Friday, October 21, 2011

5 Behemoth Banks That Hold Our Political System Hostage

The banks' ranks are based on how shamelessly they game the political process through lobbying, revolving door politics and campaign donations.
By Sarah Jaffe and Joshua Holland, AlterNet
Posted on October 19, 2011

The economic crash led to the loss of 9 million jobs and the biggest drop in American home-ownership since the Great Depression. Long-term unemployment, poverty and hunger have increased dramatically. People are angry. The Occupy Wall Street movement, a stand against Wall Street's greed, excess and criminality, has captured the imagination and participation of millions across the nation and the globe.

The giant mortgage bubble and the irresponsible and corrupt practices that caused the catastrophic economic crash didn't emerge out of thin air. They were a consequence of decades of pay-to-play politics rife with conflicts of interest; a political system awash in cash and legal pay-offs, designed to undermine the checks and balances that could have prevented the meltdown.

Many of these checks and balances were implemented during the Great Depression. How they were eroded and eventually abandoned is the story of a small group of banks, financial companies and elites involved in major conflicts of interest, revolving-door politics and backroom deal-making -- all to protect the interests of the global elite at the expense of the American public.

Big Finance has a long history of working hard to deregulate the American economic system on behalf of global capitalism run amok. One of its biggest coups was the overturning of the Glass-Steagall Act, a Depression-era law that created a firewall between investment banking and the commercial banks that hold deposits and make loans.

The first victory in the quest to overturn this major protection came in 1986. Under intense pressure from Wall Street, the Federal Reserve reinterpreted a key section of Glass-Steagall, deciding that commercial banks could make up to 5 percent of their gross revenues from investment banking. After the board heard arguments from Citicorp, J.P. Morgan and Bankers Trust, it loosened the restrictions further: in 1989, the limit was raised to 10 percent of revenues, and in 1996, they hiked it up to 25 percent.

Then, according to a report by PBS' Frontline, “In the 1997-'98 election cycle, the finance, insurance, and real estate industries (known as the FIRE sector), spen[t] more than $200 million on lobbying and [made] more than $150 million in political donations” – most of which were “targeted to members of Congressional banking committees and other committees with direct jurisdiction over financial services legislation.”

The following year, after 12 unsuccessful attempts, Glass-Steagall, which would have made the crash of 2007-2009 impossible, was finally repealed. And it was only then that the explosion of shaky mortgage-backed securities began. “Subprime” loans, which made the mortgage system so vulnerable, made up 5 percent of all mortgages in the U.S. the year before repeal, but had skyrocketed to 30 percent of the total at the time of the crash.

The Glass-Steagall act was killed by financial interests seeking to maximize deregulation. The result was a casino-like environment that almost destroyed the U.S. and global economy. The giants of Wall Street enjoyed a massive bailout courtesy of American taxpayers, and they're still hard at work gaming the system, lobbying hard against new regulations that might avert the next bubble-led crash.

AlterNet, in partnership with the Media Consortium, looked at the five banks that exert the most influence on our democracy. Based on their size, the amount of money they spend on campaign donations and lobbying, and the number of employees who’ve gone through the revolving door into public service, or vice versa, we determined which banks have had the worst impact on the country. We’ll rank each one based on our research, and come up with the worst of the worst--the big bank that’s done the most damage to America's economy and society.

A word of caution is in order. This report is based only on what the banks are forced to disclose. It doesn't include lobbying by corporate front-groups like the Chamber of Commerce, and it doesn't include the “independent” campaign spending that has exploded in the wake of the Supreme Court's Citizens United decision, which corporations are no longer required to disclose to the public. This is a classic story of American political corruption writ large.

Meet the Big Banks
You’re no doubt familiar with Bank of America. Just recently BofA has made news because it's been sued for $10 billion over “toxic” mortgage-backed securities, and it's imposing an arbitrary and unfair $5-a-month fee for customers who use their debit cards. Bank of America’s on shaky ground these days and its stock price has dropped significantly, in part because of its purchase of Countrywide Financial, a mortgage lender that wrote a huge chunk of the bad mortgages that broke the economy. Still, it remains a giant company, ranked number 9 on the Fortune 500 list of largest corporations for 2011, right under General Motors and right above Ford.

BofA is the behemoth it is because the bank has taken over 13 other financial institutions since the 1990s, including US Trust, NationsBank, BayBanks, and most recently the large investment company Merrill Lynch, but it's no longer the biggest of all. According to its most recent filings, JPMorgan Chase is the biggest financial firm in the country (it ranks number 13 on the Fortune 500, right below AT&T), with $2.29 trillion in assets. In 2010, the bank had $115 billion in revenues, and turned a neat profit of $17.4 billion. Chase is the conglomerate’s retail banking and credit branch, while JP Morgan has been the investment, asset management and private banking end of operations since the merger in 2000 of JP Morgan and Chase Manhattan. In 2008, JPMorgan Chase swallowed up Bear Stearns and Washington Mutual; despite common complaints of “too big to fail,” the big banks mostly got even bigger after the economic crisis. JPMorgan Chase is now headquartered in midtown Manhattan, many blocks north of the Occupy Wall Street encampment in the financial district.

Bank of America still has $2.22 trillion in assets even after a steep decline. Last year, it made $134 billion in revenues, and reported a loss of $2.24 billion. (The protest group US Uncut loves to point out that Bank of America received a $1 billion tax refund in 2010.) It's headquartered in Charlotte and has branches around the country -- though it may be closing up to 600 of them. Interestingly, the Democratic party will hold its 2012 convention in Charlotte, where BofA is the big dog in town.

Hot on JPMorgan and BofA’s heels in the size race is Citigroup, which just announced this week that it would be charging its depositors a $15 monthly fee if they don’t maintain a $6,000 balance in their checking accounts--yet another unfair and regressive fee, even though Citigroup isn’t exactly hurting for money. It is number 14 on the Fortune 500, with $1.91 trillion in assets, $111 billion in revenues and $10.6 billion in profits in 2010.

Wells Fargo reported profits of $12.36 billion last year, and sits at number 23 on the Fortune list, just above Procter & Gamble. The California-headquartered bank acquired Wachovia, which had itself previously absorbed First Union and the Money Store among others, in 2008, in the throes of the financial meltdown, and as of 2010 has $1.26 trillion in assets and $93 billion in revenues.

Goldman Sachs, the famed “vampire squid” in Matt Taibbi’s formulation, is the only investment bank on our list. However, no look at the corrupting influence of Big Finance would be complete without it. It's “only” at 54 on Fortune’s list, but still higher than, among others, Intel, Chrysler and Sears, with $911.3 billion in assets and $46 billion in revenues, and profits of $8.35 billion in 2010. For many, Goldman Sachs is the face of all that’s wrong with Wall Street, stoking massive anger when CEO Lloyd Blankfein told a reporter that he was “doing God’s work.”

Meet Their Bailouts
The big banks weathered the economic crash thanks to large injections of taxpayer dollars. The original bailout plan, the Troubled Asset Relief Program, was signed into law by George W. Bush and gave direct handouts to the banks to keep them from collapsing.

Economist Dean Baker told AlterNet that Big Finance “never wanted to see the removal of the government from the market. They wanted the government to come in and bail them out.”

They were also happy to accept “government deposit insurance or the back-up lines of credit provided by the Fed through the discount window,” he said. “What the financial industry wants is to have these incredibly valuable government safeguards without restrictions on the banks' behavior.”

Among our big five, Citigroup was the largest beneficiary of these funds, with $45 billion, but even Goldman Sachs got $10 billion. Wachovia/Wells Fargo and JPMorgan got $25 billion each, while Bank of America got $30 billion. According to ProPublica’s calculations, the big five have all paid back their TARP funds.

But TARP was only one way in which the federal government subsidized the big banks. The Federal Reserve also handed out trillions in unsupervised loans during the so-called crisis period.

Dean Baker noted in his book False Profits that the Fed loans were actually more significant than the bailouts. “The vote on the TARP was a way to get Congress’s fingerprints on the policy of subsidizing the banks,” he wrote, “just as the war authorization bill approved in October 2002 implicated Congress in President Bush’s subsequent decision to wage war on Iraq under false pretenses.”

And if those numbers weren't big enough, just this August Bloomberg reported even more secret Fed loans to the big banks: “The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.”

