The Untouchables: How the Obama Administration Protected Wall Street from Prosecutions

Wednesday, January 23, 2013 by The Guardian/UK
A new PBS Frontline report examines a profound failure of justice that should be causing serious social unrest
by Glenn Greenwald


PBS' Frontline program on Tuesday night broadcast a new one-hour report on one of the greatest and most shameful failings of the Obama administration: the lack of even a single arrest or prosecution of any senior Wall Street banker for the systemic fraud that precipitated the 2008 financial crisis: a crisis from which millions of people around the world are still suffering. What this program particularly demonstrated was that the Obama justice department, in particular the Chief of its Criminal Division, Lanny Breuer, never even tried to hold the high-level criminals accountable.

What Obama justice officials did instead is exactly what they did in the face of high-level Bush era crimes of torture and warrantless eavesdropping: namely, acted to protect the most powerful factions in the society in the face of overwhelming evidence of serious criminality. Indeed, financial elites were not only vested with impunity for their fraud, but thrived as a result of it, even as ordinary Americans continue to suffer the effects of that crisis.

Worst of all, Obama justice officials both shielded and feted these Wall Street oligarchs (who, just by the way, overwhelmingly supported Obama's 2008 presidential campaign) as they simultaneously prosecuted and imprisoned powerless Americans for far more trivial transgressions. As Harvard law professor Larry Lessig put it two weeks ago when expressing anger over the DOJ's persecution of Aaron Swartz: "we live in a world where the architects of the financial crisis regularly dine at the White House." (Indeed, as "The Untouchables" put it: while no senior Wall Street executives have been prosecuted, "many small mortgage brokers, loan appraisers and even home buyers" have been).

As I documented at length in my 2011 book on America's two-tiered justice system, With Liberty and Justice for Some, the evidence that felonies were committed by Wall Street is overwhelming. That evidence directly negates the primary excuse by Breuer (previously offered by Obama himself) that the bad acts of Wall Street were not criminal.

Numerous documents prove that executives at leading banks, credit agencies, and mortgage brokers were falsely touting assets as sound that knew were junk: the very definition of fraud. As former Wall Street analyst Yves Smith wrote in her book ECONned: "What went on at Lehman and AIG, as well as the chicanery in the CDO [collateralized debt obligation] business, by any sensible standard is criminal." Even lifelong Wall Street defender Alan Greenspan, the former Federal Reserve Chair, said in Congressional testimony that "a lot of that stuff was just plain fraud."

A New York Times editorial in August explained that the DOJ's excuse for failing to prosecute Wall Street executives - that it was too hard to obtain convictions - "has always defied common sense - and all the more so now that a fuller picture is emerging of the range of banks' reckless and lawless activities, including interest-rate rigging, money laundering, securities fraud and excessive speculation." The Frontline program interviewed former prosecutors, Senate staffers and regulators who unequivocally said the same: it is inconceivable that the DOJ could not have successfully prosecuted at least some high-level Wall Street executives - had they tried.

What's most remarkable about all of this is not even Wall Street had the audacity to expect the generosity of largesse they ended up receiving. "The Untouchables" begins by recounting the massive financial devastation the 2008 crisis wrought - "the economy was in ruins and bankers were being blamed" - and recounts:

"In 2009, Wall Street bankers were on the defensive, worried they could be held criminally liable for fraud. With a new administration, bankers and their attorneys expected investigations and at least some prosecutions."

Indeed, the show recalls that both in Washington and the country generally, "there was broad support for prosecuting Wall Street." Nonetheless: "four years later, there have been no arrests of any senior Wall Street executives."

In response to the DOJ's excuse-making that these criminal cases are too hard to win, numerous experts - Senators, top Hill staffers, former DOJ prosecutors - emphasized the key point: Obama officials never even tried. One of the heroes of "The Untouchables", former Democratic Sen. Ted Kaufman, worked tirelessly to provide the DOJ with all the funds it needed to ensure probing criminal investigations and even to pressure and compel them to do so. Yet when he and his staff would meet with Breuer and other top DOJ officials, they would proudly tout the small mortgage brokers they were pursuing, in response to which Kafuman and his staff said: "No. Don't show me small-time mortgage guys in California. This is totally about what went on in Wall Street. . . . We are talking about investigating senior level Wall Street executives, even at the Board level". (The same Lanny Breuer was recently seen announcing that the banking giant HSBC would face no criminal prosecution for its money laundering of funds for designated terrorist groups and drug networks on the ground that the bank was too big to risk prosecuting).

As Kaufman and his staffers make clear, Obama officials were plainly uninterested in pursuing criminal accountability for Wall Street. One former staffer to both Biden and Kaufman, Jeff Connaughton, wrote a book in 2011 - "The Payoff: Why Wall Street Always Wins" - devoted to alerting the nation that the Obama DOJ refused even to try to find criminal culprits on Wall Street. In the book, this career-Democratic-aide-turned-whistleblower details how the levers of Washington power are used to shield and protect high-level Wall Street executives, many of whom have close ties to the leaders of both parties and themselves are former high-level government officials. This is a system, he makes clear, that is constituted to ensure that those executives never face real accountability even for their most egregious and destructive crimes.

The reason there have been no efforts made to criminally investigate is obvious. Former banking regulator and current securities Professor Bill Black told Bill Moyers in 2009 that "Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong." In the documentary "Inside Job", the economist Nouriel Roubini, when asked why there have been no such investigations, replied: "Because then you'd find the culprits." Underlying all of that is what the Senate's second-highest ranking Democrat, Dick Durbin, admitted in 2009: the banks "frankly own the place".
The harms from this refusal to hold Wall Street accountable are the same generated by the general legal immunity the US political culture has vested in its elites. Just as was true for the protection of torturers and illegal eavesdroppers, it ensures that there are no incentives to avoid similar crimes in the future. It is an injustice in its own right to allow those with power and wealth to commit destructive crimes with impunity. It subverts democracy and warps the justice system when a person's treatment under the law is determined not by their acts but by their power, position, and prestige. And it exposes just how shameful is the American penal state by contrasting the immunity given to the nation's most powerful with the merciless and brutal punishment meted out to its most marginalized.

The real mystery from all of this is that it has not led to greater social unrest. To some extent, both the early version of the Tea Party and the Occupy movements were spurred by the government's protection of Wall Street at the expense of everyone else. Still, Americans continue to be plagued by massive unemployment, foreclosures, the threat of austerity and economic insecurity while those who caused those problems have more power and profit than ever. And they watch millions of their fellow citizens be put in cages for relatively minor offenses while the most powerful are free to commit far more serious crimes with complete impunity. Far less injustice than this has spurred serious unrest in other societies.

[The one-hour Frontline program can be viewed in its entirety here.]

Exit Geithner

The Modern Day Metternich
by DEAN BAKER


Treasury Secretary Timothy Geithner’s departure from the Obama Administration invites comparisons with Klemens von Metternich. Metternich was the foreign minister of the Austrian Empire who engineered the restoration of the old order and the suppression of democracy across Europe after the defeat of Napoleon. This was an impressive diplomatic feat given the popular contempt for Europe’s monarchical regimes. In the same vein, protecting Wall Street from the financial and economic havoc they brought upon themselves and the country was an enormous accomplishment.

Just to remind everyone, during his tenure as head of the New York Fed and then Treasury Secretary, most, if not all, of the major Wall Street banks would have collapsed if the government had not intervened to save them. This process began with the collapse of Bear Stearns, which was bought up by J.P. Morgan in a deal involving huge subsidies from the Fed. The collapse of Lehman Brothers, a second major investment bank, started a run on the three remaining investment banks that would have led to the collapse of Merrill Lynch, Morgan Stanley, and Goldman Sachs if the Fed, FDIC, and Treasury did not take extraordinary measures to save them.

Citigroup and Bank of America both needed emergency facilities established by the Fed and Treasury explicitly for their support, in addition to all the below-market loans they received from the government at the time. Without this massive government support, there can be no doubt that both of them would currently be operating under the supervision of a bankruptcy judge.

Of the six banks that dominate the U.S. banking system, only Wells Fargo and J.P. Morgan could have conceivably survived without hoards of cash rained down on them by the federal government. Even these two are question marks, since both helped themselves to trillions of dollars of below-market loans, in addition to indirectly benefiting from the bailout of the other banks that protected many of their assets.

Had it not been for Geithner and his sidekicks we would have been permanently rid of an incredibly bloated financial sector that haunts the economy like a horrible albatross. Along with the salvation of the Wall Street banks, Geithner also managed to restore their agenda of deficit reduction.

