that Congress, likewise, ignored the Fed’s strenuous objections and ordered the central bank to do revealing public audits.
This may have been traumatic for Federal Reserve governors and bureaucrats or the major banks on life support from Washington, but the republic somehow survived. Democracy lives on information or perishes when the powerful keep people in the dark. The Fed’s performance is sure to benefit from a little more sunlight.
When Congress passed the Dodd-Frank financial reform bill in the summer of 2010, the Obama administration made happy talk about putting an end to “too big to fail” banks. Hold the champagne. The Federal Reserve Board has just created the fifth-largest bank in the country, despite a flood of warnings from community advocates and smaller banks.
Skeptics in financial markets are entitled to their skepticism. Capital One has been rapidly assembling this new behemoth, acquiring local deposits and credit card operations in a series of mergers. Federal Reserve governors reviewed the complaints and rejected them. In banking regulation, the “new normal” so far looks a lot like the “old normal.”
Of course, it is impossible to say this marks an end to reform. But it’s a real downer for the reform advocates. They have pleaded for a different perspective from the Fed regulators—weighing the “public benefits” of bank consolidations against the “adverse effects,” as Dodd-Frank requires. But the Fed made this calculation on very narrow grounds.The governors concluded that one more very large bank will not by itself bring down the system. True enough. But each decision the Fed makes now on applying the new rules sets a precedent for its future decisions. How big is too big? The Capital One decision seems to say size is not an issue.
Reform groups like the National Community Reinvestment Coalition argued that the new, enlarged Capital One is a bad bet on its own terms because its business model is grounded in credit card debt, with a heavy portion of so-called “subprime” credit card holders—borrowers much like the “subprime” mortgage holders now lined up for foreclosure and bankruptcy. When the credit card bubble bursts, these critics say, the government will stick with the same bad choice—bailing out the creditors when the debtors fail.
Financial market cynics have assumed all along that Dodd-Frank did not end “too big to fail” but instead created a charmed circle of protected banks labeled “systemically important” that will not be allowed to fail, no matter how badly they behave.
The Fed and other regulators were given the impossible job of changing the behavior of these megabanks without messing with their awesome size and financial power.
Good luck to the Fed. The new regulatory rules are still being written, and the banking industry has flooded Washington with comments, questions and fine-print objections. Some say the bank lobbyists are in a purposeful stall, hoping to delay the final regulations until they get a more banker-friendly president. I suspect the stalling tactics are designed to outwait the public anger.
The newspapers say the Congressional supercommittee is stalemated on how to reduce the federal deficits, but Democrats and Republicans already agree on one thing. Both parties want to whack Social Security, hoping the old folks won’t notice. Some policy wonks have shown the politicians a sly way to shrink Social Security benefits and call it a “technical fix.” By changing the formula for calculating the annual cost-of-living increases that beneficiaries normally receive, small differences add up to big pain for old folks. The same adjusted formula would be applied to disability benefits and military and veteran pensions.
The beauty of this gimmick is that it looks trivial at first and most people probably wouldn’t notice. But the impact compounds every year afterwards. The personal loss gets larger and larger the longer retired people live on. The Congressional Budget Office calculates savings for government of $217 billion over ten years, barely a scratch in a federal budget of $13 trillion.
But the ugly part of this gimmick is that it punishes most severely the very people who most need help—the lame and the halt and the poor. In the austerity hysteria that grips Washington, that has been a standard approach to deciding who accept sacrifices. If someone must lose, the poor are an easy target—a lot easier than raising taxes on the affluent and super-rich or whacking away at the bloat and waste at the Pentagon.
In the first year of this fix, Social Security recipients at retirement age would lose only about $100 in expected benefits. Ten years later, they would be losing $560 a year. If they are fortunate enough to be alive in their 90s, they would lose $1,400 a year or 9.2 percent of their Social Security check. This is perverse public policy—the older people get the more they will need for medical expenses and the more income they must sacrifice to please the budget cutters.
An advocacy group called Strengthen Social Security defined the losses in everyday terms familiar to poor people—shopping for groceries. After ten years in retirement, the COLA cut would cost recipients twelve weeks of food expenditures. After two decades, it would cost twenty-one weeks of groceries. For millions of Americans, that will not sound trivial.
Republicans always seem ready to go for deals that punish the poor first. What’s shocking is the Democrats. The six Democrats on the supercommittee included the Social Security COLA cut in the package they proposed to their Republican counterparts. That list was blessed by majority leader Harry Reid even though Reid had previously ruled Social Security off the table. Senators Max Baucus of Montana and John Kerry of Massachusetts were reportedly most zealous in promoting the hit on Social Security.
