Empire's New Clothes

Barack Obama in the Real World of Power

Paul Street

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317260547
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

As Obama nears the middle of his first-term as president Paul Street assesses his performance against the expectations of his supporters. While mainstream journalists have noted discrepancies between Obama's original vision and reality, Paul Street uniquely measures Obama's record against the expectations of the truly progressive agenda many of his supporters expected him to follow. Taken together, the list of Obama's weakened policies is startling: his business-friendly measures with the economy, the lack of support for the growing mass of unemployed and poor, the dilution of his health reform agenda, the passage of a record-setting Pentagon budget, and escalation of US military violence in Afghanistan, Pakistan, Yemen, and Somalia. Street's account reveals these and many other indications of how deeply beholden Obama is to existing dominant domestic and global hierarchies and doctrines.

1 Business Rule as Usual

DOI: 10.4324/9781315634944-2

People everywhere [have] learned a blunt lesson about power, who has it and who doesn’t. They [have] watched Washington run to rescue the very financial interests that caused the catastrophe. They [have] learned that government has plenty of money to spend when the right people want it.

—William Greider, March 2009¹

Everyone’s back to business as usual. … Not a single CEO from a top bank attended. The [Obama] speech [to Wall Street] sank with scant notice because there has been so little action to back it up and because its conciliatory stance was tone-deaf to the anger beyond the financial district.

—Frank Rich, September 20, 2009²

I can’t tell you how many foreign leaders who are heads of center-right governments say to me, I don’t understand why people would call you socialist. In my country, you’d be considered a conservative.

—President Barack Obama, Sept. 20, 2009³

The architects of policy protect their own interests, no matter how grievous the effect on others.

—Adam Smith, 1776⁴

Getting Things Done with a Plutocratic Violin

Two and a half weeks after Barack Obama’s victory in the 2008 presidential election, David Rothkopf, a former Clinton administration official, commented with a musical metaphor on the president-elect’s corporatist and militarist transition team and cabinet appointments. Obama, Rothkopf told the New York Times, was following “the violin model: you hold power with the left hand and you play the music with the right.”⁵ In other words, “you” gain and hold the presidency with populace-pleasing progressive-sounding rhetoric, but you govern, you make policy, in service to existing dominant corporate, state, and military institutions and ideologies.

The Obama’ administration’s record over its first sixteen months has been richly consistent with Rothkopf’s analysis. It’s been “the violin model” with a vengeance. Obama has lectured Wall Street on the immorality of its bonuses and visited hard recession-hit towns such as Elkhart, Indiana, and Pomona, California, to show solidarity with downtrodden working people. And then he gave yet more of the public treasury and commons away to the privileged few, justifying the handouts as a noble expression of his “sensible,” “realistic,” and “pragmatic” commitment to rising above ideological divisions to “get things done” for the American people.

Funny how the nation’s “pragmatist” in chief has kept getting things done for the rich and powerful above all. My mind and soul have recurrently gone numb as yet one more populist-, progressive-, and peaceful-sounding Obama campaign promise after another have been crushed by the cold imperatives of business and imperial rule during the first year of Obama’s presidency. This chapter and Chapter 3 (the latter on “health reform” in the Age of Obama) focus on the administration’s service to the dominant business class and financial elite in regard to domestic economic and social policy. Chapter 2 takes up the intimately related story of Obama’s foreign policy. Chapters 4 and 5 look at similar themes of progressive betrayal and deceptive “rebranding” in relation to questions of race, ethnicity, gender, gay rights, and civil liberties.

Change Means More of the Same

Keeping Perpetrators Afloat

Consistent with his description of himself as a “New [that is, conservative and pro-corporate] Democrat” in March 2009,⁶ Obama has spent more than $10 trillion of federal money on further taxpayer handouts to the giant Wall Street firms that spent millions on his campaign and that drove the economy over the cliff in the first decade of the new millennium. The new president was too attached to those firms and to their so-called free-market ideology to undertake the elementary bank nationalizations and public financial restructuring that were required to put the nation’s credit system on a sound and socially responsible basis. Obama’s plan to guarantee the financial, insurance, and real estate industries’ toxic, hyperinflated assets while keeping existing Wall Street management in place amounted to a giant effort (according to liberal economist James K. Galbraith) to “keep perpetrators afloat” at a giant cost in taxpayer dollars.⁷ Liberal economist and New York Times columnist Paul Krugman was “filled with a sense of despair” by Obama’s bank rescue plan, which, Krugman noted, “recycles Bush administration policy—specifically the ‘cash for trash’ plan proposed, then abandoned, six months ago by then-Treasury secretary Henry Paulsen.”⁸

