President Obama has fundamentally misunderstood the nature of the country's crisis. The President — like the vast majority of Americans — did not and does not recognize the truth of Warren Buffet’s statement:
“There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.” Class Warfare, Guess Which Class Is Winning
By understanding this fundamental truth, the President can develop a battle plan to regain lost ground.
The months since Obama's inauguration have been a time of increasing disappointment and heartache as the high hopes have faded.
As we wait for the election results, the exits polls tell us that voters "don't like anybody very much." As Democrats tried to structure the mid-terms as a "choice" election, we saw for weeks on TV unemployed workers, former supporters of the president, who were undecided about voting. They saw no reason to vote, saw no difference between the furiously contentious antagonists.
Everyone agrees that the Democrats will lose many seats in both the House and Senate. Most pundits prodict the Republicans will capture the House;probably not the Senate. Everyone agrees that the races are very tight. No one agrees on the direction of the momentum. That the outcome will be bad for Democrats is undisputed; how bad is unclear.
The President’s approval ratings have dropped well below the 50% mark. In recent interviews, Obama has discussed how his administration has fallen so far. His comments have been criticized in uncomplimentary ways; whiney, out of touch, disconnected are some of the words used to describe his self-analysis. Perhaps most significantly is the critique that his remarks do not reflect any political analysis of his situation. Bridging the Enthusiasm Gap: Obama and the Conventional Wisdom
A thoughtful political analysis will yield the unwelcome message that the President has fundamentally misunderstood the nature of the crisis. The President — like the vast majority of Americans — did not and does not recognize the truth of Warren Buffet’s statement:
“There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.” Class Warfare, Guess Which Class Is Winning
Over the last decade, the super-rich have used wealth and political power to vastly increase their wealth and political power. The financial crisis was the result of their abuse of their privileged position. But the privileged super-rich are unabashed; they will fight fanatically to retain their privileges.
Several books detail how the super-rich have manipulated the political system to their economic benefit. Paul Krugman’s, The Return of Depression Economics, and 13 Bankers, by Simon Johnson and James Kwak are two of the best. Krugman is a Nobel Prizing winner in economics, and columnist for the New York Times. Johnson is former Chief Economist for the International Monetary Fund.
Since the Reagan administration, incremental “deregulation” has relaxed government controls on banks with two continuing results — (1) an increase in the wealth of the big banks and financial institutions, and (2) recurrent financial crises, such as the savings and loan and Long Term Capital Management crises. In 1999, the banks achieved their final goal in deregulation, abolition of the Glass-Steagall Act which had prohibited commercial banks from entering the speculative field of investment banking. By 2007, the wealth of the great banks had ballooned to the point that the three largest banks (Bank of America, JPMorganChase and Citigroup) alone held almost 50% of the total value of America’s economy. The boom in speculative derivatives continued until their value exceeded $20 trillion; some estimates were far higher.
When the financial crisis occurred in October, 2008, the Bush administration demanded taxpayer money to bail out the big banks. It threatened that failure to do so would result in a devastating financial and economic collapse. Congress, primarily with Democratic votes, including Obama, voted for the bailout. It did not include any conditions to reform the system and left the failed management of the banks in place. As the country began to realize that the big banks had been bailed out at taxpayer expense but ordinary Americans had not, the electorate started to become angry.
President Obama entered office in the apparent belief that people of different viewpoints could sit down and “reason together” to arrive at consensus public policy. Robert Kuttner’s recent book, A Presidency in Peril, gives chapter and verse on the decisions which have led to a continuation of the Bush economic policies — a Bush-Obama policy continuum. Obama’s economic policy was largely made by the same people and thought processes that caused the crash to begin with. Robert Rubin, of Citibank and Goldman Sachs, author of deregulation and architect of speculation in derivatives, and his protege, Larry Summers, have been key architects of administration economic policy. Ben Bernanke and Tim Geithner, bankers who did not see the crash coming, and who sought to solve it by throwing public money as a lifeline to save private bankers from their mistakes, were the other key players.