Not to worry, some Democrats insisted privately. They included Social Security as an eligible target, they explained, only to entice Republicans to make a deal that includes tax increases for the wealthy. The Dems expect Republicans to reject the offer, and so Social Security is safe.
Nevertheless, this is dangerous politics, because we know from previous episodes that Democrats are rather inept at the game of bargaining. Republicans will stand their ground and call the bluff. In the end, the Democrats’ initial concession becomes only an opening bid. Republicans always respond with higher demand. So Dems yield by splitting the difference—that is, caving in.
If this same pattern emerges in the supercommittee melodrama, people must remember who blinked first. If the Democratic Party fails to defend its own greatest legacy from right-wing assault, voters may ask themselves, Why punish Republicans when it was the Democrats who sold out Social Security?
The Washington Post published a sensational story last Sunday that claimed that Social Security is already broke. “Adding billions to US budget woes,” the headline read. Instead of piling up surpluses, as the Social Security trust fund has done for nearly thirty years, this year the system became “cash negative.” Social Security, the Post warned, “is sucking money out of the Treasury.”
This is alarming news, if true. Fortunately, it is not true. The Post committed what I call fact-filled mendacity—a pejorative mash of scary buzz words and opaque statistics that encourages readers to reach false conclusions. The newspaper’s obvious objective is goosing the so-called supercommittee whose Congressional members seem to be reluctant about whacking Social Security benefits. The formerly liberal Washington Post has long urged that as a solution to federal debt and deficits. Its ideological posture influences its reporting and also what “informed observers” think. Last night, I heard a TV anchor remark in passing, “We just read that Social Security is in the red.”
Baloney. The truth—if truth is still relevant to Washington politics—is that Social Security has never contributed a dime to the federal budget deficits. Therefore, cutting Social Security for the elderly will do nothing to relieve the deficit problem. Senate majority leader Harry Reid has made this point, so has President Obama. Not true, the Post story flatly declares.
In fact, Social Security has piled up enormous surpluses—now $2.7 trillion—which the federal government has borrowed and spent on other things, wars or highways or corporate tax breaks.
The nation’s largest creditor is not China. It is the working people of America and their employers who collectively have amassed Social Security’s huge surplus through the weekly FICA contributions required by law. This wealth is the nest egg that will pay for swelling benefits as the baby-boom generation retires. Far from being broke or “sucking” billions from the Treasury, the Social Security trust fund will continue to accumulate larger and larger surpluses during the next ten years, reaching $3.7 trillion by 2022, according to the system’s trustees.
The Post managed to concoct an opposite version by ignoring such fundamental facts and by distorting others. This has been typical of major media. Reporters and pundits mindlessly repeat the establishment propaganda that turns reality upside down. Social Security is not a source of the deficits, as you have read so many times, but a giant savings program that actually helps offset the effects of the government’s red ink. Editors or reporters are too lazy (or dim-witted) to dig into the accounting complexities and discover that elite wisdom is bogus.
The Post started with a fact that is not news and already widely known. With the deep recession, Social Security revenue dropped sharply because so many millions are unemployed. If you wish to blame this problem on Social Security, why not also blame it on the Pentagon which really contributes big time to federal deficits? With reduced revenue, the cost of paying out Social Security benefits in 2011 will slightly exceed (by about $46 billion) the trust fund’s income from FICA payments. Evidently this is what the Post meant by “cash negative.” That’s not a term Social Security trustees use and does not quite mean what the Post implies.
In fact, Social Security’s total income, if you include the interest payments it routinely receives on the trillions already lent to the federal government, does cover all of this year’s payouts (with a surplus of $70 billion left over). So Social Security did not “suck” any money out of the Treasury except what it was already owed as the leading lender to the federal government. To suggest that these billions in interest payments somehow add to the federal deficit is like blaming the deficit on China because it also collects interest on its Treasury bonds.
The Post compounds its distortion further by complaining that the Treasury had to pay $106 billion to the Social Security trust fund to replace the revenue it lost when Congress and President Obama enacted a one-year reduction in the FICA payroll tax. One notes that the Washington Post editorial page endorsed this measure as a good and proper way to stimulate the economy.
Defenders of Social Security (including myself) objected that suspending the payroll tax would undermine the long-term solvency of Social Security unless the government replaced the lost revenue. Congress agreed. It ordered Treasury to replenish the trust fund, dollar-for-dollar. The Post complains now that another $267 billion will be required if Congress enacts Obama’s proposal to expand the payroll tax holiday. This spending, one can argue, did indeed add to the federal deficit. But why blame Social Security and punish Social Security recipients when the deed was done by the President and Congress, egged on by the Washington Post?