These staggering numbers in direct bailouts and loans don’t even take into account the other ways in which these banks benefited from federal handouts: loans to other banks that were used to pay back debts to the big five; government support for consolidation, making the too-big-to-fail banks even bigger. For instance, in addition to its own bailout funds, Goldman Sachs got $12.9 billion from the funds the government used to bail out insurance giant/seller of derivatives AIG.

“Without question, direct government support was critical in stabilizing the financial system, and we benefitted from it,” Goldman’s Lloyd Blankfein said.

Campaign Donations
The big banks are some of the biggest donors to political campaigns in the country. Yet, when you compare what they spend on candidates to what they got in bailouts, it’s pennies on the dollar. In other words, it’s a worthwhile investment to spend money on candidates.

Corporations can't give money directly to politicians running for federal office. They get around that sticking point in several ways. First, they can donate to campaigns through their political action committees (PACs). (A corporation can't fund its PACs from its revenues directly; it can create a PAC, pick up its administrative costs, and then solicit contributions from the company's executives and shareholders.) But corporate PACs can give no more than $5,000 a year to a given federal candidate.

Another way is through the use of what's known as “soft money.” Soft money is used to build party infrastructure or to buy political ads that are produced independently from a campaign. Soft money ads are ostensibly used to educate voters about various issues, but they often look exactly like campaign ads that convey a clear message of whom a voter should or shouldn't support.

“Bundling” is another way corporations inject money into politics. There are limits on how much an individual can give to a candidate for federal office, so wealthy donors seek out contributions from friends, family and business associates, and “bundle” them into large pots of cash. In exchange, they usually become part of a club – like the Bush “Rangers” – and get invited to insiders' events where they have plenty of opportunities to influence a candidate.'s list of the top all-time political donors from 1989 to 2012 includes contributions from individuals associated with a company, from Corporate PACs and soft money through 2010 (more on that below). Where do the banks stack up? Goldman Sachs is number 25, five slots higher than the National Rifle Association. It also spends more on candidates than the American Hospital Association, the AFL-CIO and defense contractor Lockheed Martin. Citigroup (number 39 on the list, just above Microsoft), JPMorgan Chase (number 46, just below Blue Cross/Blue Shield) and Bank of America (number 50) are all heavy hitters. Of our big-spending financial institutions, only Wells Fargo didn't make the cut for the top 50.

As far as corporate PACs alone, Bank of America leads among commercial banks this election cycle, despite – or perhaps because of – its struggles, having already spent $249,500 on candidates for 2012--$153,000 of that on Republicans. Wells Fargo and JPMorgan Chase are close on its heels, with $171,500 and $166,499 respectively, and they both follow the trend, in 2012, of leaning Republican. (The finance industry as a whole gives about 69 percent of its donations to the GOP). Citigroup's PAC donated $56,000 thus far for 2012. And Goldman Sachs leads the pack among investment banks this cycle, having already shelled out nearly $300,000.

Just who are the recipients of all this largesse? There are many, but most play key roles on Congressional committees that oversee their businesses. Consider just one example: Senator Chuck Schumer, D-New York, one of the most powerful members of Congress (Schumer is known as “the senator from Wall Street”).

According to the National Journal's rankings, Schumer is tied with two others as the 10th “most liberal” member of the upper chamber. But he owes his career to Wall Street. As Salon editor Steve Kornacki noted, in the early 1980s, when he was a little-known back-bencher in the House, Schumer managed to get himself a seat on the House Banking Committee, and immediately “set about making friends on Wall Street, tapping the city’s top law firms and securities houses for campaign donations.” "I told them I looked like I had a very difficult reapportionment fight. If I were to stand a chance of being re-elected, I needed some help," he would later tell the Associated Press.

Wall Street would continue to have his back as his career progressed. According to Open Secrets, between 2007 and the current cycle, Schumer raked in $3.9 million from the securities, banking and insurance industries – over 20 percent of all his fundraising. He has raised more from Wall Street than any other lawmaker over the last two years. Over the course of his political career, the securities and investment industries are his top contributors; the four most generous institutions during his time in the Senate have been Goldman Sachs, Citigroup, Morgan Stanley and JPMorgan Chase, in that order.

The ostensibly liberal senator from New York, who sits on the Senate Finance and Banking, Housing and Urban Affairs Committees – and chairs the all-important Committee on Rules and Administration (which deal with, among other things, lobbying restrictions) – has returned that friendship consistently.

Although he voted for the Dodd-Frank financial reform bill in 2010, earlier this year, he joined several other lawmakers in a letter urging federal legislators not to adopt new regulations on derivatives, arguing that they would “inevitably result in significant competitive disadvantages for U.S. firms operating globally.” He voted to extend the Bush tax cuts on capital gains in both 2005 and 2006.

In 2008, the New York Times analyzed Schumer's voting record, and found that he has consistently sided with Wall Street on issue after issue, often crossing the aisle to do so.

That's just Congress. The presidential election in 2012 will be the most expensive in history; Barack Obama has already raised over $89 million for his reelection, while his GOP opponents are raising and spending boatloads of cash as well.

The banking industry is by and large leaning more Republican for 2012 than it did in 2008 (This only includes direct contributions to the campaigns; it doesn't include money Obama has raised for the Democratic National Committee, which will help support his re-election efforts). Through the 2nd quarter of 2011, the Obama campaign has only raised $857,000 from the securities and investment industries, $44,750 from Goldman Sachs, the only one of our top five to make it onto OpenSecrets top contributors' list.

Two of Obama’s top bundlers are also connected to Goldman Sachs. Vicki Heyman has brought in between $100,000 and $200,000 for Obama, according to OpenSecrets, and David Solow between $50,000 and $100,000. (In comparison, by the end of the 2008 election, Obama had gotten $1,013,000 from Goldman Sachs, $808,000 from JPMorgan Chase and $736,000 from Citigroup.)

Mitt Romney is the clear favorite candidate of Wall Street this year, having taken in $2,339,588 from securities and investment companies. Goldman Sachs is the top contributor to Romney’s campaign, having given $293,250 between political action committees, employees and their families. Bank of America has kicked in $59,000, Wells Fargo and JPMorgan around $45,000 each and Citigroup brings up the rear with $33,000.

Wells Fargo tossed a few thousand to Newt Gingrich and Herman Cain as well. It's always good to cover one's bases.

We should note that this report, like all others on this topic, is necessarily incomplete. Corporations don't like airing their campaign spending in public, and there are two ways they can and do avoid it.

First, corporate front-groups like the Chamber of Commerce effectively “launder” corporate campaign cash, keeping a company's fingerprints from appearing on lobbying and campaign disclosure reports. The Chamber is not required, and does not disclose its members, but according to Think Progress, “several confirmed Chamber members are banks which were bailed out by taxpayers.” These include Citigroup, Marshall & Ilsley Bank and the New York Private Bank & Trust. According to Americans for Financial Reform, Bank of America, JPMorgan, Morgan Stanley, PNC Financial Services and M&I Bank are also Chamber members.

Prior to the Supreme Court's 2010 ruling in Citizens' United v. FEC, there were limits on corporations' (and unions') independent expenditures and on “electioneering communications” – ads that explicitly call for the election or defeat of a candidate before an election. All campaign spending had to come from individual execs and shareholders or be funneled through corporate PACs. But the decision changed the entire landscape, allowing corporations and unions to spend unlimited dollars on politics, directly from their treasuries and without the disinfecting light of disclosure. Following the decision, a bill that would have forced corporations to disclose these donations had enough bipartisan support for passage, but a vote on the measure was blocked three times by Senate Republicans.

After the economic crisis, one might have expected the big banks to have less money to spend on lobbying. But financial reform was on Washington's agenda, so the bankers coughed up the cash for lobbyists in an effort to make sure the final result wasn't too hard on them or their bottom line. The lobbying numbers for all five of the banks in our report went up dramatically in recent years, starting their dramatic spike in 2006 and peaking in 2010, when the Dodd-Frank financial reform bill was under consideration.

Banks have spent more than any other sector on lobbying between 1998 and 2011, and Citigroup, JPMorgan Chase, Bank of America, Goldman Sachs, and Wells Fargo were at the top, dropping $12,020,000 between them in 2011 alone. And those efforts have paid off for them, as they’ve been able to maintain most of their business practices practically unchanged since before the crash.

Their interests were clear. According to a report by the inspector general of the Troubled Assets Relief Program, the banks lobbied heavily against limitations on executive pay that legislators had tried to attach to the bailout money. They worked hard to preserve their fat bonuses, their right to virtually no oversight and their ability to continue business as usual.

