Two Americas, Two Bailouts
The White House spin doctors are getting a lot of help this morning from their scribes, trying to sell the point that the $165 million in bonuses to AIG executives is but a drop in the bucket compared to the much larger problem of fixing the economy. Rahm Emanuel says they are a "big distraction." There is tremendous pundit anxiety that the ignorant masses in their blood lust will pervert serious efforts to deal with our economic challenges and make unseemly demands for vengeance.
I live in DC now, and it’s a very nice place, insulated from the pressures being felt by the rest of the country. Those economic hardships remain largely invisible here: money still flows to federal employees and government contractors, nearby counties are among the richest in America, and Tina Brown declared that the cultural center has shifted here from New York. It’s a world that reveres people in the Obama administration as the new celebrities. The confidence that the American people have expressed in their ability to fix the country’s problems is exceeded only by their own.
It’s not that people here are unaware of those problems, far from it. But as Krugman says this morning, the "best and the brightest" in the administration are products of the financial system and they have a fundamental belief in its integrity. They think that pumping money into it with no strings attached will solve its maladies, and share the underlying assumption that bankers should continue to profit handsomely.
Here is Geithner on Feburary 10 announcing his economic stability plan, telling people what they want to hear:
Investors and banks took risks they did not understand. Individuals, businesses, and governments borrowed beyond their means. The rewards that went to financial executives departed from any realistic appreciation of risk.
There were systematic failures in the checks and balances in the system, by Boards of Directors, by credit rating agencies, and by government regulators. Our financial system operated with large gaps in meaningful oversight, and without sufficient constraints to limit risk. Even institutions that were overseen by our complicated, overlapping system of multiple regulators put themselves in a position of extreme vulnerability.
These failures helped lay the foundation for the worst economic crisis in generations.
But his actions belie a far different mindset. Geithner has done almost nothing with regard to regulatory reform, and will finally roll out his plan in response to international pressure at the G20 in April:
The U.S.’s overseas allies ratcheted up pressure during the weekend to tackle the ailing banking system. "Some countries have not fixed their banks, so I want them to fix their banks," Canada’s finance minister, Jim Flaherty, said, in what appeared to be a veiled reference to the U.S.
Germany’s finance minister, Peer Steinbrueck, made a similar point as a way of deflecting U.S. demands for more stimulus spending.
"We are convinced it makes no sense to pump more and more money in our economy when we haven’t restored the confidence on the financial markets," he told reporters .
Revamping the system is just not something Geithner feels intense pressure to do, regardless of what he says. His actions just don’t match up with his words.
When the bank bailouts began, the public was very suspicious. According to a CBS poll done in October, 51% disapproved of the bailout, and 52% disapproved of providing money to financial institutions. On the other hand, a majority approved of providing help to struggling homeowners (54%) — which never really happened. The public thought that the bailout was going to help "just Wall Street" (60%) more than "the whole country" (30%).
Americans were worried that the bailout was designed for the benefit of those who created the crisis. They were being asked to take the government at its word that as they lost their jobs, their 401Ks disappeared and their communities disappeared that it was absolutely necessary to immediately shovel trillions of dollars into a broken system or things would become drastically worse. They crossed their fingers and held skeptical hope that things would work out.
But underlying the public’s trust was the assumption that those in charge were doing this because there was no other choice, and they thought people like Timothy Geithner knew it was their job to keep the people who had looted their retirement funds and sacked their value of their homes from profiting from taxpayer largesse while they struggled. They most certainly did not share Timothy Geithner’s belief that everyone in the banking industry should continue to get rich.
It’s impossible to know when Geithner realized that the AIG bonuses were eminent, but one thing is clear — he did not anticipate the public rage, the critical breaking of trust that the bonuses symbolized. He thought he could stomp around a bit, shake his head and talk about "outrage" but it would eventually blow over. He, the administration and the anxiety pundits do not seem to realize that the AIG bonuses are not just a "drop in the bucket." They trigger a whole set of ugly conclusions. As dday says, "the public knows intuitively that they’ve been getting a raw deal for decades, and the bonuses are only a small part of the story."
What they telegraph to the American public, quite appropriately, is that the people in charge are perpetuating a broken system and enriching their friends at taxpayer expense, and it calls into question everything they have been told. It’s a signal that the whole thing is a crock, that it’s no more than a great and penultimate oligarchical looting. As Matt Taibbi says:
People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.
The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.
The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.
Timothy Geithner’s response to the AIG bonuses confirmed the public’s worst suspicions: that they are being fleeced by a crew that makes Bernie Maddoff look like a piker. The "populist rage" that the pundits find so unseemly is actually the appropriate response.
Until the administration finds a way to convince the public that the crooks are not still in charge and the same thing couldn’t happen all over again, they will rightfully demand that no more taxpayer money go to propping up the banks.
That’s not "mob rule," it’s just common sense.