Is Obama Responsible for Wall Street's Meltdown? Where Populist Rage is Heading
Is Obama responsible for the meltdown of the Dow? The consistently wrong-headed Wall Street Journal's editorial page says so, as does Republican Fox News, CNN's reliably demagogic Lou Dobbs, and now CNBC (where, full disclosure, I frequently appear as a token liberal). CNBC's Jim Cramer, who bloviates nightly about stock picks, says Obama is pushing a "radical agenda" that's destroying investor's wealth. My friend Larry Kudlow, who rants nightly about nearly everything, says Obama is destroying capitalism. CNBC reporter Rick Santelli's ballistic nonsense about Obama's mortgage plan made him a pop-populist icon for a week or so.
The argument that Obama is somehow responsible for the collapse of Wall Street is absurd. First, every major policy that led to this collapse occurred under George W's watch (or, more accurately, his failure to watch). The housing and financial bubbles were created under Bush and exploded under Bush. The stock market began to collapse under Bush.
Second, it's inevitable that stocks, led by the bloated financial sector, would lose their remaining hot air as the new administration begins "stress-testing" the big banks, many of which are technically insolvent. After all, their share prices were built on a tissue of lies and dreams. Other sectors whose values were similarly distorted and distended by years of financial deception and regulatory disregard, such as housing and insurance, will also have to return to the real world before they can recover. Which could mean more stock losses.
Finally, none of the financial wizards who are now charging Obama with leading America into the abyss has offered an alternative plan for getting us out of the mess that, not incidentally, many of these same wizards happily led us into. For years, the Wall Street Journal editorial page and the financial gurus of cable news cheered as Wall Street leveraged its way into oblivion.
This bizarre charge wouldn't be worth mentioning were it not a market test for a more intense attack from Wall Street and Republican media outlets next year as the nation moves into the gravitational range of the 2010 midterm elections. Republicans have made no secret of their wish to blame Obama for the bad economy, and to stir up as much populist rage against his so-called "socialist" tendencies as politically possible. History shows how effective demagogic ravings can be when a public is stressed economically. Make no mistake: Angry right-wing populism lurks just below the surface of the terrible American economy, ready to be launched not only at Obama but also at liberals, intellectuals, gays, blacks, Jews, the mainstream media, coastal elites, crypto socialists, and any other potential target of paranoid opportunity.
To complicate matters for Republicans, however, grass-roots populist rage is also building against Wall Street itself, and with some justification. Top Wall Streeters who raked in tens of millions of dollars a year for more than a decade have now effectively eviscerated the pension fund savings of millions of middle-class American workers and destroyed millions of Main Street jobs. The public is understandably appalled that its tax dollars are being used to pay and prop up the very people and institutions responsible for this debacle. And there seems to be no end in sight: Citigroup and the insurance mammoth AIG, in particular, have become giant ongoing sump-pumps for tens of billions of public dollars. Yet no one seems to know exactly where these dollars are going, or why.
Worse: When it turns out that people like Lloyd Blankfein, the CEO of Goldman Sachs, who took home $68 million in 1997, was the only Wall Streeter in a meeting last September at the New York Federal Reserve to discuss the initial AIG bailout with Tim Geithner, then New York Fed chair, among others, at the very time Goldman was AIG's largest trading partner, a distinct scent of self-dealing begins to emanate. When it turns out that Citigroup got a bailout deal last October far more generous than that given to any other distressed bank, when a top Citi executive was advising the Treasury and Fed, the scent increases. Goldman's past CEO was Treasury Secretary at that time, by the way, and another former Goldman's CEO was a top Citi official and also a former Treasury Secretary. I am not suggesting anything so crude as corruption. But could it be, given these tangled webs, that -- innocently, unintentionally, perhaps even subconsciously -- the entire bailout effort was premised on saving these companies rather than protecting the public? Or that the distinction between the two was lost, and still is?
The Wall Street and Republican media attack machine doesn't know exactly what to make of this. The Wall Street Journal's editorial page, along with CNBC, alternates between attacking Obama for bailing out Wall Street and excusing Wall Street's excesses. But then again, Obama doesn't seem to know exactly what to make of it either. He seems to vacillate as well -- one moment scorning Wall Street, the next moment justifying further bailouts. I do hope he takes a firmer hand, drawing a clearer distinction and making a clearer connection between clearing up these financial balance sheets and helping average people. Otherwise, the next populist uprising will be born in this moneyed quagmire. It is here -- within the muck that was created by AIG, Citigroup, Fannie and Freddie, other giant financial institutions, now in combination with the U.S. Treasury and Fed -- that the public is most confused, bears its most serious scars, and is potentially most burdened in future years, by decisions still made in secret.
