Obama’s First Year–A Story of Failed Promises: Financial System Reform

2009 Year in Review: Obama and Failed Promises Part 1, Financial Reform

Reminiscing about 2009 and looking ahead to the brand new decade ahead, Few American political institutions will endure the decade in a form easily recognizable to Americans with vivid memories of the inauguration of the 21^st century on New Years’ Day 2000.  The decline of American political influence on the global stage and the resulting perturbations and instability in geopolitics has cast a pall over the 2010s.  Although personally I am quite pessimistic about the fate of America in the next decade, all hope is not lost.  I am no naïve optimist, and readers of these posts will find the analysis detailed and based in both facts and upon very reasonable assumptions and accurate readings of the signs of the times.

2009 began with the momentous inauguration of America’s first African-American President, Barack Obama.  President Obama inherited a mushrooming financial crisis that significantly magnified structural economic problems stemming from three decades of Reaganomics—neoliberal politics, financial deregulation, ideological opposition to taxes (regardless of the government’s needs), economic growth fueled by unsustainable credit growth, structural wealth and income inequalities, and an absolute aversion to employing the government to help facilitate the maintenance and rebuilding of social programs and public infrastructure.  President Obama also inherited two unwinnable wars, a failing health care system, a continuing crisis in energy policy as declining fossil fuel stocks and dependence upon imports threatens the economy, a water crisis in the western half of the United States that threatens the very existence of thousands of communities, a crumbling physical infrastructure dramatically highlighted by the failure of New Orleans’ levees thanks to Hurricane Katrina and the collapse of the I-35 bridge in Minneapolis, and the lurking specter of climate change (that, in the words of top NASA GISS scientist Dr. James Hansen, threatens to transform Earth into a “different planet”).  As a candidate in 2008, Barack Obama’s vague promises of post-partisan politics rooted in promises of “Change We Can Believe In” and “Hope” inspired something of a messianic civic cult around the persona of Obama.  After eight long years of misrule and endemic corruption of the Bush-Cheney Administration, the throngs of people packed onto the Washington Mall awaiting the inauguration of Barack Obama reflected the overwhelming desire for a fundamental redirection of the ship of state.  No President had been inaugurated under such a gloomy economic climate since FDR at the height of the Great Depression.

Nearly one year later, the hopes and aspirations of the nation for political reform to confront a failing economy and conclude two unpopular wars have dimmed considerably.  President Obama, to his credit, did manage to score a significant legislative victory with the passage of his $787 billion federal stimulus bill.  That stimulus bill, derided by the lunatic right-wing fringe that now comprises the core constituency of the disgraced Republican Party, prevented the economy from falling off a cliff.  In particular, the stimulus bill known as the American Recovery and Reinvestment Act of 2009 buoyed floundering state and local governments facing sharply declining revenues.

The new administration has approached financial reform with a timidity sharply at odds with the courageous tone of candidate Obama’s rhetoric.  Almost as soon as the sheen and gloss had worn off from the new President’s speech in front of the US Capitol on January 20, 2009; progressives who had been the core constituency animating Barack Obama’s insurgent victory over Hillary Clinton in the 2008 Democratic primaries began to express misgivings about the early policy signals sent out by the young Obama Administration.  The promises of “hope” and “change” embodied in the face of a young, intelligent, and thoughtful African-American president did not fit well with the selection of President Obama’s team of economic advisors.  David Sirota, writing in February 2009 at Salon.com, called Obama’s collection of economic advisors led by Treasury Secretary Timothy Geithner and former Clinton Treasury Secretary Lawrence Summers of the National Economic Council a “team of zombies.”  Obama’s failure to formally include more established progressive voices such as ex-Labor Secretary Robert Reich, Nobel Laureates Paul Krugman and Joseph Stiglitz, and the marginalization of figures such as Jared Bernstein and ex-Fed Chairman Paul Volcker within the Administration speaks volumes about Obama’s fundamental strategy of deference to a highly unpopular status quo.

http://www.salon.com/opinion/feature/2009/02/07/sirota/index.html

The dismay Obama’s appointments gave progressives, their fealty to the now discredited neoliberalism of the 1990s, and their yearlong demonstration of deference to Wall Street as Obama’s leading economic policymakers would seem to support Sirota’s pessimism.  Matt Taibbi, the profane and pugnacious columnist, provided a perfect coda to Sirota’s February column with his December 2009 Rolling Stone column “Obama’s Big Sellout.”

http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout/print

Taibbi argues that

“Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy.  What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place.”

Furthermore, Taibbi links the appointments of key administration at all levels from Summers and Geithner on down back to ex-Goldman Sachs CEO, Citigroup Board Member, and ex-Treasury Secretary Robert Rubin.  Save ex-Federal Reserve Chairman Alan Greenspan, market fundamentalism had no more enthusiastic cheerleader than Robert Rubin.  Taibbi notes four institutions whose ideologies and agendas bear the unmistakable imprint of Robert Rubin: Goldman Sachs, the Clinton Administration, Citigroup, and the Hamilton Project at the Brookings Institution.  Taibbi documents how President Obama has filled his administration with Rubin protégés who have had these aforementioned institutions as employers.  As Steve Clemons of the New America Foundation aptly states, “Rather than having a team of rivals, they’ve got a team of Rubins” (quoted from Taibbi article).

The reader will be spared the endless litany of missed opportunities for enacting meaningful financial reform, but the failure to act to undertake fundamental restructuring of the country’s financial system may not only precipitate another financial crisis but the next crisis may be more severe than the last one.  In short, the financial crisis of 2008 taught astute observers several lessons about economics which the Obama Administration would have been wise to heed.  Nobel Laureate Dr. Joseph Stiglitz, concluding a December 31, 2009 article on China Daily, speculates that 2010 economic conditions will likely be improved or at least stabilized compared to 2009.

http://www.chinadaily.com.cn/opinion/2009-12/31/content_9249981.htm

However, while the US economy has definitely backed away from the precipice of collapse; economists worry about the robustness of the purported economic recovery experienced in 3Q and 4Q 2009.  Stiglitz, himself quite concerned about the sustainability of the US recovery and the medium-term prospects for the shape of the global economy, lists 2010 as a key test for American economic decision-makers.

In the posts that follow, this blog will discuss the aborted attempts at fundamental financial reform to clean up the mess of the housing bubble and financial crash of 2008.  Then, we will discuss the one political movement which had the most success in obstructing the wheels of essential reform: the right-wing Tea Party movements.  Following that, we will discuss the two longer term problems most dangerous to America’s and the world’s longer-term well-being: the reform of the broken American health care system, and the looming threat of climate change in light of the Copenhagen climate negotiation debacle.