Anupama Narayanswamy at the Sunlight Foundation wrote of the Dodd-Frank Wall Street Reform and Consumer Protection Act, “The Wall Street reform bill was a mammoth undertaking, consisting of more than 2,300 pages, and requiring agencies to write a total of more than 240 new regulations. With 108 new rules due to be adopted this summer on the first anniversary of its enactment, and a dozen bills introduced by Republican members to repeal the bill in whole or in part, government-relations wings of the Wall Street banks and lobbying firms in Washington, D.C., have been busy.”

Bill Allison, also at Sunlight, reported, “Since passage of Dodd-Frank, federal agencies implementing the law have logged more than 2,100 meetings with interests aiming to influence the many new rules that Dodd-Frank requires, including 83 with executives and lobbyists for Goldman Sachs, 73 with JP Morgan Chase, 58 with Morgan Stanley and 55 with Bank of America.”

The banks also lobby through the American Bankers Association, which has spent $4.6 million this year alone on lobbyists, and the Financial Services Roundtable, which the New York Times’ Ben Protess describes as “a fellow trade group that represents 100 of the nation’s largest financial firms.” These two organizations and others helped fund the slew of lobbyists fighting to keep regulators from having much of an impact on the financial sector.

The vast army of lobbyists that represent the big banks in Washington include some former power brokers from Congress; former Democratic House Majority Leader Dick Gephardt, through his Gephardt Group, got $60,000 from Goldman Sachs to argue for their cause, which according to the Center for Responsive Politics, he did personally. John Breaux, former Democratic Senator from Louisiana, also lobbies for Goldman, and his partner in the Breaux Lott Leadership Group, Trent Lott, driven out of his position as Senate Minority Leader for comments that appeared to endorse Strom Thurmond’s segregationist campaign for president, represents both Goldman and Citigroup. (Citigroup paid them $180,000 for lobbying last year, and Goldman a full $300,000, as much as General Electric.)

The Gephardt Group took in $3.2 million just last year, from Boeing, Comcast, Sodexho and many more as well as Goldman Sachs, and Breaux and Lott pocketed nearly $6 million from clients ranging from Citigroup and Delta Airlines to AT&T and defense contractor Raytheon.

Bank of America and Wells Fargo both retain the services of the Podesta Group, run by well-known Washington insider Tony Podesta, who was a founder of People for the American Way. (Podesta's brother, John Podesta, is president of the Center for American Progress, an influential liberal DC think tank and a former Clinton chief of staff -- he also headed Obama's transition.) Wells Fargo paid the Podesta Group $340,000 in 2011, $100,000 more than Wal-Mart, another Podesta client.

While JPMorgan Chase’s lobbyist roster doesn’t have quite the pedigree of some of the others, it makes up for that in sheer spending power, having dropped $66,696,173 in lobbying dollars between 1998 and 2011. In total spending it still comes in second, though, behind Citigroup’s $82,350,000, handing it the crown for biggest spender as far as lobbying goes.

All together, the finance sector is the top spender on lobbying between the years of 1998 and 2011, according to the Center for Responsive Politics, having poured $4,631,844,938 into lobbyists’ pockets. $230,200,953 of that came directly from the five banks surveyed here.

And what did they get for all that money? Nomi Prins, a former managing director at Goldman Sachs and author of the new book Black Tuesday, explained to AlterNet:
“The Dodd-Frank Bill contains a slew of minor, cosmetic adjustments to the status quo manner in which the largest banks operate, and even they are being battled against by the financial industry lobbyists. The bottom line is that this bill does not fundamentally alter the structure of Wall Street - it does not separate banks cleanly, or in any other way remotely reminiscent of the Glass-Steagall Act of 1933, into commercial banks that deal with the basics of deposit and lending operations vs. investment banks that create dangerous and complex securities and leverage them into all manner of speculative activity.

She continued,

“Even though the bill calls for a consumer financial protection agency, it should be noted that such a department existed already within the Fed during the build-up to this crisis, that by virtue of political weakening and position within the Fed and political hierarchy was rendered ineffective in practice. The bill does not end the conflicts of interest and the revolving doors between the regulatory bodies and other key positions in Washington vs. those coming from, or going to, Wall Street.”

Revolving Door
Perhaps the most alarming aspect of the financial industry's influence on our political system is the extent to which financial insiders end up in positions where they're actually making policy.

The “revolving door” works both ways. According to Open Secrets, fully 74 percent of registered lobbyists for the finance and insurance industry previously worked in government, many of them for members of Congress sitting on committees that set banking regulations, or for the regulatory agencies that enforce them.

The nuts and bolts of legislation is crafted by Congressional staffers, and in the Senate, the Finance Committee (117) is second only to the Judicial Committee (119) in the number of staffers-turned-lobbyists or lobbyists-turned-staffers.

Building relationships as an elected official, regulator or legislative staffer can later bring rich financial rewards when one moves to the private sector. Economists Jordi Blanes Vidal, Mirko Draca and Christian Fons-Rosen tried to figure how much those relationships were worth in a 2010 study conducted for the Center for Economic Performance (PDF). Using disclosure forms, they looked at how former staffers-turned-lobbyists' income changed when their former bosses left Congress. The researchers found “evidence that the existence of a powerful politician to whom the lobbyist is connected is a key determinant of the revenue that he or she is able to generate... in other words, lobbyists are able to 'cash in on their connections,' since connections are an asset with a separate value to their experience, human capital or general knowledge of how government works.”

Specifically, they found that when a senator left office, their former staffers-turned-lobbyists saw their incomes drop by an average of 24 percent and when members of the House left office, their old staffers' incomes dropped by 10 percent. But those are the averages. They also found, “Consistent with the notion that lobbyists sell access to powerful politicians," that lobbyists lost more revenue if their departing ex-bosses were more senior and held powerful committee assignments.

As you can see in the graphic below, Citigroup leads through Congress' revolving door, followed by JPMorgan Chase, Bank of America, Wells Fargo and followed up by Goldman Sachs, according to Legistorm's database.

Lobbyists who worked for members of Congress or were themselves legislators

Including Sanders Larsen Adu, former staff director of a House Financial Services subcommittee, Tim Keeler, former staffer on the Senate Finance Committee (Keeler has also lobbied on behalf of BofA and JP Morgan Chase, among others) and Chris Rosello, a former staffer on the House Financial Services Committee.

Including former Senator John Breaux, D-Louisiana, who was a senior member of the Senate Finance Committee, and chairman of the Subcommittee on Social Security and Family Policy.

Including former Rep. Rick Lazio, R-NY, who served as Deputy Majority Whip, Assistant Majority Leader, and chairman of the House Banking Subcommittee on Housing and Community Opportunity.

Including, until recently, Senator Dan Coats, R-Indiana, who served in the Senate until 1999, retired to lobby his former colleagues and serve a stint as ambassador to Germany, and then returned to the Senate this year. The New York Times reported that Coats, lobbying for Cooper Industries, “served as co-chairman of a team of lobbyists in 2007 who worked behind the scenes to successfully block Senate legislation that would have terminated a tax loophole worth hundreds of millions of dollars in additional cash flow” for the company. Coats curently sits on the Joint Economic Committee.

Including former Rep Dick Gephardt, D-Missouri and former Rep. Harold Ford, Sr., D-TN. Gephardt served as the House Majority leader; Ford sat on the House Banking Committee.
The revolving door between Wall Street and government doesn't just lead into and out of Congress. Consider the circuitous career path taken by former White House Chief of Staff Joshua Bolten. Bolten graduated with a law degree in the early 1980s, and between 1985 and 1989, he bounced between the Office of the U.S. Trade Representative, the law firm of O'Melveny & Myers, which represents Goldman Sachs -- and is a registered lobbyist for Citigroup, according to Legistorm ($$) -- and the Senate Finance Committee.

After a brief stint in the first Bush administration, Bolten went over to Goldman Sachs, where he served as executive director of legislative affairs for five years. Then he became policy director on George W. Bush's 2000 campaign. After the election, he worked his way up from assistant to the president to director of the Office of Management and Budget and, finally, to White House Chief-of-Staff, which some believe to be the second most powerful position in the government. In that role, he was credited with recruiting then-Goldman CEO Henry Paulson to head up the Treasury Department, where he would preside over the bank bailouts – much to Goldman's benefit. After leaving the White House, Bolten got a cushy sinecure as the John L. Weinberg/Goldman Sachs & Co. Visiting Professor at Princeton.

