Barack Obama-- Definitely Better Than Nothing

Last week we took a look at two revealing interviews of Elizabeth Warren, one by Bill Moyers and the other by Steve Inskeep. Thomas Frank did one for Salon in which she takes on Obama’s shortcomings much more directly than we’ve seen her do before. She focused on the two issues she used in Massachusetts to propel her into the Senate: the lack of accountability for politically-connected Wall Street predators and an educational system that is rigged against middle-class students and their families. Frank, calling her “the single most exciting Democrat currently on the national stage,” is clear from the start where he’s coming from— and where he’s trying to go.

Thomas Frank: I want to start by talking about a line that you’re famous for, from your speech at the Democratic National Convention two years ago: “The system is rigged.” You said exactly what was on millions of people’s minds. I wonder, now that you’re in D.C. and you’re in the Senate, and you have a chance to see things close up, do you still feel that way? And: Is there a way to fix the system without getting the Supreme Court to overturn Citizens United or some huge structural change like that? How can we fix it?

That’s the question that lies at the heart of whether our democracy will survive. The system is rigged. And now that I’ve been in Washington and seen it up close and personal, I just see new ways in which that happens. But we have to stop and back up, and you have to kind of get the right diagnosis of the problem, to see how it is that— it goes well beyond campaign contributions. That’s a huge part of it. But it’s more than that. It’s the armies of lobbyists and lawyers who are always at the table, who are always there to make sure that in every decision that gets made, their clients’ tender fannies are well protected. And when that happens— not just once, not just twice, but thousands of times a week— the system just gradually tilts further and further. There is no one at the table…I shouldn’t say there’s no one. I don’t want to overstate. You don’t have to go into hyperbole. But there are very few people at the decision-making table to argue for minimum-wage workers. Very few people.

…TF: When I talk to people, they often say Democrats aren’t the party of working people at all. And they talk about NAFTA and deregulating Wall Street, and they say, look at these guys, they won’t prosecute the financial industry. They say, Democrats talk a good game, but they’re always on the side of the elite at the end of the day. What do you say to these people?

EW: We’re the only ones fighting back. Right now, on financial reform, the Republicans are trying to roll back the financial reforms of Dodd-Frank. In fact, Mitch McConnell has announced that if he gets the majority in the Senate, his first objective is to repeal healthcare and his second is to roll back the financial reforms, and in particular to target the Consumer Financial Protection Bureau— the one agency that’s out there for American families, the one that has returned more than four billion dollars to families who got cheated by big financial institutions. That’s in just three years.

So, Democrats have not done all that they should, but at least we’re out there fighting for the right things. We’re fighting and I think trying to pull in the right direction. So if the question is, hold us to a higher standard, man, I’m there. You’re right. [If] you want to criticize and say, “you should do more!,” the answer is: Yes, we should! You bet! We should be stronger. We should be tougher. But understand the difference between the Democratic Party and the Republican Party right now. It’s pulling as hard and fast as it can in the opposite direction.

TF: No doubt about that. I should ask you about— and we’re talking about the financial crisis and the failure to prosecute anyone, and the…I’m sorry, I’m going to get the name confused, the Consumer Financial Protection Bureau.

EW: That’s okay. It was named by Republicans to be as confusing a name as possible. (laughs) I used to think of it as the four random initials. (laughs) I just call it my consumer agency. So that’s it, just the consumer agency.

TF: So here’s another aspect of this: Eric Holder is stepping down as attorney general, and you in the Senate are going to have to confirm a successor. And one of the things, I don’t know if you’ve followed this or not, but one of the things the Department of Justice has been doing, if you look at the actual prosecutions they’ve been making, they essentially blame the financial crisis on little people. People who lied on their loan applications. And I wonder, are you going to demand something different out of his successor? You’re going to have a chance to confirm this guy and talk to this guy…

EW: You bet I am. I want to be clear on this. It’s the Justice Department. But it’s also the banking regulators. And the SEC. So the most recent hearing we held that had them all in together— you know we get them in twice a year— and, boy, you want to ask me if I’m glad to be in the United States Senate? (laughs) I get to be on the Banking Committee, and twice a year we haul the banking regulators in front of us for supervision. For oversight I should say, not supervision. So we had them all in. . . . We had them all in, in July. And that was the question I asked: How many big bank executives have you referred to the Department of Justice for criminal prosecution?

TF: That’s a very good question. I was going to ask you that, too.

