Maybe Obama Will Actually Bring Some Change... More Than Anyone Bargained For

Nice target... I mean house

From today's Frank Rich column, Still The Best Congress Money Can Buy: Wall Street is already celebrating the approach of bonus season by partying like it’s 2007. In The Times’s account of this return to conspicuous consumption, we learned of a Morgan Stanley trader, since fired for unspecified reasons, who went to costly ends to try to hire a dwarf for a Miami bachelor party prank that would require the dwarf to be handcuffed to the bachelor. If this were a metaphor-- if only!-- Wall Street would be the bachelor, and America the dwarf, involuntarily chained to its master’s hedonistic revels and fiscal recklessness with no prospect for escape.

John Judis, author and senior editor at TNR, argues persuasively that despite the fact that "the percentage of conservatives in the actual electorate this November-- and their proportional support for Republicans-- increased dramatically by ten percentage points from 2006," conservatism among registered voters hasn't gone up much since 2006. There was an increase of 3 percentage points from 2006 to 2010 but-- and this is key-- "the conservative tilt was much stronger in the electorate that actually voted than among registered voters." Just as our own research has shown, "conservatives were more energized than their liberal or moderate counterparts. And intensity has much more to do with political outcomes than the sheer numbers that opinion polling registers... [T]he liberal electorate that took to the streets in 2006 and 2008 was demoralized and demobilized."

And the results showed not just in the election, but in the political questions that are currently being debated in the press and in Congress. It’s not whether to have a single-payer health care system, but whether to have a national system at all. It’s not whether social spending should be increased, but whether it should be frozen or cut.

The "better" news is that "the conservative trend after 2008 was not the result of the gradual erosion of the liberal-moderate majority, but of the failure of the Obama administration to stem the [economic] downturn that began in 2008... [T]he Obama administration’s failure to seize the political opportunity afforded by the Great Recession has not necessarily opened the way to a new Republican majority. More likely, it will lead to a period where the two parties exchange power, and where neither can establish a long-lasting majority."

But Obama could easy make it much worse-- and many observers think he's, in fact, determined to. About a week ago Dave Johnson of Campaign for America's Future applied the theory of "The Shock Doctrine" to the push to gut Social Security. He decries the move towards proposals meant to cut middle class tax breaks and programs so that the richest Americans can continue to concentrate the nation's wealth in the hands of fewer and fewer families. "This is full-on Shock Doctrine, wait for an emergency like the terrible recession so people are in shock and want solutions, and then change everything so fast they can’t respond while telling them how this is good for them." And on Friday Johnson followed up with a proposal of his own that is meant to cut the deficit without hurting the people who Obama and the American government are supposed to represent-- the 99% of us who are not fabulously wealthy and who we don't expect to see ignored, especially not by a Democratic administration. Johnson's 8-point proposal seems like a lot more serious and effective-- not to mention fair-- than the toxic nonsense coming out of the Catfood Commission or the Rivlin Commission.

1) Restore pre-Reagan top tax rates. We didn't have massive deficits until we reduced the top tax rates.

2) Income is income. No more reduced capital gains tax rate. The incentive to invest should be to make a bunch of money from a good investment. The reason there is a low capital gains tax rate is that the wealthy get most of their income from capital gains. And the reason they get most of their income from capital gains is there is a low capital gains rate. The resulting income shifting schemes are a drag on the rest of us. (Also applies to dividends.)

3) Income is income. Inheritance income should be taxed as income, except there should be a "democracy cap" on how much someone can inherit. We decided not to have an aristocracy when we founded this country so we shouldn't have one.

4) Businesses should be taxed or not taxed, but not taxed AND not taxed. They shouldn't be able to use "double Irish" or "Dutch sandwich" or operate out of PO boxes in Bermuda or the Cayman Islands. (Bonus, this also helps reduce incentives to send our jobs and factories out of the country.)

5) If you don't pay your taxes We, the People won't pay to provide you with services. We can start by not allowing you to have a driveway that connects to public streets, or water/sewer hookups or mail. Also we won't enforce any contracts for you, including the one that says you "own" your house(s). And no government-developed Internet for you.

If companies like Google want to "double Irish" and "Dutch Sandwich" us or operate out of PO boxes in tax havens, we shouldn't let them use government services like courts, or the government-developed Internet. See how well they operate without access to roads (that includes for employees to get to go to work.) How about withdrawing the limited liability protection that investors in corporations receive? And of course no protection for "intellectual property" or trademarks. Oh, yeah, no access to anyone who went to a school that used tax dollars. And no government services means no sea-lane protection for your products shipping from Chinese factories, by the way.

6) Speaking of sea-lane protection, why do we have a military budget comparable to when we faced nuclear annihilation by the Soviet empire? Bases in Germany and Japan? And why can I go to this website, pick a DC-area zip code, say 22314, and learn that "Dollar Amount of Defense Contracts Awarded to Contractors in this Zip Code from 2000 to 2009: $7,086,397,848." Seriously, scroll down the page and look at some of the contracts and amounts awarded. I suspect there's some serious deficit reduction to be found in the military budget. A comprehensive and very public audit of where all that money has been going since, say, 1981 might take a chunk out of the debt problem all by itself

7) I could start listing all the corporate subsidies, tax breaks, monopoly grants, schemes, contracts, etc. that we pay for, but I think you get the idea. How about calling bribery by its name: bribery, and doing something about it?