It's an exceptional career, but not an unusual story. Robert Rubin, Bill Clinton's Treasury Secretary, was vice-chairman at Goldman before helping to orchestrate the deregulation of just the kinds of complex financial instruments that took down the economy. After his stint at Treasury, Rubin landed at Citigroup, where he raked in $128 million over the course of eight years. In 2008, as the financial sector was teetering on the brink of collapse – and just after Citi had written down $24 billion in losses due in large part to, as Fortune put it, “greed, cynicism, and bad judgment” -- Rubin downplayed the mess he'd helped create, saying it was "all part of a cycle of periodic excess leading to periodic disruption." He blamed the crash “on just about everyone but the major U.S. financial players.”

The Obama White House is no exception to the rule. Last spring, Politico reported that Rubin, who “watched his reputation as an economic titan shatter after he left the Clinton White House...still wields enormous influence in Barack Obama’s Washington, chatting regularly with a legion of former employees who dominate the ranks of the young administration’s policy team.”

Lewis Alexander went from the Federal Reserve to the Commerce Department and then did a stint at Citi before returning to politics as a counselor at the Treasury Department, and Maura Solomon went from the Office of Thrift Supervision, one of the bank regulators, to Citigroup, where she is presumably better compensated. And so, of course, did Peter Orzsag. Jacob J. Lew, who replaced Orzsag at the Office of Management and Budget (an office he also held under President Clinton), spent his time between those appointments as executive vice president of New York University and then at Citigroup. Gary Gensler, a former assistant secretary of the Treasury who spent 18 years at Goldman Sachs, now oversees the Commodity Futures Trading Association.

According to the Project on Government Oversight (POGO), the Securities and Exchange Commission – the primary agency for policing the financial industry – is inundated with former bankers. POGO's database of lobbyists includes, “219 former SEC employees [who] filed 789 statements between 2006 and 2010 announcing their intent to appear before the SEC or communicate with its staff on behalf of private clients.”

"Many former SEC employees leave the agency to join [lobbying] firms that represent clients in the securities industry. Several recent reports by the SEC Inspector General have raised troubling questions about whether the promise of future employment representing Wall Street causes some SEC officials to treat potential employers and their clients with a lighter touch."

Social Costs
Does anyone need to be reminded how the big banks broke the economy and then pocketed billions of tax dollars in bailouts? Have people already forgotten Henry Paulson (Treasury Secretary, 2006-2008; Goldman Sachs, 1974-2006) standing before Congress and demanding $700 billion in nearly oversight-free money to buy up the banks’ “toxic assets”—which were, of course, bad mortgages packaged into securities that were suddenly worthless. The bailouts received bipartisan support, and Obama pressed for the passage of what eventually became TARP, proving the value of those bipartisan campaign donations.

Perhaps you are underwater on your mortgage because of the crash in home values after the popping of the housing bubble, which was created by the insatiable need for profits, for more mortgages to package into securities to sell on the market. Perhaps you’re dealing with Bank of America or another one of the banks that are still unwilling to modify the majority of mortgages, continuing to foreclose on homes and throw families out.

Or perhaps you rent, but are unemployed. Perhaps you have a job but haven’t seen a raise since the crash, or have been pressured to put in more hours. The core problem in the brick-and-mortar economy is a lack of demand, and that drop in demand is a result of the $14 trillion in household wealth lost in the crash that Wall Street’s gamblers precipitated -- from stocks and bonds, real estate values and retirement accounts. The popping of the housing bubble alone and the corresponding drop in home values, according to Dean Baker, creates the loss of some $8 trillion in wealth, or $110,000 per homeowner.

The size of the financial industry alone is worrisome. As Katrina vanden Heuvel pointed out at the Washington Post, “Obama has said that we can't go back to an economy where the banks make 40 percent of all corporate profits. But the big banks are emerging from the crisis more concentrated than ever, and financial sector profits are already up to nearly 30 percent of total corporate profits.” Banking, like trucking, is known as an “intermediary good” -- nothing is produced by the industry – and if any other intermediary good represented around 10 percent of the U.S. economy, people would consider that a major problem.

To create those complex financial instruments, finance has begun to cannibalize the “best and brightest” college graduates--or at least those looking for the fattest paychecks, whether purely out of greed or a need to pay off heavy student loan burdens (often owed to the same banks).

Pat Garofalo at Think Progress noted that “The four biggest banks issue 50 percent of mortgages and 66 percent of credit cards: Bank of America, JPMorgan Chase, Wells Fargo and Citigroup issue one out of every two mortgages and nearly two out of every three credit cards in America.” Not only that, but he also pointed out that the five banks we’ve tracked here are the ones that control 95 percent of the derivatives in the country--the complex financial instruments that investor Warren Buffet called “financial Weapons of Mass Destruction.”

Perhaps the most pernicious effect of Wall Street’s influence is yet to come. By watering down or killing off new regulations designed to prevent the next bubble-induced meltdown, they imperil future generations’ prosperity just as they did when they lobbied hard to kill financial regulations in the 1990s--resulting in, to give one example, the passage of the Commodity Futures Modernization Act in 2000, which kept derivatives and credit default swaps unregulated and allowed the banks to keep gambling without oversight.

The banks have simply gotten too powerful; ”too big to fail” has become too big to regulate. Yet, even as they grow, spend on lobbying and campaigns and institute fees, they represent a giant ticking time bomb at the heart of our economy.

It can be difficult to gauge which of the big banks has had the greatest negative impact on society, as so many of the problems were created by the combined practices of the entire industry. Bank of America stands out for its sheer size. It is the country’s biggest bank, controlling 12 percent of the nation’s deposits, and 20 to 25 percent of the mortgage market (and a huge chunk of its mortgage fraud as well). While it continues to face lawsuit after lawsuit for fraudulently selling securities -- from both the government and private companies -- its plummeting stock price is bringing it ever closer to collapse. What’s the endgame if America’s largest bank runs out of money? If ever a bank was too big to fail, it is Bank of America.

Robert Kuttner, co-founder of the American Prospect, wrote of the prospect of the giant going under:
"Worst of all would be to let a large institution like Bank of America just fail. Outside of the hard-core Tea Party right, nobody supports this.

"The second worst policy would be to just keep throwing money at a zombie institution to keep up the pretense that it is solvent. We tried that policy in 2008 and 2009. It helped entrenched bankers keep their jobs and their outsized profits, but a wounded banking system continued to be a lead weight on the rest of the economy."
Bank of America is no doubt the biggest lead weight on the economy right now, and its zombie status keeps everyone wondering what the endgame will be. One of the things that was included in the Dodd-Frank bill was a provision that would allow the FDIC to take failing banks into receivership, seize them, break them up and reorganize them. The question is, will an administration that’s proven unwilling to make any serious changes to the financial industry take that step? Or will it instead bail out BofA yet again -- a step that Kuttner warns could be a political and economic disaster.

Even with all this, it's hard to rank the banks in this category. Citigroup just last weekend had 24 people arrested for criminal trespass in New York City when they attempted to close out their accounts, and is hiking fees while its profits soar. JPMorgan's purchase of the failing Washington Mutual was nearly as toxic as Bank of America's purchase of Countrywide, taking over more fraudulent loans. Goldman Sachs has tentacles in absolutely everything; Wells Fargo has some of the worst predatory lending practices to people of color. It's clear that the social costs of the banking industry as a whole are simply too big to bear.

And the Winner Is...

Ranking of 'Worst' Mega Banks in Political Corruption

Campaign Contributions Lobbying Revolving Door Negative Social Costs "Worst" Score
Citigroup 2 1 1 2 18
JP Morgan Chase 3 2 2 3 14
Bank of America 4 3 3 1 13
Goldman Sachs 1 4 5 4 10
Wells Fargo 5 5 4 5 5
A bank gets 5 points for being the 'worst' in a category, 4 for second worst, etc.

Ranking the big banks isn’t an easy task. Sure, it’s easy enough to add up the size of the bailouts and the amount spent on campaign donations, or the number of people who’ve spun through the revolving door. It’s harder to gauge the impact on millions of people as the economy collapsed and continues to sputter. And the story of lobbyists and well-placed former employees isn’t just one of numbers, but of influence and success.

