[R-G] [BillTottenWeblog] Past and Future

[Bill Totten]

by William Greider

www.thenation.com (November 24 2008)

A year ago, when Barack Obama said it was time to turn the page, his
campaign declaration seemed to promise a fresh start for Washington. I,
for one, failed to foresee Obama would turn the page backward. The
president-elect's lineup for key governing positions has opted for
continuity, not change. Virtually all of his leading appointments are
restoring the Clinton presidency, only without Mr Bill. In some
important ways, Obama's selections seem designed to sustain the failing
policies of George W Bush.

This is not the last word and things are changing rapidly. But Obama's
choices have begun to define him. His victory, it appears, was a triumph
for the cautious center-right politics that has described the Democratic
party for several decades. Those of us who expected more were duped, not
so much by Obama but by our own wishful thinking.

Let us stipulate that these are all honorable people, smart and
experienced veterans of Washington combat. But they represent the
Democratic party that mainly sees itself as managerial - making
government work better. The long era of conservative dominance has
taught them to keep their distance from big reform ideas that promise
fundamental change of the system. Their operating style is incremental
and cautiously practical. They conscientiously avoid (or actively block)
propositions that sound too liberal or radical. Alas, Obama is coming to
power at a critical moment when incrementalism is irrelevant. The system
is in collapse. Financial chaos won't wait for patient deliberations.

Events have confronted Obama with a fearful symmetry between past and
present, illustrated by his choice of economic advisers. On Friday, we
learned that Timothy Geithner, president of the New York Federal
Reserve, would become his new treasury secretary and Larry Summers, who
held the same position in the Clinton administration, would be the White
House overseer of economic policy. On Monday, Geithner was busy
executing the government's massive rescue of Citicorp - the very banking
behemoth that Geithner and Summers helped to create back in the Clinton
years, along with Federal Reserve chairman Alan Greenspan and Robert
Rubin, Clinton's economics guru. Now Rubin is himself a Citicorp
executive and his bank is now being saved by his old protege (Geithner)
with the taxpayers' money.

The connections go way beyond irony. They raise very serious questions
about where the new president intends to lead and whether he has the
nerve to break from the weak and haphazard strategy of the Bush
administration. It has dumped piles of public money on the largest
financial institutions and demanded little or nothing in return, hoping
for the best. Geithner has been a central player in the deal-making,
from Bear Stearns to AIG to Citi. The strategy has not only failed, it
has arguably made things worse as savvy market players saw through the
contradictions and rushed out to dump more bank stocks.

On Wall Street, Geithner is known as a highly competent technocrat, well
versed in the financial complexities. But he has also been seen as a
weak and compliant regulator of Wall Street firms, someone who did not
seem the storm coming. Occasionally, Geithner would anguish publicly
about the accumulating time bombs like credit derivatives and urge
bankers to do something, but he did not use his supervisory powers to
compel action. In bailout negotiations with Wall Street titans, Geithner
and the Federal Reserve were spun around like a top more than once.

No wonder the stock markets rallied explosively when they heard Geithner
would be their new boss in Washington. They think he is their guy.
Summers may be a brilliant economist - everyone says so - but he, too,
is a club member in good standing and now manages a huge hedge fund
while he advises Obama. The president-elect needs to get a "second
opinion" - someone from outside the financial club who can explain the
flaws in the rescue strategy preached by Bush's treasury secretary Henry
Paulson and Tim Geithner at the New York Fed.

Their approach has clearly been designed to preserve what's left of the
Wall Street establishment and maintain the supremacy of the largest
financial firms while the taxpayers pick up their losses. That model has
failed and too many smart people know why. The bailouts have been too
little too late and aimed at an impossible objective - persuading
private capital investors to believe in the phony assurances proffered
by the bankers. AIG, the insurance giant taken over by the feds, has
turned into a bloody hemorrhage. Citigroup will be another and may soon
be joined by other major banks demanding the same favorable terms.
Wasting more public money on insolvent mastodons is the least of it. The
real scandal is it doesn't work. It can't work because the black hole is
too large even for Washington to fill. Government should take over the
failing institutions or force them into bankruptcy, break them up and
sell them off or mercifully relieve everyone, including the taxpayers.

Stock markets rallied again with the salvage of Citigroup. But not
everyone in Wall Street was cheering. Christopher Whalen of
Institutional Risk Analytics, the bank monitoring firm that has
repeatedly been right about the banks when the government officials were
wrong, had harsh words for the deal. "Pretending that Citi is going to
be a going concern I think is silly", Whalen said. "We should be
thinking about breaking this company up and redistributing the assets
into stronger hands".

Will Timothy Geithner or Larry Summers advise the next president to face
reality and throw in the towel? One hopes so, because Whalen warns: "By
embracing Geithner, President-elect Obama is endorsing the ill-advised
scheme to support AIG directed by Hank Paulson et al at Goldman Sachs
and executed by Tim Geithner ... This scheme to stay AIG's resolution
cannot possibly work and, when it does collapse, Barack Obama and his
administration will wear the blame".

Barack Obama is too smart and perceptive to let this happen to his
yet-unborn presidency. Maybe he should find out what Whalen knows.

_____

William Greider, a prominent political journalist and author, has been a
reporter for more than 35 years for newspapers, magazines and
television. Over the past two decades, he has persistently challenged
mainstream thinking on economics.

For seventeen years Greider was the National Affairs Editor at Rolling
Stone magazine, where his investigation of the defense establishment
began. He is a former assistant managing editor at the Washington Post,
where he worked for fifteen years as a national correspondent, editor
and columnist. While at the Post, he broke the story of how David
Stockman, Ronald Reagan's budget director, grew disillusioned with
supply-side economics and the budget deficits that policy caused, which
still burden the American economy.

He is the author of the national bestsellers One World, Ready or Not
(1998), Secrets of the Temple (1989), Who Will Tell The People (1993),
and - due out in February from Rodale - Come Home, America. In the
award-winning Secrets of the Temple, he offered a critique of the
Federal Reserve system. Greider has also served as a correspondent for
six Frontline documentaries on PBS, including "Return to Beirut", which
won an Emmy in 1985.

Greider's most recent book is The Soul of Capitalism: Opening Paths to A
Moral Economy (2004). In it, he untangles the systemic mysteries of
American capitalism, details its destructive collisions with society and
demonstrates how people can achieve decisive influence to reform the
system's structure and operating values.

Raised in Wyoming, Ohio, a suburb of Cincinnati, he graduated from
Princeton University in 1958. He currently lives in Washington, DC.

http://www.thenation.com/doc/20081208/greider_web


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