EW: Exactly right. Because that’s the other half of how the game is rigged. You know, we think of it in terms of Congress, and we should, because it’s definitely rigged in Congress and this is a place where people can do something about it. But the wind always blows from the same direction through the agencies. Those agencies, the banking regulators, who do they hear from, day in and day out? Big banks. They don’t hear from people who got cheated on their mortgages, people who got tricked on their credit cards. They hear from the big financial institutions, day after day after day. That’s, in part, what this whole Fed— this latest scandal at the Fed— you know with Carmen Segarra who has the tapes. Part of what that shows, if you just back up and think about what you’re seeing there, it’s that the supervisors, or regulators as they’re called— everybody commonly calls them that— the regulators all meet with Goldman Sachs executives and employees day after day after day. They don’t see the people who get tricked, the people who get cheated, the people who get fooled by the products that Goldman turns out.

TF: That’s right. Regulatory capture, this is an old problem. I was writing about it, obviously, in the Bush days. But President Obama had a golden opportunity when he came in to change the system and I just don’t feel like it has changed, the Consumer Financial Protection Bureau aside. I mean, are the regulators now referring things to the Justice Department? Are the wheels turning again?

EW: There has not been nearly enough change. Not nearly enough. The consumer agency— this is why I argued for it— the consumer agency is structural change. So basically, the premise behind it was that there were plenty of federal laws out there, but no agency would step up and enforce them. And the responsibilities of these laws were scattered among seven different agencies and not one of those agencies saw its principal job as looking out for American families. So the OCC [Office of the Comptroller of the Currency] was all about bank profitability, the Fed was all about monetary policy. Everybody had something that they were about, but consumer protection was everybody’s job and therefore nobody’s job. You know, it was down seventh, or tenth or hundredth on the list and they never got to it, even as the big financial institutions were selling mortgages that should have been described as grenades with the pins pulled out. Really! My whole thing about toasters— remember, that was based on fact. At the time I wrote that piece on it, that was before the crash, one in five mortgages that were being marketed by the biggest financial institutions were exploding and costing people their homes. No one would permit toasters to be sold when one in five exploded and burned down somebody’s house. But they were selling mortgages like that and every regulator knew about it.

TF: And those people who had it blow up in their faces, those are the ones we’re prosecuting.

EW: Oh God. So exactly right. Well, to the extent we do [prosecute] anyone. But that’s exactly right. And so the idea behind the consumer agency was to say: structural change. We need an agency that has one and only one goal, and that is to look out for American families. To level the playing field, to make sure that people are not getting tricked and trapped on these financial instruments. And so it was a big shift, and it’s a shift worth thinking about. We took away— Dodd-Frank took away— all this responsibility that had nominally been spread among the other agencies, concentrated it in one agency, and now holds that agency accountable. So you give the agency the tools and then hold them accountable. The reason I think that story is so important is because it is structural. It’s not just a question of, “Gee, get good people and somehow things will work better.” There are structural changes we have to make. . . . The idea, the question that haunted me at the agency was: How do we make sure the agency is true to its mission, not just today with the people that we hire in the first plume of excitement, but 30 years from now, 40 years from now, 50 years from now…

TF: Let’s get back to the mindset of a lot of people. They look at you and they say, Elizabeth Warren, she’s part of the elite too. She was a professor at Harvard. And people would also say, look at the student loan disaster which you talk a lot about these days, the root cause of it is college tuition, which has increased by a thousand percent in 30 years. You look at the advertised price at Harvard right now, I know that not everybody pays it, but the advertised price is sixty grand a year. If you have three kids and all of them have to pay that much for four years— you know what I’m talking about?

EW: I do.

TF: Nobody can afford that. Is it time to do something about college tuition?

EW: Absolutely. Yes it is. But let’s get the right frame on this. Because I think this is really important, and it’s the right question to ask. But start with this: three out of four kids in college are in public universities. A generation ago, state support for public universities was strong enough that three out of four dollars to educate those kids came from taxpayers and the family had to make up the difference for the fourth dollar. Today, that has basically reversed itself. That is, that the states are putting up, just generally across the country, about one out of four dollars and the families have got to come up with the other three out of four dollars. This matters because it is the state universities that are the backbone of access to higher education for middle class families, and I think that’s the place you have to start the conversation. I’m not going to let anybody off the hook, but I think it’s the critical part of the conversation. And I say this— it’s like I talk about in the book— this is personal for me. I graduated from a commuter college that cost $50 a semester in Texas.

TF: Those were the days.