Still, when we looked at all of our research, there was one bank that came in first in two categories, and second in another. That bank is Citigroup. It was the clear winner in lobbying spending with $82,350,000, has the most former politicians, executives and lobbyists spinning through its revolving door, and followed only Goldman Sachs in terms of measurable campaign donations.

It’s the current employer of former Office of Management and Budget chief Peter Orszag and former employer of ex-Treasury Secretary Robert Rubin, the donor of nearly $17 million to campaigns Republican and Democratic, and the recipient of $45 billion in TARP funds.
Of course, one could make an argument for nearly every bank on this list. Goldman Sachs far outspends the others on campaign donations, and Citi might have won the overall lobbying spending race but has been outspent in the past few years by JPMorgan Chase--by nearly $3 million. And Bank of America’s snowballing legal troubles seem evidence enough of malfeasance.

What is clear, any way you slice it, is that the big banks have far too much influence over our politics, and it has enabled them to gain far too much influence over our entire economy.

We are living with the results: real unemployment in the double digits, falling incomes, skyrocketing debt. What can we do about it? With the banks’ deep connections to both parties in Washington, it has long seemed that reining them in is an uphill battle. Yet Wall Street appears to have over-reached, and we're now seeing the blow-back as tens of thousands of people join the Occupy Movement in cities and towns across the country and across the world. Americans are tired of the reign of the big banks, and they're coming together to do something about it. People are moving their money to credit unions, they're fighting to keep families in their homes and they're taking their anger directly to the Titans of Wall Street. Most importantly, they're building a people-powered movement to hold the banks accountable, and if history is any guide, once united in a cause, the American people usually win.

The Secret Republican

“Conspiracy theories” have a bad press.  But sometimes conspiracies are real and sometimes conspiracy theories do account for what they purport to explain.  Whether they do or not is an empirical question.  Because real world politics is propelled by multiple, heterogeneous causes, and because political actors seldom rise to a genuinely Machiavellian level, the usual criteria for determining what the best explanations are – elegance, simplicity and the like – are of little use.  Evidence is all.

If no compelling evidence of a conspiracy surfaces, especially over many years and especially too if the purported conspiracy would have had to involve vast numbers of people, that’s an excellent reason to think that there was no conspiracy.   This is why it is more plausible than not, after almost five decades, to believe that Lee Harvey Oswald killed JFK on his own.  Only a decade has passed since 9/11 but the fact that no evidence of a conspiracy of the kind “truthers” argue for has yet to emerge is decisive in that case too, especially in light of the manifest incompetence of everyone connected with the alleged plot.

Thanks to the resurgence of what Richard Hofstadter called “the paranoid style” in American politics, conspiracy theories based on little or no evidence have multiplied alarmingly in recent years.   Many of them are manifestly implausible.  For example, the idea that Barack Obama is a secret Muslim is plainly false because it would explain nothing.  Obama has done as much to harm the historically Muslim world as any American president, including George W. Bush, so he would, at the very least, have to be a “self-hating” secret Muslim, an idea that runs counter to the paranoid drift of those who level the charge.  It would make slightly more sense to claim that Obama is a secret al-Qaeda operative, inasmuch as his policies are good for bringing recruits into the al-Qaeda fold.  But those policies are continuations of George Bush’s, and no one is paranoid enough to deem that hapless but villainous soul a double agent.

On the other hand, the idea that Obama is a secret Republican would explain a great deal.  His capitulations and displays of spinelessness, along with his lack of principled conviction, helped bring Republicans to power in the House of Representatives and in many state houses and legislatures.  Moreover, the policies he pursues have been, if anything, to the right of those favored by “moderate Republicans” back in the days before that species went extinct.  But then, of course, it wouldn’t just be Barack Obama who is a secret Republican.  The same could be said for almost the entire Democratic Party at the national level at least since Bill Clinton set the party on its rightward drifting course.

The claim that they are all Republicans, secret or not, expresses a certain truth, notwithstanding the fact that it is literally false.  We know it is false not because it doesn’t make sense of what we observe, but because all the evidence points the other way.

What this shows is not just that conspiracy theories can be true in a sense, even when they are wrong; it also shows that party identifications no longer indicate what democratic theory, in all its many varieties, maintains they should.

The seeds were sown long ago and they took root and thrived as the Cold War wore on.  But it was not until the consolidation of the so-called Reagan Revolution that real democracy all but disappeared from our political life.  We still have competitive elections, and probably always will.  But from that point on, competing parties – the two, semi-official ones — no longer operated in the way that justifying theories of democratic institutions claim they should.

They ceased to be vehicles through which the people or their representatives, aiming at a common good, engage in public deliberation and collective decision-making.  Instead, they became marketing agencies, bought and paid for by corporate interests, selling legislators eager to do their paymasters’ bidding to different (though fluid and sometimes intersecting) constituencies, and to a “moderate” middle, comprising less than 20% of a depoliticized and acquiescent electorate.

As marketers, Republicans and Democrats tailor their respective messages to different blocs of voters.  Republicans tailor theirs to their hardcore base, voters bereft of informed and considered judgment but full of passionate intensity.   Democrats tailor theirs to the apolitical middle.  This is why the celebrated “enthusiasm gap” of 2010 developed, but it may be a winning strategy in the presidential election this time around, given the field of Republican candidates.  Could there be a conspiracy among Republicans to play into Obama’s hands by fielding only dolts?  Not likely, of course; but that conspiracy theory too would explain a great deal.

* * *
In 2008, the financiers and corporate moguls who own both the Democratic and Republican Parties threw their weight behind Barack Obama.  No doubt, most of them would have preferred a Republican; hard as they have tried, Democrats have yet to win over the hearts and minds of our most nefarious “economic royalists.”  But the movers and shakers of our corrupted system, many of them, at least had the wits to realize that popular disgust with the criminality and incompetence of the Bush administration made Republicans more difficult than Democrats to sell even to an acquiescent electorate.

But that doesn’t explain why Obama got more Wall Street and corporate support than Hillary Clinton.  To answer that question, another conspiracy theory suggests itself – one that is more plausible than any of the ones suggested so far, though of course it too is literally false.

It was no secret, except perhaps to his most ardent and deluded supporters, that Obama was vetted and deemed fit to carry corporate America’s banner.   But Hillary Clinton was heir to a family tradition of doing precisely that, and she made no bones about her intentions.  Why not her?

Were our titans of finance and industry more clever than they actually are, and better able to collude, they might have reasoned as follows: “Hillary Clinton is the devil we know.  We can count on her.  But she is even less charismatic than her husband, and he still elicits more enmity than admiration.  On the other hand, Barack Obama is a Rorschach figure upon whom voters eager for “change” – in other words, eager to be rid of us — can pin their hopes.  Moreover, his appeal to the 18 to 25 demographic, and to people of color, is evident.  Therefore he can do what she cannot — disillusion an entire generation along with everyone else who can be rallied to his cause.  Now, what we need to fatten our purses and generally to have our way is a quiescent and therefore acquiescent citizenry.  This Obama is uniquely able to deliver, since nothing fosters quiescence better than disillusionment and cynicism.  Therefore, let us make him our man.”

Until last month, it looked like these imaginary conspirators were on to something, that their reasoning was sound.   Then the world changed.

The events last winter and spring in Wisconsin, Ohio, Maine and elsewhere, important as they were, were only a prelude to what has developed over the past four weeks as indignation again took hold of an awakened citizenry, this time in the belly of the capitalist beast – at Zuccotti Park, within spitting distance of Wall Street.  From there it has spread to countless cities throughout the United States.  At last, we in the Land of the Free – can one say those words these days without irony? –  have done what our brothers and sisters in north Africa and southern Europe and elsewhere, victims of the system in place, have been doing for months – renewing the struggle for equality and justice.

Try as Obama Democrats and their colleagues in the liberal commentariat might, the Occupy movement is not about to go away, and while it may interact constructively with the Democratic Party from time to time, it is not going to allow itself to be coopted by it.  Occupy Wall Street has yet to name the Obama administration an enemy; maybe it never will.  But its dynamic is at odds with the politics Obama, along with all his predecessors for more than three decades, has pursued.

And so Obama, who has failed every constituency that supported him in 2008, has also failed the constituency that sustains him and that he cares about most, the tiny fraction of the top 1% who plotted (not literally, of course) to make him the champion of their interests.  Yes, Obama has worked tirelessly in their behalf — beyond all expectations.   But when it came to promoting acquiescence he turned out to be a bust.

