In my review of Robert Kuttner’s earlier Obama’s Challenge (2008), I shared his concern that Obama’s administration could become one of continuity – with little of the change the USA needs. In this earlier volume, Kuttner worried, as I did, that Obama’s insiders would become captives of Wall Street and corporate interests. I feared that Obama’s brilliance, idealism and political deftness would prove no match for the corruption of US politics with money. The entrenched, incumbent fossilized industries’ rearguard battles would continue to protect their interests, subsidies and privileged power on Wall Street and in Washington.
I detected Obama’s key weakness in not understanding that economics (never a science) was the powerful rationalizing ideology buttressing Republicans, business and financial interests and purveyed through academia, policy circles and mass media to the US public. Kuttner saw how Obama had succumbed easily to the advice of Robert Rubin, Clinton’s former Treasury Secretary and later Citigroup’s chairman, known as “Mr. Leverage,” who had encouraged Wall Street’s risk culture. Like most Democratic politicians since Bill Clinton, Obama slavishly followed Rubin’s advice, bringing Rubin protégés: Larry Summers as his key economic advisor, Tim Geithner as his Treasury Secretary, as well as a phalanx of their economic policy clones whose theories favored financial and corporate interests over Main Street.
Kuttner’s new A Presidency in Peril confirms all my worst fears and tracks in damning detail how Summers and Geithner, abetted by Obama’s unwise reappointment of Ben Bernanke as Fed Chair and the political machinations of Chief of Staff Rahm Emanuel, derailed Obama’s agenda for “change we can believe in.” Instead, Obama’s economic team proved a disaster. Kuttner recounts first hand how Summers and Geithner derailed reform of finance, deferring to their Wall Street allies in continuing the rifling of the public purse begun by President George W. Bush and his Treasury Secretary Henry Paulson, former chair of Goldman Sachs (with Geithner’s help as then-president of the New York Fed and Ben Bernanke).
In shocking detail, Kuttner documents the betrayal of US taxpayers and Obama’s promises. Healthcare “reform” was brokered by Rahm Emanuel in deals with the insurance and pharmaceutical industries, the hospitals, doctors, Republicans and recalcitrant Democrats – producing little reform while protecting all the special interests. Kuttner quotes Bill Moyers the PBS TV host during a show in which he was interviewed in 2009: “Something’s not right here. One year after the great collapse of our financial system, Wall Street is back on top while our politicians dither. As for healthcare reform, you’re about to be forced to buy insurance from companies whose stock is soaring, and that’s just dandy for the White House. Truth is, our capital is being looted; Republicans are acting like the town rowdies; the sheriff is firing blanks, and powerful Democrats in Congress are in cahoots with the gang that’s pulling the heist.” Moyers had interviewed me back in 1981 on my The Politics of the Solar Age describing many of these still-festering problems.
Kuttner details how the House Financial Services Committee, chaired by Barney Frank, was packed with 15 new “corporate and Wall Street friendly” Democrats recruited by Rahm Emanuel on promises of joining this committee so they could better access corporate and Wall Street campaign funds! Kuttner examines how this and Obama’s economic czars turned financial reform into gifts for the armies of lobbyists for those special interests. The 2,319 page Dodd-Frank Wall Street Reform and Consumer Protection Act, watered down by Geithner and Summers, is still not enough to curb too-big-to-fail banks. It compromises the independence of the Consumer Financial Protection Agency under jurisdiction of the Fed – which failed so miserably in this task.
Kuttner describes how the underfunded public interest coalition Americans for Financial Reform (AFR) was sidelined, and on some occasions, not even called to testify on key provisions. Even former Soros fund manager-turned crusader Rob Johnson, an ally of Heather Booth and the AFR was only grudgingly permitted to testify after much public pressure. Summers quickly sidelined former Fed Chair Paul Volcker, forcing the octogenarian to stump the country for the return of an updated Glass-Steagall separation of retail commercial banks from riskier Wall Street activities. Even Bank of Sweden prize winners Paul Krugman and Joseph Stiglitz were kept at bay, reports Kuttner, one of their Keynesian brethren, along with Rob Johnson at the Roosevelt Institute.