Even though the economy is still down more than 9 million+ jobs from its full employment level, none of the important people in Washington are talking about measures that would hasten job creation. Instead the focus is exclusively on deficit reduction, a process that is already slowing growth and putting even more people out of work. While lives that are being ruined today by the weak economy, Geithner helped create a policy agenda where the focus of debate is the budget projections for 2022.

These projections are hugely inaccurate. Furthermore the actual budget for 2022 is largely out of the control of the politicians currently in power, since the Congresses elected in 2016, 2018, 2020 and 2022, along with the presidents elected in 2016 and 2020, may have some different ideas. Nonetheless, the path laid out by Geithner’s team virtually ensures that these distant budget targets will serve as a distraction from doing anything to help the economy now.

There are two important points that should be quashed quickly in order to destroy any possible defense of Timothy Geithner. It is often asserted that we were lucky to escape a second Great Depression. This is nonsense.

The first Great Depression was not simply the result of bad decisions made in the initial financial crisis. It was the result of 10 years of failed policy. There is zero, nothing, nada that would have prevented the sort of massive stimulus provided by World War II from occurring in 1931 instead of 1941. We know how to recover from a financial collapse; the issue is simply political will.

This is demonstrated clearly by the case of Argentina, which had a full-fledged collapse in December of 2001. After three months of free fall, its economy stabilized in the second quarter of 2002. It came roaring back in the second half of the year and had made up all of the lost ground by the middle of 2003. Its economy continued to grow strongly until the 2009 when the world economic crisis brought it to a standstill. There is no reason to believe that our policymakers are less competent than those in Argentina; the threat of a second Great Depression was nonsense.

Finally the claim that we made money on the bailouts is equally absurd. We lent money at interest rates that were far below what the market would have demanded. Most of this money, plus interest, was paid back. However claiming that we therefore made a profit would be like saying the government could make a profit by issuing 30-year mortgages at 1.0 percent interest. Surely most of the loans would be repaid, with interest, but everyone would understand that this is an enormous subsidy to homeowners.

In short, the Geithner agenda was to allow the Wall Street banks to feed at the public trough until they were returned to their prior strength. Like Metternich, he largely succeeded. Of course democracy did eventually triumph in Europe. Let’s hope that it doesn’t take quite as long here.

Treasury Dept. warns of ‘extraordinary measures’ amid fiscal cliff deadlock

(The fact the Democrats are playing along with this fake fiscal cliff lowers the little credibility they had almost down to nothing. Both parties are using this scare tactic to justify cutting social security and the people aren't going to fall for it.--jef)

By Dominic Rushe, The Guardian
Wednesday, December 26, 2012

Barack Obama cuts short holiday to tackle budget crisis as country faces breaching its $16.4tn debt limit

US Treasury secretary Tim Geithner warned on Wednesday he would have to take “extraordinary measures” to avoid a default on the US’s legal obligations as the country is set to breach its $16.4tn (£10.16tn) debt limit.

In a letter to Congress, Geithner said the debt ceiling would be reached on 31 December and that the Treasury could raise $200bn (£124bn) to fund government spending as a stopgap measure. But he warned that the current impasse over the fiscal cliff budget crisis meant it was uncertain how long that money would last.

“Under normal circumstances, that amount of headroom would last approximately two months.

“However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” Geithner warned.

In the two-paragraph letter Geithner also warned that “the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain.”

A similar row over increases in the debt ceiling in the summer of 2011 led to a historic downgrade of the US’s credit rating and panic on stock markets around the world.

The Treasury secretary’s warning comes as Barack Obama prepared to cut short his Christmas holiday in Hawaii, with the intention of returning to Washington in the hope of restarting the stalled budget talks.

Discussions with House speaker John Boehner collapsed last week after the top ranking Republican launched his own “Plan B” aimed at tackling the year-end budget crisis. But Boehner’s plan also fell after members of his own party threatened to block any deal that would raise taxes.

Boehner and other senior Republicans released a statement on Wednesday saying: “The lines of communication remain open, and we will continue to work with our colleagues to avert the largest tax hike in American history, and to address the underlying problem, which is spending.”

Obama is hoping to pass a stop-gap deal through the Senate, where he has some support from Republicans. The president wants to implement measures that would raise taxes on those earning over $250,000 (£155,000) while preserving most of the other tax cuts under threat, delaying spending cuts and extending unemployment benefits for the long-term unemployed.

Boehner said the Senate would have to make the first move before the House would commit to voting on any bill. He said two bills had already been put forward to tackle the crisis.

“If the Senate will not approve and send them to the president to be signed into law in their current form, they must be amended and returned to the House. Once this has occurred, the House will then consider whether to accept the bills as amended, or to send them back to the Senate with additional amendments,” he said.

The Treasury said it can free up around $200bn (£124bn) by taking four “extraordinary measures.” Nearly all the measures relate to peripheral investments that the Treasury makes in certain funds.

In essence, the Treasury will act like an indebted consumer who stops running up his credit card when he already has more bills than he can pay. The result: the Treasury will not cut its debt, but only stop spending until its credit limit is raised again. Only Congress can raise the debt limit.

The department took similar measures last year, when the US passed the debt ceiling limit in May and Congress didn’t increase it again until August. The most remarkable of the extraordinary measures includes allowing the Treasury to redeem, or stop, any investments in two major pension funds.

The first is the civil service retirement and disability fund. The CSRDF, as it is known, is a kind of pension fund that provides defined benefits (stock market-linked retirement incomes) to retired and disabled federal employees.

The US Treasury puts about $6bn (£4bn)a month into the fund – not in cash, but in Treasury securities. The Treasury would either redeem some of those securities or suspend new payments. It could also choose to continue to make payments to the fund, but if the debt ceiling is not raised within two months, the Treasury would have to stop.

The second major pension fund is the government securities investment fund, or G Fund, which is part of the federal employees’ retirement system thrift savings plan. Like the CSRDF, the G Fund is invested in special securities. But, because the G Fund matures every day, the Treasury can immediately free up money by suspending the whole thing. Suspending the G Fund will do the most to make room for the Treasury, freeing up $156bn (£96bn) of the $200bn (£124bn) it’s aiming for.

After Congress raises the debt ceiling, the Treasury has to make up for all the payments it missed to the pension funds, so none of the employees will be hurt.

The Treasury will also temporarily stop issuing state and local government securities or SLGS – bonds it created to help state and local governments reinvest any profits made from issuing regular municipal securities.

Since state and local governments are not allowed to reinvest their profits in other, riskier kinds of investments, the Treasury gives them SLGS bonds as a way of holding their money safe.

But stopping SGLS bonds won’t cut the country’s debt; it will only avoid adding to it. In its most minor move, the Treasury will stop contributing to the exchange stabilisation fund, which it uses to buy foreign currencies. The public debt of the US is increasing at about $100bn per month, the Treasury said.

This Global Financial Fraud and Its Gatekeepers

Sunday, July 15, 2012 by The Guardian/UK
The media's 'bad apple' thesis no longer works. We're seeing systemic corruption in banking – and systemic collusion

by Naomi Wolf

 

Last fall, I argued that the violent reaction to Occupy and other protests around the world had to do with the 1%ers' fear of the rank and file exposing massive fraud if they ever managed get their hands on the books. At that time, I had no evidence of this motivation beyond the fact that financial system reform and increased transparency were at the top of many protesters' list of demands.

But this week presents a sick-making trove of new data that abundantly fills in this hypothesis and confirms this picture. The notion that the entire global financial system is riddled with systemic fraud – and that key players in the gatekeeper roles, both in finance and in government, including regulatory bodies, know it and choose to quietly sustain this reality – is one that would have only recently seemed like the frenzied hypothesis of tinhat-wearers, but this week's headlines make such a conclusion, sadly, inevitable.

The New York Times business section on 12 July shows multiple exposes of systemic fraud throughout banks: banks colluding with other banks in manipulation of interest rates, regulators aware of systemic fraud, and key government officials (at least one banker who became the most key government official) aware of it and colluding as well. Fraud in banks has been understood conventionally and, I would say, messaged as a glitch. As in London Mayor Boris Johnson's full-throated defense of Barclay's leadership last week, bank fraud is portrayed as a case, when it surfaces, of a few "bad apples" gone astray.