To be sure, the conspirators got what they thought they wanted.  Obama did disillusion multitudes, just as they expected he would.  But he did this by being “bipartisan” to a fault, and since his electoral competition was nothing if not obstinate, that meant ceding everything to them.  Meanwhile, the Republicans had decided that the way forward for them was to bring Obama down, and that the way to do that was to win back Wall Street and corporate America by offering them everything they could dream of and more, enlightened self-interest be damned.  And so it was, in one of those world-changing ironies of history, that Obama, the “change” president, helped make the prevailing situation so intolerable that the long overdue fight back finally came.

What the consequences will be is still unclear and is likely to remain so for a while.  All we can say for now is that politics, the real thing, is back, and that neither Wall Street and corporate America nor our decrepit political class will ever quite be the same.

To be sure, the capitalism that brought about our present sorry state is not about to give way to anything radically better any time soon; and, thanks to Mitt Romney or someone even more risible, Obama probably will win a second term.  But the alliance between corporate America and the American government that has deformed our democracy so profoundly is now shaken.  It may well be in its final days.

If Occupy Wall Street continues on its present track, as it shows every sign of doing, the short-term changes it brings can only be for the good.  As for what happens beyond the short term, all we know for sure is that the future is open and the possibilities endless.  In Greece, where they’ve been fighting back against even more rapacious banks than the ones afflicting our 99% for longer than we have, a general strike is now underway!  Who would have thought it possible?  Wall Street conspirators beware!

Five Candidates for the Corporate Death Penalty

One of the most famous signs to come out of Occupy Wall Street stated simply: “I will believe corporations are people when Texas executes one.”

That was sort of a joke.

But in fact, for the benefit of real live human beings, some corporations ought to be executed.

When it comes to the serious crimes that big corporations engage in – pollution, corruption, fraud, threatening the lives of real Americans – the death penalty is off the table. 

My guess is that most of the occupiers at Wall Street would be in favor of the corporate death penalty.

Some – like Richard Grossman – would criminalize the corporate form.

But if you want to take the incremental approach, here’s my list of five candidates for the corporate death penalty.

Health insurance corporations. Most western industrialized countries – with the exception of the USA – already have this death penalty in place. In those countries, corporations are not allowed to sell primary private health insurance. Instead, there is a public single payer – everybody in, nobody out. Under this death penalty proposal corporations like Aetna, CIGNA, UnitedHealth, and Wellpoint would be put out of business. And with a public single payer to replace them, we’d save billions of dollars and the lives of more than 45,000 Americans who die every year from lack of health insurance.

Nuclear power corporations. Do we really need a Fukushima here in the United States? We do not. Without government loan guarantees and federal limits on nuclear liability, the industry would be put out of business. So, we could simply cut the federal subsidy and that would be the end of it. And we should. A wide range of safer, cleaner energy options is available to replace the energy currently being generated by unsafe nuclear power.

Giant Banks. Wells Fargo. Citibank. Bank of America. JP Morgan Chase. Morgan Stanley. Goldman Sachs. They should be executed – broken up and replaced by smaller banks.

Break up the big banks. And impose a hard cap on their size. No bank should have assets of more than four percent of GDP. There is support across the political spectrum for this proposal. During the debate over financial reform, the measure garnered 33 votes in the Senate – it was called the Brown-Kaufman amendment.

Fracking corporations. Hydraulic fracturing – fracking – is wrecking havoc in the northeastern part of the United States. Any corporation engaged in fracking behavior that threatens drinking water supplies ought to be put out of business. Anti-fracking activists in New York have already drafted legislation that would criminalize fracking corporations.

Corporate criminal recidivists. Legislatures should adopt provisions to strip corporations of their charters for serious corporate violations or for recidivist behavior. Some states already have such provisions, although they are rarely invoked.

Some corporations have been put to death for wrongful behavior, but they have been mostly smaller companies.

In 1983, the Attorney General of Virginia asked the state’s corporation commission to dissolve a book company convicted of possessing obscene films.

But when it comes to the serious crimes that big corporations engage in – pollution, corruption, fraud, threatening the lives of real Americans – the death penalty is off the table.
If we are serious about corporate crime, the death penalty is a deterrent that will work.

How The Austerity Class Rules Washington

by Ari Berman 
In September the Committee for a Responsible Federal Budget (CRFB), a bipartisan deficit-hawk group based at the New America Foundation, held a high-profile symposium urging the Congressional “supercommittee” to “go big” and approve a $4 trillion deficit reduction plan over the next decade, which is well beyond its $1.2 trillion mandate. The hearing began with an alarming video of top policy-makers describing the national debt as “the most serious threat that this country has ever had” (Alan Simpson) and “a threat to the whole idea of self-government” (Mitch Daniels). If the debt continues to rise, predicted former New Mexico Senator Pete Domenici, there would be “strikes, riots, who knows what?” A looming fiscal crisis was portrayed as being just around the corner.

The various strands of the austerity class form a reinforcing web that is difficult to break. Its think tanks and wonks produce a relentless stream of disturbing statistics warning of skyrocketing debt and looming bankruptcy, which in turn is trumpeted by politicians and the press and internalized by the public. Even President Obama’s new jobs plan—a long overdue break with austerity-class orthodoxy—has been pitched in the context of deficit reduction. The event spotlighted a central paradox in American politics over the past two years: how, in the midst of a massive unemployment crisis—when it’s painfully obvious that not enough jobs are being created and the public overwhelmingly wants policy-makers to focus on creating them—did the deficit emerge as the most pressing issue in the country? And why, when the global evidence clearly indicates that austerity measures will raise unemployment and hinder, not accelerate, growth, do advocates of austerity retain such distinction today?

An explanation can be found in the prominence of an influential and aggressive austerity class—an allegedly centrist coalition of politicians, wonks and pundits who are considered indisputably wise custodians of US economic policy. These “very serious people,” as New York Times columnist Paul Krugman wryly dubs them, have achieved what University of California, Berkeley, economist Brad DeLong calls “intellectual hegemony over the course of the debate in Washington, from 2009 until today.”

Its members include Wall Street titans like Pete Peterson and Robert Rubin; deficit-hawk groups like the CRFB, the Concord Coalition, the Hamilton Project, the Committee for Economic Development, Third Way and the Bipartisan Policy Center; budget wonks like Peter Orszag, Alice Rivlin, David Walker and Douglas Holtz-Eakin; red state Democrats in Congress like Mark Warner and Kent Conrad, the bipartisan “Gang of Six” and what’s left of the Blue Dog Coalition; influential pundits like Tom Friedman and David Brooks of the New York Times, Niall Ferguson and the Washington Post editorial page; and a parade of blue ribbon commissions, most notably Bowles-Simpson, whose members formed the all-star team of the austerity class.

The austerity class testifies frequently before Congress, is quoted constantly in the media by sympathetic journalists and influences policy-makers and elites at the highest levels of power. They manufacture a center-right consensus by determining the parameters of acceptable debate and policy priorities, deciding who is and is not considered a respectable voice on fiscal matters. The “balanced” solutions they advocate are often wildly out of step with public opinion and reputable economic policy, yet their influence endures, thanks to an abundance of money, the ear of the media, the anti-Keynesian bias of supply-side economics and a political system consistently skewed to favor Wall Street over Main Street.

Taken together, the various strands of the austerity class form a reinforcing web that is difficult to break. Its think tanks and wonks produce a relentless stream of disturbing statistics warning of skyrocketing debt and looming bankruptcy, which in turn is trumpeted by politicians and the press and internalized by the public. Thus forms what Washington Post blogger Greg Sargent calls a Beltway Deficit Feedback Loop, wherein the hypothetical possibility of a US debt crisis somewhere in the future takes precedence over the very real jobs crisis now.

Even President Obama’s new jobs plan—a long overdue break with austerity-class orthodoxy—has been pitched in the context of deficit reduction. Every debate over measures to improve the economy begins with the question “How much will it cost, and can we afford it?” rather than “How many jobs will it create, and how will it help the country?” Far from possessing the solution to our economic crisis, the austerity class represents a major impediment to finding one.

* * *

Groups like the CRFB and the Concord Coalition, founded by former Congress members in the 1980s and ’90s, have long presented themselves as nonpartisan, penny-pinching critics of wasteful government spending, when really they are anti-government, pro-corporate ideologues whose boards are filled with K Street lobbyists and financial executives. The goal of much of the austerity class is to see government funds redirected to the private sector. (Their ideology, which accepts the accumulation of private debt but opposes government debt, explains why the austerity class ignored the massive housing and credit bubble, which more than any single factor contributed to an explosion of debt worldwide.)

