After the mid-term elections, President Obama made a further turn to the right in part in an attempt to placate the right wing populists. Many supporters, including critical supporters, of Obama were somewhat shocked at. They shouldn’t have been, and if they’d read Robert Scheer’s “The Great American Stickup” maybe they would have been better prepared.
Scheer’s book is a fairly detailed history of how the “financial services” industry – finance capital – integrated itself with the federal government. Reagan and then Bush Sr. had popularized the idea of deregulation, but it wasn’t until the 90s, first under President Clinton, that finance capital really came into its own in terms of political control. The main blow in this realm was the repeal of the Glass-Steagal Act. This Depression-era law established certain limits on what banks could do. The main limitation was the separation of banks into commercial and investment banks. Only the former held accounts from customers that were insured by the federal government. In return, they were forbidden from certain of the more risky investment practices that investment banks could engage in.
Deregulation of Finance Capital
A first step in weakening Glass-Steagal was the elimination of certain restrictions on the savings and loan associations in 1982, the result being the S&L crisis of several years later. Finance capital was emboldened by this success, despite the S&L crisis, which after all did not provoke a mass movement. This sector had already become immensely powerful within their class as a whole, such that General Electric Capital – the financial sector of GE – was almost half of GE as a whole and accounted for over half of GE’s profits.
In 2001, Glass-Steagal was repealed under the Financial Services Modernization Act (FSMA). Shortly after that, the Commodities Futures Modernization Act (CFMA) was passed. The name itself – “modernization” – was meant to confuse the general public as to what exactly was involved. All of the corporate-controlled media was onboard in this con game. Today, there is much talk about “bipartisanship”; repeal of Glass-Steagal through the FSMA and the subsequent passage of the CFMA were examples of what is really meant by this term. On the Republican side, two of the leading advocates were the Gramm team – Texas Senator Phil Gramm and his wife Wendy. The latter was considered to be “the high priestess of financial deregulation” when she served on various governmental boards, which she left to join the Board of Directors of Enron Corporation. In part, the CFMA would have helped clarify exactly what debts were being sold and bought and what they were really worth. As Wendy Graham said, however, “As to the concern that derivatives are too esoteric, and the perception that derivatives are overcomplicated and too difficult to price: Well, you and I know that the pricing of many derivatives is simple and understood.” As for the Democrats, as Robert Reich (Clinton’s Secretary of Labor) said “Clinton made a deal with Greenspan in the first year of his administration that if the Fed kept interest rates low, the president would reciprocate with financial market deregulation” (as reported by Scheer, p. 100).
One of the few people in the administration who saw what was coming and sought to get a public understanding of the rising derivatives market was the head of the Commodities Futures Trading Commission, Brooksly Born. As a first step, she sought to organize a study into this relatively new form of speculation. The Republicans and Democrats in congress colluded to block this study and then more or less hounded her out of office, all with the support of Clinton himself.
Robert Rubin and the “Committee to Save the World”
Two key players in this entire process were Robert Rubin, Clinton’s Secretary of the Treasury and then his successor, Larry Summers. These are two of the slimier characters who have ever graced the US political scene. Rubin went from being co-chair of Goldman Sachs to Secretary of the Treasury under Clinton. As such, he played a central role in the deregulation of the financial industry. One of the key consequences of this deregulation was to make possible the merger which created Citigroup. A few years after that, he left government “service” to join Citigroup as its chief liaison with the federal government.
In February of 1999, Time magazine published a piece on Rubin, Alan Greenspan and Larry Summers entitled “The Committee to Save the World.” This was not meant facetiously. The article cites Rubin referring to “the power of (Greenspan’s) intellect and the sweetness of his soul.” They write that Summers’ “intellect never fails to dazzle.” As a team, they comment about their “passion for thinking and inextinguishable curiousity about a new economic order that is unfolding before them…. In the past six years the three men have merged into a kind of brotherhood with an easy rapport.”
Now, slightly over ten years later, nobody can even claim that these three men even accurately predicted what was unfolding. In reality, behind all these outright lies stands the fact that this was really a Committee to Plunder – not Save – the World, and that these three men profited enormously from their role. They were simply big time swindlers.
Clinton, in the last days of his presidency, changed government regulations to allow Rubin to lobby the department which he had just recently headed. It was this change in regulations which allowed Rubin to lobby the Department of the Treasury on behalf of Citigroup in trying to get them to arrange the postponement of a downgrading in the credit worthiness of Enron Corporation. Citigroup had major economic interests in Enron and stood to lose hundreds of millions in such a downgrade. Had the downgrading been postponed, Citigroup would have been able to sell their loans to other, unwary investors, thus divesting themselves of this dead weight.
Enron & Citigroup
Despite Rubin’s best efforts, Enron Corporation went bankrupt in 2001. Partly through the openings provided by the CFMA, Enron had been a pioneer in trading energy contracts. Along the way, they also manipulated prices through such means as arranging to have power plants shut down in order to jack up the price of electricity. While selling Enron debt, Citigroup also bet $1.4 billion that Enron would fail; in other words, they were selling debt that they knew was not going to be repaid.
