Photo: AP Photo/KVVU, Peter Dawson
When Barack Obama started his Presidency, there was much discussion of how Sweden in the early 1990s had briefly nationalized and then sold off its failing banks and quickly restored its economy, while Japan had instead bailed out its failed banks’ stockholders and bondholders, and never recovered. Why is the United States copying the Japanese failure, instead of the Swedish success?President Obama started his Presidency with the opportunity to try the Swedish solution. This would have been a temporary nationalization of the bad giants of American finance — Wall Street (including AIG), Bank of America, and maybe Wells Fargo – a public seizure including their toxic speculative assets, as part of a program then to sell those off and to prosecute any frauds that had been perpetrated in the production and marketing of those toxic assets, which had crashed the U.S. economy and caused so much hurt to the nation.
Bush had already bailed these financial firms out with taxpayer cash, but Obama needed yet to determine what he’d do: Would he turn those bailouts into temporary ownership and control of those firms, like Sweden had done in 1992, kick out their existing stockholders and even some bondholders, like Sweden had done, imprison the fraud-mongering executives, and say to the aristocrats who had invested in them, as Sweden had done, “Tough luck, you had invested in a mismanaged company, which went insolvent? We’re now taking over.” Or would he instead do the bidding of the bonus-engorged executives, and of the aristocrats who held those stocks and bonds, in those financial giants; would he now hold these aristocrats harmless, by transferring their losses onto future U.S. taxpayers, like Japan had done with its 1990’s financial crisis — and which path had terminated Japan’s period of growth into global economic prominence, and produced Japan’s subsequent stagnation?
On 10 February 2009, Paul.Kedrosky.comheadlined “Obama On Bank Nationalization: Too Many Banks/Republicans,” and Mr. Kedrosky presented transcript excerpts from that night’s ABC News “Nightline” (“Obama: No ‘Easy Out’ for Wall Street”) in which Terry Moran asked the new President: “There are a lot of economists who look at these banks and they say all that garbage that’s in them renders them essentially insolvent. Why not just nationalize the banks?” Moran was, in effect, asking the new President to indicate whether he’d do as Sweden had done, or instead as Japan had done. Obama chose the Japanese model, and Kedrosky was shocked at this, and he pointed out the inadequacy of Obama’s explanation for his choice.
Obama answered this question from Moran by saying, “Well, you know, it’s interesting. 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 government kept on pumping [taxpayer] 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 of years later, they were going again.”
All of this was exactly true, a good summary of what happened, and if Obama had been both honest and intelligent – and not a psychopath – he’d have proceeded then to use this extremely important information as the basis for what he’d do in the huge crisis left him by Bush, since he acknowledged that this path would be the best for the country; but, instead, he now went into a sequence of transparent obfuscations, to turn away from it. Kedrosky lambasted him here, by noting, “All this talk of ‘culture’, ‘traditions’, and so on are an opaque way of saying that Democrats are [no: that Obama is] terrified of nationalization because they [no: he] worry [worries] about Republican name-calling.”
Here was this new President’s grand opportunity to take advantage of the nation’s disgust with eight disastrous years of Bush/Republican corruption and serving the aristocracy at the public’s expense. And Obama completely and shockingly muffed the opportunity.
He said now: “So you’d think looking at it, Sweden looks like a good model. Here’s the problem:” and he named two: culture (Sweden’s being democratic socialist, versus America’s being what — fascist?), and scale (Sweden’s being a smaller country than the U.S. – as if Japan wasn’t also, and as if scale had anything to do with it anyway, which it didn’t).
Kedrosky pointed out the fraudulence of both of Obama’s arguments, and he closed by observing: “Muddying the issue by saying that we would need to nationalize ‘thousands of banks’ isn’t helpful.” Bill McBride at calculatedriskblog.combannered “Obama on Nationalization,” and he included the February 10th commentary by Nouriel Roubini, the economist who had predicted the financial collapse. Roubini summarized there what he understood to be the advice that President Obama was receiving from his top economic advisors (Larry Summers and Tim Geithner), which led Obama to think that he should copy Japan. Roubini expected that Obama would probably reverse himself on this after “6-12 months.” It didn’t happen. Nobody (except perhaps a few extreme Republicans, on purely imaginary grounds) could yet think that Obama was a psychopath, but that’s what he finally turned out to be: Roubini’s expectation for Obama to do what’s best for the country was dashed.
Sweden had let the wealth of some aristocrats (the main holders of stocks and bonds in the failed banks) plunge, rather than transfer onto future taxpayers (the general Swedish public) those individuals’ losses; and so the entire Swedish economy quickly recovered. As Lars Jonung in February 2009 wrote for the European Commissionsummarizing the Swedish experience, “The aim was to save the banks – not the owners of the banks. By forcing owners of banks to absorb losses, public acceptance of the bank resolution was fostered. In this way, taxpayers were likely to feel that the policy was fair and just.” Japan instead bailed out their aristocrats; and the economy never recovered. Obama knew all about it, and yet he chose the Japanese approach.
This didn’t make sense unless Obama was a psychopath, but it was far too early in his Presidency for anyone to be able to draw such a conclusion rationally yet: such a conclusion seemed too bizarre to be an accurate reading of the man, since his Presidency was then just starting.
However, there were also Obama’s other related failures, such as his refusal to prosecute even a single mega-bank executive for the financial frauds that had brought the American economy down.