In the New York Times business section, we read that the HSBC banking group is being fined up to $1bn, for not preventing money-laundering (a highly profitable activity not to prevent) between 2004 and 2010 – a six years' long "oops". In another article that day, Republican Senator Charles Grassley says of the financial group Peregrine capital: "This is a company that is on top of things." The article goes onto explain that at Peregrine Financial, "regulators discovered about $215m in customer money was missing." Its founder now faces criminal charges. Later, the article mentions that this revelation comes a few months after MF Global "lost" more than $1bn in clients' money.

What is weird is how these reports so consistently describe the activity that led to all this vanishing cash as simple bumbling: "regulators missed the red flag for years." They note that a Peregrine client alerted the firm's primary regulator in 2004 and another raised issues with the regulator five years later – yet "signs of trouble seemingly missed for years", muses the Times headline.

A page later, "Wells Fargo will Settle Mortgage Bias Charges" as that bank agrees to pay $175m in fines resulting from its having – again, very lucratively – charged African-American and Hispanic mortgagees costlier rates on their subprime mortgages than their counterparts who were white and had the same credit scores. Remember, this was a time when "Wall Street firms developed a huge demand for subprime loans that they purchased and bundled into securities for investors, creating financial incentives for lenders to make such loans." So, Wells Fargo was profiting from overcharging minority clients and profiting from products based on the higher-than-average bad loan rate expected. The piece discreetly ends mentioning that a Bank of America lawsuit of $335m and a Sun Trust mortgage settlement of $21m for having engaged is similar kinds of discrimination.

Are all these examples of oversight failure and banking fraud just big ol' mistakes? Are the regulators simply distracted?

The top headline of the day's news sums up why it is not that simple: "Geithner Tried to Curb Bank's Rate Rigging in 2008". The story reports that when Timothy Geithner, at the time he ran the Federal Reserve Bank of New York, learned of "problems" with how interest rates were fixed in London, the financial center at the heart of the Libor Barclays scandal. He let "top British authorities" know of the issues and wrote an email to his counterparts suggesting reforms. Were his actions ethical, or prudent? A possible interpretation of Geithner's action is that he was "covering his ass", without serious expectation of effecting reform of what he knew to be systemic abuse.

And what, in fact, happened? Barclays kept reporting false rates, seeking to boost its profit.

Last month, the bank agreed to pay $450m to US and UK authorities for manipulating the Libor and other key benchmarks, upon which great swaths of the economy depended. This manipulation is alleged in numerous lawsuits to have defrauded thousands of bank clients. So Geithner's "warnings came too late, and his efforts did not stop the illegal activity".

And then what happened? Did Geithner, presumably frustrated that his warnings had gone unheeded, call a press conference? No. He stayed silent, as a practice that now looks as if several major banks also perpetrated, continued.

And then what happened? Tim Geithner became Treasury Secretary. At which point, he still did nothing.

It is very hard, looking at the elaborate edifices of fraud that are emerging across the financial system, to ignore the possibility that this kind of silence – "the willingness to not rock the boat" – is simply rewarded by promotion to ever higher positions, ever greater authority. If you learn that rate-rigging and regulatory failures are systemic, but stay quiet, well, perhaps you have shown that you are genuinely reliable and deserve membership of the club.

Whatever motivated Geithner's silence, or that of the "government official" in the emails to Barclays, this much is obvious: the mainstream media need to drop their narratives of "Gosh, another oversight". The financial sector's corruption must be recognized as systemic.

Meanwhile, Britain is sleepwalking in a march toward total email surveillance, even as the US brings forward new proposals to punish whistleblowers by extending the Espionage Act. In an electronic world, evidence of these crimes lasts forever – if people get their hands on the books. In the Libor case, notably, a major crime has not been greeted by much demand at the top for criminal prosecutions. That asymmetry is one of the insurance policies of power.

Another is to crack down on citizens' protest.

Getting Around Geithner

Why Other Countries Must Lead the Way on Financial and Trade Reforms

by SARAH ANDERSON
I’ve been trying to get the Obama administration to come out of the Dark Ages on the subject of capital controls for three years. The light, however, seems to be shining only outside Washington.

I know capital controls aren’t exactly issue No. 1 on Americans’ minds. But these tools for managing volatile hot money flows have saved countless families around the world from economic disaster. And while they’re most frequently used in developing countries, promoting financial stability anywhere is in the interest of all of us.

So in the wake of the worst financial crisis in 80 years, I thought it would be a no-brainer for the U.S. government to give up its longstanding policy of banning capital controls through trade agreements. The North American Free Trade Agreement and dozens of other U.S. treaties severely restrict our trade partners’ ability to use capital controls. If governments break the rules, foreign investors can sue their pants off in international tribunals.

In 2009, I was appointed to an official advisory committee to the Obama administration on investment policy, where I talked myself blue in the face about the need for a rethink on capital controls. To pump up the volume, I partnered with Professor Kevin Gallagher of Boston University to organize more than 250 economists to sign a letter to the administration, urging trade reforms to allow capital controls.

Many fancy economists were eager to sign — a Nobel Prize winner, a former finance minister and Central Banker, a Harvard department head, etc… We got coverage in the New York Times and Wall Street Journal, as well as the opportunity to present the letter to Treasury officials and trade negotiators.

Finally, we received a reply from Treasury Secretary Timothy Geithner. The administration would “seek to preserve” current policy, he said, since, in his view, governments have sufficient alternatives to capital controls to deal with volatility.

Ouch. Geithner made the International Monetary Fund look like a relative beacon of progressive enlightenment. After decades of blanket opposition, the IMF now endorses capital controls on inflows of speculative capital under certain circumstances. They have recommended outflows controls in a number of countries facing capital flight, such as Iceland, and are supporting inflows controls to prevent speculative bubbles in emerging market countries.

What about Geithner’s argument that there are plenty of other policy tools to deal with financial volatility? An IMF paper from 2010 went through the alternatives and concluded that in certain circumstances capital controls are still needed.

Fortunately, there are ways to get around Geithner. The greatest hope lies in other countries that may put up a fight over this issue. The Obama administration is negotiating a Trans-Pacific trade agreement with eight other governments: Australia, Brunei, Chile, Malaysia, Peru, New Zealand, Singapore, and Vietnam. Several of these have used capital controls effectively in the past.

For example, throughout most of the 1990s, Chile required a percentage of all foreign investments to be deposited in the central bank for a year, helping to prevent rapid capital flight. Malaysia imposed controls on capital outflows at the height of the Asian financial crisis in 1998. Nobel economist Joseph Stiglitz has written that this allowed Malaysia to “recover more quickly with a shallower downturn and with a far smaller legacy of national debt.”

More than 100 economists from countries in the Trans-Pacific trade talks have signed a new letter urging more flexibility on capital controls. This time, signatories include prominent scholars from six of the nine participating governments, including well-known free trade supporter Professor Jagdish Bhagwati of Columbia University and former IMF officials Olivier Jeanne of Johns Hopkins University and Arvind Subramanian of the Peterson Institute for International Economics. The letter was be delivered to each of the nine governments on the eve of a big March 1-9 negotiating round in Melbourne, Australia.

This isn’t the only fix needed in our trade agreements. But if we can’t move beyond the Dark Ages belief in the wonders of unfettered financial flows, it’s hard to imagine winning much else in the way of enlightened trade reforms.

The Biggest Risk to the Economy in 2012, and What’s the Economy For Anyway?

Tuesday, January 31, 2012 by Robert Reich's Blog
by Robert Reich

Treasury Secretary Tim Geithner, speaking at the World Economic Forum in Davos a few days ago, said the “critical risks” facing the American economy this year were a worsening of Europe’s chronic sovereign debt crisis and a rise in tensions with Iran that could stoke global oil prices.

What about jobs and wages here at home?

As the Commerce Department reported Friday, the U.S. economy grew 2.8 percent between October and December – the fastest pace in 18 months and the first time growth exceeded 2 percent all year. Many bigger American companies have been reporting strong profits in recent months. GE and Lockheed Martin closed the year with record order backlogs.

Yet the percent of working-age Americans in jobs isn’t much different than what it was three years ago. Yes, America now produces more than it did when the recession began. But it does so with 6 million fewer workers.

Average after-tax incomes adjusted for inflation are moving up a bit. (They increased at an annual rate of .8 percent in the last three months of 2011 after falling 1.9 percent in prior three-month period. For all of 2011, incomes fell .1 percent.)

But beware averages. Shaquille O’Neal and I have an average height of six feet. Exclude Mitt Romney’s $20 million last year — along with everyone else securely in the top 1 percent — and the incomes of most Americans are continuing to slip.

Consumer spending picked up slightly in the fourth quarter mainly because consumers drew down their savings. Obviously, this can’t last.

