By Josh Healey
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President Obama’s economic address at Georgetown University fell flat.
While he did a decent job at explaining the causes of the crisis, and he made a compelling case for the increased government spending in his stimulus program, he punted when he got to the question of nationalizing the banks. He was vague on re-regulating the financial sector. And he once again made ominous noises about reducing Social Security.
He was defensive on the question of nationalization. He acknowledged that some people have criticized him for being, as he put it, “too timid” and who see that as “yet another example of Washington coddling Wall Street.”
Here was his response to that criticism: “Let me be clear: The reason we have not taken this step has nothing to do with any ideological or political judgment we’ve made about government involvement in banks,” he said. “And it’s certainly not because of any concern we have for the management and shareholders whose actions have caused this mess.”
Well, why then didn’t he insist on firing the management, as he did in the case of GM?
Leaving that aside, and leaving aside the fact that Larry Summers and Rahm Emanuel have feasted on Wall Street, and may indeed have concern or sympathy for Wall Street, let’s hear Obama out on why he opposes nationalization.
“Rather, it is because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence.”
That’s not a good answer.
First of all, the word “preemptive” is way off the mark. Nationalizing Citigroup would not have been a preemptive action. Look, Citigroup would have gone bust without these funds. On top of that, we, the taxpayers, have already overpaid for Citigroup. With all the bailout money and guarantees we’ve lavished on it, we could have bought it several times over, as the economist Dean Baker has pointed out.
Second, how would nationalizing cost taxpayers more in the end? Not nationalizing is costing us more in the beginning. Keeping management on at ridiculous salaries is costing us more right now. And bailing the banks out time after time is going to cost us hundreds of billions down the road.
Third, whose “confidence” is it going to undermine? This cuts to the heart of the issue. A Newsweek poll showed that 56 percent of the American public favors some bank nationalizations. http://thinkprogress.org/2009/03/07/nationalization-support/?sortby=time Their confidence won’t be undermined. No, the only group whose “confidence” Obama is worried about undermining is Wall Street. Banks that are already essentially comatose would see their stock prices dwindle even further, for fear that they may be the next to be nationalized. Obama is keeping all the banks alive in the expensive iron lung of the federal government because he doesn’t want to spook Wall Street.
If Obama skipped the middleman and truly nationalized Citigroup and a couple other major banks and ran them as national banks, they could begin directly lending to consumers, homeowners and businesses, he could start to get money flowing through the economy, which he says is his goal. But he refuses to do that, insisting on resuscitating the moribund banks and paying venture capitalists to take over the toxic assets at no risk to them. To hell with the venture capitalists! Why should we be subsidizing them? To hell with the bankrupt banks. Take them over.
Obama was right to say, “We cannot go back to the bubble and bust economy that led us to this point.”
He was right to say that we can’t allow “the recklessness of a few to threaten the entire economy.”
He was right to say, “It is not sustainable to have an economy where in one year, 40 percent of our corporate profits came from a financial sector . . . or an economy where the incomes of the top 1 percent have skyrocketed while the typical working household has seen their income decline by nearly $2,000.”
But what did he propose to do about that?
He didn’t propose taxing securities transactions.
He didn’t propose upping the capital gains tax.
He didn’t propose upping the marginal income tax rate, which, under Dwight D. Eisenhower, stood at 92 percent for the richest Americans.
He didn’t propose rebuilding the wall between investment banking and commercial banking, which would mean re-establishing the Glass-Steagall Act, which Bill Clinton destroyed.
He didn’t propose abolishing the Commodities Futures Modernization Act, which deregulated credit-default swaps and other exotic instruments. (Clinton and Larry Summers were responsible for that one, too.)
All Obama said was he’d sign a new regulatory framework by the end of the year.
Alarmingly, Obama also signaled that he’s preparing to slash Social Security, as well as Medicare and Medicaid.
“Along with defense and interest on the national debt, the biggest costs in our budget are entitlement programs like Medicare, Medicaid, and Social Security,” he said. “If we want to get serious about fiscal discipline—and I do—then . . . we will also have to get serious about entitlement reform.”
The very use of the term “entitlement” is a bone to the rightwingers, who use it as a pejorative. As if we, as American citizens, as if we, as human beings, are acting like “entitled” little brats to demand a secure retirement and health care if we are aged, indigent, or disabled.
As James Galbraith points out in a must-read article in Washington Monthly, these “entitlements” represent the major source of wealth for huge chunks of the middle class and the elderly.
“That means that the entitlement reformers have it backward: instead of cutting Social Security benefits, we should increase them, especially for those at the bottom of the benefit scale,” Galbraith writes. “Indeed, in this crisis, precisely because it is universal and efficient, Social Security is an economic recovery ace in the hole. Increasing benefits is a simple, direct, progressive, and highly efficient way to prevent poverty and sustain purchasing power for this vulnerable population. I would also argue for lowering the age of eligibility for Medicare to (say) fifty-five, to permit workers to retire earlier and to free firms from the burden of managing health plans for older workers.”
Galbraith goes on to “call attention to the madness of talk about Social Security and Medicare cuts. The prospect of future cuts in this modest but vital source of retirement security can only prompt worried prime-age workers to spend less and save more today. And that will make the present economic crisis deeper. In reality, there is no Social Security ‘financing problem’ at all. There is a health care problem, but that can be dealt with only by deciding what health services to provide, and how to pay for them, for the whole population. It cannot be dealt with, responsibly or ethically, by cutting care for the old.”
Finally, a word or two about Obama’s religious rhetoric. Since I flagged George Bush for throwing his bible at us, I would be remiss if I didn’t do the same for Obama. Did he really have to quote the bible about the man who “built his house on a pile of sand”?
And worse, did he really have to say, “We have been called to govern in extraordinary times”?
That’s Bush-speak, plain and simple. The implication is that Obama has been called by God to govern.
We do not need another messianic President.
We barely survived the last one.