Kuttner analyzes the complicity of media and their conventional pundits that reinforced the neocons’ economic ideology and failed to challenge the business-as-usual agenda. Now that Bill Moyers has retired from PBS-TV, only the crusading former security analyst, Bloomberg and CNBC commentator Dylan Ratigan tells the truth: at 4 p.m. daily on MSNBC and in the Huffington Post. Meanwhile, the movement to reform markets and grow the green economy globally is documented by internet-based media, including Ethical Markets and the many market newsletters and reports it aggregates daily, such as Responsible Investor, New Energy News and Cleantech.
Looking to crusaders for the public interest, Kuttner finds mostly courageous women: Elizabeth Warren, Harvard law professor and chair of the Congressional Oversight Panel (COP); Republican holdover Sheila Bair, competent chair of the FDIC (who Geithner tried to fire); and Senator Maria Cantwell, D-WA. She clashed with Geithner and held up former Goldman Sachs trader Gary Gensler’s confirmation as chair of the Commodity Futures Trading Commission (CFTC) until he promised (in writing) to back tough reform of derivatives. Other heroes are Congresswomen Carolyn Mahoney, D-NY, and Marcy Kaptor, D-OH. Kuttner also acknowledges the courage of former CFTC chair Brooksley Born. In the 1990s, Born had been run out of the CFTC in relentless attacks by Larry Summers (then Asst. Treasury Secretary) and his boss Robert Rubin, together with Alan Greenspan and Senator Phil Gramm (protector of ENRON). Born later won the JFK “Profiles in Courage Award” and now serves on the Financial Crisis Inquiry Commission chaired by former California State Treasurer and CalPERS board member, Phil Angelides (interviewed on Ethical Markets TV Series episodes “Shareholder Advocacy” and “Socially Responsible Investing”). I called out Larry Summers for his role in preventing Congress from regulating credit default swaps in my “Come Clean Larry Summers” in passing the “faux” Commodity Futures Modernization Act of 2000 to block Born and the CFTC’s effort to curb derivatives.
Other longtime reformers include Vermont’s Senator Bernie Sanders (I), Congressman Dennis Kucinich (D-OH) and Florida’s Congressman Alan Grayson (D) who have taken on the deeper issues of reform, including overturning the Supreme Court’s appalling Citizens United decision opening further floodgates to special interest money in politics (Supreme Court’s Shocker Makes CSR Key Buttress Of Democracy). Grayson is an economist, one of the few who understand what’s wrong with this discipline which exerts too much power over public and private decision-making, as I have pointed out repeatedly. Other reformers moving beyond economics and its financial models (still taught in academia!) which helped cause the excessive risks and crash of 2008-9 are Nassim N. Taleb, author of The Black Swan (2007), and Pablo Triana, author of Lecturing Birds on Flying (2009). They have joined with me and Alfred Nobel’s descendent, lawyer Peter Nobel, in exposing and delinking the Bank of Sweden Prize in Economics in Memory of Alfred Nobel from the real Nobels, as well as reforming business schools’ curricula and retraining asset managers beyond the discredited “efficient markets” and “rational actor” hypotheses.
Kuttner is right in pointing out that real progress and more equitable economies require strong labor unions and fair trade, not economists’ ideological “free trade” policies. The best hope in the USA is the rise of SEIU and the new president of the AFL-CIO Richard Trumka, a courageous and brilliant leader. Trumka as well as Rich Ferlauto of AFSCME, interviewed on Ethical Markets TV Series “Global Corporate Citizenship,” both understand how unions can build broader coalitions with socially-responsible investors (www.ethicalmarkets.com SRI news). They have joined with environmental advocates in focusing stimulus funds on smart infrastructure: public transit, smart grids, eco-city design and investing in growing the next generation green economy worldwide. Ethical Markets research shows that since January 2007, private investments by December 2009 had reached $1.248 trillion (www.greentransitionscoreboard.com).
