Is Obama Caving to Banks?

Right wing pundits like Sean Hannity and the Republican congressional leadership characterize President Barack Obama more and more openly as a socialist bent on having the federal government take over the national economy. Their liberal counterparts such as Bill Moyers and the Huffington Post accuse the same man of showing himself to be captive to if not a toady of the very financial insiders who have taken the world economy to the precipice. So what is he, radical leftist or closet reactionary?

The answer, of course, is neither. When I hear both the far left and the far right going bananas my BS indicator lights up. It usually indicates someone is charting a moderate or a pragmatic course. Based on his books, his campaign and his statements on the issues so far, I think Obama gets the gist of what is happening very well. Obama is a pragmatist with a heart; that is what gives him a liberal bent. He wants to solve problems and get people the help they need. He is not a doctrinaire ideologue.

Look at his stance on health care, for instance. He wants people to have health coverage. If the private market were working he would have no problem with doing it that way. But it doesn't. Nearly 50 million people are without coverage and millions more with coverage are denied the care they need by companies whose interest lies in profit rather than providing care. Consequently we will see an effort to modify the system to make them compete against a government entity that exists to provide care. It's not the single payer the left wants. It's not the unfettered free market the right wants. It jumps out of the ruts of the ideological divide; it's a hybrid.

Word comes today from Bloomberg that the Congressional Oversight Panel led by Harvard Law School Professor Elizabeth Warren is suggesting stronger action, including, "getting rid of top executives and liquidating problem banks." The majority of the group, appointed by Democrats, said it was offering "potential policy alternatives" to the way Treasury Secretary Timothy Geithner has restructured the TARP setup and "not endorsing any shift at this time." Still, Warren said in an interview that bank liquidation could work faster and be, "least likely to sap the patience of taxpayers" and "provide clarity relatively quickly" to the markets.

Geithner's plan for using government leverage to incentivize investors to bid on loan portfolios containing unknown amounts of "toxic" subprime mortgages is similarly running into a lot of criticism from the left. Sam Stein in Huffington Post, for instance, quotes Columbia University economist Jeffrey Sachs as saying, "The amount of potential rip-off in the Geithner-Summers plan is unconscionably large." Bill Moyers and Michael Winship in Truthout write of a number of fears based on the reduction of FBI agents overseeing banking since 9/11, reasoning by analogy based on the S & L Crisis of the late 80s and the financial industry connections of Geithner and Larry Summers to conclude without any real evidence that criminality and favoritism are at the root of their approach to the crisis. It may be, but circumstantial evidence and suspicion are not proof.

An insight into what is likely happening comes from a scoop reported on Politico on April 3 and since picked up by others. The article by Eamon Javers, "Inside Obama's Bank CEOs Meeting" offers a fascinating glimpse of the president at work. Five White House figures were there: Chief of Staff Rahm Emanuel, Geithner, Council of Economic Affairs Chair Christina Romer, Senior Adviser Valerie Jarrett and National Economic Council Director Summers. Summers was so quiet the source speculated he had been told not to say anything.

There were no trappings of ceremony. Obama came in, went around the table and shook hands. He took his seat and said, "So let's get to it." His demeanor to "the titans of finance - men used to being the most powerful man in almost any room - was 'I'm the president, and you're not.'" He ran down the economic situation "for several minutes without notes," finally touching on Wall Street compensation. "The anger, gentlemen, is real." He said rewards must be "proportional, balanced, and tied to the health and success of the company."

"These are complicated companies," one CEO began. Another said, "We're competing for talent on an international market," trying to justify enormous salaries and bonuses. But President Obama was in no mood to hear them out. "Be careful how you make those statements, gentlemen. The public isn't buying that. My administration is the only thing between you and the pitchforks." Some wanted to start paying back the money early. He told them no, they would pay back the money on the schedules Treasury had devised. There would be also be regulatory reform coming and they would swallow it and like it. He said, "This is like a patient who's on antibiotics. Maybe the patient starts feeling better after a couple of days, but you don't stop taking the medicine until you've finished the bottle."

This doesn't sound like a man who is beholden to these men, in awe of them or uncomprehending of the issues relating to finance. It sounds like a man who knows exactly what he wants to do and is in the process of doing it - just as he is in practically every other matter on his very full plate. It's possible that Obama is wrong here, that heads should be rolling and half the country's major financial institutions ought to be in Chapter 11. Some say the president is showing a lack of intestinal fortitude, that when it comes down to it he is a wimp.

Or maybe not. At the very moment he was addressing these executives, GM CEO Rick Wagoner was in a private meeting he had been summoned to with Obama's Auto Task Force Senior Advisor Steve Rattner, who summarily informed him that his resignation would be required immediately. I'd say it looks like Obama thinks things can be righted the way he is going about it. The situation with Wagoner shows he will be ruthless when necessary. If the banks need it too I suspect he will pull the trigger when he judges the time has come. He doesn't think it has, yet. The guy is very smart, very sequential and deadly serious behind that infectious smile. He's been on the job ten weeks. I say give him time to unfold his strategy. It may just be that he knows precisely what he's about, and that some are underestimating him. It wouldn't be the first time.