Radio commentary, February 12, 2009

Quite a spectacle in Congress on Wednesday, wasn’t it? Watching the assembled CEOs of our biggest banks testifying really put all our pathologies on display. On one side of the table, the bankers looked like dim and evasive hacks—it was easy to see how they drove their vehicles into the ditch. But on the other side of the table, many of the Congresspeople looked like preening and devious hacks. Where were they while the bankers were driving the vehicles into the ditch? And what really do they presume to do about all this? Nationalize the banks? Ha. More on that delightful topic in a bit.

On Wednesday night, The Nation’s estimable Washington editor, Christopher Hayes (who is “married to…an attorney in the office of the White House counsel”), was on Keith Olbermann’s show, trying to parse the testimony. Hayes and Olbermann came to the conclusion that the bankers live in a bubble, are tone deaf, and have no sense of PR. While that’s true, I think the story is simpler than that. They just don’t care what the public thinks. The entire ethic of Wall Street can be boiled down to this: make as much money as possible as quickly as possible, and hang the consequences. Step on whomever and whatever you have to, just stuff your pockets, and move on.

Olbermann played an excerpt from a conference call featuring James Gorman, co-president of Morgan Stanley, describing how the firm planned to handle its merger with Smith Barney, the brokerage unit that the deeply troubled Citigroup is unloading. Here’s Gorman (edited by me) describing some big cash payments they’ll be distributing to Morgan Stanley and Smith Barney’s top brokers:

[audio: retention awards]

Some decisions we have made. Number one, there will be a retention award. Please do not call it a bonus. It is not a bonus. It is an award. And it recognizes the importance of keeping our team in place as we go through this integration. Decision number two. The award will be based on ’08 full-year production. I think I can hear you clapping from here in New York. You should be clapping because frankly that is a very generous and thoughtful decision that we have made…. ’09 is a very difficult year…we understand that. Clearly it would have been cheaper to do it off ’09, but we think it’s the right thing to do and we’ve made that decision.

The audio, by the way, was obtained by Sam Stein of the Huffington Post, who also got that wonderful clip of Home Depot founder Bernie Marcus railing against unions that I played the other week. Olbermann and Hayes attributed Gorman’s use of “retention award” to that same tone deafness. I think it’s cynicism. I think he was having fun, and it wouldn’t surprise me if his audience chuckled.

As I’ve been saying here, it looks like the Obama administration will do everything they can to avoid nationalizing the banks. In his interview with ABC News, Obama demonstrated that he understands quite well the differences between the Japanese and Swedish approaches. I wish I could play the audio, but ABC edited the interview heavily for broadcast, and most of this passage appears only in the transcript.

There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade.” They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America’s different. And we want to retain a strong sense of that private capital fulfilling the core — core investment needs of this country.

And so, what we’ve tried to do is to apply some of the tough love that’s going to be necessary, but do it in a way that’s also recognizing we’ve got big private capital markets and ultimately that’s going to be the key to getting credit flowing again.

Now it’s admittedly refreshing to have a president who can talk like this after one who couldn’t. But how much of a departure from Bush’s political philosphy is this really? He admits that the Swedish approach worked better, but then explains that we just can’t do it that way here. It’s un-American, you see. And to make that argument, he mobilizes a lot of nonsense.

Yes, Sweden “had like five banks,” but our major, system-threatening problems come from not that many more institutions. The little guys can be taken care of the usual way, like forced mergers with aid from the FDIC or outright takeovers by the same. Which, by the way, is a kind of nationalization, and something entirely routine, even here in the super-special USA.

He really gets to the heart of it, though, when he gets to the “different cultures” claim. Sweden is a social democracy, and the U.S. isn’t. And so we just have to do things the American way. But our way of doing things is the problem. Several decades of letting financiers do their thing and then bailing them out when they got in trouble have finally put us in a serious crisis. Obama simply cannot get his mind around the fact that our whole economic model is in trouble. So the only way he can imagine getting out of that trouble is by applying the same medicine that got us into trouble. There’s something oddly Hegelian about this: “the hand which inflicts the wound is also the hand that heals it.” But Obama isn’t talking about moving to a higher level of consciousness. Quite the contrary: it looks more like he just wants to go back to the old way of doing things.

Let’s think about what needs to be done. The U.S. needs to consume less, borrow less, equalize the distribution of income so that those of modest means aren’t driven to manic borrowing from those with too much money to spare, and invest in things with a long-term economic and social payoff. A serious economic recovery package would embody that. And some of the original plan did that. But in order to get Republican votes, Obama et al added tax cuts, cut clean energy investment, reduced aid to state governments, and cut back on infrastructure spending.

