By Dan Froomkin
1:14 PM ET, 01/29/2009
(For an explanation of the recent format change, please read this post.)
Barack Obama campaigned as a champion of the little guy -- and kicked off his presidency on decidedly populist notes. The marquee event of inauguration night was a "neighborhood ball" open to everyday Americans. The next morning, the president and first lady welcomed people off the street into their new home for an open house.
But as Obama takes on the enormous challenge of trying to right a perilously listing economy, he seems to be abandoning at least some of that populism in an attempt not to upset Republicans and Wall Street.
In his first days, Obama has spent more time jawing with -- and making concessions to -- Republicans than Democrats. His photo ops are with corporate CEOs, not labor leaders or laid-off workers. His senior economic team represents the dominant Wall Street culture, and is apparently considering a financial rescue plan that will most directly help the same fat cats who gave themselves more than
$18 billion in bonuses last year, even as they tanked the economy. Despite dramatic new ethics policies, Obama is peppering his administration with lobbyists. And he appears to be in no hurry to repeal Bush's tax cuts for the rich.
At the same time, the Obama team is eschewing even the easiest appeals to populism, responding with discreet pressure rather than more public outrage earlier this week when it was revealed that executives at Citibank -- who received a $45 billion infusion of tax dollars -- were buying a $50 million corporate jet.
And what does Obama have to show for all this outreach and restraint? So far, not much. He got his stimulus bill passed in the House yesterday -- but without a single GOP vote.
My Live Online audience yesterday was in high dudgeon about Obama's concessions on the stimulus bill -- first loading it up with business tax cuts, then bowing to GOP pressure and cutting funding for family planning and the restoration of the Mall.
New York Times opinion columnist Paul Krugman responded to yesterday's vote with an angry blog post: "The House has passed the stimulus bill with not a single Republican vote. Aren't you glad that Obama watered it down and added ineffective tax cuts, so as to win bipartisan support?"
But the real populist test case may be the Obama economic team's response to the crisis afflicting the country's financial institutions. Rather than address the underlying foreclosure epidemic, his advisers are focusing on the banks. And rather than nationalize institutions that took outrageous risks and should therefore suffer the consequences, they appear to be intent on a massive bailout with taxpayer money.
David Cho wrote in The Washington Post yesterday: "President Obama's top advisers are in the final stages of debating several perilous options to right the financial system, all of which are likely to prove unpopular and in some cases carry a significant risk of failure, according to sources in contact with the officials...
"On the table are several approaches, which officials have begun to experiment with on a smaller scale. One would give the firms a federal guarantee protecting them against losses on assets that are backed by failing mortgages and other troubled loans. Another would set up new government institutions to buy these toxic assets. A third would inject more money into financial firms in exchange for ownership stakes, perhaps ending with nationalization in all but name....
"Publicly, these officials said they plan to provide clearer guidelines and oversight for how government money is spent and promised to use rescue funds to help homeowners, small businesses, municipalities and other consumers as part of a comprehensive plan, which could be released this week or next. But other senior government officials and economists said they expect the bulk of the rescue funds to continue going to financial firms...
"All of the rescue efforts are difficult to explain to ordinary Americans, who criticize the government for spending too much money to aid financial firms that started the crisis in the first place."
Stephen Labaton and Edmund L. Andrews write in the New York Times that newly-minted Treasury Secretary Timothy F. Geithner yesterday "discouraged speculation that the plan would include the nationalization of some banks.
"'We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system,' he said."
By contrast, consider this CNN commentary from Nobel-Prize winning economist Joseph E. Stiglitz, who raises the question: "Perhaps the entire strategy is flawed? Perhaps what is needed is a fundamental rethinking. The Paulson-Bernanke-Geithner strategy was based on the realization that maintaining the flow of credit was essential for the economy. But it was also based on a failure to grasp some of the fundamental changes in our financial sector since the Great Depression, and even in the last two decades."
Stiglitz looks back at the government's recent experiment with "equity injection, without strings." The result was that "as we poured money into the banks, they poured out money, to their executives in the form of bonuses, to their shareholders in the form of dividends.
"Some of what they had left over they used to buy other banks -- to pursue strategic goals for which they could not have found private finance. The last thing in their mind was to restart lending."
The alternative, Stiglitz writes, is for the the government to take over "those banks that cannot assemble enough capital through private sources to survive without government assistance.....
"To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk taking. Ownership cannot be a one-sided bet."
He concludes: "Inevitably, American taxpayers are going to pick up much of the tab for the banks' failures. The question facing us is, to what extent do we participate in the upside return?
"Eventually, America's economy will recover. Eventually, our financial sector will be functioning -- and profitable -- once again, though hopefully, it will focus its attention more on doing what it is supposed to do. When things turn around, we can once again privatize the now-failed banks, and the returns we get can help write down the massive increase in the national debt that has been brought upon us by our financial markets."
Dean Baker, co-director of the liberal Center for Economic and Policy Research, wrote recently on Huffingtonpost.com: "The idea that we would give one more penny to this crew that has wrecked the economy should make taxpayers furious. There is a legitimate public interest in keeping the banks operating; a modern economy needs a well-operating financial system. But, there is zero public interest in rewarding shareholders and overpaid banks executives.
"These executives bankrupted their banks and brought the economy down with them. They belong in an unemployment line not collecting multi-million dollar paychecks in their designer office suites.
"The obvious answer is to take over the insolvent banks, just as we did with the insolvent S&Ls....
"This is the only reasonable solution to the mess that the bankers have created. The other solutions are simply efforts to transfer dollars from hardworking taxpayers to overpaid and incompetent bank executives. It is hard to believe that anyone would take it seriously, if not for the enormous political power of the Wall Street gang."
And in the view of influential Washington blogger Steve Clemons, that power extends right into the highest levels of the White House.
"Obama and [Chief of Staff] Rahm Emanuel have hired a group of people who are going to make the rich stay rich -- and who are not designed to really change things for the middle class or the struggling lower end," Clemons writes.
"After all, it was they who said that the economy was booming, that offshoring was great, that manufacturing was not important, that those CEOs deserved that high pay and little could be done about it, and the reason that the middle class was being left behind is that they were becoming less globally competitive and/or they didn't have the educational background or fortitude to keep pace with the highest end earners."
Obama could have hired advisers "who might have kept some balance between those who could think through the micro-economic dimensions of economic policy and the macro types who helped contribute to today's problems -- but Obama's selections have mostly been the latter type of Robert Rubin acolytes. I would count Council of Economic Advisors Chair Christina Romer in that mix as well as both National Economic Council Chair Lawrence Summers and Treasury Secretary Timothy Geithner....
"Obama has essentially brought in the same crowd of people or ideological fellow travelers who helped hatch the Clinton era manic finance fest that the Bush administration made worse."