[Marxism] Obama's Katrina

[Louis Proyect <lnp3@xxxxxxxxx>]

NY Times, March 22, 2009
Op-Ed Columnist
Has a ‘Katrina Moment’ Arrived?
By FRANK RICH

A CHARMING visit with Jay Leno won’t fix it. A 90 percent tax on 
bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. 
Unless and until Barack Obama addresses the full depth of Americans’ 
anger with his full arsenal of policy smarts and political gifts, his 
presidency and, worse, our economy will be paralyzed. It would be 
foolish to dismiss as hyperbole the stark warning delivered by Paulette 
Altmaier of Cupertino, Calif., in a letter to the editor published by 
The Times last week: “President Obama may not realize it yet, but his 
Katrina moment has arrived.”

Six weeks ago I wrote in this space that the country’s surge of populist 
rage could devour the president’s best-laid plans, including the 
essential Act II of the bank rescue, if he didn’t get in front of it. 
The occasion then was the Tom Daschle firestorm. The White House seemed 
utterly blindsided by the public’s revulsion at the moneyed insiders’ 
culture illuminated by Daschle’s post-Senate career. Yet last week’s 
events suggest that the administration learned nothing from that brush 
with disaster.

Otherwise it never would have used Lawrence Summers, the chief economic 
adviser, as a messenger just as the A.I.G. rage was reaching a full boil 
last weekend. Summers is so tone-deaf that he makes Geithner seem like 
Bobby Kennedy.

Bob Schieffer of CBS asked Summers the simple question that has haunted 
the American public since the bailouts began last fall: “Do you know, 
Dr. Summers, what the banks have done with all of this money that has 
been funneled to them through these bailouts?” What followed was a 
monologue of evasion that, translated into English, amounted to: Not 
really, but you little folk needn’t worry about it.

Yet even as Summers spoke, A.I.G. was belatedly confirming what he would 
not. It has, in essence, been laundering its $170 billion in taxpayers’ 
money by paying off its reckless partners in gambling and greed, from 
Goldman Sachs and Citigroup on Wall Street to Société Générale and 
Deutsche Bank abroad.

Summers was even more highhanded in addressing the “retention bonuses” 
handed to the very employees who brokered all those bad bets. After 
reciting the requisite outrage talking point, he delivered a patronizing 
lecture to viewers of ABC’s “This Week” on how our “tradition of 
upholding law” made it impossible to abrogate the bonus agreements. It 
never occurred to Summers that Americans might know that contracts are 
renegotiated all the time — most conspicuously of late by the United 
Automobile Workers, which consented to givebacks as its contribution to 
the Detroit bailout plan. Nor did he note, for all his supposed 
reverence for the law, that the A.I.G. unit being rewarded with these 
bonuses is now under legal investigation by British and American 
authorities.

Within 24 hours, Summers’s stand was discarded by Obama, who tardily 
(and impotently) vowed to “pursue every single legal avenue” to block 
the bonuses. The question is not just why the White House was the last 
to learn about bonuses that Democratic congressmen had sought hearings 
about back in December, but why it was so slow to realize that the 
public’s anger couldn’t be sated by Summers’s legalese or by constant 
reiteration of the word outrage. By the time Obama acted, even the 
G.O.P. leader Mitch McConnell was ahead of him in full (if hypocritical) 
fulmination.

David Axelrod tried to rationalize the lagging response when he told The 
Washington Post last week that “people are not sitting around their 
kitchen tables thinking about A.I.G.,” but are instead “thinking about 
their own jobs.” While that’s technically true, it misses the point. Of 
course most Americans don’t know how A.I.G. brought the world’s 
financial system to near-ruin or what credit-default swaps are. They may 
not even know what A.I.G. stands for. But Americans do make the 
connection between their fears about their own jobs and their broad 
understanding of the A.I.G. debacle.

They know that the corporate bosses who may yet lay them off have 
sometimes been as obscenely overcompensated for failure as Wall Street’s 
bonus babies. As The Wall Street Journal reported last week, chief 
executives at businesses as diverse as Texas Instruments and the home 
builder Hovnanian Enterprises have received millions in bonuses even as 
their companies’ shares have lost more than half their value.