Surely, you see the point. Social Security is a stand-alone program financed by its own revenue stream, not by other tax sources. It has always operated that way. The ordinary people who pay in their FICA deductions are the beneficial owners of this wealth, not the Treasury. Fortunately, people at large understand this, even if Washington elites do not. That’s why politicians are a little leery about pullng this swindle on the old folks.
The Washington Post has a popular feature called “Fact Checker” that vets the accuracy of campaign rhetoric made by the presidential candidates. I suggest the newspaper turn this matter over to Mr. Fact Checker and let him decide who’s telling the truth.
At the midnight hour, when financial-market wise guys were predicting disaster, Europe’s political leaders proved to be stronger and braver than America’s. The big nations of the EU worked out a deal to resolve their financial crisis that does what US politicians, including the president, lack the nerve to pursue. The Europeans are whacking the bankers big-time.
Yes, the sovereign governments of Europe have to put up more billions to rescue debt-soaked smaller nations like Greece. But the bankers who lent all that money will be compelled to share in the pain—a 50 percent write-down on the sovereign-nation bonds they are holding. Ouch.
This may be the beginning of wisdom—forgiving debts that in any case will never be repaid. That giant step should give Europe a clean start for economic recovery. It’s a much smarter alternative than imposing perpetual austerity on people who are already broke.
American politicians are not there yet, not even close. Republicans are manning the barricades to defend the bankers on everything, even the most modest reform measures. The Obama administration is tinkering around the edges with small-bore adjustments that won’t accomplish much.
Rhetoric notwithstanding, Obama is still shielding the largest banks—the Wall Street Six—from the consequences of their own recklessness. The biggest US banks are still holding a lot of debt paper, especially mortgage-backed securities, that has effectively failed but is still booked as okay assets. Federal regulators could pull the plug on these illusions and force an honest accounting but are afraid to hurt big guys who are already fragile. Until debt reduction is undertaken in a major way, especially for home mortgages, American recovery is going to be an on-and-off-again affair. (See my article, “It's Time for Debt Forgiveness, American-Style,” in this week's issue of The Nation.)
The European crisis differs from the US version in this respect: the EU debt is held by national governments while America’s failing debtors are largely private citizens—especially homeowners stuck with “underwater” mortgages they cannot pay. Obama announced a small but helpful step this week—the administration will loosen some rules and make it easier for those he calls “responsible homeowners” to refinance their mortgages at a lower interest rate. The president also is relaxing the repayment rules on college loans.
By White House estimates, the mortgage refinancing might help as many as one million families. But that’s out of the 11 million sliding toward failure and foreclosure. A good thing to do, surely, but not an answer to the bleeding economy.
As the European crisis plays out, it will be a good test pattern for American politicians to watch. If the principle of debt reduction is as important as some experts believe, the bold action in Europe should clear the way for Europe’s economic recovery. Right now, some Wall Street cheerleaders are blaming Europe for our problems. If Europe gets well and the United States remains stagnant, the apologists will have to invent a new excuse.
The reporters and pundits have been surprisingly respectful, withholding the usual cynicism. They did not jeer and make weak jokes. Still, they couldn’t resist pointing out the incoherence of this motley crew “occupying” Wall Street. What is the agenda? They asked around and duly reported that no one seemed to know. Yes, this is a charming scene, the artists and hippie types gathered in the public square, but still it must be said: they have no agenda!
Let me help the brothers and sisters of the fourth estate. It’s humanity, stupid! That is agenda enough and it is expressed clearly (even existentially) by the gaudy, loving presence of these noble citizens who have seized Liberty Park as their own free space, just up the street from the New York Stock Exchange.
Correction: Liberty Park is now Zuccotti Park, which the real estate developer who bought the land renamed after himself. Doesn’t that pretty much say it? The egotism of capital has obliterated the softer values and virtues of labor and everyone else—anything that got in the way of the engine of modern capitalism. It is not just the millions of innocents who have been trampled by the profit-harvesting machine. The Wall Street guys and their lackey economists even captured the political culture and corrupted its meaning.
Human sympathy is out, even embarrassing to mention. It sounds weak when the hard-boiled subject is how to improve on profit-making progress. Among political elites, bleeding-heart consideration for the fate of humankind is considered dangerously sentimental, even subversive to good public order. It gets in the way of the hard facts of banking and business, it skews the cost-benefit analysis of what folks want versus what the system will allow. A decent consideration for humankind—that’s what has been expelled from respectable political debate. That’s all citizens want to talk about in Liberty Plaza.
