The tag line from the Obama campaign was “Change We Can Believe In.” However, an increasing number of people are becoming skeptical as to whether Obama will actually change anything.
I, for one, have always felt his cautious approach meant incremental change as opposed to wholesale change. And that is a good thing. Nevertheless, as the glow of election politics wears off and the job of governing looms, many progressive Obama supporters are seeing signs that he is not the change agent they want him to be.
First, there was the pick of political insider Rahm Emanuel, as his chief of staff. Nicknamed Rahmbo, Emanuel was a major force inside the Clinton Administration and is a Congressional Representative from the state of Illinois.
Now, it seems ever more likely that Obama has come under the influence of laissez-faire free market deregulators from the Clinton days. Many must, therefore, wonder if he is ready to reform Wall Street. The magnificent investigative piece by Heidi Przybyla of Bloomberg News below shows why.
During the height of the financial crisis in late September, some of Barack Obama’s campaign advisers pushed him in a conference call to distance himself from Treasury Secretary Henry Paulson. The former Goldman Sachs Group Inc. chief executive officer, they warned, was too close to President George W. Bush and Wall Street.
Obama, 47, rejected the idea. At one point, he talked to Paulson everyday for two weeks.
As the president-elect faces a once-in-a-century opportunity to remake the regulatory apparatus governing Wall Street, some of Obama’s fellow Democrats and investor groups are urging him to bring sweeping changes to banks, hedge funds and executive pay. His closest economic advisers, men like Robert Rubin, Lawrence Summers and Paul Volcker, may recommend otherwise: go slow. If Obama takes their counsel, the 44th president, who succeeds Bush on Jan. 20, may not clamp down all that hard on a financial industry whose excesses have pushed the nation — and much of the world — into a recession.
“This is a group of people that understands the markets, respects the free-market system and understands government has an important role to play,” says Eugene Ludwig, a former U.S. comptroller of the currency who is himself an Obama adviser. “But there are limits on what government can or should do.”
Both Franklin Delano Roosevelt in the 1930s and Ronald Reagan five decades later saw an economic crisis as an opportunity to make major changes. Roosevelt, in response to the Great Depression, created Social Security and federal deposit insurance. During the 1981-82 recession, Reagan set out to reverse the centralization of power in Washington that was at the heart of the Roosevelt revolution; he ushered in a quarter-century of deregulation.
Reagan the Radical
“Most politicians are incrementalists,” says presidential historian Richard Norton Smith at George Mason University in Fairfax, Virginia. “Reagan was no incrementalist. He took advantage of the dire circumstances he inherited, and he saw them as justification for significantly, if not radically, different policies.”
On the campaign trail, Obama regularly condemned the lack of regulation of the financial industry. “The last thing we can afford is four more years where no one in Washington is watching anyone on Wall Street,” the candidate said during an Oct. 31 rally in Iowa.
In his first interview since his victory, he struck a more moderate tone. “I think we have to restore a sense of trust, transparency, openness in our financial system,” he told CBS television’s “60 Minutes” on Nov. 16. “The answer is not heavy- handed regulations that crush the entrepreneurial spirit and risk- taking of American capitalism. That’s what’s made our economy great. But it is to restore a sense of balance.”
Showdown in Congress
Even if Obama was tilting either toward state intervention or unfettered markets, he would now be likely to tack to the center – – in a country where a new economic shock arrives almost daily.
“How can you be an ideologue in an environment like that?” says Pablo Spiller, a professor at the Haas School of Business at the University of California, Berkeley. “The conditions are so dire, there is no way you can speak to one policy. Would you have imagined that Mr. Bush would have taken stakes in banks? The answer is no.”
A light touch by Obama in rewriting the rules for Wall Street would likely lead to a showdown with his own party. The Democrats strengthened their majorities in the November election by at least 20 seats in the House and at least six in the Senate — backed by voters outraged over the $5.8 trillion plunge in the stock market from Jan. 1 through Nov. 4.
Edward here: the above section of this piece highlights the dilemma for Obama and the reason progressives within the Democratic party are worried. Obama has indicated he would like Larry Summers or Tim Geithner for Treasury Secretary. Each man presents problems for progressives. Summers may be off the short list, however, due to sexist and derogatory comments that he made while President of Harvard University — comments which eventually cost him his job. Geithner, on the other hand, has his fingerprints all over the Lehman Brothers failure — the failure which created the systemic risk that cratered the global economy and created a recession veering toward Depression.
I would agree that these two men should be dismissed out of hand for political reasons alone. They do not represent change. In fact, they were at the center of the free market ideological movement which has brought us to this precipice. Others with a more regulatory frame of mind should take office. Paul Volcker would do well as an interim figure given the respect he has from all sides. However, his age — he is 81 — probably precludes him from serving permanently. After a year or so with Volcker in office, Obama could reassess and pick a new Treasury Secretary. My personal choice here might be someone like James Galbraith, a professor at the University of Texas.
Moving back to the article, Przybyla concludes with some warnings of the reform agenda pendulum swinging too far to the left.
Assault on Capitalism
Many Republicans warn that the drive to rein in the financial industry may go too far and inflict further pain on the economy.
Representative Tom Price, a Georgia Republican, calls the government’s bailout of banks and help for homeowners facing foreclosure an assault on capitalism.
“It’s a marked turn toward a nefarious ideal that problems can be solved by centralized decision making here in Washington,” Price said before the financial services committee in October. “Moving ahead, Congress must be sensible. The end result must promote economic growth, not stifle opportunity.”
Obama may be planning more profound regulatory changes than his advisers have revealed so far, says Julian Zelizer, a history and public affairs professor at Princeton University in Princeton, New Jersey.
“If he surrounded himself with the left, it would be much harder to push regulation,” Zelizer says. “Now he can claim the support of Summers or Rubin. They will offer him some support and cover from the financial community.”
Just by being elected, even before he sets foot in the White House, Obama has changed the course of history. And starting in January, he’ll have a rare chance to overhaul a financial regulatory system that failed to prevent the worst crisis in decades — if he chooses to seize the opportunity.
The article is much longer than the two segments I have highlighted. I would suggest that you read the original, which is linked below, to get a comprehensive view.
Sources
Obama Embrace of Wall Street Insiders Points to Politic Reforms – Bloomberg
Summers may be off of Treasury short list – Politico
The Balance Sheet – Geithner and Lehman Brothers – The New Yorker