Meanwhile, government is spending less on schools, roads, bridges, parks, defense, and social services. Government spending at all levels dropped at an annual rate of 4.6 percent in the last quarter – and that’s likely to continue.

Some economists worry this drop is a drag on the economy. But it also means fewer public goods available to all Americans regardless of income.

Congress still hasn’t decided whether to renew the temporary payroll tax cut and extend unemployment benefits past February. If it doesn’t, expect another 1 percent slice off GDP growth this year.

Tim Geithner is surely correct that the European debt crisis and Iran pose risks to the American economy in 2012. But they aren’t the biggest risk. The biggest risk is right here at home – that most Americans will continue to languish.

All of which raises a basic question: Who or what is the economy for? Surely not just for a few at the top, and not just big corporations and their CEOs. Nor can the success of the economy be measured by how fast the GDP is growing, or how high the Dow Jones Industrial Average is rising, or whether average incomes are turning upward.

The crisis of American capitalism marks the triumph of consumers and investors over workers and citizens. And since most of us occupy all four roles – even though the lion’s share of consuming and investing is done by the wealthy – the real crisis centers on the increasing efficiency by which all of us as consumers and investors can get great deals, and our declining capacity to be heard as workers and citizens.

Modern technologies allow us to shop in real time, often worldwide, for the lowest prices, highest quality, and best returns. Through the Internet and advanced software we can now get relevant information instantaneously, compare deals, and move our money at the speed of electronic impulses. We can buy goods over the Internet that are delivered right to our homes. Never before in history have consumers and investors been so empowered.

Yet these great deals increasingly come at the expense of our own and our compatriots’ jobs and wages, and widening inequality. The goods we want or the returns we seek can often be produced more efficiently elsewhere around the world by companies offering lower pay, fewer benefits, and inferior working conditions.

They also come at the expense of our Main Streets – the hubs of our communities – when we get the great deals through the Internet or at big-box retailers that scan the world for great deals on our behalf.

Some great deals have devastating environmental consequences. Technology allows us to efficiently buy low-priced items from poor nations with scant environmental standards, sometimes made in factories that spill toxic chemicals into water supplies or pollutants into the air. We shop for great deals in cars that spew carbon into the air and for airline tickets in jet planes that do even worse.

Other great deals offend common decency. We may get a great price or high return because a producer has cut costs by hiring children in South Asia or Africa who work twelve hours a day, seven days a week. Or by subjecting people to death-defying working conditions.

As workers or as citizens most of us would not intentionally choose these outcomes but as seekers after great deals we are indirectly responsible for them. Companies know that if they fail to offer us the best deals we will take our money elsewhere – which we can do with ever-greater speed and efficiency.

The best means of balancing the demands of consumers and investors against those of workers and citizens has been through democratic institutions that shape and constrain markets.

Laws and rules offer some protection for jobs and wages, communities, and the environment. Although such rules are likely to be costly to us as consumers and investors because they stand in the way of the very best deals, they are intended to approximate what we as members of a society are willing to sacrifice for these other values.

But technologies for getting great deals are outpacing the capacities of democratic institutions to counterbalance them. For one thing, national rules intended to protect workers, communities, and the environment typically extend only to a nation’s borders. Yet technologies for getting great deals enable buyers and investors to transcend borders with increasing ease, at the same time making it harder for nations to monitor or regulate such transactions.

For another, goals other than the best deals are less easily achieved within the confines of a single nation. The most obvious example is the environment, whose fragility is worldwide. In addition, corporations now routinely threaten to move jobs and businesses away from places that impose higher costs on them – and therefore, indirectly, on their consumers and investors – to more “business friendly” jurisdictions. The Internet and software have made companies sufficiently nimble to render such threats credible.

But the biggest problem is that corporate money is undermining democratic institutions in the name of better deals for consumers and investors. Campaign contributions, fleets of well-paid corporate lobbyists, and corporate-financed PR campaigns about public issues are overwhelming the capacities of Congress, state legislatures, regulatory agencies, and the courts to reflect the values of workers and citizens.

As a result, consumers and investors are doing increasingly well but job insecurity is on the rise, inequality is widening, communities are becoming less stable, and climate change is worsening. None of this is sustainable over the long term.

Blame global finance and worldwide corporations all you want. But save some blame for the insatiable consumers and investors inhabiting almost every one of us, who are entirely complicit. And blame our inability as workers and citizens to reclaim our democracy.

Stress Testing Geithner and Busting Up Bank of America

Thursday, January 26, 2012 by PRWatch.org
by Mary Bottari

Thanks to Occupy Wall Street, in the State of the Union this week President Obama struck some of his most populist themes yet. He wants to tax millionaires, bring back manufacturing and prosecute the big banks. He touted his Wall Street reforms saying the big banks are “no longer allowed to make risky bets with customers deposits” and “the rest of us aren’t bailing you out ever again.”

But are we safe from the next big bank bailout? Many experts are dubious and Wednesday the consumer advocacy group Public Citizen decided to test the theory in the most direct way possible. They used the administrative law process to formally petition the nation’s top bank regulators to move swiftly to break up Bank of America (BofA) asserting in their petition: “The bank poses a grave threat  to U.S. financial stability by any reasonable definition of that phrase.”


“A Ticking Time Bomb”

BofA is not just big, its behemoth. With assets of $2.1 trillion, equal to more than 14 percent of U.S. GDP, it is bigger than many small countries. Yet, its stock is trading at $7.

What does Wall Street know that we don’t?

The petition provides a compelling list of disturbing data points. In 2008-2009, BofA publicly took $45 billion in TARP bailout funds and secretly took another $1 trillion in emergency Federal Reserve loans. Yet, several analysts predict that BofA is woefully short of capital reserves and facing potentially billions in legal liability for its role in the crisis.

Although the bank declared net profits in recent quarters, these profit comes from accounting tricks, one-time asset sales and stock swaps. BofA’s share price to tangible book value is extremely low. The market suspects the bank is worth roughly half of what management claims and the price of credit default swaps (a type of insurance) on BofA recently rose to record highs.

“The bank is a ticking time bomb,” says David Arkush of Public Citizen. “If Bank of America in its current form were to fail, it would devastate the financial system. We’re asking the regulators to make sure that never happens. The only way to be sure is to reform the institution into something safer before any crisis materializes.”

Public Citizen asked the new Financial Stability Oversight Council (FSOC), which is chaired by Treasury Secretary Tim Geithner and made up of the nation's top bank regulators, to use the tools provided in the Dodd-Frank Wall Street reform law to act before a crisis occurs and to break BofA into smaller separate institutions. The law allows the FSOC to limit big bank mergers and acquisitions, restrict products and services or order it to divest assets or off-balance-sheet items after a vote to designate the institution a “grave threat” to financial stability.

“Too Big to Fail” is Alive and Well

Although President Obama said the goal of Dodd-Frank was to end the era of “too big to fail,” neither Geithner nor Fed Chair Ben Bernanke got the memo.

Geithner told the Special Inspector General for the Troubled Asset Relief Program in 2011 that future bailouts are possible:  “In the future we may have to do exceptional things again if we face a shock that large. You just don’t know what’s systemic and what’s not until you know the nature of the shock. It depends on the state of the world – how deep the recession is. We have better tools now, thanks to Dodd-Frank. But you have to know the nature of the shock.”

Bernanke may already be engaged in a back-door bailout of BofA. Recent news reportsindicate that BofA  is trying to move $22 trillion in derivatives out of its Merrill Lynch subsidiary into its FDIC-insured bank. The Fed favors the move. The Federal Depository Insurance Corporation (FDIC), which provides insurance to depositors if a bank fails, does not.

“By taking this action the Fed is allowing these derivatives to pose a direct risk to the FDIC insurance fund, keeping taxpayers on the hook for another bailout,” according to Arthur Wilmarth of George Washington Law School.

Groups like Public Citizen fought hard during the Dodd-Frank debates to insert into the bill tools to allow regulators to break up big banks and prevent the next crisis. With BofA in such fragile condition, its time for a “test of the machinery,” said scholar Lawrence Baxter of Duke Law School.

Expand the Stress Tests

Geithner is right when he says regulators can’t predict future shocks; will it be the EU debt crisis, a multi-million dollar damage award against the bank or exposure to something out of the blue? While we may not know its origin, we know the shock is coming.

