Editor’s Note: Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books). The second part of a two-part excerpt appears below. The first part appears here.
After squandering his first year in office catering to Wall Street, Obama suddenly attempted to shift course. It took a rebellion by Massachusetts’s voters in January 2010 to get him to pay full attention to the failures of his economic program. In the bluest of blue states, the voters who had given Obama a 26 percent plurality in the presidential election the year before spurned his personal entreaty to send another Democrat to fill the seat left vacant by the death of Sen. Ted Kennedy. The message was understood by Obama, who the very next day fundamentally altered his administration’s response to the economic meltdown. Or so it seemed for the moment.
The day after the Massachusetts rejection, the president returned to the views he had expressed in a Cooper Union speech during the 2008 Democratic primary and was once again a proponent of what he called the "spirit of Glass-Steagall." He suddenly endorsed former Fed chair Paul Volcker’s proposal to restore the division between commercial and investment banking and threatened the banks with a tax on their profits to help defray the cost of the debacle. But the response of the Wall Street crowd to even those tepid calls for reform was swift and decisive in its impact.
They didn’t like it when Barack Obama, after a year of throwing trillions of American taxpayer dollars into the bailout sinkhole, dared remark that he had hoped there might be some return for ordinary folks trying to save their jobs and homes. That’s it! the moguls declared, and promptly shifted their political donations from Democrats to Republicans. Among the unglued was James L. (Jamie) Dimon, a friend of Obama’s from Chicago and darling of the Democratic Party, which enjoyed his generous donations. The New York Times reported that JPMorgan CEO Dimon received a $17 million bonus for his work in the year after his bank was bailed out on the taxpayer’s dime. As the Times‘s David D. Kirkpatrick observed: "If the Democratic Party has a stronghold on Wall Street it is JPMorgan Chase. But this year Chase’s political action committee is sending the Democrats a pointed message. It has rebuffed solicitations from the national Democratic House and Senate campaign committees. Instead it gave $30,000 to their Republican counterparts." Chump change, given the hundreds of millions that Wall Street doles out to buy legislation, but a warning shot nonetheless.
Dimon had lunch with the president to say he doesn’t like this talk of forcing banks like Chase to decide whether they are working for federal insured depositors or are high rollers in the Wall Street investment casino. Joining Dimon was Robert Wolf, chief of the US division of the Swiss-owned bank UBS. Wolf was upset when Obama recently endorsed head of the Presidential Economic Recovery Advisory Board Volcker’s proposal for restoring the spirit of the Glass-Steagall Act by separating investment from commercial banking.
They needn’t have been overly worried. There wasn’t much possibility of serious financial reform after Obama wasted his filibuster-proof majority in the Senate by flummoxing heath care while ignoring banking reform. He had no more money to throw at the banks, so why should their lobbyists cooperate on financial reform legislation any more than the health insurance companies did on their issues.
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Take the mask off the Obama candidacy, and there was always a deeply disturbing reality that his massive Internet-driven grassroots contributor base concealed: Obama was the first major-party presidential candidate since Richard Nixon to base his campaign fundraising exclusively on private rather than public funds. But the appearance of all those coins flowing in from the common folk denied the harsh reality that his campaign contributions established him as the darling of Wall Street financiers—the very folks whose interests he served so faithfully during his first year in office as he endorsed, and indeed expanded, the Bush bailout.
While his base was distracted with a never very bold healthcare proposal, designed to mollify the insurance companies while providing at least the appearance of universal healthcare, Obama ceded the genuinely populist cause in the midst of a banking meltdown by coddling Wall Street. It was only a year into his administration, at a point when the banks had obviously failed to deliver on a promise to aid distressed homeowners and increase lending, that Obama in direct response to adverse poll results once again sounded the populist notes of the early months of his primary campaign.
And for that too-little-too-late response to the catastrophic economic crisis they caused, Wall Street titans now took Obama to the woodshed to teach him and the Democrats a lesson about who’s really in control.