The argument that Obama is somehow responsible for the collapse of Wall Street is absurd. First, every major policy that led to this collapse occurred under George W's watch (or, more accurately, his failure to watch). The housing and financial bubbles were created under Bush and exploded under Bush. The stock market began to collapse under Bush.
Second, it's inevitable that stocks, led by the bloated financial sector, would lose their remaining hot air as the new administration begins "stress-testing" the big banks, many of which are technically insolvent. After all, their share prices were built on a tissue of lies and dreams. Other sectors whose values were similarly distorted and distended by years of financial deception and regulatory disregard, such as housing and insurance, will also have to return to the real world before they can recover. Which could mean more stock losses.
Finally, none of the financial wizards who are now charging Obama with leading America into the abyss has offered an alternative plan for getting us out of the mess that, not incidentally, many of these same wizards happily led us into. For years, the Wall Street Journal editorial page and the financial gurus of cable news cheered as Wall Street leveraged its way into oblivion.
This bizarre charge wouldn't be worth mentioning were it not a market test for a more intense attack from Wall Street and Republican media outlets next year as the nation moves into the gravitational range of the 2010 midterm elections. Republicans have made no secret of their wish to blame Obama for the bad economy, and to stir up as much populist rage against his so-called "socialist" tendencies as politically possible. History shows how effective demagogic ravings can be when a public is stressed economically. Make no mistake: Angry right-wing populism lurks just below the surface of the terrible American economy, ready to be launched not only at Obama but also at liberals, intellectuals, gays, blacks, Jews, the mainstream media, coastal elites, crypto socialists, and any other potential target of paranoid opportunity.
To complicate matters for Republicans, however, grass-roots populist rage is also building against Wall Street itself, and with some justification. Top Wall Streeters who raked in tens of millions of dollars a year for more than a decade have now effectively eviscerated the pension fund savings of millions of middle-class American workers and destroyed millions of Main Street jobs. The public is understandably appalled that its tax dollars are being used to pay and prop up the very people and institutions responsible for this debacle. And there seems to be no end in sight: Citigroup and the insurance mammoth AIG, in particular, have become giant ongoing sump-pumps for tens of billions of public dollars. Yet no one seems to know exactly where these dollars are going, or why.
Worse: When it turns out that people like Lloyd Blankfein, the CEO of Goldman Sachs, who took home $68 million in 1997, was the only Wall Streeter in a meeting last September at the New York Federal Reserve to discuss the initial AIG bailout with Tim Geithner, then New York Fed chair, among others, at the very time Goldman was AIG's largest trading partner, a distinct scent of self-dealing begins to emanate. When it turns out that Citigroup got a bailout deal last October far more generous than that given to any other distressed bank, when a top Citi executive was advising the Treasury and Fed, the scent increases. Goldman's past CEO was Treasury Secretary at that time, by the way, and another former Goldman's CEO was a top Citi official and also a former Treasury Secretary. I am not suggesting anything so crude as corruption. But could it be, given these tangled webs, that -- innocently, unintentionally, perhaps even subconsciously -- the entire bailout effort was premised on saving these companies rather than protecting the public? Or that the distinction between the two was lost, and still is?
The Wall Street and Republican media attack machine doesn't know exactly what to make of this. The Wall Street Journal's editorial page, along with CNBC, alternates between attacking Obama for bailing out Wall Street and excusing Wall Street's excesses. But then again, Obama doesn't seem to know exactly what to make of it either. He seems to vacillate as well -- one moment scorning Wall Street, the next moment justifying further bailouts. I do hope he takes a firmer hand, drawing a clearer distinction and making a clearer connection between clearing up these financial balance sheets and helping average people. Otherwise, the next populist uprising will be born in this moneyed quagmire. It is here -- within the muck that was created by AIG, Citigroup, Fannie and Freddie, other giant financial institutions, now in combination with the U.S. Treasury and Fed -- that the public is most confused, bears its most serious scars, and is potentially most burdened in future years, by decisions still made in secret.
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Americans are ready for a little class warfare. Democrats shouldn't shy away from it. No, we don't want to look hostile to Main Street small business but Americans know they've been screwed by the financial industry so all those CNBC hacks are little threat. Americans aren't that dumb. Let Obama stay above it all if he likes but he needs some street fighting class warriors out there not all those brain dead centrist wimps.