Yes, of course Congressional realities dictated this in part. But these compromises were also a function of the fact that Obama et al didn’t really have a coherent story about what the stimpak was supposed to do. (Larry Summers once did, but he’s been less vocal on such topics since the inauguration.) But to make that argument—and there’s no doubt that Obama could make it effectively if he wanted to—he’d have to challenge a lot of prevailing economic wisdom. The conventional left-liberal explanation for this is weakness or timidity. But the margins of the last election and the approval ratings in the polls right now do not suggest political weakness. George W Bush came out of the 2004 election, which he won by a narrow margin, declaring himself in possession of a lot of political capital, and not shy about using it. No, it’s not really weakness or timidity. I think the Sweden vs. Japan quote from Obama shows that he’s really a market guy at heart, and has no interest in challenging the orthodoxy—and there’s no radical popular or intellectual movement to force him into doing it. And so the American economy will suffer the consequences of his received faith.

There’s an old story about Tony Blair (which I first heard from a commenter on this site), that great apostle of the Third Way. An old-style Labour MP is said to have complained to Blair about all the right-wing things he had to say to get elected. Blair’s response: “It’s much worse than that. I really believe it.” The same for Obama, I’m afraid. The combination of an economy stuck in the mud and an aroused populace could change that. But not yet.

12 Comments on “Radio commentary, February 12, 2009

  1. Doug, great post. Your point about the bankers just wanting money is so true. Didn’t Vanderbilt say something like “Law, what do I care about the law. Ain’t I got the power.” Substitute public for law, and you have the bankers and most other wealthy people here. Of course, they don’t give a shit about laws either, though at least a couple get tripped up by them every now and then.

  2. It may be that the US govt is forced to resort to a partial (“strategic”) nationalization of banks, if e.g. some large banks prove to be irredeemably insolvent, and are not bought by other financial institutions. I don’t think Mr Obama rules that possibility out completely.

  3. Was reminded of Obama’s “bitterness” remark. Among the scapegoats he listed was “free trade”.


    That the “it works but its unamerican” rationale for not nationalizing is left largely unchallenged or even examined is further proof that this country has followed the white rabbit down the hole.

    Is Obama to the right of G.H.W. Bush who created the RTC?

  4. I hope this is the right place to comment on an interview:

    I find guys like Kunstler troubling. I’ve never read him but I’ve read another Peak Oil book (Party’s Over). I noticed a disturbing glee in the prospect of returning want to more people.

    Sometimes they sound like something between agrarian-conservative and Maoists.

    I don’t totally dismiss what they have to say because I agree with a lot of them. But if they use the words “folk” or “soil” in the same sentence, I’m out.

  5. Basically, Doug repeats what Roubini et al. have been saying for the last couple of weeks. But a capitalist “nationalization” will not solve the fundamental problem. The US financial empire is bankrupt and whether or not Obama nationalizes it this bankruptcy will have to be brought to its natural conclusion–the national default. The “Swedish model”–that’s going down the same drain right now– and the rest of the “social-democratic” nonsense will help no more than Tylenol to the cancer patient. So let Obama sing about “our culture” and help the old mole dig better in the right direction.

  6. A fine post, but here’s the rub: Is every week bringing you further and further away from the “Great Opportunity from Great Crisis” crowd?
    The imperatives toward power and accumulation did not end with the crashes of Bear Stearns, Bank of Yale, or the other fearsome giants now reconstituted somewhere in the unreachable world of high financial thuggery. Long-time leftist agitators thought their ship had come in when the derivatives and hedge funds blew up, but others knew we were sailing in dinghies around these damaged super-tankers. Also: What’s the point of citing Obama all the time: is he some sort of Clinton polymath, or just another young tenured prof now chairman of the department, but without any real opinions of his own? And which would be worse?

  7. “I think the Sweden vs. Japan quote from Obama shows that he’s really a market guy at heart, ”

    I can’t imagine Bush, Clinton,Bush, Reagan…Johnson.. any modern American President saying anything like

    “So you’d think looking at it, Sweden looks like a good model.”

    Actually, O’s discussion gives the opposite impression from your claim that he’s a “market guy at heart.” Notice the quiet implication that the Japanese approach of constantly pumping money into the _market_ doesn’t look as good as the Swedish model. ( Does that mean he understands the Keynesian liquidity trap ?) He seems to want to cheat on America with a goodlooking Swedish model… but it would be kind of unAmerican ( as in the House UnAmerican Activities Committee) to do so.

    And of course he is really right about that. His use of “culture” is a euphemism for “hardline, fanatically anti-communist ideology drummed into everybody’s head for the last 40 years up until 20 years ago, the former third rail of American politics before the SU became former.” He’s not really sure that the ghost of McCarthy is exorcised; and he is not going to give the Republicans a “cultural” stick to beat him with. (Nor do Americans seem to have a lot of favor for European culture these days)

    Nor did the US public elect him based on a promise to be an aggressive radical or “countercultural” politician. That’s not his mandate. Most Americans interpreted his change slogan as a promise to stop the nasty rightwing extremism of Bush. You are talking as if he was elected to carry out your ideas, which are slightly more left than his; and when you know he didn’t campaign to your liking.

