by Tom Hayden
Published on Friday, March 6, 2009 by The Nation
Hopefully, the demonstrations planned on Wall Street April 4 will
contribute to the global uprising. Our president and Congress need
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.