2009's biggest story was not the economy, health care, or the escalation of the war in Afghanistan, but rather the resurrection of America's largest banks. Twelve months ago they were teetering at the edge of the abyss; since, they have roared back to life, bigger and badder than ever. There's widespread suspicion that the Obama administration facilitated this, that the President sold out his principles to aid and abet Wall Street.
On February 24th President Obama addressed the economy in a speech to a joint session of Congress. At the time, he seemed to have a firm command of the situation: "we have lived through an era where too often short-term gains were prized over long-term prosperity; where... Regulations were gutted for the sake of a quick profit at the expense of a healthy market."
After the presidential address, most Americans assumed that while the behemoth banks would be saved, there would be savage reform; that many banks deemed "to big to fail" would be reorganized, broken into smaller, more manageable units. Obama implied that Wall Street's investment and compensation practices would be dramatically revised. A day of reckoning seemed imminent.
Instead, Wall Street business as usual returned with a vengeance. America's biggest banks resumed their old practices and registered record profits. They used the money that America's taxpayers had loaned them to pay lavish executive salaries and bonuses, and to lobby Congress to emasculate proposed reforms. For most Americans the recession continues, but for Wall Street happy days are here again.
Many observers fault the President. Perhaps the most savage indictment was written by the acerbic Matt Taibbi. In the December 10th edition of ROLLING STONE he summarized the case against Obama. First, that his economic team is flawed: "the key economic positions in his White House [are filled] with the very people who caused the crisis in the first place." Taibbi writes that Bob Rubin - Wall Street heavy hitter and former Clinton Treasury secretary - is calling the shots; he's assembled a team of his cronies including current Treasury chief Tim Geithner and director of the National Economic Council Larry Summers. Taibbi isn't alone in criticizing this team, on November 20th Oregon Congressman Peter Fazio observed, "Treasury Secretary Tim Geithner and White House economic adviser Larry Summers should lose their jobs for protecting Wall Street at the expense of broader job creation."
Taibbi's second accusation is that the Rubin gang has directed Federal funds to Wall Street instead of Main Street, including an ill-advised November 23rd, 2008, bailout of Citigroup - Rubin's firm. So far, $454 Billion has been spent bailing out financial institutions. Recently Neil Barofsky head of the Troubled Asset Relief Program (TARP) observed, "the effort to save the nation's financial sector came at great cost to taxpayers, to the integrity of the financial system and to the public's perception of the federal government." On December 9th, a Congressional Oversight Panel reported on TARP, noting: "Markets remain dependent on government support... Government intervention signaled an implicit government guarantee of major financial institutions, and unwinding this guarantee poses a difficult long-term challenge."
Taibbi's third accusation is that Wall Street hasn't changed: "Obama and his team of Rubinites have done almost nothing to reform the warped financial system responsible for imploding the global economy in the first place." In an interview in the December issue of THE PROGRESSIVE, Elizabeth Warren, chair of the TARP Congressional Oversight Panel bemoaned the failure to reform Wall Street: "The banks lobbied Washington so they could write the rules that got us into this mess. They then lobbied Washington to get the money to bail them out. And now they are lobbying Washington to write the rules so they can get us into the next crisis."
Considering this situation, is it reasonable to conclude that President Obama has sold out?
At the least, he's made a serious mistake assembling an economic team headed by Rubin, Geithner, and Summers. Obama has continued the economic policies of the Clinton era - widely bemoaned as Reganomics-lite.
The failure of the Obama economic team has two serious consequences. First, the triumph of Wall Street over Main Street has fueled a populist backlash. On the left this has discredited the Obama Administration. On the right it has spurred the "Tea Party" movement that's suspicious of all Federal programs, lumping the bailout of Wall Street with healthcare reform - seen as a bailout of those who aren't "responsible" enough to secure insurance.
The second serious consequence is the failure to reform Wall Street. This is equivalent to a patient receiving a cancer diagnosis and submitting to invasive surgery that fails to excise the malignancy -- a life-threatening situation. Unless Wall Street is forced to change, the American economy is going to waste away.
Obama is a smart guy; man enough to admit he made a mistake. In January, he needs to dump his financial team and replace them with folks who care about Main Street. It's time to fix America's core economic problem.
Bob Burnett is a Berkeley writer. In a previous life he was one of the executive founders of Cisco Systems.