Wall Street Cheers the Austerity Bomb

As Jacob Lew, President Obama's choice for Treasury Secretary, sailed through Senate Finance Committee hearings Tuesday, Americans got ready to duck and cover for Friday's austerity bomb.

The Obama Administration is supposed to be on our side in holding off the massive, automatic, senseless "sequester" cuts that will hit on Friday.

But a combination of lousy negotiating with Republicans in Congress and a pro-Wall Street bias that makes deficits an obsession even in the current recession complicates things.

The Democrats, and the Obama Administration in particular, have simply not done enough to protect Americans from the pain of austerity and the unnecessary economic damage the sequester cuts are about to do to our country.

Lew is a prime example.

The whole sequester idea was his brainchild, together with White House congressional relations chief Rob Nabor, according to Bob Woodward.

Woodward describes then-White House budget director Lew presenting the plan for the automatic cuts to Harry Reid in 2011. Reid, according to the book, bent over and put his head between his knees like he was going to be sick.

The idea, Lew has explained, was that Democrats would win the game of chicken. The sequester would be so unacceptable to Republicans and Democrats alike that it would never come to pass.

Now here we are, days away from the cliff they've been driving us toward, and the Republicans turn out not to be so keen on veering away as Lew and the rest of the Obama team hoped.

That's partly because of the way the fiscal cliff negotiations have unfolded so far.

Obama seemed to win the first round of those negotiations, on New Year's Day, when he got the Republicans to agree on tax hikes for the very rich and put off the current round of negotiations a couple of months.

But, as Tom Harkin--one of only three Democrats in the Senate to vote against the New Year's deal--points out, it was still a lopsided agreement that fundamentally favors Republican ideology.

For starters, the deal permanently codifies the Bush-era tax breaks for people who make up to $400,000, or $450,000 for couples. Those tax cuts had been temporary until now.

Relief for people of more modest means, on the other hand, is still tenuous, Harkin points out. "It should be the other way around."

Rhetorically, we have now moved the bar on the "middle class" from the top 2 percent who make $250,000 to the top 1 percent, who make $400,000.

More fundamentally, the very terms of the debate--which ignored the importance of getting people back to work, even as unemployment remains above 7 percent, and left aside the critical role of investment in infrastructure and education in getting the economy back on track--favored the Republicans' model of austerity for the poor and middle class, and protection for the wealthy.

Yes, the very rich will pay more in taxes. Those earning between $500,000 and $1 million will pony up an extra $15,000. Capital gains taxes go up form 15% to 20%. Estate taxes go from 35% to 40% at the very top.

But like the "panic button" votes on the TARP and other bailouts, Harkin argues, the rush to pass a deal, coupled with the threat that the whole economy would unravel if it wasn't passed in a hurry, led to a flawed agreement.

Worst of all, Wall Streeters won the most basic elements of the debate--just by setting up the false emergency and playing the game of chicken devised by Jack Lew.

And guess who was left with his head between his knees again at the end of that first round of negotiations? Harry Reid.

Although the Republicans did not get all they wanted in the first round, a lengthy piece in the National Journal on the sidelining of Harry Reid and the sudden ascent of Joe Biden during the negotiations reports that Reid was holding out for a better result, knowing that the Republicans were under more pressure, since the public blamed them for obstructing a reasonable outcome.

Knowing this, Reid was prepared to hold out for Obama's original demand that the Bush-era tax cuts for people making more than $250,000 expire. McConnell, upset at Reid's stubbornness, turned to Biden, and the "middle class" was redefined to include people who make $400,000.

Possibly worst of all, Harkin points out, in going soft in the negotiations, the Democrats ultimately "gave away all our bargaining chips."

Now that the deal on taxes is done, the Republicans can insist that the only issue on the table, as we approach Round Two, is spending.

And that brings us back to Jack Lew.

During his confirmation hearings, it was left to the Republicans to raise questions about Lew's unusual $685,000 bonus from NYU when he left his job there to go to work for Citigroup, his even larger bonus from Citigroup, and his embarrassing offshore investments in the Cayman Islands.

Mostly that was seen in Washington as payback for embarrassing questions about Mitt Romney's offshore investments, and a political opportunity to attack an Obama appointee.

But that doesn't make the charges any less real or important to ordinary citizens.

Most pointedly, Senator Charles Grassley, Republican of Iowa, asked about the morality of Lew's $940,000 bonus in 2008, the day before Citigroup got a massive taxpayer-funded bailout to prevent it from going bust.

That bailout, you might remember, was a hurry-up job designed to deal with the source of our current economic woes--bad bets on mortgages by banks like Citigroup.

Lew said his compensation was "consistent with other people."

Other people who are part of the same elite Wall Street club, that is.

Turns out these are the people that are heavily engaged in lobbying for austerity for the poor and middle class, and tax cuts for the very rich and corporations.

Fix the Debt, founded by Wall Street billionaire Pete Peterson, is the prime lobby group behind this effort.

The Center for Media and Democracy has just released a massive report on Fix the Debt and the conflicts of interest of all of its members.

These include many Democrats and Obama Administration friends like Ed Rendell, the former governor of Pennsylvania, Erskine Bowles, the former Clinton Administration official who chaired the Bowles/Simpson commission, and other friends of both the Democrats and Wall Street.

If we are going stave off the austerity bomb, ordinary citizens need to be loud enough to be heard over the voices of the powerful Wall Street lobby.

If you liked this article by Ruth Conniff, the political editor of The Progressive, check out her story "Republican Jobs Nonsense".

Follow Ruth Conniff @rconniff on Twitter