Remember in the Dodd-Frank debates, an amendment to break up the banks was rejected, efforts to restore Glass-Steagall were rejected, a proposal to force banks to spin off and separately capitalize their dangerous derivatives desks was quashed. In leading the fight against the stronger measures, Geithner instead pushed the FSOC to scan the horizon for risk and keep an eye on the behemoth banks. He also pushed “stress tests,” which all too many banks seem to pass with flying colors.

Now its time to stress test Geithner. If the FSOC fails to deliberate and vote on the very serious condition of BofA, the whole exercise will be proven a sham.

Geithner Grilled

Geithner Intercedes to Give Wall Street Under the Table $25B Bailout

A 25 Billion Dollar Secret: The NY Fed, Goldman & The AIG Cover-Up
How The FRBNY's President Tim Geithner And Chairman Stephen Friedman Demanded Par For Goldman Sachs And The Rest Of Wall Street And Then Tried To Cover It All Up...

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Why did the Federal Reserve Bank of New York (FRBNY), whose Chairman was Stephen Friedman (a Goldman Sachs board member who resigned from the New York Fed earlier this year when it was revealed that he had made $5 million by purchasing shares in GS with the knowledge that AIG would be paying counterparties at par and that Goldman would be getting a $13 billion windfall -- when no one else had this information) and whose President was none other than current Treasury Secretary Tim Geithner, why did this New York Fed choose to pay AIG's counterparties 100 cents on the dollar when AIG itself had been negotiating for steep haircuts with claimants, AND why did they then pressure AIG executives to keep quiet about the decision even discouraging AIG from disclosing the 'par-payments' to its shareholders in required SEC filings?

We'll leave the decision itself (which was fraudulent, borderline criminal, and the reasoning given - a complete joke), for another post and focus on the cover-up.  Certainly it riled up Congressman Darrell Issa who fired off an angry letter last Friday to AIG management and the New York Fed, demanding the following from both:

1. Emails, phone logs and meeting notes of the following people: Timothy Geithner, Stephen Friedman, Tom Baxter, and Sarah Dahlgren; 
2. Term sheets, including drafts, relating to AIG’s payments to its CDS counterparties;
3. Emails, phone logs and meeting notes referring or relating to public disclosure of AIG’s payments to its CDS counterparties including disclosure to the SEC.

Issa continues in his letter:

It is also disturbing that, at the time this secret deal was made, FRBNY Chairman Stephen Friedman, a member of the board of Goldman Sachs, purchased more than 50,000 shares of Goldman Sachs before knowledge of the FRBNY’s bailout of Goldman Sachs and other AIG counterparties became public knowledge.  According to news reports, this transaction has earned Mr. Friedman over $5 million in profit.

Finally, according to one AIG executive quoted in news reports, the FRBNY may have attempted to manage public disclosure of its decision to pay AIG’s counterparties at par by pressuring the company not to file pertinent documents with the U.S. Securities and Exchange Commission (“SEC”):

They’d tell us that they don’t think that this or that should be disclosed.  They’d say, “Don’t you think your counterparties will be concerned?”  It was much more about protecting the Fed.

These allegations raise serious questions about the transparency, accountability and wisdom of the FRBNY’s actions. The American people have a right to know the full details behind the FRBNY’s decision to stop negotiations with AIG’s counterparties and pay them billions of dollars of taxpayer money.

**********

DB here.  It's not difficult to understand what happened, and it most certainly was not a coincidental result of independent decisions made during the heat of the crisis.  We've actually known it was the Fed for awhile.  Ever since House testimony from AIG CEO Ed Liddy confirming that "The Fed made us do it."  The problem at the time was that we didn't know which Fed.

Now we know: Geithner and Friedman interceded on behalf of Goldman and Wall Street (Merrill received $6.2 billion, Societe General - a whopping $16.5 billion) to deliver a stealth bailout, one that wouldn't need Congressional approval, and even better wouldn't require the counterparties to pay any of it back NOR would it require that they issue shares, warrants or any other instrument to AIG (taxpayers) in return for more than $32 billion in free money.

As example, Lehman counterparties got 11 cents.  AIG creditors in bankruptcy court might have gotten 25 cents, if they were lucky given the state of the asset markets at the time.  AIG itself was negotiating for 50 cents, but your friend and steward of your currency, Treasury Secretary Turbo-Tax, and his boss Stephen Friedman thought 100 would be the best number for everyone involved, leading to a windfall for AIG counterparties of at least $16 billion.  In real terms, anything over 25 cents was a gift and thus the real giveaway was somewhere in the range of $25 billion, notwithstanding the author's calculations.  And if that weren't enough, then Geithner and Friedman succeeded in covering up their secret for 9 months, until Bloomberg through dogged effort and FOIA determination finally got the scoop.  Read the following passage from Bloomberg carefully:

Part of a sentence in the document was crossed out.  It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet.  After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar.  The content of its deliberations has never been made public.

Edward Grebeck, CEO of Stamford, Connecticut-based debt consulting firm Tempus Advisors, says the most serious breach by the government was to keep the process of approving the bank payments secret.  “It’s inexcusable,” says Grebeck, who teaches a course on CDSs at New York University. “Everybody should be privy to the negotiations that went on. We can’t have bailouts like this happening behind closed doors.”

The deliberations of the New York Fed are not made public. In this case, even the identities of the AIG counterparties weren’t disclosed until March 2009, when U.S. Senator Christopher Dodd, head of the Senate Finance Committee, demanded they be made public.  Bloomberg News has filed a Freedom of Information Act request seeking copies of the term sheets related to AIG’s counterparty payments, along with e-mails and the logs of phone calls and meetings among Geithner, Friedman and other New York Fed and AIG officials. The request is pending.

The Federal Reserve has been reluctant to publish information on its efforts to stabilize the financial system since the crisis began. The Fed has loaned more than $2 trillion, yet it refuses to name the recipients of the loans, or cite the amount they borrowed, saying that doing so may set off a run by depositors and unsettle shareholders.

William Poole, a former president of the Federal Reserve Bank of St. Louis, defends the New York Fed’s action.  “I think the Federal Reserve was trying to stop the spread of fear in the market,” Poole says. “The market was having enough trouble dealing with Lehman. If you add, on top of that, AIG paying off some fraction of its liabilities, a system which is already substantially frozen would freeze rock-solid.”

Still, officials at AIG object to the secrecy that surrounded the transactions. One top AIG executive who asked not to be identified says he was pressured by New York Fed officials not to file documents with the U.S. Securities and Exchange Commission that would divulge details.  “They’d tell us that they don’t think that this or that should be disclosed,” the executive says. “They’d say, ‘Don’t you think your counterparties will be concerned?’ It was much more about protecting the Fed.”

‘An Outrage’

Friedman’s role remains controversial. In December 2008, weeks after the payments to the banks were authorized in November, Friedman bought 37,300 shares of Goldman stock at $80.78 a share, according to SEC filings. On Jan. 22, he bought 15,300 more at $66.61.  Both purchases took place before the payments to Goldman Sachs were publicly disclosed under pressure from Senator Dodd in March. On Oct. 26, Goldman Sachs stock closed at $179.37 a share, meaning Friedman had paper profits of $5.4 million.  

Jerry Jordan, former president of the Federal Reserve Bank of Cleveland, says Friedman should have resigned from the New York Fed as soon as it became clear that Goldman stood to benefit from its actions.   “It’s an outrage,” Jordan says. “He needed to either resign from the Fed board or from Goldman and proceed to sell his stock.”

Friedman remains a member of Goldman’s board and held a total of 98,600 shares of the firm’s stock as of Jan. 22.

Vickrey says that one reason the New York Fed should have insisted on discounted payments for AIG’s CDSs is that the banks likely had hedges against their insured CDOs or had already written down their value. On March 20, Goldman Sachs CFO David Viniar said in a conference call with investors that Goldman was protected.  “We limited our overall credit exposure to AIG through a combination of collateral and market hedges,” Viniar said. “There would have been no credit losses if AIG had failed.”

In any event, former St. Louis Fed President Poole says the entire process should have been public and transparent. “There should be a high bar against not disclosing,” Poole says. “The taxpayer has every right to understand in detail what happened.”

Read the rest of the article HERE

*******

So even Fed voting member and counterparty-negotiation apologist, William Poole decries the secrecy.  And he was likely not aware of the par-payment cover-up since Friedman and Geithner kept it all within the New York Fed family.

In any other time, a sitting Treasury Secretary who interceded on behalf of Wall Street to screw taxpayers out of tens of billions, would not be sitting long.  But Democrats control both the House and Senate, so there are no investiagtions (Issa's letter aside).  Traditional media is content not to rock the boat for President Banks Obama lest they be shunned by their peers, and ultimately, 99% of TV and print journalists don't understand the issues well enough to complain with any conviciton, especially against the merry backdrop of the Dow rising and their deflated 401ks beginning to show life.