The wisdom of those young people (and old people) who planted their flag in Wall Street is in recognizing that the first step is not drafting policy manifestos for government (government is itself brain-dead, by the way). The essential first step is liberating the minds of people themselves—people everywhere who have been intimidated and abused by the Central Ministry of Official Propaganda. Giddy celebration of self-respect—that is what they are selling at Liberty Park. And it truly is subversive. If the word spreads, if there are 500 or 1,000 liberated public spaces around the country, then we can start to talk about politics or issues. The first lesson they are teaching us that democracy should be fun.
In olden days, when the Democratic Party was liberal and populist, it was the Dems who bashed the Federal Reserve. When the Fed pushed up interest rates to drive the economy into recession, Democrats would tell the central bankers: get off the backs of the working people. Now it is the Republicans complaining, the party of money. The GOP leaders demand that the Fed do—what?—do nothing. Nothing at all to help the wounded economy.
It sounds dumb, except Republicans are figuring folks won’t figure out their real purpose (shivving Barack Obama). They assume attacking the Fed is cost-free in our deranged politics, and they are probably right. Who wants to stand up for the mysterious agency that dispensed those many trillions to distressed megabanks with no strings attached? On the far, far right, there are adherents to dark theories that the Fed was created by the Rothschilds and is owned by the Gnomes of Zurich.
Democrats turned respectable and have nothing to say to the monetary policy-makers besides urging them to do the right thing, whatever that is. The party has lost its sense of direction on so many important issues—we rely on Senator Bernie Sanders, the socialist, to stand up for truth and justice.
The right-wingers are attacking the central bank’s chairman, Ben Bernanke, for a very modest gesture toward stimulating the dead-man-floating economy—buying more long-term Treasury bonds to bring down interest rates. Senator Sanders blamed the Fed—correctly—for not doing enough. That line should be the drumbeat for Democrats, both to counter the Republican bullying and to force a debate on more aggressive monetary policy.
The Fed “twist”—selling short-term loan paper to buy long-term—greatly disappointed Wall Street because the traders were hoping for much more. They want the Fed to descend with a miraculous rescue for them, the kind Alan Greenspan used to deliver when stock prices were crashing. Greenspan’s soft-hearted regulation is what got the country into this mess.
Bernanke is at least trying to dig out. Give him that. His remedy will have very little impact on economic activity, for an obvious reason—interest rates are already very low, near zero for short-term paper, only 4 percent for long-term borrowing. That is not the reason people aren’t buying houses or banks aren’t lending to small businesses. The system has tanked. Reviving it will require truly radical measures—too radical for conservatives like Bernanke and probably for liberals like Obama.
This can change abruptly. Right now, the fever is rising in financial circles, a renewed anxiety that another huge crash may be near, the kind of event that renews the banking crisis. If this occurs, it will give the right-wingers more ammunition for Fed bashing. Cooler heads will recognize that calamity can generate the political will for a profound shift in governing strategies, for the kind of radical measures so far avoided by both parties. Someone wake up the Democrats.
The word is out in Washington. When the president announces his deficit-reduction proposals next week, he will definitely not suggest any hit on Social Security nor any increase in the eligibility age for Medicare. That’s a small victory for reason and social equity. We can thank the voters of Brooklyn’s 9th Congressional District who this week elected a Republican representative for the first time in nearly ninety years.
The White House spin claims this off defeat has nothing to do with Barack Obama, but that’s tripe. Working politicians know better. The Brooklyn special election was an ominous rebuke to the president, suggesting he may be heading into Jimmy Carter territory. Despite official denials, Obama may be getting the message. At least the White House leakers were busy spreading the word to major media that Obama has dropped any intention of of whacking Social Security or Medicare eligibility in order to entice Republicans into some sort of grand compromise.
Congressional Democrats have felt a stabbing pain in the back whenever the president talked about “entitlement reform.” The Dems hope to run against the Republicans next year on those very issues—defending the great liberal social programs against cut-throat Republicans. Obama was threatening to throw away their best cards. They don’t have many others, given the stalled economy, flirting with recession. The president’s new job-creating plan is thin gruel. Even if Republicans allowed the legislation to pass (which they won’t), it won’t do much to stop the bleeding. Most Democrats pretend to be thrilled anyway. Privately, they have a scary, sinking feeling.