The plan has rewarded reckless and selfish investor-class behavior with what is supposed to be the people’s money. Under the scheme unveiled in March 2009, the public was put on the hook to the tune of $1 trillion. Krugman described this scheme as a coin flip in which “investors win if it’s heads and taxpayers lose if it’s tails.”⁹ As the Times noted while the full-blown Obama phase of the federal Wall Street bailout was being unveiled in the early spring, “The Treasury and the Federal Reserve will be offering a least a tablespoon of financial sugar for every teaspoon of risk that investors agree to swallow” by buying up the toxic mortgage assets that the investor class created in the first place.¹⁰ The government (“identical to the people in a functioning democracy,” as Noam Chomsky noted) was slated to take more than 90 percent of the risk, but private investors would reap at least half the reward.¹¹

Meanwhile, the underlying insolvency of the banks went largely unresolved, a problem the new administration hoped citizens would forget about as they got dazzled and bamboozled by its fancy and obscure plan. “In the end,” even the Times editorial board noted, “there is no getting around firing the executives at failing banks, acknowledging the losses, wiping out the shareholders and then deciding how the government can restructure the institutions.”¹² Beneath claims of allegiance to “free-market” ideals and “private enterprise,” the administration’s “bank rescue” design—described by former U.S. labor secretary Robert Reich as a continuation of “the most expensive tax-supported fiasco in history”—boiled down to a traditional, if rather extreme, exercise in Wall Street welfare: socialism for the rich, market discipline and capitalism for the rest. As Reich also noted, the plan threatened to weaken “the public’s confidence that its money isn’t being thrown down a rathole,” undermining Obama’s ability to undertake “other ambitious undertakings such as health care or education or the environment.”¹³

According to the New York Times, Obama’s corporate-Democratic Treasury secretary Timothy Geithner’s bailout plan reflected a triumph for unfettered capitalist prerogatives inside the new White House. Times reporters Stephen Labaton and Edmund Andrews noted that Geithner “prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including [top political and media expert] David Axelrod.” Geithner fought successfully “against more severe limits on executive pay for companies receiving government aid.” He overcame “those who wanted to dictate how banks would spend their money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.” According to administration and congressional officials, Geithner told Obama that “that plan would not work” if it was burdened with “too much government involvement in the affairs of the companies”—companies who deeply interfered with ordinary Americans’ capacity to keep their heads above water. The new Treasury chief, whose nomination was applauded by Wall Street, “also expressed concern that too many government controls would discourage private investors from participating.”

Geithner grave concern over the negative impact of government—the people in a functioning democracy—won out over more image-sensitive Obama aides who worried that “rising joblessness, populist outrage over Wall Street bonuses and expensive perks, and the poor management of last year’s bailouts could feed a potent political reaction” if the new White House failed to “demand sacrifices from the companies that receive federal money.”¹⁴ “For all its boldness,” Labaton and Andrews noted, the Obama bailout “largely repeat[ed] the Bush administration’s approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets.”¹⁵

Reinventing the Same System

Early in April 2009, the New York Times published an article with an ironic title: “In Cuba, Change Means More of the Same.” This “news” item reported that “rather than dismantling Cuba’s socialist framework,” Cuba’s president Raul Castro “seems to be trying to make it work more efficiently.”¹⁶ Castro, the Times reported, sought to keep power concentrated “at the top.”

