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:
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.