March 4, 2009 7:12 PM | Reply | Permalink
I'm not sure there is such a thing as "a little" class war.
March 5, 2009 11:16 AM | Reply | Permalink
Obama must dump Wall Street and go with main Street. What is most important at this time is that Obama be given an education in physical economic science 101, from the only real economist alive today, Lyndon H. LaRouche Jr.! This moment of crisis calls for FDR-LaRouche solutions now! Either you and everyone else wake up to that reality or we are in a dark age hell for several generations minimal.
http://www.larouchepac.com/
March 4, 2009 7:19 PM | Reply | Permalink
are you serious? LaRouche?!? yeah, he's relevant here -- in that he was ahead of the curve, true avante guard, with financial fraud pillaging main street. egads
March 4, 2009 7:52 PM | Reply | Permalink
LOL
No thanks, I don't take advice form guys doing time the slammer for fraud about economics. Nor do I have any desire to join his almost cult-like wing-nut brigade. LaRouche makes Nostradamus, Jim Jones, hell even Roger Patterson and Robert Gimlin seem down right lucid and convincing by comparison.
March 4, 2009 10:12 PM | Reply | Permalink
Do you mean Jim "Bear Stearns is Fine!" Cramer? I think I'll stick with Obama.
March 4, 2009 8:24 PM | Reply | Permalink
Obama has proposed real moves toward a sustainable and equitable economy in his budget. But the gathering rage against Wall Street could drown him out. I've described how this happens among my friends. It's going to take some popular education to get his better policy initiatives through.
March 4, 2009 8:27 PM | Reply | Permalink
I trust Secretary of Hysteria Cramer about as far as I could throw him.
I made this bet today...
http://danancona.blogspot.com/2009/03/its-gonna-fail.html
but Dr. Reich you're right - if Obama doesn't solve this, I mad it too soon.
March 4, 2009 8:39 PM | Reply | Permalink
I can haz pitchfork?
=D
March 4, 2009 8:51 PM | Reply | Permalink
Yes you can.
March 4, 2009 9:00 PM | Reply | Permalink
Tar and feathers should be tax deductible, this year.
March 4, 2009 9:58 PM | Reply | Permalink
Is being "technically insolvent" something like "technically flying" after you leave the cliff's edge and haven't hit the ground yet?
March 4, 2009 8:54 PM | Reply | Permalink
No...more like being "technically pregnant" just before the baby is born.
C
March 4, 2009 8:57 PM | Reply | Permalink
Perfect analogy.
March 4, 2009 9:58 PM | Reply | Permalink
Oh P L E A S E .....These guys would blame a late winter blizzard on a Democrat if it served their purpose. And I wish they would explain exacly waht they mean by destroying capitalism. If they mean the right to greed, graft, corruption, fraud and out and out stealing of other peoples money purely to line their own pockets with no consequences what so ever, I wish they would just come out and say it.
(silence...except the occasional cricket)
I rest my case.
C
March 4, 2009 8:55 PM | Reply | Permalink
"The Wall Street and Republican media attack machine doesn't know exactly what to make of this. The Wall Street Journal's editorial page, along with CNBC, alternates between attacking Obama for bailing out Wall Street and excusing Wall Street's excesses"
Yes
March 4, 2009 9:15 PM | Reply | Permalink
Um, Mr. Reich, I agree with you by and large, but please check your spelling. Bizarre, not bazarre.
March 4, 2009 9:20 PM | Reply | Permalink
Make no mistake: Angry right-wing populism lurks just below the surface of the terrible American economy . . . . Robert Reich
Make no mistake: Angry left-wing populism lurks just below the surface of the terrible American economy . . . .
March 4, 2009 9:31 PM | Reply | Permalink
Ellen,
oh yeah? Well, well, my dad can beat up your dad, so there!
March 5, 2009 7:15 AM | Reply | Permalink
"When it turns out that people like Lloyd Blankfein, the CEO of Goldman Sachs, who took home $48 million in 1997, was the only Wall Streeter in a meeting last September at the New York Federal Reserve to discuss the initial AIG bailout with Tim Geithner, then New York Fed chair, among others, at the very time Goldman was AIG's largest trading partner, a distinct scent of self-dealing begins to emanate. "
This would be worthy of further investigation and muckraking.
"media attack machine"
Leave tilting at windmills to ordinary bloggers, and see what you can do re AIG being a conduit to pay off gamblers and crooks with government funds. Josh Marshall has finally got the bug, you can too!