The austerity class’s reach has expanded in the Obama era, boosted by leaders of both parties and an influx of new funding. After consistently approving massive deficit spending under the Bush administration, Republicans suddenly found true religion under Obama (ironically, at a time when precisely the opposite of austerity was most needed). And within the Democratic Party, what Nobel laureate economist Joe Stiglitz calls “deficit fetishism” is viewed as the gold standard for responsible economics. Democrats revered Bill Clinton’s balancing of the budget as good policy and good politics, not to mention a shrewd way to tap Wall Street’s endless fundraising stream.

Obama and his main economic advisers (Tim Geithner, Orszag, Larry Summers) were devotees of former Clinton Treasury Secretary and Goldman Sachs/Citigroup alum Rubin, who co-founded the pro–Wall Street Hamilton Project think tank at the Brookings Institution in 2006. The Hamiltonians had warned of “the adverse consequences of sustained large budget deficits” during the Bush administration and advocated “painful adjustments,” namely cuts to social insurance programs like Social Security and Medicare in exchange for more liberal policies like tax increases and healthcare reform. Obama entered office with the Hamilton plan in his back pocket.

At the beginning of Obama’s presidency, Richard Nixon’s famous line “We are all Keynesians now” seemed more relevant than ever. But though Obama initially advanced a Keynesian-lite stimulus plan, which economists on the left and right agreed was imperative, the deficit was never far from the president’s mind.

In February 2009, just weeks after the stimulus passed, Obama pivoted to the deficit, holding a Fiscal Responsibility Summit at the White House and assuring Blue Dog Democrats he supported a special deficit-reduction commission. “We feel like we’ve found a partner in the White House,” said Blue Dog co-chair Charlie Melancon. The austerity class swiftly co-opted the new administration. The CRFB, the Peter G. Peterson Foundation and Pew Charitable Trusts launched a special commission in 2009 calling for mandatory spending caps and debt limits to put the United States in an “automatic, fiscal straitjacket.”

Its recommendations formed the basis for last year’s Bowles-Simpson commission.

The austerity class’s deep pockets can be traced back to Peterson, a GOP billionaire who served as Nixon’s commerce secretary and founded the private equity Blackstone Group. Since 2008 his foundation has doled out $383 million of his promised $1 billion pledge to a seemingly endless number of think tanks, media organizations, advocacy groups and educational institutions to advance his debt obsession [see William Greider, “The Man Who Wants to Loot Social Security,” March 2, 2009]. This includes six- and seven-figure donations to groups like the CRFB, the Concord Coalition, the Committee for Economic Development and the Peterson Institute for International Economics. It’s largely because of Peterson that programs like Social Security and Medicare, favored by nearly 90 percent of the public, are savaged as bloated “entitlements” and are consistently on the chopping block.

Among the Petersonites, there was stiff opposition to a larger stimulus or additional recovery measures. “If we think about massive deficit spending as medicine for a sick economy, we also need to recognize that too much medicine can ultimately kill the patient,” said Maya MacGuineas, president of the CRFB (which received $656,000 from Peterson’s foundation last year), in January 2009. MacGuineas, a former stock analyst at Paine Webber and self-described “bond vigilante,” did stints at the Brookings Institution, the Concord Coalition and the 2000 McCain campaign before moving to the CRFB in 2003. She’s now one of the central organizers behind the austerity class.

Her minimalist take on the recession, though completely at odds with the views of top economists, quickly became conventional wisdom in elite Washington policy circles. “Concerns about the deficit limited the size of the stimulus act in 2009 and are a main reason that Congress has refused to take additional measures to cut our painfully high rate of unemployment,” wrote Christina Romer, former chair of Obama’s Council of Economic Advisers.

In his State of the Union address in 2010, the president announced a three-year freeze on nondefense discretionary spending (a position he’d criticized in all three presidential debates with John McCain as an “example of unfair burden sharing” and “using a hatchet when you need a scalpel”), along with the creation of Bowles-Simpson. “Families across the country are tightening their belts and making tough decisions,” Obama said. “The federal government should do the same.”

This line proved to be one of the most repeated talking points of the austerity class. “That’s a very intuitive argument, but it’s totally backward,” says Jared Bernstein, former chief economist to Vice President Biden. “When families are tightening their belt in a recession, the government has to loosen its belt.” The constant drumbeat against “excessive” government spending from the austerity class and opportunistic Republicans caused the administration to “pivot too soon,” says Bernstein.

“Having gotten a stimulus that he knew was too small, Obama should have said, This is a good first step, but we’re likely going to need more,” says Dean Baker, co-director of the Center for Economic and Policy Research. “And gone on the offensive. Instead he turned to balancing the budget. That set the stage for the Tea Party and the Peterson crowd, because ‘deficits’ were all anyone heard.” Indeed, conservatives were emboldened by Obama’s speech. “If the arguments in the coming years are between spending freezes and spending cuts, then we’ve already won,” wrote Jim Geraghty of National Review in January 2010.
By June 2010, austerity had gripped the globe, as the G-20 nations agreed to cut their deficits in half by 2013 and pursue “growth friendly” fiscal consolidation. In the midst of the recession, the notion of “expansionary austerity” became a kind of magical elixir for the deficit hawks, much as the Laffer Curve did for Reaganomics. Harvard economist Alberto Alesina pioneered the theory, arguing in 2009 that “spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.” The CRFB, David Brooks, the American Enterprise Institute and the House Republican leadership quickly amplified his view. “Alesina has provided the theoretical ammunition fiscal conservatives want,” wrote Bloomberg Businessweek. It seemingly made no difference that his findings had been thoroughly debunked by the likes of The Economist, the IMF and the Center for Budget and Policy Priorities (CBPP), which found that in only nine of the 107 cases surveyed by Alesina had austerity measures led to increased growth. Yet to this day, leaders like Texas Representative Jeb Hensarling (co-chair of the supercommittee) insist that “deficit reduction will be a jobs plan.”

The austerity-class chorus grew louder following the release of the Bowles-Simpson report shortly after the 2010 midterm elections and framed the debate for 2011. (It was led by a conservative Democrat and a conservative Republican, evidently the definition of “balance” in Washington. Few in the media noted that Peterson-backed groups had staffed the commission and organized town hall events on its behalf, ostensibly underwriting what was purported to be an independent government entity.)

“Bowles-Simpson was not a deficit-reduction package,” says Stiglitz, “but a downsizing-government package.” Instead of rolling back the Bush administration policies that had turned Clinton’s surplus into a deficit—such as the Bush tax cuts, Medicare Part D plan and costly wars in Afghanistan and Iraq—the commission took aim at the social safety net and promoted pet conservative causes, like cutting the federal workforce by 10 percent, cutting funds for the Corporation for Public Broadcasting and capping medical malpractice lawsuits. It called for “serious belt tightening” beginning in 2012, when few economists believed the economy would have recovered from the recession.

In his budget for 2012, Obama proposed cutting discretionary spending to its lowest share of GDP since the Eisenhower administration. The debate in Washington was thus the administration’s “cut and invest” strategy versus the GOP’s “cut and grow” plan, noted Post blogger Sargent. Both proved illusory, as the country saw neither investments nor growth, only more cuts. The deal to avert a government shutdown included billions in cuts. By the time of the summer debt ceiling showdown, the parties were trying to out-cut each other, with the president increasingly espousing conservative talking points (such as the discredited ideas that government budgets are like family budgets, that spending cuts will create jobs and that slashing the deficit will return “confidence” to the market). Even Nancy Pelosi, the country’s highest-ranking progressive Democrat, declared in July, “It is clear we must enter an era of austerity.”

The triumph of the austerity class set the stage for Obama’s “grand bargain” offer to House Speaker John Boehner, which included $3 trillion in spending cuts in exchange for $800 billion in new revenue (roughly the equivalent of letting the Bush tax cuts for the rich expire). Times columnist Brooks called it “an astonishing concession” by the White House and “the deal of the century” for the GOP. Yet Boehner balked when Obama asked for $400 billion in additional revenue to help balance the lopsided plan. The parties agreed instead to $917 billion in cuts over the next decade, with the supercommittee tasked with finding $1.2 trillion in additional savings. The austerity debate is guaranteed to last until Christmas, at the very least.