But what had President Barack Obama—Mr. “Change” himself—tried to accomplish other than to make the American corporate profits system “work more efficiently” without “dismantling the [capitalist] framework” and with power (and wealth) still concentrated “at the top”? As the Times acknowledged in an article titled “English-Speaking Capitalism on Trial,” Obama and his neoliberal partner Gordon Brown, the British prime minister, had “focused on ways of revitalizing the [existing] system. … Even as both men have embarked on enormous increases in public-sector spending,” Times correspondents John Burns and Landon Thomas reported, “they have maintained that the solutions to the crisis lie in reawakening the markets and recapitalizing the banks rather than tearing at the system’s foundations. And both, when they respond to private anger at the private sector, have seemed more geared to managing anger than stoking it”¹⁷ [emphasis added]. As prolific Marxist geographer David Harvey observed on the left television news and commentary show Democracy Now in April 2009, “What [the Obama team is] trying to do is to reinvent the same system”—to “reconstitute the same sort of capitalism we have had over and over again over the last thirty years in a slightly more regulated, benevolent form” that didn’t “challenge the fundamentals.”¹⁸

The Banks “Own the Place”

Consistent with Harvey’s judgment, the Obama White House’s mild June 2009 plan to “re-regulate U.S. financial markets for the 21st century” left the extreme power of the nation’s elite “bankster” class intact. While praising the Obama plan’s efforts to create a strong consumer financial regulatory body, to reduce speculative betting with higher leverage standards, to prevent predatory and reckless lending, and to advance the White House’s power to take over failing, systemically significant firms, liberal Washington, DC–based corporate and financial reform activist Robert Weissman noted that the administration’s plan contained four basic flaws that would leave the financial sector and the broader economy vulnerable to future crises. First, it did “not propose to do anything serious about executive pay and top-level compensation for financial firms,” failing thereby to address basic questions of economic justice and leaving intact a “Wall Street bonus culture” that “gives traders and executives alike an incentive to take big bets—because they get massive payoff if things go well, and don’t suffer if they go bad, or go bad sometime in the future.”

Second, Obama proposed no serious structural reform of the financial industry. His refusal to return to “Glass-Steagall” principles by reseparating (on the model of the 1930s Glass-Steagall Act, repealed under Bill Clinton) commercial banking from other financial activities, including the speculative world of investment banking, and to reduce the size of gargantuan (“too big and interconnected [and powerful] to fail”) financial institutions, promised to leave the nation’s economy (and politics) far too beholden to concentrated wealth and power.

Third, the plan’s regulatory scheme included a dangerous “regulatory exemption for customized derivatives—a loophole that will create lots of business for corporate lawyers ready to change terms in derivative contracts so that they differ somewhat from standardized terms.” It also failed to ban “classes of dangerous financial instruments that cannot be justified,” such as the notorious credit default swap (denounced by international financial mogul George Soros as a “weapon of financial mass destruction”) and “to require that exotic financial instruments be subjected to pre-approval requirements.”

Fourth, Obama’s financial plan contained no measure “for giving consumers the power to organize themselves to advance their own interests. Simply mandating that financial firms include in bills and statements (whether mailed or e-mailed) an invitation to join an independent consumer organization would facilitate tens of thousands of consumers—and likely many more—banding together to make sure the regulators do their job, and to prevent Wall Street from ‘innovating’ the next trick to scam borrowers and investors.” Advocates like Weissman called for this basic mandate, to no avail.¹⁹

Other key deletions were noted by former Wall Street economist and Distinguished University of Missouri Research Professor Michael Hudson: proposals to repeal federal legislation used by the Bush administration to nullify the power of local state prosecutors to investigate and take legal action against financial malfeasance; measures to properly fund federal agencies charged with fraud reduction and other aspects of meaningful regulation; proposals to “counter extortionate credit-card practices by re-introducing anti-usury laws”; proposals to the “repeal of the pro-creditor reversal that Congress passed in 2005 [with then U.S. senator Barack Obama’s support] in response to lobbying by the credit card and banking industry” (thereby making it more difficult for personal debtors to declare bankruptcy and preventing courts from “rolling back debt to the population’s ability to pay”); proposals to “reform the tax system that has distorted the financial system to promote predatory extractive debt, not productive industrial credit.”²⁰

All of these critical omissions were highly predictable given that, as Senator Majority Whip Richard Durbin candidly noted in the spring of 2009, “The banks are still the most powerful lobby on Capitol Hill. And they frankly own the place.”²¹ Wall Street invested $5 billion in U.S. politics between 1999 and 2009 and was the leading campaign finance sponsor of Hillary Clinton, John McCain, and Barack Obama during the 2008 election cycle.²² Hudson’s essay on Obama’s “false financial reform” (Greider’s description) bore a depressing title: “Obama’s (Latest) Surrender to Wall Street.”

Revealingly enough, Obama’s financial plan won approval from the leading neoliberal Anglo-American paper, th...