March 4, 2009 9:47 PM | Reply | Permalink
the beginning that Obama will be a swear word for the investor class once known as the Gatsby class.
March 4, 2009 9:57 PM | Reply | Permalink
Secretary Reich's post is really good describing the tension growing in society about something that's totally un-understandable by any other than a select few. And I'm not one of the few when it comes to the credit default swap area, an unregulated insurance product used to short the markets and create bear raids..
AIG remains the bottomless pit. Are they still in the business of writing new credit default swaps and are the additional monies, the latest TARP infusion going to protect losses on new speculation since their September takeover. Increasingly, as Josh posted on the main page of TPM, the clip of Senator Cantwell questioning Geithner, Senators and people want to know who the counterparties are that need protection, but I think a bigger question is whether AIG's liabilities and potential losses have grown recently.
Today, the market commentary said GE CDSs rose substantially. Is the CDS game the same today as when all this started? What is the government doing? AIG;s credit default swap business should be isolated, put into a "bad bank" and settled for 10 - 20 cents on the dollar.
Geithner's refusal to be candid and his coy, irritating demeanor will bring Obama down sooner than later. Geithner should be cut loose soon to protect the presidency.
March 4, 2009 10:07 PM | Reply | Permalink
A very smart and timely post. The death of the GOP is greatly exaggerated--and Mr. Reich points right to the weak spot in rolling them back; of course that doesn't take away from the fact that whatever rage they can harness on these issues will be misdirected 180 degrees. Never fails to amaze how the masses can be gotten to organize to defend the top 2%.
March 4, 2009 10:22 PM | Reply | Permalink
The striking contrast is between the Republicans (led by their Blimp in Chief), who are using every conceivable opportunity to stoke popular rage and turn it against the Godless socialists (i.e. the Democrats), and Obama, who says:
"I also know that in a time of crisis, we cannot afford to govern out of anger . . . "
Which is all well and good, and the "no drama" approach has served him well so far, but as the unemployment rate continues to climb (and it will) and home prices continue to fall (and they will), how much longer can he continue to offer cool technocratic competence to a country that is right pissed at the fix it finds itself in?
There may come a time when this administration and the Democratic Party cannot afford to govern without anger.
March 4, 2009 11:14 PM | Reply | Permalink
These right wing TV talking heads are trying to gin up populist outrage that Obama isn't doing enough to save the wealth of the top 2% of earners in America? Seriously? They expect to common man/woman to be outraged that some of the financial resources of the government are going to them instead of all of it going to protect the fortunes of the uber-wealthy?
Do they think the American people are willing to accept their premise that it is actually in their best interests to be opposed to their best interests?
That being said I am a bit disappointed in President Obama on the economy, relatively speaking. Yes, he has taken concrete measures to help the other 98% of us...but it is not nearly enough help that should be given. To quote the late great Frank Zappa...
March 5, 2009 12:20 AM | Reply | Permalink
Obama is killing "capitalism" and destroying billions in wealth? That's a load of crap and the speakers know it.
What is being destroyed is a lot of crooked, fraudulent trading systems built on lies, secrecy and misdirection. The wealth that is being destroyed is based on artificially created bubbles, ultra-low interest rates, and the fed flooding the financial markets with almost more money than the bankers could steal. Then the bankers spent their days figuring out how to leverage the rise of the markets to add even more gelt to their personal portfolios. All of this has been done by a culture of greed-head banking CEO's who have been out to line their own pockets with other people's money at least since Reagan was elected. It's been a full generation of criminals masquerading as bankers.
That market-based "wealth" was fake wealth, not based on true economic production of real goods and services. It was simply an artifact of uncontrolled markets and greedy men-in-suits.
And what is destroying all that fake "wealth?" Sunlight on the worst abuses of the system, triggered by a rise in interest rates by Greenspan's fed. The abuses and cases of irrational and excessive risk in lending have been dripping out piece by piece since early 2007 when CountryWide announced that it was having an unprecedented number of defaults in it's lowest rated mortgages.
It's not Obama who has done that. It's the markets themselves as they begin to correct many of the bubble-based excesses of the past.
Obama is just leading the clean-up crew, and the crooks on Wall street and in financial journalism really, really really don't like it. Naturally they can't blame the true culprits - themselves - because that would damage their income and prospects. So the clean-up crew, sweeping up t6he crap and shining a spot-light on the greed-head bankers and their misdeeds will be blamed for the elephant dung in the streets after the circus has had it's parade and moved on. Of course, Obama must be responsible. All was shadows and secrecy before he arrived, and now all of a sudden it is getting a lot more visible.