It's the exact same set of circumstances that allowed Paulson to cram TARP down our throats last fall; Congressional members and the journalists who cover them are too ill-informed about finance to have confidence in taking a critical position against the rampant fear-mongering that ultimately got the bill passed (see this Kanjorski clip).

They fall prey to fear and weakly submit to duplicitous hyperbole (Paulson threatening martial law and blood in the streets), when they should instead be consulting with the objective, critical voices who foresaw the crisis and were prepared with alternative solutions when it finally came (Stiglitz said instead of TARP, create new banks).

Bank of America, Citigroup, Morgan Stanley Could Be Headed Toward Collapse

If events turn critical again and we face a repeat risk of the seizing up of financial markets as in the fall of 2008, the president will need to make a fateful decision. 

By Robert Kuttner, AlterNet
Posted on October 10, 2011

Over the past few weeks, President Obama has at last "pivoted," in the widely used term, from emphasizing deficit reduction to focusing on jobs and taxation of millionaires. Spontaneous protest has done what the organized left failed to do; it has made Wall Street the appropriate target of diffuse economic frustrations. The labor movement has added its weight and institutional skills to these protests, and even President Obama has had some kind words for them.

Fox News and the Republicans have been usefully flummoxed, since it is awfully hard to rise to the defense of the Wall Street banks that caused the financial collapse and to retain credibility with anyone, even the Tea Party base.

But here comes the next phase of the financial crisis, and it will test President Obama's leadership like nothing else. It will also make or break the faltering credibility of Treasury Secretary Tim Geithner.

In recent days, it has become clear that several large banks, most notably Bank of America, are teetering. Though the backlash against the giant bank's proposed five-dollar-a-month charge for debit cards has gotten the headlines, this is the least of its problems. The profits from this new charge would be chump change measured against the bank's chasms of losses, the legacy of its ill-advised purchases of Countrywide Financial and Merrill Lynch in 2008.

Worried investors have driven Bank of America stock down to the range of 5 to 6 dollars a share. Bank of America's books are still glutted with non-performing mortgage loans, and a grand solution to the mortgage crisis seems further away than ever.

Meanwhile, Citigroup and Morgan Stanley with their large holdings of Greek government bonds are also in some jeopardy, which adds to the general crisis of confidence. The Federal Reserve has been throwing "liquidity," otherwise known as nearly interest-free money, at the banks as necessary, to keep inter-bank markets from freezing up as they nearly did in 2008.

As recently as three weeks ago, at a "Delivering Alpha" financial conference, Geithner assured his audience that despite the European crisis American banks were in great shape:

Our financial system -- because of the actions we took early in the crisis -- is in a much stronger position to deal with these new risks than it was before this crisis. Much, much stronger position. Way ahead of the rest of the world in terms of making sure they have a stronger financial foundation to handle any type of shock.

This has been Geithner's strategy since the earliest days of the crisis: work with the Federal Reserve to throw money at the big banks, resist fundamental changes in their business model, and talk up their solvency even in the face of contrary evidence.

Given the proprietary data that Geithner surely sees as Treasury Secretary, he must know that these words are wishful at best and downright deceptive at worst. If his assurances turn out to be so much baloney, then Geithner, President Obama's re-election chances, and the economy could all be in big trouble.

The fact is that European banks are functioning only because the European Central Bank in spite of its reluctance has been flooding the system with liquidity, and at least one U.S bank -- Bank of America -- is barely solvent and heavily reliant on the Fed.

If events turn critical again and we face a repeat risk of the seizing up of financial markets as in the fall of 2008, the Obama administration's rhetorical populist turn will be of no use. The president will need to make a fateful decision.

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.

So now President Obama, if faced with a repeat crisis of large banks, may get a do-over.

In the spring of 2009, when the leading zombie bank was Citigroup, then chief economic adviser Larry Summers and Treasury Secretary Geithner took the position that they could not seize, clean out, and break up Citi because they lacked the legal authority or the tools to do it.

It's also clear from several accounts, including my own A Presidency in Peril and most recently Ron Suskind's new book Confidence Men that Summers and Geithner did not want to do it. According to Suskind, Obama himself wanted to break-up of Citi as his preferred option, and Geithner slow-walked the president until the issue was moot.

But the Dodd-Frank Act now gives the treasury secretary explicit authority to find that a large, systemically significant financial company is "in danger of default"; to designate the FDIC as receiver; and to seize, break up, and reorganize failing large banks. Though there is surely contingency planning for the collapse of a large bank, Geithner seems loathe to use his new authority.

So, consider three possible scenarios in coming days or weeks.

First scenario: the big banks, thanks to advances from the Federal Reserve, keep barely afloat. Geithner's credibility survives, but the real economy continues to be a shambles. This is not exactly auspicious, either for economically frustrated Americans or for an incumbent president facing re-election.

Second scenario: Investors keep fleeing Bank of America, the giant bank finds itself frozen out of short term lending markets as Lehman Brothers was, and the bank finally turns to the government for emergency aid. There is a new financial crisis in the headlines, and it falls in on President Obama and his Treasury Secretary, who was been reassuring everyone that all is well with the large banks.

Third scenario: President Obama decides to get other opinions besides Geithner's and to get out ahead of the crisis. If things turn critical, he directs his Treasury Secretary to seize the bank, as authorized by the Dodd-Frank Act. Obama tells the citizenry that the alternative was endless bailouts or a Lehman-style collapse (just imagine the right trying to defend either), and that this way those who caused the crisis will be appropriately removed from their suites and bonuses while the bank is returned to health so that the broad economy can prosper.

Serious consideration of this last approach would take much more of a "pivot" on Obama's part than we have seen to date. I recall, in reading biographies of Presidents Kennedy and Roosevelt, how both leaders sought multiple sources of advice. Kennedy would pick up the phone and speak to a relatively junior desk officer at the State Department to get his own information unfiltered by his gatekeepers. Roosevelt made sure he had direct access to multiple advisers who disagreed with each other. But Geithner has been astute at blocking access to the president for others who have different views, and Obama has been startlingly incurious and compliant. The man needs to get on the phone.

It also happens that Bank of America is headquartered in Charlotte, North Caroline, site of the 2012 Democratic National Convention, and the bank is expected to be one of the convention's top-tier corporate sponsors. Oh, my. Moving to resolve and break up the bank under Dodd-Frank, should it prove to be insolvent, would take uncharacteristic nerve.

In September 2008, the financial collapse fell in on George W. Bush and won the election for Barack Obama. A repeat collapse, if handled badly, would fall in squarely on Obama.

Populist rhetoric when angry people are in the streets demanding accountability for bankers is a start, but talk is cheap. If the banking mess turns critical again, we will see what this president has learned, and what he is made of.

The Men We Trusted to Lead Us

Thursday, September 29, 2011 by TruthDig.com

by Robert Scheer

 

Now he tells us. On Wednesday Federal Reserve Chairman Ben Bernanke referred to the nation’s unemployment rate as a “national crisis,” an obvious if depressing fact of life to the 25 million Americans who have been unsuccessfully attempting to find full-time employment. 

But to finally hear those words from the man George W. Bush and Barack Obama both appointed to lead us out of the great recession is a bracing reminder of how markedly the policies of both those presidents have failed: “We’ve had close to 10 percent unemployment now for a number of years, and of the people who are unemployed, about 45 percent have been unemployed for six months or more,” Bernanke said. “This is unheard of.”

But why is Bernanke just now discovering this after having overseen the Fed’s purchase of trillions in toxic mortgage-backed securities from the too-big-to-fail banks that sacrificed people’s homes in a giant Ponzi scheme? Why did he throw all of that money at the banks without getting anything back in the way of relief for the people the bankers swindled?

The housing meltdown, which has robbed Americans of a considerable portion of their net worth, has led to the continued depressed consumer confidence that is the prime cause of crisis-level unemployment. In another of his too-late-to-matter moments, Bernanke acknowledged that “strong housing policies to help the market recover” would “clearly be very useful,” but he failed to suggest any.

Bernanke, along with then-New York Fed President Timothy Geithner, helped implement the Bush strategy of saving the banks in the hope that their rising tide would lift our little boats. That remained the strategy when President Obama rewarded Geithner for having saved AIG and Citigroup by naming him treasury secretary in the incoming government.

