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How The Democrats Self-Destruct

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June 29, 2009

For the past few days, we have been inundated with news reports detailing the self-destructive behavior of the late singing sensation, Michael Jackson.  Perhaps it is this heightened awareness of self-destruction that is causing people to take a closer look at the self-destructive behavior taking place within the Democratic Party.

Most notable is the behavior of President Obama.  As his Inauguration approached, many people were surprised to learn that some principal players selected for Obama’s economic team were the same people responsible for creating this mess during the Clinton years.  The most prominent of these is Larry Summers, who is expected to replace Ben Bernanke as Chairman of the Federal Reserve in January.  On June 24, Robert Scheer, on his Truthdig website, bemoaned the fact that Obama is following the “trickle down” strategy of bailing out the big banks, while doing nothing to really solve the mortgage crisis:

It’s not working.  The Bush-Obama strategy of throwing trillions at the banks to solve the mortgage crisis is a huge bust.  The financial moguls, while tickled pink to have $1.25 trillion in toxic assets covered by the feds, along with hundreds of billions in direct handouts, are not using that money to turn around the free fall in housing foreclosures.

*    *    *

Here again the administration, continuing the Bush strategy, is working the wrong end of the problem.  Although President Obama was wise enough to at least launch a job stimulus program, a far greater amount of federal funding benefits Wall Street as opposed to Main Street.

*    *    *

Why was I so naive as to have expected this Democratic president to not do the bidding of the banks when the last president from that party joined the Republicans in giving the moguls everything they wanted?  Please, Obama, prove me wrong.

If President Obama doesn’t prove Robert Scheer wrong, Obama might find himself facing some hostile crowds at the “town hall” meetings as 2012 approaches.

The President might also be surprised to encounter large-scale Democratic grassroots disappointment over his proposed “overhaul” of the financial regulatory system.  As I pointed out on June 18, President Obama’s financial reform proposal, released on that date, drew immediate criticism for the expanded powers granted to the Federal Reserve.  On June 24, The Nation (which prides itself on having a liberal bias) ran a harshly critical piece by William Greider, entitled:  “Obama’s False Reform”.  In addition to criticizing the expanded powers granted to the Federal Reserve, Greider emphasized that the proposal did not contain any significant measures, or “hard rules”, to reform the financial system.  Beyond that, Greider took Obama to task for the false claim that the regulatory system was overwhelmed by “the speed, scope and sophistication of a 21st century global economy”.  The article emphasized the need to “slow down the rush to weak solutions” by taking the time to find out about the root causes of the breakdown and then to address those causes:

Give subpoena power to Elizabeth Warren the Congressional Oversight Board she chairs.  Hire some of those investigative reporters who have no political investment in digging deeper into the mulch.  What exactly went wrong?  Who has bloody hands?  Where are the fundamental reforms?  If the economy returns to “normal’ rather soon, the ardor for serious reform might dissipate with much left undone.  That is a small risk to take, especially if the alternative is enacting the bankers’ pallid version of reform.

President Obama is now taking pride for the passage in the House of Representatives of the “climate change bill” (H.R. 2454, the American Clean Energy and Security Act of 2009).  Despite the claim of House Majority Leader Steny H. Hoyer (D-Md.) that the bill’s passage in the House was “a transformative moment”, 44 Democrats voted against the bill.  One harsh critic of the bill is Democrat Dennis Kucinich.  Here’s some of what Mr. Kucinich had to say:

It won’t address the problem.  In fact, it might make the problem worse.  It sets targets that are too weak, especially in the short term, and sets about meeting those targets through Enron-style accounting methods.  It gives new life to one of the primary sources of the problem that should be on its way out — coal — by giving it record subsidies.  And it is rounded out with massive corporate giveaways at taxpayer expense.

*   *   *

.  .  .  the bill does not require any greenhouse gas reductions beyond current levels until 2030.