Obama got the message and caved. It would be the defining moment of his presidency, as he subsequently backtracked on even his very modest demands for financial reform that so alarmed Wall Street. By being unwilling to confront Wall Street, he surrendered the substance as well as the rhetoric of a meaningful populist response to the faux insurgents of the Tea Party and Sarah Palin, who had become their head yell leader. Suddenly the bailout was the responsibility not of George W. Bush, who initiated it, but rather Obama, who inherited it. What an odd moment to witness a Democrat elected on a promise of change paying homage to the lions of the financial establishment at a moment when they least deserved it.
Shortly after he was attacked by Dimon and Blankfein for daring to criticize the banking moguls, Obama in an interview with Business Week and Bloomberg suddenly reversed course. "I know both those guys, and they are very savvy businessmen," he said. "I, like most of the American people, don’t begrudge people success or wealth. That is part of the free market system." He then went on to compare their success that had little to do with a "free market" system with that of star baseball players who are indeed rewarded by their success in giving free-market consumers what they want. The two businessmen in question did quite the opposite, using marketing to deceive their customers.
None more so than African-Americans, the vast majority of whom had voted for Obama but who were the group hardest hit in the mortgage meltdown, which both Dimon’s JPMorgan Chase and Blankfein’s Goldman Sachs had done so much to create and profit from. As Blankfein is well aware: his 2007 bonus was an industry record–breaking $68.7 million, a third of it in cash, according to the Washington Post, while his company, Goldman Sachs, made $11 billion. In 2009, after its bailout, Goldman made a record profit of $13.4 billion. That year, amid an atmosphere of public anger over bonuses, Blankfein took a $9 million bonus.
Obama may know "those guys" who created this mess, and they certainly contributed massively to his campaign, but does he keep in touch with the community folks back in Chicago whom he once enlisted to organize and who were now suffering as much as any in the nation? As one report by the CBS affiliate in Chicago on December 15, 2009, headlined: "Foreclosures Plague African-American Neighborhoods." But that was the norm throughout the country, where black and Hispanic communities had been the most exposed to dubious mortgage offerings. Again quoting the local CBS report: "So why is this hitting African-American neighborhoods so hard? CBS 2 is told it started with loans that had bad terms being pushed in that community more."
A New York Times survey of lending practices in New York City "found that black households making more than $68,000 a year were nearly five times as likely to hold high interest subprime mortgages as whites of similar or even lower incomes." The pattern has been well documented throughout the nation, but that did not galvanize an administration headed by the first African-American president to do much to stop the foreclosure avalanche. An Obama program that paid out $75 billion to banks to help prevent home mortgage foreclosures had by January 2010, ten months after its inception, produced only 31,000 mortgage adjustments on one million applications. JPMorgan Chase, which had acquired Washington Mutual, a major subprime mortgage lender, while receiving $25 billion in bailout funds, was one of the worst offenders in forcing people from their homes.
The bailout money was used to make the banks whole, and indeed the two bankers defended by Obama had paid back their loans, but not the far greater costs of the low-interest backing they received from the government and of the enormous cost of the government purchasing toxic derivatives that the banks had led the way in packaging. Nor was there any payback for the far larger damage to the entire world’s economies, including our nation’s. In the end, nothing very significant would be undertaken by the Obama administration to mitigate the pain of this crash or to avoid a subsequent one, for it would involve fundamentally challenging the prerogatives of power enjoyed by the very people who created the crisis in the first place.
The financial reform package his administration pushed through a Democrat-controlled Congress this summer provided precious little in the way of structural change in the markets. Although the economy was still floundering and Noble Prize–winning economist Paul Krugman was predicting a decade of stagnation possible amounting to another Great Depression, with tens of millions of our citizens suffering, the president ignored their pain. Obama’s economic team once again catered for Wall Street’s demands that its financiers continue to be legally free to plunder. It was the final nail in the coffin of the New Deal, burying the dream that representative democracy could hold the multinational corporations accountable.
Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).