Life is unfair, so is politics. What happened to Jimmy Carter in the spring of 1980 was that fellow many Democrats concluded his presidency was doomed and so they concentrated on personal survival. Many ran campaigns that emphasized their own accomplishments and never mentioned his name. Others actively ran against their own incumbent president (with limited results). Carter’s people kept saying, not to worry—the people will never elect a right-wing kook like Ronald Reagan as their president. The rest is history, as they say.
Obama is not helpless. He could change the game again and more dramatically by employing the presidency’s vast discretion to launch new government policies on his own, while running hard against the “party of no.” It’s true neither Obama nor his advisers are inclined toward aggressive unilateral action, and they are fast running out of time. But other Democrats should keep banging on him, less politely and more publicly than they have so far. Brooklyn’s Ninth District might be his last wake-up call.
Elizabeth Warren’s problem is not with the Republicans—though they have worked hard to demonize her. Her real problem is with the “boys” at the Treasury Department and Timothy Geithner, the head “boy” in charge of the president’s banking policies. Maybe she also has a problem with the “boys” at the White House. We are soon to find out. In the next month or so, Barack Obama must decide whether or not he will appoint Warren to chair the new Consumer Financial Protection Bureau.
This ought to be a slam-dunk for him. After all, Elizabeth Warren invented the idea of a new regulatory agency to protect hapless consumers from predatory bankers. Obama embraced the concept as his own and it is one of his few distinctively original accomplishments. Warren knows consumer fraud. For many years, as a savvy reform critic, she courageously called out the banking industry on its most notorious practices. Her dynamic and plainspoken advocacy was essential in getting Congress to include the proposal in the financial reform legislation enacted last summer.
Yet Obama hesitated. For nearly a year, he has played coy and held off naming her to the job. We presumed that was because Republicans vowed to block her nomination unless the law is altered to weaken the CFPB and appease angry bankers. But that explanation doesn’t add up. Obama could always put her in the office through a recess appointment that gets around Senate confirmation. Yet he didn’t do so. What’s up with that?
Put aside the usual partisan bombast. I asked a Very Reliable Source to provide the inside skinny and this is what he told me: “All this is really about is the boys don’t want to have an independent woman in their clubhouse.” When I recounted this remark to my wife, she said, “What else is new?”
Tim Geithner, said my Very Reliable Source, really, really doesn’t want Elizabeth Warren in the position where she is sure to be a tough-minded and independent voice on major financial-policy issues. As CFPB director, Warren would also sit on the new “systemic risk” council of regulators who decide very large questions like “too big to fail.” The other regulators can outvote her easily enough, but Warren has an alarming history of personal candor. She says what she thinks, out loud and in public. That naturally disturbs the club members, all of whom have a rank history of making life easier for the big boys of banking.
Warren made her integrity clear when she served as chair of the Congressional Oversight Panel digging into the financial crisis and bailouts. Her investigations turned up alarming facts the bankers and bank regulators wished to avoid. Furthermore, Warren was often dissenting on legislative issues Geithner and team were pushing in the congressional debates on financial reform. Geithner doesn’t tolerate contrary thinkers in his midst; witness the galaxy of Wall Streeters he recruited to run the Treasury department. Geithner is a favorite of the president’s, perhaps because he is absolutely faithful to the financial establishment’s best interests.
So what does Obama really think about all this? Despite his eloquence, the president is adept at not revealing that. The VRS doesn’t know either, but thinks the rise of Elizabeth Warren created a dilemma for Obama. He genuinely admires her work and character. But he really, really doesn’t want go against his Treasury secretary and other close advisors he relies upon. Obama’s new chief of staff is the man from JP Morgan Chase. William Daly says he has recused himself on these matters. Does he leave the room when Warren’s name comes up in the Oval Office?
Obama repeatedly pushed the question off, hoping things might change and resolve it for him. He added Warren to Treasury as the principal organizer staffing the new consumer bureau. She has evidently done a good job -- another reason Republicans keep attacking her. Being against Warren helps GOP fund-raising, but then Obama is also heavy into fund-raising himself. Maybe he postponed a decision on Warren so he could harvest more Wall Street money. The administration approached other notables about taking the job, but everyone turned it down. In Democratic circles, this job belongs to Elizabeth Warren and nobody dares to jump ahead of her. Lately, political operatives are suggesting she should run for senator in Massachusetts – another ploy by the big boys to show this girl the door.
Ultimately, Obama has to decide. The question is no longer about financial reform or even politics. The question is whether this president has the nerve to include a smart, tough woman who thinks for herself on his governing team. If the answer is no, he will pay dearly for the cowardice.