Worse yet is the Democrats’ fumbling and bumbling with their efforts at healthcare reform legislation.  Polling wiz Nate Silver of fivethirtyeight.com, did a meta-analysis of the polls conducted to assess public support for the so-called “public option”in healthcare coverage, wherein people have the option to buy health insurance from the government.  The insurance companies obviously aren’t interested in that sort of competition and they have launched advertising campaigns portraying it as controversial and flawed.  Nevertheless, Nate Silver’s report revealed that five of the six polls analyzed, demonstrated lopsided support for the public option, exceeding 60 percent.  Despite the strong popular support for the public option, Mr. Silver pointed out in another posting, how there is a great risk that Democrats might oppose the measure due to payoffs from lobbyists:

Lobbying contributions appear to have the largest marginal impact on middle-of-the-road Democrats.  Liberal Democrats are likely to hold firm to the public option unless they receive a lot of remuneration from healthcare PACs.  Conservative Democrats may not support the public option in the first place for ideological reasons, although money can certainly push them more firmly against it.  But the impact on mainline Democrats appears to be quite large:  if a mainline Democrat has received $60,000 from insurance PACs over the past six years, his likelihood of supporting the public option is cut roughly in half from 80 percent to 40 percent.

Awareness of this venality obviously has many commentators expressing outrage.  On June 23, Joe Conason wrote such an article for The New York Observer:

If Congress fails to enact health care reform this year –or if it enacts a sham reform designed to bail out corporate medicine while excluding the “public option” — then the public will rightly blame Democrats, who have no excuse for failure except their own cowardice and corruption.  The punishment inflicted by angry voters is likely to be reduced majorities in both the Senate and the House of Representatives — or even the restoration of Republican rule on Capitol Hill.

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The excuses sound different, but all of these lawmakers have something in common — namely, their abject dependence on campaign contributions from the insurance and pharmaceutical corporations fighting against real reform.

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Whenever Democratic politicians are confronted with this conflict between the public interest and their private fund-raising, they take offense at the implied insult.  They protest, as a spokesman for Senator Landrieu did, that they make policy decisions based on what is best for the people of their states, “not campaign contributions.”  But when health reform fails — or turns into a trough for their contributors, who will believe them?  And who will vote for them?

Those Democrats inclined to oppose the public option don’t appear to be too concerned about public indignation over their behavior.  Take California Senator Dianne Feinstein for example.  Do you really believe she gives a damn about voter outrage?  She was re-elected in 2006, despite criticism that as chair of the Senate Military Construction Appropriations subcommittee, she helped her husband, Iraq war profiteer Richard C. Blum, benefit from decisions she made as chair of that subcommittee.  So what if MoveOn.org is targeting her for ambivalence about the issue of healthcare reform?  MoveOn.org is also targeting other Democrats who are attempting to eliminate the public option.  If these officials have so much hubris as to believe that they can get away with scoffing at the public will, they had better start looking for new jobs now  . . . because the market isn’t very good.

Obama Unveils His Most Ambitious Plan

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June 18, 2009

On Wednesday, June 18, President Obama released his anxiously-awaited, 88-page proposal to reform the financial regulatory system.  An angry public, having seen its jobs and savings disappear as home values took a nosedive, has been ready to set upon the culprits responsible for the economic meltdown.  Nevertheless, the lynch mobs don’t seem too anxious to string up former Federal Reserve Chairman, Alan Greenspan.  Perhaps because he is so old, they might likely prefer to see him die a slow, painful death from some naturally-occurring degenerative disease.  Meanwhile, a website, Greenspan’s Body Count, has been keeping track of the number of suicides resulting from the recent financial collapse.  (The current total is 96.)  As usual, President Obama has been encouraging us all to “look forward”.  (Sound familiar?  . . . as in:   “Forget about war crimes prosecutions because some Democrats might also find themselves wearing orange jumpsuits.”)

In reacting to Obama’s new financial reform initiative, some critics have observed that the failure to oust those officials responsible for our current predicament, could set us up for a repeat experience.  For example, The Hill quoted the assessment of Dean Baker, Co-director of the Center for Economic Policy and Research:

However, the big downside to this reform proposal is the implication that the problem was the regulations and not the regulators.  The reality is that the Fed had all the power it needed to rein in the housing bubble, which is the cause of the current crisis.  However, they chose to ignore its growth, either not recognizing or not caring that its collapse would devastate the economy. If regulators are not held accountable for such a monumental failure (e.g., by getting fired), then they have no incentive to ever stand up to the financial industry.

The Wall Street Journal‘s Smart Money magazine provided some similarly-skeptical criticisms of this plan:

Influential bank analyst Richard Bove of Rochedale Securities believes the Obama rules will only add costs to the system and will not lead to more effective oversight.  After all, a regulatory framework is already in place, Bove says, but the political will to enforce it has been absent — and that’s just the way Washington wants it.  Indeed, the only truly aggressive SEC director since the Kennedy administration was Harvey Pitt, Bove says. “[And] when he got religion about regulation, he got removed.”