These had been serious crimes. For example, Shahien Nasiripour, at huffingtonpost, bannered, on 16 May 2011, “Confidential Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers,” and he reported that the Inspector General of the U.S. Department of Housing and Urban Development had carried out audits of Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial, and found, in each case, that they had swindled the Federal Government. “The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges” under “the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government.” All of “the audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes … using defective and faulty documents.” Yet again – as with Goldman’s Lloyd Blankfein, and with the Republican former Senator John Ensign – the Obama “Justice” Department was being challenged to prosecute banksters and conservative politicians. Nearly three years into his Presidency, Obama hadn’t yet pursued even a single one of them. (He would prosecute only Democratic politicians, such as former Senator John Edwards, and former Governor Don Siegelman.)
Bloomberg News headlined on 1 June 2011, “Analyst: Goldman ‘Too Big’ to Face Prosecution,” and quoted Wall Street’s most highly regarded bank analyst, Brad Hintz of Sanford C. Bernstein & Co., as claiming that none of the mega-banks could be criminally prosecuted, because criminally convicting a mega-bank would destroy the entire economy. (This assertion was false, but Hintz was himself a Wall-Streeter. His audience were Wall-Streeters.) Furthermore, he said that there would always be the assumption that any such bank would be an “offender that can be reformed,” and that therefore it shouldn’t be prosecuted. Hintz also assumed that no mega-bank top executive would be criminally prosecuted – that the only penalty feasible for any such lawbreaking would be a fine that’s paid by the company and taken out of stockholders’ profits – not out of any executive’s compensation, much less by any imprisonment: no criminal prosecution whatsoever. In other words: Hintz was saying that criminal accountability was only for everyone else, not for the financial aristocrats.
This corrupt theme was ultimately confirmed as Presidential policy, in September 2011, when Ron Suskind’s Confidence Menbecame published, exposing the Obama Administration, supposedly led by the evil Timothy Geithner at the head of most of its men, versus Sheila Bair and all of its women (especially Mary Schapiro, Christina Romer, Elizabeth Warren and Senator Maria Cantwell), and with Geithner finally winning the President and so deciding the game – as if the President hadn’t actually been the key figure all along.
Suskind reported that in late February of 2009, Summers “joined Romer in support of the president’s belief that a major federal intervention into the banking system was now needed. Geithner pushed back. ‘The confidence in the system is so fragile still,’ he said. ‘The trust is gone. One poor earnings report, a disclosure of a fraud, or a loss of faith in the dealings between one large bank and another – a withdrawal of funds or refusal to clear trades – and it could result in a run, just like Lehman.'”
Geithner was there saying that only two choices for mega-bank policy existed: doing nothing, as in the Lehman case, or else doing what George W. Bush and Hank Paulson had done – the bailouts etc. Geithner was ignoring what Sweden had done, even though the Swedish model had restored the Swedish economy quickly; Geithner was, in effect, pretending that Bush had done a Sweden, which wasn’t the case at all.
Supposedly, the President was fooled by this ridiculous Geithner ploy. Suskind reported that Obama finally (supposedly) reluctantly came around to Geithner’s side when Geithner convinced him that “many of the president’s desires for action [on the banks] could find a home, at much lower costs, in his ‘stress tests’ … which Summers and Romer doubted would be credible” (since the balance sheets of the banks had been rigged to count the toxic assets at full value, which fakery everyone in Washington knew about).
This was repeating the Japanese model, which everyone knew had failed. Suskind portrayed Barack Obama as being not an elitist who had knowingly selected a bunch of plutocratic operatives for the top of his various agencies (Treasury, Justice, etc.), but as just a fool, who somehow became manipulated by his worst aristocratic operative of them all: Geithner. In Suskind’s account, Geithner was Obama’s fall-guy – Suskind pretended that Geithner was ultimately to blame.
Suskind’s account is not credible in this regard. Barack Obama may be many things, but he’s no fool. The fool in Suskind’s report was Suskind himself, for his laying the blame upon Obama’s team, rather than upon the man who chose and led it: Barack Obama.
However, Suskind’s quotations from those people are entirely believable, because they’re in accord with all of the other reliable evidence. Obama clearly was more concerned to prevent Bush’s economic collapse from continuing even just temporarily, than he was to fix the underlying conditions that had caused it and that could be effectively addressed only if that plunge weren’t interrupted by such extend-and-pretend holding-actions as Obama employed (such as his allowing the banks to hold toxic assets on their books at full value).
Obama thus pursued policies that left the United States in permanently weakened condition, by his, essentially, whoring to the aristocracy. This is inescapable reality, which the liberal Suskind refused even to consider in his book. Obama was a conservative in his actions, but a hypocritical liberal in his speeches. Suskind believed his speeches, and ignored his actions – such as Obama’s having hired Geithner to begin with.
Aptly, on 21 July 2012, washingtonsblog bannered “Failing to Break Up the Big Banks Is Destroying America.” This article documented that Obama was completing the aristocratic rape of the country that Bush had begun.
Consequently, under Obama, the stock markets boomed, while employment and wages continued sinking.
The aristocracy weren’t hurt; only the workers were. This was Republican government, under a “Democratic” name.
The only way the Republican Party could respond to this was by going even farther to the right, which they did: Romney draws the aristocracy’s support only by being significantly to the right of Obama; otherwise he wouldn’t stand any chance at all. Welcome, then, to America’s fascist Party – America’s formerly merely conservative Republican Party.
And this is how it came to be that the U.S. must now choose between a conservative “Democrat” and a fascist Republican, and that the winner (whoever it may be) will be presiding over a robbed and raped country.
Investigative historian Eric Zuesse is the author, most recently, of DEMOCRATIC vs. REPUBLICAN ECONOMICS: NO CONTEST – Democrats Always Better, and of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.
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