EW: That’s right. It opened a million doors for me. And that happened because I grew up in an America that was investing in its kids. That America is gone. We’re not doing that anymore. So I start there at the heart of it. . . . And then there’s a second piece that we’ve got to factor into the equation, and that is: one in 10 kids in college is in a for-profit university. Actually, here are three numbers. They’re not perfect, but they’re just about right: 10, 25, 50. Ten percent of our kids are in for-profit universities, colleges. Those for-profit universities are sucking down 25 percent of federal loan dollars, and they are responsible for 50 percent of all student loan defaults.

TF: It’s an outrage.

EW: So we are, the federal government is currently subsidizing a for-profit industry that is ripping off young people. Those young people are graduating— many of them are never graduating— and of those that are graduating, many of them have certificates that won’t get them jobs, that don’t produce the benefits of a state college education.

You know somebody to talk to sometime if you want to ever do a separate story on this is Marty Meehan [who] is the president of the University of Massachusetts at Lowell. And what he talks about is, particularly, the young vets who come to UMass-Lowell already sixty or seventy thousand dollars in debt without a single college credit that will transfer to an accredited university. Now, think about that.

So who do you think gets targeted by these for-profit universities? It’s kids who are the first in their family to go to college. It’s not happening to the sons and daughters of graduates from elite schools. It’s happening to young people who are the first in their family to graduate from college. Many of them have come out of the military, they’ve gone into the military straight from high school. They’ve now completed their military service. These are strivers, boot-strappers, hard-working kids who are the very kids we most want to make sure the doors of opportunity are open for. You know who else goes [to these schools]? It’s young, single mothers who are trying to make something out of their lives, many of them are working two and even three jobs, who believe that if they can get a college education, their children will have opportunities that would otherwise be closed off, and yet that’s not what they’re getting. They’re getting preyed on by these schools. So I mention this only by way of saying, when we look at college— you’re not wrong— we have got to use the leverage of the federal government investment to bring down the cost of college across the board. But we’ve got particular problems to focus on, both in support for public universities and the resources that are being drained away by the for-profit schools.

TF: Here’s the penultimate question: everything you’re saying are issues that have been important to me most of my adult life. In 2008, I thought I had a candidate who was going to address these things. Right? Barack Obama. Today, my friends and I are pretty disappointed with what he’s done. I wonder if you feel he has been forthright enough on these subjects. And I also wonder if you think that someone can take any of this stuff on without being president. You know, there are a lot of good politicians in America who have their heart in the right place. But they’re not the president. Well anyhow. You understand my frustration…

EW: I understand your frustration, Tom and, actually, I talk about this in the book. When I think about the president, for me, it’s about both halves. If Barack Obama had not been president of the United States we would not have a Consumer Financial Protection Bureau. Period. I’m completely convinced of that. And I go through the details in the book, and I could tell them to you. But he was the one who refused to throw the agency under the bus and made sure that his team kept the agency alive and on the table. Now there was a lot of other stuff that also had to happen for it to happen. But if he hadn’t been there, we wouldn’t have gotten the agency. At the same time, he picked his economic team and when the going got tough, his economic team picked Wall Street.

TF: You might say, “always.” Just about every time they had to compromise, they compromised in the direction of Wall Street.

EW: That’s right. They protected Wall Street. Not families who were losing their homes. Not people who lost their jobs. Not young people who were struggling to get an education. And it happened over and over and over. So I see both of those things and they both matter.

Yesterday the DCCC was trolling for retweets of the quote from Rolling Stone above that people are buzzing about. Juxtapose Warren’s analysis with Paul Krugman’s defense of Obama in the magazine’s new issue. Krugman, like actual progressives who make up there own minds based on reality, was an Obama skeptic when he ran and was first elected. “I worried that he was naive,” he wrote, “that his talk about transcending the political divide was a dangerous illusion given the unyielding extremism of the modern American right. Furthermore, it seemed clear to me that, far from being the transformational figure his supporters imagined, he was rather conventional-minded: Even before taking office, he showed signs of paying far too much attention to what some of us would later take to calling Very Serious People, people who regarded cutting budget deficits and a willingness to slash Social Security as the very essence of political virtue.” And, of course, Krugman was correct.

Obama was indeed naive: He faced scorched-earth Republican opposition from Day One, and it took him years to start dealing with that opposition realistically. Furthermore, he came perilously close to doing terrible things to the U.S. safety net in pursuit of a budget Grand Bargain; we were saved from significant cuts to Social Security and a rise in the Medicare age only by Republican greed, the GOP's unwillingness to make even token concessions.