The collapse of Enron (as well as Global Crossings Corp.), and the Savings and Loan crisis of the previous decade, were warning signs of things to come. However, finance capital was raking in the profits and those like the Gramms, Rubin and Summers were getting their cut. They consistently predicted that the party could continue forever.
The Bubble Bursts
The tale of the housing bubble and its collapse has been told many times. One of the beneficiaries of this bubble, through the sale of “collateralized debt obligations” (CDO’s), was Goldman Sachs, which threatened to go into the tank when the housing bubble burst. At the time, the Secretary of the Treasury was Henry Paulson, former CEO of Goldman Sachs. When Bush pushed through the first bank bailout, it was naturally Goldman Sachs which was one of the chief beneficiaries and, in fact, many former Goldman executives were the ones who administered these funds.
The role of these Goldman executives was merely repeated in the Obama administration that followed; only the names and faces changed. In place of Paulson and other former Goldman executives, the administration put in Tim Geithner, a Greenspan/Rubin thinkalike, as Secretary of the Treasury. Alongside of him, Obama appointed Larry Summers, a long-time Rubin side-kick, as his (Obama’s) chief economic advisor. He continues to have a close relationship with Rubin.
Obama Brings the Crooks Back
After his campaign based on the slogan “change you can believe in”, newly elected president Obama appointed Tim Geithner to head the Department of the Treasury and Larry Summers to head his council of economic advisors. Both of these men were long-time Rubin associates and advocates of the financial deregulation that has contributed to the economic crisis. These appointments were an absolute scandal, and while there was some grumbling from Obama’s liberal supporters, little was made of it. These were two of the chief architects of the entire financial deregulation which had so facilitated the economic process, and two individuals who personally profited immensely from it. The both of them were totally wrong in their earlier perspectives for how the economy would unfold; they had proven themselves anything but “experts”, except in the sense of being expert in getting their noses into the trough.
As Scheer writes, “Why, then, was Summers once again running the show with Geithner, when both have made careers of exhibiting total contempt for the public interest? Because there is no accountability for the high rollers of finance, no matter who happens to be president.”
A Defining Moment for the Obama Presidency
Once in office, the first year of his administration was consumed in the battle around health care “reform”, but he soon had to turn his attention more directly to the economy. The replacement of the seat of Senator Ted Kennedy with a Republican was a warning sign to Obama. Shortly after that Republican victory, he started making some populist noises, attacking the bonuses of the “fat cats”, etc.
The Wall Street titans did not take this lying down. One of Obama’s long-time close associates and supporters was James Dimon, CEO of JPMorgan Chase. Dimon saw to it that donations that formerly went to the Democrats suddenly started going to Republicans – some $30,000 worth. (Of course, this was chump change compared to Dimon’s $17 million bonus that year – exactly the kind of mega bonus Obama had been criticizing.) Another to put his objections to Obama was Robert Wolf, US chief of the Swiss bank UBS and a golfing buddy of Obama’s.
As Scheer writes, the “Wall Street titans… took Obama to the woodshed to teach him and the Democrats a lesson about who’s really in control…. Obama got the message and caved. It would be a defining moment of his presidency, as he subsequently backtracked on even his very modest demands for financial reform that so alarmed Wall Street. By being unwilling to confront Wall Street, he surrendered the substance as well as the rhetoric of a meaningful populist response to the faux insurgents of the Tea Party and Sarah Palin…” (emphasis added)
Obama’s Present Shift Further to the Right
This last comment is key to understanding Obams’s most recent shift further to the right, towards even further capitulation to Wall Street. When faced with the recent Republican successes in last November’s elections, Obama could have moved to undercut them by explaining the tax shift away from capital and onto wages, explaining the shift in wealth and earnings away from the poor and middle income earners and to the top ten percent. He had already tried this approach once, however modestly, though, and was slapped down. His only alternative was to seek even further accommodation to Wall Street in an attempt to steal some of the thunder of the Republicans. In addition, those elections further revealed the degree of disorganization within the working class, which served as an open invitation for the US capitalist class, especially its financial sector, to step up their attacks.
This is what Obama’s further shift to the right represents.
Scheer’s book gives a graphic description of how finance capital has infiltrated and controls both the major political parties and the state apparatus controlled by those parties. In this, it makes a valuable contribution. However, it has several major faults, most faults by omission.
The Workers’ Movement
Throughout the book, Scheer refers to the Glass Steagal Act and the controls placed over finance capital during the New Deal. He writes as if this were a simple option today. What he fails to understand is that the reforms of the New Deal were brought into being because of the pressure of an organized and aroused working class. Part of this development was the deep roots the Communist Party and the Socialist Party had sunk in the working class at that time. It was these factors that forced the capitalist class to accept these reforms, however reluctantly.
Equally important, Scheer fails to understand that the state apparatus has always been controlled by one sector or another of the capitalist class. He seems to see the increased control of “Wall Street” – finance capital, in other words – as some sort of aberration. What he (as well as many other left critics, such as Michael Hudson) fails to see is that the domination of finance capital is inevitable in a mature capitalist society.
There is no going back. The path is blocked. The removal of finance capital from the throne requires the removal of the entire capitalist class. With this understanding, Scheer’s book is well worth reading.