8) To the extent that implementing this plan does not clear up the deficit and start paying off the debt, how about a yearly national property tax on all individual holdings above, say, $5 million, with the tax rate progressively increasing as total wealth increases, and keep doing this each year until the debt is paid off. Perhaps start at 1% on $5 million, 2.5% at $10 million, 5% at $50 million, etc. (Hedge fund managers and investment bankers start at 50% and go up, just for the heck of it. We can call this the "get the money from where the money went tax.")

Or maybe Obama wants to just continue to preside over a situation that's starting to smell a lot more like pre-Revolutionary France. And all it took to trigger the decapitations of the aristocracy was... some climate change. Of course, the ruinous climate change alone wouldn't have done it. Does this wikipedia description of the causes of the French Revolution sound vaguely familiar?

Although France in 1789 faced economic difficulties, mostly concerning the equitability of taxation, it was one of the richest and most powerful nations of Europe. The French people also enjoyed more political freedom and a lower incidence of arbitrary punishment than any of their fellow Europeans. However, Louis XVI, his ministers, and the widespread French nobility had become immensely unpopular. This was a consequence of the fact that peasants and, to a lesser extent, the bourgeoisie, were burdened with ruinously-high taxes levied to support wealthy aristocrats and their sumptuous, often gluttonous, lifestyles.

...These problems were all compounded by a great scarcity of food in the 1780s. A series of crop failures caused a shortage of grain, consequently raising the price of bread. Because bread was the main source of nutrition for poor peasants, this led to starvation. The two years previous to the revolution (1788–89) saw meager harvests and harsh winters, possibly because of a strong El Niño cycle caused by the 1783 Laki eruption in Iceland.

Sure, a little excessive... but a bat mitzvah no one will ever forget, even if daddy's a criminal

Yesterday was the anniversary of a big party in New York. Could it really only have been just 5 years ago when notorious war profiteer David H. Brooks was celebrating his daughter's bat mitzvah at the Rainbow Room. The event cost upwards of $10 million and featured Aerosmith, Nelly, Tom Petty, the Eagles, Kenny G. and 50 Cent. Aerosmith was paid $2 million and there's no way on earth Tom Petty or the Eagles would have played for less; they share the same manager. Brooks was a big macher; he had just donated $25,000 to the National Republican Senatorial Committee a couple of months earlier.

There's a lot in this post that tangentially touches on Iceland. Loki, the volcano that errupted and caused the wealther patterns that triggered the French Revolution, for example, is on Iceland. And these days, whenever I think about Iceland, I think about Charles Ferguson's brilliant documentary about the most recent financial meltdown, Inside Job since it too is tangentially about Iceland. I posted about the film when I first saw it in September. And a month ago Ferguson posted over at Salon about the question that probably anyone who's sitting and watching it for a few minutes will ask himself-- how will he deal wth Obama?

It was before the election and he wasn't as harsh as he could have been. But he did struggle with the question about how to tackle Obama.

When Barack Obama was elected, he had an unprecedented opportunity to shape American history by bringing the country's new financial oligarchy under control. Elected on a platform of change and renewal by a nation in crisis and with strong majorities in both houses of Congress, his election celebrated throughout the world, Obama could have done great things. Instead, he gave us more of the same. America will be paying for his decision for a very long time.

The first troubling sign was his personnel appointments: Larry Summers, the man behind nearly every disastrous policy that created the crisis, fresh from making $20 million from hedge funds and investment banks while at Harvard, to become the director of the National Economic Council; Tim Geithner, plucked from the New York Federal Reserve Bank and put in charge at Treasury; as Geithner's chief of staff, Mark Patterson, a former Goldman Sachs lobbyist; to succeed Geithner at the New York Fed, William C. Dudley, who was chief economist of Goldman Sachs during the housing bubble years; Michael Froman, straight from Citigroup Alternative Investments, which lost billions while its executives became rich, to coordinate economic policy for the National Security Council; Jacob Lew, who was the CFO of Citigroup Alternative Investments, as deputy secretary of state (and now, Obama's nominee to run the Office of Management and Budget); Gary Gensler, a former Goldman executive who helped ban the regulation of over-the-counter derivatives, to lead the Commodity Futures Trading Commission, which regulates derivatives; Mary Shapiro, former head of the Financial Industry Regulatory Agency, the investment banking industry’s self-policing body, to run the Securities and Exchange Commission; reappointing Ben Bernanke. And on and on.

These moves were excused as the understandable actions of a president-elect without a background in finance turning to the most experienced people in a time of crisis. But even then, it was clear that these people had been part of the problem, not the solution, and that other highly competent but untainted candidates were available.