* * *

The unholy alliance between the austerity class and supply-side conservatives, who talk a good game about deficits but in fact care principally about cutting taxes and government spending, has shifted the debate over the economy and the deficit far to the right since Obama took office. By promoting an age of austerity, the deficit hawks have enhanced the power of “starve the beast” conservatives like Grover Norquist, whose goal for years has been to shred the New Deal. The austerity class’s infatuation with Representative Paul Ryan is a prime example of this addled love affair.

In 2008, when Ryan introduced his radical budget road map—which called for turning Medicare into a voucher system, privatizing Social Security and redistributing income upward by drastically cutting taxes for the wealthiest Americans and largest corporations—MacGuineas praised his “tremendous courage and leadership.” When Ryan reintroduced his plan in 2010, the CRFB lauded his “thoughtfulness and courage.” The CRFB failed to mention that Ryan’s plan would increase the deficit, from a debt-to-GDP ratio of 60 percent in 2010 to 175 percent by 2050. “Paul Ryan added a huge amount to the deficit,” says John Irons, policy director at the Economic Policy Institute (EPI). “To call that even remotely fiscally responsible was not a correct analysis. It’s almost as if they said, We don’t care what your plan does—as long as you talk tough on deficits we’re going to support you.”

Indeed, in January the CRFB, the Concord Coalition and the Comeback America Initiative (all funded by the Peterson Foundation) gave Ryan a cherished fiscal responsibility award, despite his deficit-exploding budget, hostility to tax increases and votes in favor of the Bush administration’s deficit spending. Bob Bixby, executive director of the Concord Coalition, introduced Ryan by quoting Time magazine: “The irony of Ryan’s rise is that he has vaulted to popularity by embracing historically unpopular ideas.” Said Bixby, “And I thought to myself, now there is a deficit hawk…. If we limit ourselves to popular ideas, we’re never going to solve the problem.”

MacGuineas said the award honored Ryan for being the first politician to put forth a budget plan in 2011, which she called “the most fiscally responsible of any of the plans.”

Technically, that’s true. Ryan’s budget, a modified version of his road map, achieves a modest $155 billion in savings over ten years by proposing what the CBPP calls “the most severe and wrenching budget cuts in US history—two-thirds of which would come from programs for people of low or moderate incomes” (i.e., Medicaid, Pell grants, food stamps and low-income housing).

The award to Ryan illustrates just how dangerously obtuse the austerity class’s definition of fiscal responsibility is. The deficit hawks succeed by making the debate over the deficit a pure accounting game, with no acknowledgment of the adverse impact a plan like Ryan’s would have on the broader economy and on so many Americans if it became law. “If [you’re] willing to slash spending so that long-run deficits are brought under control, then it’s fiscally responsible,” Jim Horney, vice president for federal fiscal policy at CBPP, says of the Ryan plan. “But if by fiscally responsible you mean putting the budget on a sustainable path but making sure that government is able to meet the needs of the people of the United States, then I think it’s a terribly irresponsible plan.”

The deficit hawks once again sided with Ryan and his GOP colleagues during the debt ceiling standoff. “Failing to use this debt ceiling ‘hammer’ to force serious fiscal reforms would be a dangerous lost opportunity,” the CRFB wrote in July. That demand became the official position of Congressional Republicans, turning what should have been a routine debt ceiling increase into a months-long hostage situation, which spooked financial markets, damaged a weak economy and further polarized the political system. “One of the biggest strategic mistakes these deficit groups made is to allow themselves to be captured by the right wing of the Republican Party and to allow themselves to validate those claims,” says Stan Collender, a longtime budget expert at Qorvis Communications. “They just fed into the frenzy.”

When Standard & Poor’s downgraded the US credit rating in August, MacGuineas called it a “heck of a wake-up call” and once again urged Congress to enact “at least a $4 trillion deficit reduction plan—probably more” without acknowledging her group’s role in perpetuating the manufactured crisis or the utter unfeasibility of achieving the sort of grand bargain that Republicans had just rejected. As economists increasingly called for more, not less, stimulus to boost the sluggish economy, the CRFB refused to budge from its hard line. Just a month later, the group backed the House Republican leadership by demanding that emergency disaster relief spending in the wake of Hurricane Irene be offset by spending cuts, which almost forced yet another government shutdown.

“I am about as frustrated with the CRFB as you can get,” says Collender, who has consulted for the group in the past. “They’ve become zealots and fanatics, as opposed to realists and pragmatists. It’s one thing to be a counterbalance to those who always want to spend more and tax less. It’s another thing to be pushing deficit reduction no matter what the economic situation is and whether it makes sense or not.”

* * *

It was only after Boehner rejected Obama’s grand bargain and the economy slowed to a halt that the president finally bowed to reality and introduced a new jobs plan. It may well be too little, too late, but Obama’s energetic campaign in support of the legislation has begun to redirect the debate over the economy away from austerity and back toward jobs.

Much of the mainstream media, however, remain enthusiastic cheerleaders for austerity. A recent story in the Washington Post, Experts Dubious of Obama Deficit Plan, featured criticism from MacGuineas, Bixby, an unnamed GOP aide and a corporate tax lobbyist as its lone sources. “That’s fair and balanced budget reporting at the Washington Post,” joked Dean Baker.

Austerity-class pundits have also advanced the myth that both parties are equally responsible for, and equally unwilling to fix, the deficit problem. Columnists like Brooks and Friedman at the Times and Fred Hiatt at the Post have gone to extraordinary lengths to make this argument, seemingly forgetting that not so long ago Obama offered Boehner exactly the kind of grand bargain they’re now advocating. “I keep thinking he’s a few weeks away from proposing serious tax reform and entitlement reform,” Brooks wrote of Obama. “But each time he gets close, he rips the football away.”

One wonders why it’s so difficult for the Brookses of the world to acknowledge reality. “There is no equivalency,” says the CBPP’s Horney. “It is absolutely the Republicans’ refusal to consider meaningful changes in revenues that is blocking real deficit reduction at this point.” A clear illustration: Obama proposed a plan that was weighted three-to-one on a ratio of spending cuts to tax increases, but at a recent GOP presidential debate, all the candidates said they would oppose a plan that was even ten-to-one.

Indeed, the austerity class has done such a good job of sidelining dissident voices—with the exception of the Times’s Krugman and a few other high-profile Keynesian economists—that the Washington debate seems permanently skewed to the right. “On one side you have deficit obsession to the point where Republicans use this as an excuse to threaten to shut the government down over a couple billion dollars,” says Bernstein. “On the other side you pretty much have people talking balance. You have no one on the other extreme saying, Our main worry about the deficit, with unemployment at 9 percent, should be: Is it large enough to provide the boost that the private sector is not capable of providing right now?”

It’s doubtful that Obama’s belated pivot back to jobs will break the power of the austerity class. The administration’s schizophrenic approach to the economic crisis has left voters perplexed about where it stands on the biggest issue of the day. “When you ask people, ‘What is Obama’s economic policy?’ they have no idea,” says Democratic pollster Stan Greenberg. “They think maybe it’s healthcare reform.” Obama’s latest position—more spending to boost the economy, followed by deficit reduction once the economy recovers—may be too nuanced for the public to grasp (some in the austerity class, in an attempt to retain credibility at a time of economic peril, now echo Obama’s view). “The Republicans’ message, ‘Government spending is a problem,’ is much easier to penetrate,” says the EPI’s Irons. “The administration is missing a simple point, which is that you need jobs to reduce the deficit.” That’s why the EPI advocates a moratorium on austerity measures until the unemployment rate is back down to 6 percent.

“Right now, front-loaded deficit reduction would be a disaster,” says Stiglitz. “But a commitment to future deficit reduction, if it’s out of tune with the economic recovery, as Bowles-Simpson was, would also be a disaster. Even if it happens in the future, it could have an adverse effect today. People will say, If I’m going to be poorer in the future, I’m going to have to put more money away today.” Trading unemployment insurance now for Social Security cuts later, for example, is not exactly going to reassure an anxious public. “I’ll feel progress when this notion that short-term spending has to be offset by cuts to Social Security and Medicare gets the boot,” says University of Texas economist James Galbraith.

The austerity class has done such a good job of demonizing deficits that it’s difficult to make the case for their necessity, even in the short term. “The damn thing has such a bad rap, it’s almost unimaginable for a policy-maker to argue that we need a bigger deficit,” says Bernstein. “But there are times when that argument is absolutely correct.” Now is one of those times.