In its first weeks, the Obama Administration obtained enactment of a stimulus package intended to reverse the economic downturn. Obama rejected the advice of a number of highly qualified economists, both in and out of his administration, that the needed stimulus was about $1.2 trillion, and asked for a package of about two-thirds that size. He then negotiated with the Republicans to channel about a third of the stimulus into tax cuts for business, another third went to support state governments and only about a third to actual job creation. Republicans, nevertheless, unanimously opposed the bill.
In retrospect, the stimulus package was inadequate. It has not produced the jobs recovery predicted by the administration and needed by the country. The right-wing has relentlessly attacked, claiming that it has increased debt and not produced jobs.
In its first few months, the Administration did virtually nothing to secure passage of meaningful reform of banking regulation. It allowed failed banks to pay outrageous bonuses to executives who were responsible for the crisis, once in 2009 and again in 2010. It took no action to force banks to modify mortgages to allow homeowners to remain in their homes; its pleading was largely ignored. Although it knew of major problems in the chain of title of ownership of the mortgages, it did nothing to inform the public or require banks and servicing companies to clean up the mess. In short, it gave the impression of kid glove treatment for the big banks.
In its efforts for a health care bill, the administration crafted a bill which provides increased business for the major health insurers at government expense.
By the time financial reform came to a vote, big bank lobby money had reached unprecedented amounts. The administration flip-flopped over support for strong re-application of the Glass-Steagall principles, or strong regulation of derivatives. Eventually, the bill failed to strongly enact either of these provisions, or to effectively prohibit another “too big to fail” event. Count on Sequels to TARP
None of this mollified big business opposition to Obama. By mid-2009, the right-wing began its counterattack. It relied on widespread feeling that the administration had bailed out the big banks but was doing little for the average American. It used large amounts of right-wing money and Republican political operatives to organize political hit squads which attacked the administration using race hatred, lies about the proposed health care bill, lies about the President’s religion and national origin and mob disruption of congressional town hall meetings with constituents. Since that time, the right-wing attacks have continued, increasing in ferocity. They are funded by super-rich industrialists such as the Koch brothers, by the same big banks who received the bailouts and kid glove treatment from the administration and by health care companies who originally negotiated for a health care bill that would guarantee them increased profits.
The history of the super-rich right wing in America is a history of rule or ruin. They seem to believe they have a God-given right to wealth and to rule, and they mount vicious personal attacks and vilification of anyone who does not recognize those rights. FDR, Truman, Kennedy, Johnson and Clinton were all subjected to similar attacks throughout their presidencies. Since the Gilded Age of the 1890s, some of the super-wealthy have merited FDR’s label as “malefactors of great wealth.” The big banks, the big polluters and some health insurers fall in that category. They now have access to a greater portion of the national wealth than at anytime in history, more even than in the Gilded Age. They will fight viciously to retain their privileged position, something the administration failed to understand.
Scholars who have analyzed great leaders find that the decision of when to stand on principle and fight, versus when to negotiate an agreement, is a major test of leadership. A leader must know the enemy. When in a war — whether with guns or ballots – it is a fool’s errand to seek a negotiated agreement in good faith with someone who only intends to keep fighting. Bipartisanship sounds good, but bipartisanship must be a two-way street.
In his efforts to be “reasonable,” the President drastically weakened his political position with his own supporters. He failed to provide change as promised and needed; his policies generally continue the Bush policies which he campaigned against. To the extent he offers different policies, he has not clearly communicated his policies to the public, or clearly differentiated his policies from the Republicans. The inability to stop the outrageous bonuses or obtain mortgage relief makes a mockery of the “Yes, we can!” campaign slogan.
The story is just too sad to write. It is sad for President Obama, but — more than that — it is sad for the country. The excessive concentration of wealth and power among a very few has reached a concentration that always produces a major calamity. It briefly appeared calamity had been averted; the incoming administration had an opportunity to return to stable financial regulation and tax policies without the trauma of a Great Depression or similar disaster. That opportunity has been lost.
Can the President recover? Can he provide leadership out of this continuing crisis? It will be far more difficult starting after these mid-terms than appeared on Inauguration Day. It may be impossible. Certainly, it will be impossible unless the President understands the nature of the crisis and of his opposition and acts accordingly. But -- by understanding of the fundamental truth that he is, however unwillingly, engaged in a class war, he can structure a battle plan to regain lost ground both for his presidency and for the American people.