The urgent task is to challenge the deficit hawks funded by billionaire Wall Streeter Peter Peterson, founder of Blackstone and his non-profit “institutes” and their “austerity terrorist” clones in the USA, Europe and in the G-20. They continue to conflate, under their “cut the deficits” rallying cry, those deficits that are short-term and cyclical – needed now to compensate for lost tax revenues in the recession – with longer-term structural deficits which can be brought under control as economies recover. Plenty can be cut: from military weapons, fossil fuel and agriculture subsidies to closing corporate and Wall Street tax loopholes and ending the Bush tax cuts. A July Gallop poll found 60% of Americans wanting more jobs and another stimulus. Yet Obama’s Commission on Deficits is predominantly composed of deficit hawks!
The missing factor: how long will democratic governments’ tax revenues and their citizens’ futures continue to be high-jacked by bloated financial firms, bond investors and high-frequency traders in currencies and CDSs? We see in Greece, France, Ireland, Britain and elsewhere where austerity prescriptions à la IMF have been imposed, that citizens are well aware that the recession was caused by stupid, greedy bankers who have taken taxpayers’ bailouts. Now voters are rebelling at having to “tighten their belts” and take yet more pain again. No further proof of the failure of the deficit hawks is needed than the budget crises in many US states, from California to Illinois, Obama’s own home base. Illinois is reported to have stopped paying its bills due to its $5 billion deficit (NY Times July 2, 2010). They need to follow North Dakota and set up their own state bank as proposed by lawyer Ellen Brown (The Growing Movement For Publicly-Owned Banks).
Kuttner sets out a good list of fiscal and other reforms to downsize finance similar to my own, including a below 1% financial transaction tax (FXTRS: Reducing the Risk of Bear Raids on Economies) and breaking up too-big-to-fail banks. But he does not go deep enough. The new “beyond economics” and “beyond left and right” model must be based on systems thinking and go beyond GDP (www.beyond-gdp.eu) toward the new multi-disciplinary scorecards such as the Calvert-Henderson Quality of Life Indicators I created with the Calvert Group and the State of the USA “dashboard” of all important indicators covering all aspects of US national wellbeing, to launch in 2011. Kuttner briefly mentions the green agenda and climate change but does not see it in my terms in The Politics of the Solar Age (1981, 1988) as the great transition from early fossil-fueled industrialism based on cheap energy to the information-rich, cleaner, greener technologies of the Solar Age. Kuttner would do well to access our Ethical Markets Media (USA and Brazil) research and our Green Transition Scoreboard which updates these private investment in energy efficiency, solar, wind, geothermal, water, non-agricultural biofuels, sustainable land and forest use, while not counting as renewable “clean” coal or nuclear power, both unsustainable.
In Kuttner’s good list of tax reforms, he doesn’t include removing subsidies from fossil fuels or nuclear power nor does he back the green tax shift backed by most environmental groups: to tax carbon and all forms of pollution along with cutting income and payroll taxes to remain revenue neutral (see Get America Working and my “Introduce ‘Green’ Tax”). Senators Maria Cantwell and Susan Collins, R-ME, both support this approach to the energy transition as “cap and dividend.” This would replace the discredited “cap and trade” gift to utilities and Wall Street in the Waxman-Markey bill. Senators Kerry and Lieberman should persuade Obama to support Cantwell and Collins cap and dividend bill, now preferred by most grassroots groups but not yet by elites.
Kuttner has done the USA a great service with this courageous book and its in-depth research on the politics of regulatory capture. While he and I still hope for change, this will mean bringing in a new team at the White House. We hope Obama takes heed!