Since Americans get the big picture of this inequitable system, that 
grotesque reality dwarfs any fine print. That’s why it doesn’t matter 
that the disputed bonuses at A.I.G. amount to less than one-tenth of one 
percent of its bailout. Or that CNBC — with 300,000 viewers on a typical 
day by Nielsen’s measure — is a relatively minor player in the crash. Or 
that Edward Liddy had nothing to do with A.I.G.’s collapse, or that John 
Thain, of the celebrated trash can, arrived after, not before, others 
wrecked Merrill Lynch.

These prominent players are just the handiest camera-ready triggers for 
the larger rage. Passions are now so hot that even Bernie Madoff’s 
crimes began to pale as we turned our attention to A.I.G.’s misdeeds, 
just as A.I.G. will fade when the next malefactor surfaces.

What made Jon Stewart’s takedown of Jim Cramer resonate was less his 
specific brief against CNBC’s cheerleading for bad stocks than his 
larger indictment of the gaping economic inequality that defined the 
bubble. As Stewart said, there were “two markets” — the long-term market 
that Americans earnestly thought would sustain their 401(k)’s, and the 
fast-moving, short-term “real market” in the back room where 
high-rolling insiders wagered “giant piles of money” and brought down 
everyone with them.

No one is more commanding on this subject than our president. In his 
town-hall meeting in Costa Mesa, Calif., on Wednesday, he described the 
A.I.G. bonuses as merely a symptom of “a culture where people made 
enormous sums of money taking irresponsible risks that have now put the 
entire economy at risk.” But rhetoric won’t tamp down the anger out 
there, and neither will calculated displays of presidential “outrage.” 
We must have governance to match the message.

To get ahead of the anger, Obama must do what he has repeatedly promised 
but not always done: make everything about his economic policies 
transparent and hold every player accountable. His administration must 
start actually answering the questions that officials like Geithner and 
Summers routinely duck.

Inquiring Americans have the right to know why it took six months for us 
to learn (some of) what A.I.G. did with our money. We need to understand 
why some of that money was used to bail out foreign banks. And why 
Goldman, which declared that its potential losses with A.I.G. were 
“immaterial,” nonetheless got the largest-known A.I.G. handout of 
taxpayers’ cash ($12.9 billion) while also receiving a TARP bailout. We 
need to be told why retention bonuses went to some 50 bankers who not 
only were in the toxic A.I.G. unit but who left despite the “retention” 
jackpots. We must be told why taxpayers have so little control of the 
bailed-out financial institutions that we now own some or most of. And 
where are the M.R.I.’s from those “stress tests” the Treasury Department 
is giving those banks?

That’s just a short list. In general, it’s hard to imagine taxpayers 
shelling out billions for a second bank bailout unless there’s a full 
accounting of every dime of the first, and true transparency for the new 
plan whose rollout is becoming the most attenuated striptease since the 
heyday of Gypsy Rose Lee.

Another compelling question connects all of the above: why has there 
been so little transparency and so much evasiveness so far? The answer, 
I fear, is that too many of the administration’s officials are too 
marinated in the insiders’ culture to police it, reform it or own up to 
their own past complicity with it.

The “dirty little secret,” Obama told Leno on Thursday, is that “most of 
the stuff that got us into trouble was perfectly legal.” An even dirtier 
secret is that a prime mover in keeping that stuff legal was Summers, 
who helped torpedo the regulation of derivatives while in the Clinton 
administration. His mentor Robert Rubin, no less, wrote in his 2003 
memoir that Summers underestimated how the risk of derivatives might 
multiply “under extraordinary circumstances.”

Given that Summers worked for a secretive hedge fund, D. E. Shaw, after 
he was pushed out of Harvard’s presidency at the bubble’s height, you 
have to wonder how he can now sell the administration’s plan for buying 
up toxic assets with the help of hedge funds. It will look like another 
giveaway to his own insiders’ club. As for Geithner, people might take 
him more seriously if he gave a credible account of why, while at the 
New York Fed, he and the Goldman alumnus Hank Paulson let Lehman 
Brothers fail but saved the Goldman-trading ally A.I.G.

As the nation’s anger rose last week, the president took responsibility 
for what’s happening on his watch — more than he needed to, given the 
disaster he inherited. But in the credit mess, action must match words. 
To fall short would be to deliver us into the catastrophic hands of a 
Republican opposition whose only known economic program is to reject 
job-creating stimulus spending and root for Obama and, by extension, the 
country to fail. With all due deference to Ponzi schemers from Madoff to 
A.I.G., this would be the biggest outrage of them all.

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