Reading the bizarre effort by Paul Krugman to portray Obama as a great president, it occurred to me that it all could have been different. Newly elected with a huge mandate for reform, Obama had a chance to break the stranglehold the financial industry had on our economy in the aftermath of the 2008 meltdown. He could have done it without bi-partisan Republican input or obstruction. And, it would have allowed him to have a successful presidency, rather than the disaster we have today.
Professor of Economics and Law, at University of Missouri, Kansas City, William Black, finds Krugman hagiography strange as well.
“As the scholar who has led the critique of the Obama administration’s failure to prosecute the elite (and not-so-elite) senior officers who led the three most destructive epidemics of accounting control fraud (appraisal fraud, liar’s loans, and fraudulent “reps and warranties” in secondary market sales) in history I can attest that Krugman could have quoted literally thousands of specific criticisms I have made about the failures to hold these senior bankers accountable.”
Holding the bankers that engaged in widespread fraud responsible would have provided the political space for Obama to implement a much more robust series of economic reforms.
Here’s Professor Black, explaining how this might have happened.
“It would have been more difficult for Obama to have pushed effectively to reduce income inequality, but there are concrete things he could have done that we urged. Note that by discrediting the banks and bankers through the actions I’ve just described above, the administration would have enormously increased the political space for real reforms on executive compensation. The single greatest source of the growth of inequality at the top is finance. Financial services compensation is grossly excessive, but it is also a leading source of the perverse incentives that drive our epidemics of accounting control fraud and are used to create “Gresham’s” dynamics in the professions and more junior officers and employees that aid and abet the financial frauds. Perverse executive compensation also provides the primary means by which controlling officers loot “their” firms in a manner that makes effective prosecution more difficult.”
Yeah, who knows, we could have even emerged with a different sort of economy, one that works for the rest of us, rather than just the 1%.
“The richest one percent of the world’s population now controls 48.2 percent of global wealth, up from 46 percent last year, according to the most recent global wealth report issued by Credit Suisse, the Swiss-based financial services company…The report found that the growth of global inequality has accelerated sharply since the 2008 financial crisis, as the values of financial assets have soared while wages have stagnated and declined…”
Also, by taking down the financial miscreants who crashed our economy we could have avoided the plague of austerity. Who has been at the forefront of the push to implement austerity in the aftermath of the crash? You know the answer–it has been the same people who should be in prison who have been the biggest cheerleaders for the mass suffering austerity has brought about.
The idea, at this late date, of a different Obama, is almost comical, I realize, but hear me out. If we are going to have better policies, we need to imagine them. There is, after all, an alternative to the neoliberal bullshit they’re foisting on us. Anyway, thinking about this reminded me of the essay Simon Johnson, wrote back in 2009, entitled the Quiet Coup. In the essay Johnson, former IMF chief economist, well described the lock on power the financial elite have on our country.
“The crash has laid bare many unpleasant truths about the United States. One of the most alarming, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform.”
But, that’s not what we did, is it? We never broke the hold of the financial oligarchy and that inaction is what has defined the Obama Administration, despite what Paul Krugman might wish.
Here’s Johnson, describing what happens when you leave a powerful faction in power after they fuck up.
“…elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them….”
Why didn’t Obama take action against the financial industry, despite his historic appeal to Hope and Change? Lots of reasons: the financial industry was a significant campaign supporter, Obama had lots of friends who were bankers, but most importantly, I believe, is that Obama bought into the PR.
Obama didn’t take action because he believed, with all his heart, like other Washington insiders, “…that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.”
What would Simon Johnson tell the US as one of the nations he advised for the IMF?
“The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary…Johnson says the second thing the US needs to do is break up the oligarchy.”
Obama’s failure to prosecute the bankers who crashed the economy has consequences that reverberate. We can look around every day and see them.
“The widening chasm between rich and poor is traceable to the policies that were adopted in 2008. That’s why things are so fu**ed up, it’s because the “surge in paper wealth, fueled by the trillions of dollars pumped into the financial system by central banks via zero interest rate and “quantitative easing” policies.”
As an allegorical device, finance can be thought of as a pump, getting capital to the economy as a whole. Finance, historically, has served the function of properly and efficiently allocating capital. But in the US it doesn’t work that way anymore. Finance has become an end to itself and is more concerned with speculation than allocating capital for productive economic activity.
“The pump don’t work ’cause the vandals took the handles.”
Update: You can’t make this shit up! Now the Justice Department is claiming that they couldn’t prosecute the vandals because they were “rocket scientists.”