Dr. Walter Gerasimowicz of New York-based Meditron Asset Management is dubious about a number of proposals, especially that of expanding the Fed’s role.  “What I find to be very disconcerting is the fact that our Federal Reserve is going to have extensive power over much of the industry,” Gerasimowicz says.  “Why would we give the Fed such powers, especially when they’ve failed over the past 10 years to monitor, to warn, or to bring these types of speculative bubbles under control?”

Our government was kind enough to provide us with an Executive Summary of the financial reform proposal.  Here is how that summary explains the “five key objectives” of the plan, along with the general recommendations for achieving those objectives:

(1)  Promote robust supervision and regulation of financial firms.  Financial institutions that are critical to market functioning should be subject to strong oversight.  No financial firm that poses a significant risk to the financial system should be unregulated or weakly regulated.  We need clear accountability in financial oversight and supervision.  We propose:

  • A new Financial Services Oversight Council of financial regulators to identify emerging systemic risks and improve interagency cooperation.
  • New authority for the Federal Reserve to supervise all firms that could pose a threat to financial stability, even those that do not own banks.
  • Stronger capital and other prudential standards for all financial firms, and even higher standards for large, interconnected firms.
  • A new National Bank Supervisor to supervise all federally chartered banks.
  • Elimination of the federal thrift charter and other loopholes that allowed some depository institutions to avoid bank holding company regulation by the Federal Reserve.
  • The registration of advisers of hedge funds and other private pools of capital with the SEC.

(2)  Establish comprehensive supervision of financial markets. Our major financial markets must be strong enough to withstand both system-wide stress and the failure of one or more large institutions. We propose:

  • Enhanced regulation of securitization markets, including new requirements for market transparency, stronger regulation of credit rating agencies, and a requirement that issuers and originators retain a financial interest in securitized loans.
  • Comprehensive regulation of all over-the-counter derivatives.
  • New authority for the Federal Reserve to oversee payment, clearing, and settlement systems.

(3)  Protect consumers and investors from financial abuse.  To rebuild trust in our markets, we need strong and consistent regulation and supervision of consumer financial services and investment markets.  We should base this oversight not on speculation or abstract models, but on actual data about how people make financial decisions.  We must promote transparency, simplicity, fairness, accountability, and access. We propose:

  • A new Consumer Financial Protection Agency to protect consumers across the financial sector from unfair, deceptive, and abusive practices.
  • Stronger regulations to improve the transparency, fairness, and appropriateness of consumer and investor products and services.
  • A level playing field and higher standards for providers of consumer financial products and services, whether or not they are part of a bank.

(4)  Provide the government with the tools it needs to manage financial crises.  We need to be sure that the government has the tools it needs to manage crises, if and when they arise, so that we are not left with untenable choices between bailouts and financial collapse.  We propose:

  • A new regime to resolve nonbank financial institutions whose failure could have serious systemic effects.
  • Revisions to the Federal Reserve’s emergency lending authority to improve accountability.

(5)  Raise international regulatory standards and improve international cooperation.  The challenges we face are not just American challenges, they are global challenges.  So, as we work to set high regulatory standards here in the United States, we must ask the world to do the same.  We propose:

  • International reforms to support our efforts at home, including strengthening the capital framework; improving oversight of global financial markets; coordinating supervision of internationally active firms; and enhancing crisis management tools.

In addition to substantive reforms of the authorities and practices of regulation and supervision, the proposals contained in this report entail a significant restructuring of our regulatory system.  We propose the creation of a Financial Services Oversight Council, chaired by Treasury and including the heads of the principal federal financial regulators as members.  We also propose the creation of two new agencies. We propose the creation of the Consumer Financial Protection Agency, which will be an independent entity dedicated to consumer protection in credit, savings, and payments markets. We also propose the creation of the National Bank Supervisor, which will be a single agency with separate status in Treasury with responsibility for federally chartered depository institutions.  To promote national coordination in the insurance sector, we propose the creation of an Office of National Insurance within Treasury.

So there you have it.  Most commentators expect that the real fighting over this plan won’t begin until this fall, with healthcare reform taking center stage until that time.  Regardless of whatever form this financial reform initiative takes by the time it is enacted, it will ultimately be seen by history as Barack Obama’s brainchild.  If this plan turns out to be a disaster, it could overshadow whatever foreign policy accomplishments may lie ahead for this administration.