With the Geithner appointment, and the even more disturbing selection of Lawrence Summers to be his top economic adviser, Obama sealed his own fate as president. By turning to those disciples of Clinton-era Treasury Secretary Robert Rubin, a prime enabler of Wall Street greed, the new president fatally betrayed his promise of hope.

If you still need confirmation of just how decisive a betrayal those appointments were, check out Ron Suskind’s new book, Confidence Men, a devastating insider account of the Obama White House that clearly identifies as the source of this president’s failure “Rubin’s B-Team,” Summers and Geithner, “two men whose actions had contributed to the very financial disaster they were hired to solve.” Suskind quotes then-Sen. Byron Dorgan, D-N.D., one of the few who dared stand up to the Wall Street lobbyists, as telling Obama, “I don’t understand how you could do this; you’ve picked the wrong people!”

Of course the Democrats from the Clinton era don’t bear all of the responsibility for the radical deregulation of the financial industry that ended the sensible restraints on greed installed by Franklin Roosevelt in response to the Great Depression. Indeed, the inspiration came from Republicans led by Phil Gramm, the then-senator from Texas who as head of the Banking Committee authored the legislation that Wall Street lobbyists had long pushed unsuccessfully.

The mayhem they wrought and the subsequent big-money rewards to Rubin and Gramm do not seem to have shocked this president or the leading contenders for the Republican presidential nomination. Rubin became chairman of Citigroup and was rewarded with $120 million while he guided the bank to the edge of bankruptcy. Gramm went to a leading position at the Swiss-based UBS, the continually troubled institution now in the midst of its latest scandal, involving fraudulent trading. In addition to a $45 billion direct TARP bailout, Citigroup got $99.5 billion, and Gramm’s UBS $77.2 billion from a $1.2 trillion secret Fed loan fund.

Gramm and Rubin were partners in what should be considered the crime of the century, speaking in moral and not legal terms since, as regards the financial world, the bad guys get to write the laws. Thanks to their efforts, which allowed the creation of the “too-big-to-fail banks” and a totally unregulated derivatives market in toxic home mortgage securities, we entered the Great Recession, but neither of its authors has ever been held seriously accountable for the enormous suffering he caused.

On the contrary, Gramm and Rubin’s “just free Wall Street to do its thing” ideology still dominates the economic policies of both major political parties. Rubin’s acolytes have controlled the Obama administration’s economic strategy of saving Wall Street by betraying Main Street, and Gramm, who recently endorsed his former student at Texas A&M, Rick Perry, for president, remains the free-market-mayhem guru for Republicans.

On Election Day, whoever wins, we lose.

George W. Obama? The Bush-Obama Presidency

The Saved and the Sacked
By DAVID BROMWICH

Is it too soon to speak of the Bush-Obama presidency?

The record shows impressive continuities between the two administrations, and nowhere more than in the policy of "force projection" in the Arab world. With one war half-ended in Iraq, but another doubled in size and stretching across borders in Afghanistan; with an expanded program of drone killings and black-ops assassinations, the latter glorified in special ceremonies of thanksgiving (as they never were under Bush); with the number of prisoners at Guantanamo having decreased, but some now slated for permanent detention; with the repeated invocation of "state secrets" to protect the government from charges of war crimes; with the Patriot Act renewed and its most dubious provisions left intact -- the Bush-Obama presidency has sufficient self-coherence to be considered a historical entity with a life of its own.

The significance of this development has been veiled in recent mainstream coverage of the national security state and our larger and smaller wars. Back in 2005-2006, when the Iraqi insurgency refused to die down and what had been presented as "sectarian feuding" began to look like a war of national liberation against an occupying power, the American press exhibited an uncommon critical acuteness. But Washington's embrace of "the surge" in Iraq in 2007 took that war off the front page, and it -- along with the Afghan War -- has returned only occasionally in the four years since.

This disappearance suited the purposes of the long double-presidency. Keep the wars going but normalize them; make them normal by not talking about them much; by not talking about them imply that, while "victory" is not in sight, there is something else, an achievement more realistic and perhaps more grown-up, still available to the United States in the Greater Middle East. This other thing is never defined but has lately been given a name. They call it "success."

Meanwhile, back at home...

The usual turn from unsatisfying wars abroad to happier domestic conditions, however, no longer seems tenable. In these August days, Americans are rubbing their eyes, still wondering what has befallen us with the president's "debt deal" -- a shifting of tectonic plates beneath the economy of a sort Dick Cheney might have dreamed of, but which Barack Obama and the House Republicans together brought to fruition. A redistribution of wealth and power more than three decades in the making has now been carved into the system and given the stamp of permanence.

Only a Democratic president, and only one associated in the public mind (however wrongly) with the fortunes of the poor, could have accomplished such a reversal with such sickening completeness.

One of the last good times that President Obama enjoyed before the frenzy of debt negotiations began was a chuckle he shared with Jeff Immelt, former CEO of General Electric and now head of the president's outside panel of economic advisers. At a June 13th meeting of the president's Council on Jobs and Competitiveness, a questioner said he assumed that President Obama knew about the difficulties caused by the drawn-out process of securing permits for construction jobs. Obama leaned into the microphone and offered a breezy ad-lib: "Shovel ready wasn't as, uh, shovel-ready as we expected" -- and Immelt got off a hearty laugh. An unguarded moment: the president of "hope and change" signifying his solidarity with the big managers whose worldly irony he had adopted.

A certain mystery surrounds Obama's perpetuation of Bush's economic policies, in the absence of the reactionary class loyalty that accompanied them, and his expansion of Bush's war policies in the absence of the crude idea of the enemy and the spirited love of war that drove Bush. But the puzzle has grown tiresome, and the effects of the continuity matter more than its sources.

We knew the meaning of Bush, and the need for resistance was clear. Obama makes resistance harder. During a deep crisis, such a nominal leader, by his contradictory words and conduct and the force of his example (or rather the lack of force in his example), becomes a subtle disaster for all those whose hopes once rested with him.

The philosopher William James took as a motto for practical morality: "By their fruits shall ye know them, not by their roots."

Suppose we test the last two and a half years by the same sensible criterion. Translated into the language of presidential power -- the power of a president whose method was to field a "team of rivals" and "lead from behind" -- the motto must mean: by their appointments shall ye know them.

Let us examine Obama, then, by the standard of his cabinet members, advisers, and favored influences, and group them by the answers to two questions: Whom has he wanted to stay on longest, in order to profit from their solidity and bask in their influence? Which of them has he discarded fastest or been most eager to shed his association with? Think of them as the saved and the sacked. Obama's taste in associates at these extremes may tell us something about the moral and political personality in the middle.

The Saved

Advisers whom the president entrusted with power beyond expectation, and sought to keep in his administration for as long as he could prevail on them to stay:

1. Lawrence Summers: Obama's chief economic adviser, 2009-2010. As Bill Clinton's secretary of the treasury, 1999-2001, Summers arranged the repeal of the New Deal-era Glass-Steagall Act, which had separated the commercial banks -- holders of the savings of ordinary people -- from the speculative action of the brokerage houses and money firms. The aim of Glass-Steagall was to protect citizens and the economy from a financial bubble and collapse. Demolition of that wall between savings and finance was a large cause of the 2008 meltdown. In the late 1990s, Summers had also pressed for the deregulation of complex derivatives -- a dream fully realized under Bush. In the first years of the Obama era, with the ear of the president, he commandeered the bank bailouts and advised against major programs for job creation. He won, and we are living with the results.

In 2009-2010, the critical accessory to Summers's power was Timothy Geithner, Obama's treasury secretary. Most likely, Geithner was picked for his position by the combined recommendations of Summers and Bush's Treasury Secretary Hank Paulson. The latter once described Geithner as "a very unusually talented young man," and worked with him closely in 2008 when he was still president of the New York Fed. At that time, he concurred with Paulson on the wisdom of bailing out the insurance giant AIG and not rescuing Lehman Brothers. Obama for his part initiated several phone consultations with Paulson during the 2008 campaign -- often holding his plane on the tarmac to talk and listen. This chain is unbroken. Any tremors in the president's closed world caused by Summers's early departure from the administration have undoubtedly been offset by Geithner's recent reassurance that he will stay at the Treasury beyond 2011.

Postscript: In 2011, Summers has become more reformist than Obama. On The Charlie Rose Show on July 13th, he criticized the president's dilatoriness in mounting a program to create jobs. Thus he urged the partial abandonment of his own policy, which Obama continues to defend.