    Finally , I’m trying to figure if the following sounds like an anti-market guy at heart:

    “consume less, borrow less, equalize the distribution of income so that those of modest means aren’t driven to manic borrowing from those with too much money to spare, and invest in things with a long-term economic and social payoff. “

  8. Hey guys, and I think that there are only guys here…even if some gals are reading this…WHO do you think the Swedes used as their model for taking over their banks? One Guess. FDR. A Swedish banker involved in “saving” their banks said so in an interview broadcast early Jan…or late Dec on the program The World….you can probably find it if you searched the archive…I’m too lazy to do that, because even IF those bozzoes in DC knew this it would change a thing. I agree with Doug….all they know how to do is flush…they don’t know how the plunger works.

  9. I can see it coming. “We’re very sorry, but we simply can’t afford to address healthcare issues given the current extremely dire economic situation.”

    My son just lost his wife of one year. They had their first child two weeks before her death of a massive coronary. She was in the hospital for NINE HOURS prior to her death. He just got his first invoice from the hospital. $256,000. A real number.

    The Pentagon’s Black Budget for 2007 comes to about $80,000,000 per day.

    When does this insanity end?

  10. Economist Michael Hudson’s comments on Democracy Now (2.13) underscore the point made by DH, i.e., Obama was disingenuous–to say the least–in his dismissal of the dysfunctional bank write-down.

    Obama’s comment, “our assessment was that it wouldn’t make sense,” betrays his careerist sensibility, when considered in light of the many economists–like Hudson, Stiglitz, et al–who have clearly delineated the reasons why this bail out will fall flat. Obama, read another way: “I have no intention of alienating the people who count in this country,” (i.e., Madison’s “opulent minority”?).


    “What the newspapers call a subprime problem is really a big bank problem. Almost all of this negative equity is concentrated in four or five, maybe ten, of the very biggest banks.

    And what have they done with the bailout money? They’ve gone and bought the small and healthy banks, infecting the small healthy banks with their philosophy of salesmanship. Now, on the way over here, at Heathrow Airport, they had the British investigation in Parliament on the BBC television in the lounge. And it turned out that the heads of every one of these British banks who were fired were salesmen. None of them were bankers. They were into just selling. And when I was on Wall Street, that was my experience. They had stopped doing research. They had stopped doing analysis. And what they wanted were people who could sell bonds and sell mutual funds. And the whole idea has turned into salesmanship.

    For Citibank, their practice for years was what they called stretching the envelope. And what that means is breaking the law and daring the government to try to move against it, by saying, ‘If you move against this, if you close us down or prosecute us for stretching the envelope,’ such as when Citibank bought—merged with the insurance company in violation of the Glass-Steagall Act, ‘then we’ll bring the whole economy down in a crisis.’ And they’re holding the economy hostage in order to extract this money from the government. That’s the real problem. That’s what frightens the senators, and I’m sure that’s what frightens Mr. Obama, that these guys are threatening to wreck the economy if we don’t give them everything they want.”

    Yet, if Hudson is correct in assessing Obama’s fear factor, then Obama is remiss in surrounding himself with the economic wolves-cum-advisors who raided the coffers in the first place. Obama has seemingly already planned his “out” (i.e., when the bail-out fails), by hiding behind their Ivy League credentials (“But, they were ‘EXPERTS’!”).

    True, they have academic credentials, and we were supposed to be impressed to death by that. But, having spent five or six years in an Ivy League grad school probably fostered their “Master of the Universe” mindset, i.e., it may have cultivated their quote-unquote ethic: “privilege is now entitlement.”

    We are still in Plato’s Cave. And, the corporate media help to establish our own indecision. The “aroused populace” idea DH mentioned may turn out to be our saving grace. But, “not yet,” is true enough–and disheartening.

    There may be nothing forthcoming but token gestures to placate the rank and file. Or, put another way, Brand Obama and Co. will connive: “the herd will take what we give them–and like it too.”

  11. Great post, and great coments… although I’d wonder what Charles is up to with his attempt to rehabilitate The Barockstar Obamiracle beyond what The Obamiracle actually is, thinks, does, or will do.

    Coments like Charles’s above seem to come from the fond romanticists who pine for a Noble Donkey Era, and it leads them to invest (falsely) in their Donkey Heroes a set of qualities that aren’t resident in that supposed Hero. Witness the lies about Obama’s background (community organizer? rubbish) and his current “bailout” giveaway to the criminals of the White Collar variety, while he turns the rest of America into criminals of the Blue Collar / Domestic Terrorist variety.

    Obama’s angling for dictatorship under “national emergency” terms. People like Charles seem to enjoy this notion more than they ought.

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