Obama and the Fat Cat bankers

Last night on CBS’ 60 Minutes, President Obama attacked Wall Street as “fat cats,” saying he was not elected merely for their sake. Obviously, the President is now keenly aware of how his political capital is being lost due to the bailout program earlier in the year. He is doing some serious damage control. But what does the President plan to do about this?  I do not advocate taxing bonuses outright as is being done in the U.K.  Taxing bonuses strikes me as a populist move similar to the desire to impose oil company windfall taxes back in 2008 – something no one is talking about now.

But, Marshall Auerback thinks President Obama is all hat and no cattle anyway.  In reference to the President’s more stridently populist tone toward Wall Street, he says:

Far easier to resort to cheap populism than actually do something about it. If the President were serious, he would be pointing out that the bankers have been undercutting every effort at reform, and have been paying off Congress to put loopholes into all legislation. If he were genuinely upset, he would be channeling the country’s anger constructively, by calling on the population to take to the streets in mass protests against Wall St., with a view to shutting down the biggest banks and breaking their power once and for all. Of course, the President would never do anything so "irresponsible". Far better to throw a few bones to the peasants and hope that the appearance of reform pacifies them.

Here is my take.

If you listened to what Obama said before he became President, it is clear he was not running left.

  • He never said he would pull out of Afghanistan; he said all along he considered this the just war. And he promised to escalate depending on the circumstances on the ground.
  • He never promised Universal Health Care; the proposal by Hillary Clinton mandated coverage while his did not.
  • He never had progressives surrounding him in his election bid as Matt Taibbi claims.

Don’t be fooled. Those who decry Obama’s policies as ‘socialist’ are doing so for purely political benefit.  Are you telling me that Obama is governing in a vastly different way than George W. Bush at the end of his tenure?  How exactly would John McCain have been any less socialist? Are you telling me McCain would have bankrupted Citi or BofA? It’s absolute nonsense. I would grant you that McCain would have sought to extend tax cuts for the rich. Otherwise, the cry of socialism is a purely political tactic using Obama’s dip in popularity in order to strip him and his party of any right-leaning independents he may have won in 2008.

The only difference between the established parties is the degree to which they believe in neoclassical laissez-faire economics.  The Republicans believe that markets are almost always right and see nearly no reason for government intervention except to lower taxes and promote free markets. The Democrats believe that markets are almost always right too but they see more reason for government intervention in order to protect their traditional base of unions and the working class (think health care reform, taxes on the rich, and the auto bailouts).

However, in practice, those beliefs manifest themselves differently because of the political process and the power of lobbyists. It is what I have termed deregulation as crony capitalism. What the Obama Administration is doing has nothing to do with socialism; those who believe that are either political partisans or those hopelessly misinformed individuals falling prey to political partisans. The present policy is what Dylan Ratigan calls ‘Corporate Communism’ i.e. a pro-business status quo bias which favors incumbent firms over potential entrants, big business over small business, and corporate interests over consumer interests. It is no different than what we saw during the Clinton and George W. Bush Administrations.

Why is Obama favoring big business? Neo-liberalism.

In the 1990s, the so-called Third Way, popularized by Bill Clinton and Tony Blair, changed the fortunes of liberals dramatically.  Traditionally, the Democratic and Labour Parties were controlled by unions and working class interests – the so-called left wing.  This is one reason Democrats controlled the South until the civil rights movement. But, stagflation seemed to discredit leftish policies. In the U.S., the 1980s ushered in 12 years of Republican Presidency.  Labour’s trip into exile was even longer, 18 years.

The Republican’s were stopped only as a result of an unusual combination of Ross Perot’s third-party candidacy and Bill Clinton’s co-opting of large parts of the right’s pro-business anti-regulation, pro-free market platform – so-called Neo-Liberalism.  The neo-liberals in America were so successful that Tony Blair adopted the same tactics in creating New Labour and overthrowing the Conservatives in 1997. Junchiro Koizumi copied Blair in moving the LDP away from its base toward neoliberalism, vaulting him into power in 2001. In fact, one could even see Gerhard Schroeder as a neo-liberal who moved Germany’s SPD into power in 1998 – one reason the SPD is now losing voters to Oskar Lafontaine and die Linke (The Left).

So, Marshall is right. Obama has been more interested in sending out a pro-business signal to re-assure business interests and to court independent voters. I believe he has made a political calculation that he can hold his base of support even if he adopts a more center-left positioning because they have nowhere else to go.  It’s not like they are going to vote for the Republicans. This has been an effective way to power for left-leaning mainstream parties for at least 15 years.

However, I suspect that the Obama Administration was taken by surprise by how huge post-bailout profits in the banking sector were. He probably also never anticipated the lack of political antennae Wall Street executives showed in paying large bonuses. So, his pro-business emphasis has backfired and he finds himself in a position where he must ratchet up the populist rhetoric – not necessarily to be followed by any concrete actions.

The problem with this calculus is that, in the wake of this major financial crisis, there are lots of voters who want much more fundamental change than Barack Obama has been willing to make.  This is true on banker pay, on auditing the Federal Reserve and on protecting American jobs. Words alone are meaningless – one reason populism and protectionism escalate from rhetoric into action.


Obama’s New-Found Populism: All Hat, No Cattle – Marshall Auerback

  1. TOm Lindmark says

    An excellent post, Ed. The last paragraph and particularly the last sentence are unfortunately probably spot on.

    1. Edward Harrison says

      Thanks, Tom. My view at this point is that Obama is reluctantly being pushed into more aggressive action by political circumstance. His press conference after the bankers’ meeting showed a disappointed and somewhat weary President. I anticipate we are likely to see populist action to go along with rhetoric if the economy does not improve substantially.

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