But now the shoe is on the other foot: Obama faces trash talk left, right and center— literally— and doesn't deserve it. Despite bitter opposition, despite having come close to self-inflicted disaster, Obama has emerged as one of the most consequential and, yes, successful presidents in American history. His health reform is imperfect but still a huge step forward— and it's working better than anyone expected. Financial reform fell far short of what should have happened, but it's much more effective than you'd think. Economic management has been half-crippled by Republican obstruction, but has nonetheless been much better than in other advanced countries. And environmental policy is starting to look like it could be a major legacy.

Krugman goes on to credit him for the half-assed Affordable Care Act, a baby step in the right direction towards single payer universal health care for the U.S., for “bringing back” the economy without going all Austerity and making things worse, for the actions he took to protect the environment from GOP predators, for pushing forward an equality agenda for women and gays, and or not being John McCain, Lindsay Graham or Dick Cheney on national security issues. And he credits Obama with a job well done on financial reform… kind of. He starts out sounding more like Wlizabeth Warren than like anyone connected to the Clinton Machine.

Let's be clear: The financial crisis should have been followed by a drastic crackdown on Wall Street abuses, and it wasn't. No important figures have gone to jail; bad banks and other financial institutions, from Citigroup to Goldman, were bailed out with few strings attached; and there has been nothing like the wholesale restructuring and reining in of finance that took place in the 1930s. Obama bears a considerable part of the blame for this disappointing response. It was his Treasury secretary and his attorney general who chose to treat finance with kid gloves.

It's easy, however, to take this disappointment too far. You often hear Dodd- Frank, the financial-reform bill that Obama signed into law in 2010, dismissed as toothless and meaningless. It isn't. It may not prevent the next financial crisis, but there's a good chance that it will at least make future crises less severe and easier to deal with.

Dodd-Frank is a complicated piece of legislation, but let me single out three really important sections.

First, the law gives a special council the ability to designate "systemically important financial institutions" (SIFIs)— that is, institutions that could create a crisis if they were to fail— and place such institutions under extra scrutiny and regulation of things like the amount of capital they are required to maintain to cover possible losses. This provision has been derided as ineffectual or worse— during the 2012 presidential campaign, Mitt Romney claimed that by announcing that some firms were SIFIs, the government was effectively guaranteeing that they would be bailed out, which he called "the biggest kiss that's been given to New York banks I've ever seen."

But it's easy to prove that this is nonsense: Just look at how institutions behave when they're designated as SIFIs. Are they pleased, because they're now guaranteed? Not a chance. Instead, they're furious over the extra regulation, and in some cases fight bitterly to avoid being placed on the list. Right now, for example, MetLife is making an all-out effort to be kept off the SIFI list; this effort demonstrates that we're talking about real regulation here, and that financial interests don't like it.

Another key provision in Dodd-Frank is "orderly liquidation authority," which gives the government the legal right to seize complex financial institutions in a crisis. This is a bigger deal than you might think. We have a well-established procedure for seizing ordinary banks that get in trouble and putting them into receivership; in fact, it happens all the time. But what do you do when something like Citigroup is on the edge, and its failure might have devastating consequences? Back in 2009, Joseph Stiglitz and yours truly, among others, wanted to temporarily nationalize one or two major financial players, for the same reasons the FDIC takes over failing banks, to keep the institutions running but avoid bailing out stockholders and management. We got a chance to make that case directly to the president. But we lost the argument, and one key reason was Treasury's claim that it lacked the necessary legal authority. I still think it could have found a way, but in any case that won't be an issue next time.

A third piece of Dodd-Frank is the Consumer Financial Protection Bureau. That's Elizabeth Warren's brainchild, an agency dedicated to protecting Americans against the predatory lending that has pushed so many into financial distress, and played an important role in the crisis. Warren's idea was that such a stand-alone agency would more effectively protect the public than agencies that were supposed to protect consumers, but saw their main job as propping up banks. And by all accounts the new agency is in fact doing much more to crack down on predatory practices than anything we used to see.

There's much more in the financial reform, including a number of pieces we don't have enough information to evaluate yet. But there's enough evidence even now to say that there's a reason Wall Street— which used to give an approximately equal share of money to both parties but now overwhelmingly supports Republicans – tried so hard to kill financial reform, and is still trying to emasculate Dodd-Frank. This may not be the full overhaul of finance we should have had, and it's not as major as health reform. But it's a lot better than nothing.

Yeah, better than nothing… better than Republicans, but we should treat ourselves to more… we deserve better.