The financial pundits are nothing but fast-talking, quick-lying con-men in expensive suits, already working their next con. The Wall Street Journal Editorial Page is the worst of the worst.
March 5, 2009 3:39 AM | Reply | Permalink
Obama has a choice;
1- Business as usual, taking care of Wall Street and the Corporate boys first and giving the rest of us trickle down government.
2- Fix it by taking care of the 90% of public first and the capitalists second.
Obama isn't dealing with old time Republican businessmen, people you could deal with, he's dealing with self-serving, right wing capitalists who will always think of what's best, not for the Corporations or the Banks that they're running, but for themselves personally.
I say to Obama; "When you dance with the Devil, he doesn't change, you do."
I know I'm setting up a false dichotomy, however, if Obama chooses #1 he will go down in History as a bigger snake oil salesman than Reagan, but if he chooses #2 he may go up on Mt. Rushmore.
March 5, 2009 7:13 AM | Reply | Permalink
So much for my lament in my early twenties (back in the early 1990s) that I was doomed to live a life in uninteresting times.
March 5, 2009 8:39 AM | Reply | Permalink
"My friend Larry Kudlow, who rants nightly about nearly everything, says Obama is destroying capitalism."
Ah!, just another Kudlow rant. Nothing more.
March 5, 2009 12:46 PM | Reply | Permalink
The size of the Class War is irrelevant. The only thing that matters is that the Class War has been raging for a long time now but only one side has been fighting it. The Conservatives (owners of capital) have been savaging the working class and the 'centrist' Democrats have poo-pooed any kind of response. Meanwhile, the conservative media outlets spend every single hour of the day feeding misinformation to the working class such that people like Samuel Wurzelbacher become Class Warriors against their own class.
Do not fear the Class War for you are already a veteran of it.
March 5, 2009 12:55 PM | Reply | Permalink
Been sayin' that for years.
(Weird web name there Mr. Wreckshun.)
March 5, 2009 1:30 PM | Reply | Permalink
I'm not sure that Obama's decrying of Wall Street on one hand and defending the bailout on the other qualifies as vacillating.
In the same way, a majority of the American public thinks the bailouts are unfair, but they also believe there is no other choice but to go through with it.
March 5, 2009 3:10 PM | Reply | Permalink
Hey, Bernanke, Paulson, Kashkari & Geithner! Can you spare some Change I CAN Believe In?
March 5, 2009 4:36 PM | Reply | Permalink
Hey, Bernanke, Paulson, Kashkari & Geithner! Can you spare some Change I CAN Believe In?
March 5, 2009 4:37 PM | Reply | Permalink
Thank you for calling Cramer out on this nonsense. I heard him and was floored. He and others are engaging in plutagogery.
March 5, 2009 5:27 PM | Reply | Permalink
Probably at some point here during this blog post you might have mentioned that Obama is still very popular by most polls, and that - and here I'm hazarding a guess - the financial "wizards" of Wall Street are not.
People know that they've been getting systematically screwed by Citibank, Bank of America, etc. for years. Indeed, it seems that even when these banks want to siphon off the public trough to get free money to pay for their mistakes, the notion that they should cap their usurious credit card interest rates is "off the table".
So yeah, we're long overdue for a good bit of populism. Some of the rich may not want a class war. I have read that Yamamoto didn't want a naval war with the United States, either.
March 6, 2009 1:29 AM | Reply | Permalink
"When it turns out that people like Lloyd Blankfein, the CEO of Goldman Sachs, who took home $68 million in 1997, was the only Wall Streeter in a meeting last September at the New York Federal Reserve to discuss the initial AIG bailout with Tim Geithner, then New York Fed chair, among others, at the very time Goldman was AIG's largest trading partner, a distinct scent of self-dealing begins to emanate."
This is untrue. Blankfein was not the only Wall Streeter in the meeting:
The original New York Times story on which the Blankfein accusation was based was subsequently corrected, so it's indisputable that the claim that Blankfein was the only Wall Streeter in the meeting about AIG is false.
Also, for Reich to intimate that Bob Rubin was improperly influencing the Fed and Treasury ironically also has the scent of self-dealing, given Reich's well-known personal differences with Rubin. Let it go already.
March 8, 2009 7:55 PM | Reply | Permalink