Presidency in Peril?

Given the density and opaque nature of much of the detail in Kuttner's volume -- not to mention the usual end-of-the-term time pressures -- it might prove fruitful to open a line of discussion on the core argument in the book here on Obamadogs.

As the Frontline program from today, "The Warning," stressed, a major but not the sole force in the financial system's collapse was the trade in derivatives. It was not the only problem issuing from the deregulation instigated during the Clinton boom years; however, when Glass-Steagall was repealed in 1999, the volume of derivative trading took off and became tied to the securitization of mortgage debt, which in turn made the whole system vulnerable to a sharp setback when the housing market boom went bust. The story of Brooksley Born's efforts to get the Rubinistas to think about the lack of transparency is told in Kuttner's chapter on the loyal opposition, as is Sheila Bair's opposition to the way Summers and Geithner proposed to regulate the financial industry in the bill that was passed this year. It is noteworthy that the common denominator in this part of the story -- apart from the fact that Sheila Bair, Chair of the FDIC is also a woman fighting against so-called captains of finance -- is that the derivatives market remains largely dark and hence beyond transparency, let alone regulation. The problem was that the so-called regulatory reform bill was written by the bankers it supposedly regulated; as a result, we still have no idea of the extent to which toxic assets still cloud the balance sheets of major banks that are investment houses as well as banks. This flaw in the so-called reform is one reason why Kuttner sees Obama as no different than Bush in economic policy. (Obviously, there are other reasons such as Obama's waffling on the Bush tax cuts that make the two presidents more alike than different. But for Kuttner's story the difference lies in how the banks that created the mess have been treated: with kid gloves, including bailouts with taxpayer money with little in return by way of real regulation.) Consequently, the original purpose of banks -- to provide capital to entrepeneurs and thus help grow the economy so that growth produces jobs -- has taken a back seat to the search for profits by selling derivatives to clients stupid enough to buy them. The effect is seen is the anemic recovery: capitalism can't work without capital, and the too-big-to-fail investment banks and bank holding companies have no real "market incentives" (let alone government rules) to extend credit despite the fact that the Federal Reserve has forced interest rates to historically low rates.

All of this raises the question of what powers a president really has in Obama's situation. After all, he inherited the financial meltdown and the TARP Phase I rescue written by Bush Treasury Secretary. But, as Kuttner notes, he had choices on his economic advisers in the campaign and the leftist advisers got pushed aside for the Rubinistas as he made his key economic appointments. And, as Kuttner notes, Obama could have demanded more from the banks that were saved. In fact, he could've taken them over as Sheila Bair and the FDIC does for commercial banks and as the Resolution Trust Corp during the Savings and Loan crisis of the late 1980s. That didn't fit with his Rubinista adviser's worldview. In retrospect, his failure to get tough with Wall Street is the most consequential of his shorcomings thus far because of the lack of credit. Meanwhile, the diversion provided by the deficit keeps policymakers' eyes on the wrong ball. Deficits like ours will not shrink without dealing with unemployment first.

Anyway, that's a lot by way of summarizing the link between Kuttner's volume and today's video. There are lots of other things to look at, not least of which is how the heck Larry Summers is still regarded as such a genius given the way he messed up Harvard's once-untouchable economic stature. His track record of failure after failure would seem to speak for itself, loudly enough for Obama to pass over on him. Cristina Roemer's resignation as Chair of the CEA was due to Summers' bullying, which was predictable. Being cautious is one thing, but making appointments of known jerks is another.

I wish the Kuttner book were a bit shorter; but its critique is well documented and, unfortunately for those hoping that Obama would take down the Reagan demonization of government, a strong dose of reality. (As in real, not reality t.v.).

Please feel free to air questions, complaints, crticisms of the Kuttner volume on this blog. It might prove to be a huge help.

The Post-election Campaign

The old Yogi Bera saying that it's never over til the fat lady sings is modified a bit with American elections. An election in this country is not over until the press and the political class have distilled the major meanings and messages in narrative form dmfrom the disaggregated votes of over a million voters voting in over 400 separate districts with different lists of candidates on each ballot. From those millions of votes for hundreds of candidates, the post-election campaign of forging these results into a coherent narrative replete with lessons for winners and losers alike going forward is perhaps more a test of political storytelling talent than writing good campaign speeches or state of the union addresses.

My own first take away from 2010 is that the story is in who voted and didn't. The differences between the 2008 electorate that provided Obama with this big win stayed largely at home yesterday, while grandpa and granda showed up in droves. In fact, the 65 and older crowd comprises nearly a quarter of the electorate Tuesday while in 2008 they totalled only 16% of all voters. In contrast, under-thirty voters who to yea% rs ago bouyed Obama to the White House in collective numbers of nearly a fifth of all votes (18%) shrank to almost half that size to 11% of the electorate. As a result those casting ballot this time were far older, far more conservative, and far whiter than their counterparts two years ago. You could say that this cycle can be summed up as one where "the revenge of the grannies" is responsible for replacing Nancy Pelosi with John Boehner as the Speaker of the House. Now why a group of retired folks for who the jobless numbers are personally not critical, would be so likely to deliver such an anti-Obama message is not at all obvious -- unless the Republican line that Healthcare Reform included a raid on Medicare spending -- broke through with alarming effect on the widows in Florida. And for some of the seniors there is the tanking of their pension funds from the stock market crash that was caused by the very party they voted by in the House Tuesday. And finally, there is the generational-socialization view that notes that this group of seniors came of political age in the early sixties and were by and large still loyal members of the New Deal Coalition, until the 1964 election when Barry Goldwater began the breakup of the Solid South, paving the way for Nixon's "southern strategy" in 1968 where white voters, just as Kevin Phillips predicted, would join the GOP because they saw black Americans, especially in the South, enjoying all the fruits of the Democratic party's new commitment to civil rights under Lyndon Johnson. It's not out of the question that the combination of a sour economy and a black president brought back memories that fell short of our better angels for his particular demographic. It's a possibility that is strenghtened when we look at the signs of dramatic white flight from the Democrats in 2010 compared to 2008. No matter how we spin it, it'd be hard to claim that Tuesday's vote -- and the months of attack ads that preceded it == ranks among the finest hours of this Republic.