Yeah, Yeah... Democrats Don't Suck As Much As Republicans... Whoopie! And It Didn't Help In 2010

The Obama campaign is probably too smart to take much solace in the nice-looking chart above showing his popularity rebounding among blue collar whites. Good headway but these people, while understanding Richie Rich is their sworn enemy, also know Obama and the Democratic Establishment he represents haven't exactly been their BBFs either. I want to take a short detour-- if you can ever call Paul Krugman a detour-- before we take a look at why working people, regardless of color, should be as wary of Establishment Democrats as they are of Republicans. Krugman worries that last week's good jobs report can create a false sense of optimism that will "encourage and empower the purge-and-liquidate crowd" among our shitty ruling elite. Despite last week's good news, "our economy remains deeply depressed... [W]e started 2012 with fewer workers employed than in January 2001-- zero growth after 11 years, even as the population, and therefore the number of jobs we needed, grew steadily... [I]t would take us until 2019 to return to full employment."

And we should never forget that the persistence of high unemployment inflicts enormous, continuing damage on our economy and our society, even if the unemployment rate is gradually declining. Bear in mind, in particular, the fact that long-term unemployment-- the percentage of workers who have been out of work for six months or more-- remains at levels not seen since the Great Depression. And each month that this goes on means more Americans permanently alienated from the work force, more families exhausting their savings, and, not least, more of our fellow citizens losing hope.

So this encouraging employment report shouldn’t lead to any slackening in efforts to promote recovery. Full employment is still a distant dream-- and that’s unacceptable. Policy makers should be doing everything they can to get us back to full employment as soon as possible.

Unfortunately, that’s not the way many people with influence on policy see it.

Very early in this slump-- basically, as soon as the threat of complete financial collapse began to recede-- a significant number of people within the policy community began demanding an early end to efforts to support the economy. Some of their demands focused on the fiscal side, with calls for immediate austerity despite low borrowing costs and high unemployment. But there have also been repeated demands that the Fed and its counterparts abroad tighten money and raise interest rates.

What’s the reasoning behind those demands? Well, it keeps changing. Sometimes it’s about the alleged risk of inflation: every uptick in consumer prices has been met with calls for tighter money now now now. And the inflation hawks at the Fed and elsewhere seem undeterred either by the way the predicted explosion of inflation keeps not happening, or by the disastrous results last April when the European Central Bank actually did raise rates, helping to set off the current European crisis.

But there’s also a sort of freestanding opposition to low interest rates, a sense that there’s something wrong with cheap money and easy credit even in a desperately weak economy. I think of this as the urge to purge, after Andrew Mellon, Herbert Hoover’s Treasury secretary, who urged him to let liquidation run its course, to “purge the rottenness” that he believed afflicted America.

And every time we get a bit of good news, the purge-and-liquidate types pop up, saying that it’s time to stop focusing on job creation.

Wall Street darling Paul Ryan was the first one screaming about interest rates being too low last week. Like Boehner and Cantor, Ryan opposes all measures to stimulate job growth. A couple weeks ago we looked at the repeal of Glass-Steagall again and the villainous role played by Boehner, Cantor and Ryan, all of whom have been gigantically rewarded by Wall Street for their services rendered. But, of course, the horrors of that repeal might be part of the classic Republican Party agenda but it could never have been accomplished without complicit corporatist Democrats. That's why working people instinctively shy away from the Establishment Dems. Last week Bob Scheer gets into the economic crimes of that Establishment and how people like Bill Clinton and Larry Summers sullied the Democratic brand by going over to the Dark Side. He points to a rare interview-- done in the UK-- where someone tried to hold Summers accountable (unlike our own fawning press).

He, like Clinton, still defends the reversal of the 1933 Glass-Steagall Act, a 1999 repeal that destroyed the wall between investment and commercial banking put into place by Franklin Roosevelt in response to the Great Depression.

“I think the evidence is that I am right about that. If you look at the big players, Lehman and Bear Stearns were both standalone investment banks,” Summers replied, referring to two investment banks allowed to fold. Summers is very good at obscuring the obvious truth-- that the too-big-to-fail banks, made legal by Clinton-era deregulation, required taxpayer bailouts.

The point of Glass-Steagall was to prevent jeopardizing commercial banks holding the savings of average citizens. Summers knows full well that the passage of the repeal of Glass-Steagall was pushed initially by Citigroup, a mammoth merger of investment and commercial banking that created the largest financial institution in the world, an institution that eventually had to be bailed out with taxpayer funds to avoid economic disaster for millions of ordinary Americans. He also knows that Citigroup-- where Robert Rubin, who preceded Summers as Clinton’s treasury secretary, played leading roles during a critical time-- specialized in precisely the mortgage and other debt packages and insurance scams that were the source of America’s economic crisis.

Even Clinton, in a rare moment of honest appraisal of his record, conceded that his signing of the Commodity Futures Modernization Act (CFMA), legalizing those credit default swaps and collateralized debt obligations, was based on bad advice. That advice would have had to come from Summers, his point man pushing the CFMA legislation, which Clinton signed into law during his lame-duck days.

When the British interviewer reminded him of Clinton’s comment, Summers, as is his style, simply bristled: “Again, you make everything so simple, when in fact it’s complicated. Would it have been better if the whole financial reform legislation had passed in 1999, or 1998, or 1992? Yes, of course it would have been better. But … at the time Bill Clinton was president, there essentially were no credit default swaps. So the issue that became a serious problem really wasn’t an issue that was on the horizon.”

That is a lie. Credit default swaps had been sold at least since 1991, and collateralized debt obligations of all sorts quickly became the rage during the Clinton years. Summers surely remembers that Brooksley Born, the legal expert on such matters that Clinton appointed to head the Commodity Futures Trading Commission (CFTC), warned about the ballooning danger of those unregulated derivatives. Born, who served with Summers as one of four members of the President’s Working Group on Financial Markets, tried repeatedly and in vain to get her colleagues to act. When her pleas fell on deaf ears, she issued a “concept release” calling attention to an unregulated derivatives market that was even then spiraling out of control.

The CFMA legislation that Summers pushed and Clinton signed was a specific rebuke to Born’s efforts. As Summers testified at the time before a Senate committee: “As you know, Mr. Chairman, the CFTC’s recent concept release has been a matter of great concern, not merely to Treasury, but to all those with an interest in the OTC [over-the-counter] derivatives market. In our view, the release has cast the shadow of regulatory uncertainty over an otherwise thriving market—raising risks for stability and competitiveness of American derivative trading. We believe it quite important that the doubts be eliminated.”

Those doubts were eliminated by the new law exempting all of that troubling OTC derivatives trading from all existing regulations and regulatory agencies. Summers argued in his congressional testimony that there was no reason for any government regulation of what turned out to be tens of trillions of dollars in toxic assets:

“First, the parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities law.

“Second, given the nature of the underlying assets involved-- namely supplies of financial exchange and other financial instruments-- there would seem to be little scope for market manipulation of the kind seen in traditional agricultural commodities, the supply of which is inherently limited and changeable.”

Has any economist ever gotten it so wrong?

Probably. But let's remember that in the latest polls, 72% of Americans say taxes of millionaires should be restored-- and 59% of them feel strongly that millionaires should start paying their fair share again. Republicans have fought against this very publicly but DC's Conservative Consensus would never function without Democrats like Summers, Clinton, the Blue Dogs, the New Dems...