And now, nearly two years later, the Obama administration has established a clear record. Beginning almost immediately, the president consistently opposed any effort to control financial industry compensation-- even for firms receiving federal aid, as most were in 2009. Then came a long period of total inaction, followed by the toothless Wall Street reform bill passed this summer and the appointment of a former Fannie Mae lobbyist, Tom Donilon, as the new national security advisor. There was no action on the foreclosure crisis and no serious attempt to investigate the causes of the crisis. The SEC has brought only a handful of civil cases ending in trivial fines, with neither firms nor individuals required to admit any wrongdoing.

Most tellingly, there has not been a single criminal prosecution of any firm or any individual senior financial executive-- literally zero-- and, of course, no appointment of a special prosecutor. While we can debate the extent to which fraud caused the crisis, and precisely how much fraud was committed, the answer is clearly not zero. We already know that Lehman and other firms used fake accounting to hide liabilities and inflate assets; that lenders and securitizers frequently knew that the loans they sold and packaged were fraudulent or defective; and, of course, we also now know that Goldman Sachs and other investment banks sold securities they knew to be defective (they were often sold to pension funds for low-paid government employees, by the way)-- and that they designed many of these securities so that they could profit by betting against them after they were sold. Stunningly, this last practice was not ipso facto illegal; but as a practical matter, it’s pretty hard to do if you’re telling the truth. Yet nobody has been prosecuted, and only a very few individuals have even been sued in civil cases.

It is, in short, overwhelmingly clear that President Obama and his administration decided to side with the oligarchs-- or at least not to challenge them. This raises the question of why they have made this choice, and whether it is a correct (in the sense of rationally self-interested) calculation on their part.

As to the "why," several explanations have been proposed. One is that the president, as a matter of individual psychology, is extremely conflict-averse, preferring to avoid fights no matter how important. A second hypothesis is that the president is simply doing the most he can, given the political climate and the furious lobbying effort with which he is confronted. This explanation, however, is belied by the personnel appointments, among other evidence.

A more disturbing possibility is that the Obama administration has simply codified a new strategic equilibrium in American politics, one first devised by the Clinton administration, in which both parties are supine with regard to the financial sector and the wealthy.

The objection to this view is that there is some evidence, in conventional political terms, that the Obama strategy of giving in to Wall Street might be a mistake. The economy remains in bad shape, bad enough to be a major political handicap, and will likely stay that way for several years. Democrats are having trouble fundraising (from individuals, at least; interest group donors remain plentiful), union voters may desert them, and it looks like Republicans and the Tea Party will make substantial inroads in the midterm elections. The liberal media, most prominently the Huffington Post but many other outlets as well, have turned sharply critical of administration policy. And my own conversations with friends and colleagues have revealed a deep, angry disillusionment with Obama.

But consider the situation more broadly. If the two parties both lie down for Wall Street in roughly equal measure, but fight viciously over other issues, it is possible to construct a stable strategic equilibrium. At the margin, the Democrats are slightly less favorable to business, at least for unionized industries, but nobody upsets the financial sector apple cart.

This angers much of the Democratic base. But the Democrats avoid the epic confrontation that would surely ensue if they were to take on the financial sector, which would retaliate with a massively funded effort. Instead, the two parties fight furiously, or at least pretend to fight furiously, about a wide range of other social issues that affect many voters deeply-- abortion, gay rights, gun control, stem cell research, creationism, global warming, health insurance and so on. Each side can credibly warn its base that if it deserts the party, apocalypse may follow. So, while some citizens may register as independents, or stop voting, or stop donating to the system, the entrenched establishments of both parties will remain safe.

Of course, the sustainability of this strategic duopoly depends on the absence of truly independent challenges, such as third parties. Third parties can and do arise in America-- George Wallace, Ross Perot, Ralph Nader and, now (sort of), the Tea Party-- but they tend to be short-lived, in part because they face enormous structural obstacles in becoming a sustainable political force. For one, America doesn't have a parliamentary system, and most localities don’t use ranked-choice or "instant-runoff" voting. Plus, given the structure of American elections, the Obama administration can credibly warn, pointing to the example of Ralph Nader, that any splinter effort would hand the White House to the Republicans. And, given the enormous role now played by money in American elections, the logistical and financial efforts required to create a grass-roots third party would be huge. In contrast, the financial sector possesses the twin advantages of concentration and cohesion on the one hand, and of enormous financial resources on the other.

So, then, the Obama administration’s choices may be depressingly rational, given the "quiet coup," to use Simon Johnson’s term, constituted by the spectacular rise of the financial industry and the wealthy over the last quarter-century. This does not mean we should all despair; there have been times before in American history when the American people had to force their leaders to follow them. A century ago, the progressive movement achieved major reforms in the face of an economy even more concentrated than today. But it won’t be easy. To reverse the hegemony of the financial sector, and the danger it poses both to economic stability and to real democracy, will require an enormous outpouring of popular anger and organizational energy, probably a considerable period of time, and perhaps could be generated only by... another, even worse, financial crisis, such as might well occur a decade hence, given the absence of real reform after this one…