2. Robert Gates: A member of the permanent establishment in Washington, Gates raised to the third power the distinction of massive continuity: First as CIA director under George H.W. Bush, second as secretary of defense under George W. Bush, and third as Obama's secretary of defense. He remained for 28 months and departed against the wishes of the president. Gates sided with General David Petraeus and Chairman of the Joint Chiefs of Staff Admiral Mike Mullen in 2009 to promote a massive (called "moderate") escalation of the Afghan War; yet he did so without rancor or posturing -- a style Obama trusted and in the company of which he did not mind losing. In the Bush years, Gates was certainly a moderate in relation to the extravagant war aims of Vice President Dick Cheney, Secretary of Defense Donald Rumsfeld, and their neoconservative circle. He worked to strengthen U.S. militarism through an ethic of bureaucratic normalization.

His approach has been endorsed and will be continued -- though probably with less canniness -- by his successor Leon Panetta. Without a career in security to fortify his confidence, Panetta is really a member of a different species: the adaptable choice for "running things" -- without regard to the nature of the thing or the competence required. Best known as the chief of staff who reduced to a semblance of order the confusion of the Clinton White House, he is associated in the public mind with no set of views or policies.

3. Rahm Emanuel: As Obama's White House chief of staff, Emanuel performed much of the hands-on work of legislative bargaining that President Obama himself preferred not to engage in. (Vice President Joe Biden also regularly took on this role.) He thereby incurred a cheerless gratitude, but he is a man willing to be disliked. Obama seems to have held Emanuel's ability in awe; and such was his power that nothing but the chance of becoming mayor of Chicago would have plucked him from the White House. Emanuel is credited, rightly or not, with the Democratic congressional victory of 2006, and one fact about that success, which was never hidden, has been too quickly forgotten. Rahm Emanuel took pains to weed out anti-war candidates.

Obama would have known this, and admired the man who carried it off. Whether Emanuel pursued a similar strategy in the 2010 midterm elections has never been seriously discussed. The fact that the category "anti-war Democrat" hardly exists in 2011 is, however, an achievement jointly creditable to Emanuel and the president.

4. Cass Sunstein: Widely thought to be the president's most powerful legal adviser. Sunstein defended and may have advised Obama on his breach of his 2008 promise (as senator) to filibuster any new law that awarded amnesty to the telecoms that illegally spied on Americans. This was Obama's first major reversal in the 2008 presidential campaign: he had previously defended the integrity of the Foreign Surveillance Intelligence Act against the secret encroachment of the National Security Agency (NSA).

At that moment, Obama changed from an accuser to a conditional apologist for the surveillance of Americans: the secret policy advocated by Dick Cheney, approved by President Bush, executed by NSA Director Michael Hayden, and supplied with a rationale by Cheney's legal counsel David Addington. In his awkward public defense of the switch, Obama suggested that scrutiny of telecom records and their uses by the inspectors general in the relevant agencies and departments should be enough to restore the rule of law.

When it comes to national security policy, Sunstein is a particularly strong example of Bush-Obama continuity. Though sometimes identified as a liberal, from early on he defended the expansion of the national security state under Cheney's Office of the Vice President, and he praised the firm restraint with which the Ashcroft Justice Department shouldered its responsibilities. "By historical standards," he wrote in the fall of 2004, "the Bush administration has acted with considerable restraint and with commendable respect for political liberty. It has not attempted to restrict speech or the democratic process in any way. The much-reviled and poorly understood Patriot Act, at least as administered, has done little to restrict civil liberty as it stood before its enactment." This seems to have become Obama's view.

Charity toward the framers of the Patriot Act has, in the Obama administration, been accompanied by a consistent refusal to initiate or support legal action against the "torture lawyers." Sunstein described the Bush Justice Department memos by John Yoo and Jay Bybee, which defended the use of the water torture and other extreme methods, in words that stopped short of legal condemnation: "It's egregiously bad. It's very low level, it's very weak, embarrassingly weak, just short of reckless." Bad lawyering: a professional fault but not an actionable offense.

The Obama policy of declining to hold any high official or even CIA interrogators accountable for violations of the law by the preceding administration would likely not have survived opposition by Sunstein. A promise not to prosecute, however, has been implicit in the findings by the Obama Justice Department -- a promise that was made explicit by Leon Panetta in February 2009 when he had just been named President Obama's new director of the CIA.

As head of the president's Office of Information and Regulatory Affairs, with an office in the White House, Sunstein adjudicates government policy on issues of worker and consumer safety; yet his title suggests a claim of authority on issues such as the data-mining of information about American citizens and the government's deployment of a state secrets privilege. He deserves wider attention, too, for his 2008 proposal that the government "cognitively infiltrate" discussion groups on-line and in neighborhoods, paying covert agents to monitor and, if possible, discredit lines of argument which the government judges to be extreme or misleading.

5. Eric Holder: Holder once said that the trial of suspected 9/11 "mastermind" Khalid Sheikh Mohammed in a New York City courtroom would be "the defining event of my time as attorney general." The decision to make KSM's a civilian trial was, however, scuttled, thanks to incompetent management at the White House: neither the first nor last failure of its kind. The policy of trying suspected terrorists in civilian courts seems to have suffered from never being wholeheartedly embraced by the administration's inside actors. Local resistance by the New York authorities was the ostensible reason for the failure and the change of venue back to a military tribunal at Guantanamo. No member of the administration besides Holder has been observed to show much regret.

During his 30-month tenure, in keeping with Obama's willingness to overlook the unpleasant history of CIA renditions and "extreme interrogations," Holder has made no move to prosecute any upper-level official of any of the big banks and money firms responsible for the financial collapse of 2008. His silence on the subject has been taken as a signal that such prosecutions will never occur. To judge by public statements, the energies of the attorney general, in an administration that arrived under the banner of bringing "sunshine" and "transparency" to Washington, have mainly been dedicated to the prosecution of government whistle-blowers through a uniquely rigorous application of the Espionage Act of 1917. More people have been accused under that law by this attorney general than in the entire preceding 93 years of the law's existence.

Again, this is a focus that Bush-era attorney generals John Ashcroft, Alberto Gonzales, and Michael Mukasey might have relished, but on which none would have dared to act on so boldly. Extraordinary delays in grand jury proceedings on Army Private Bradley Manning, suspected of providing government secrets to WikiLeaks, and Julian Assange, who ran that website, are said to have come from a protracted attempt to secure a legal hold against one or both potential defendants within the limits of a barbarous and almost dormant law.

6. Dennis Ross: Earlier in his career, Obama seems to have cherished an interest in the creation of an independent Palestinian state. In Chicago, he was a friend of the dissident Middle East scholar Rashid Khalidi; during his 2007 primary campaign, he sought and received advice from Robert Malley, former special assistant to President Clinton for Arab-Israeli affairs, and Zbigniew Brzezinski, former national security adviser to President Jimmy Carter. Both were "realist" opponents of the expansionist policy of Israel's right-wing coalition government, which subsidizes and affords military protection to Jewish settlements on the occupied West Bank.

Under pressure from the Israel lobby, however, Obama dissociated himself from all three chosen advisers.

Ross, as surely as Gates, is a member of Washington's permanent establishment. Recruited for the Carter Defense Department by Paul Wolfowitz, he started out as a Soviet specialist, but his expertise migrated with a commission to undertake a Limited Contingency Study on the need for American defense of the Persian Gulf. An American negotiator at the 2000 Camp David summit, Ross was accused of being an unfair broker, having always "started from the Israeli bottom line."

He entered the Obama administration as a special adviser to Hillary Clinton on the Persian Gulf, but was moved into the White House on June 25, 2009, and outfitted with an elaborate title and comprehensive duties: Special Assistant to the President and Senior Director for the Central Region, including all of the Middle East and the Persian Gulf, Afghanistan, Pakistan and South Asia. Ross has cautioned Obama to be "sensitive" to domestic Israeli concerns.

In retrospect, his installation in the White House looks like the first step in a pattern of concessions to Israeli Prime Minister Benjamin Netanyahu that undid Obama's hopes for an agreement in the region. Here, caution precluded all inventiveness. It could have been predicted that the ascendancy of Ross would render void the two-state solution Obama anticipated in his carefully prepared and broadly advertised speech to the Arab world from Cairo University in June 2009.

7. Peter Orzag: Director of the Office of Management and Budget from January 2009 to August 2010, Orzag was charged with bringing in the big health insurers to lay out what it would take for them to support the president's health-care law. In this way, Orzag -- along with the companies -- exerted a decisive influence on the final shape of the Patient Protection and Affordable Care Act of 2010. In January 2011, he left the administration to become vice chairman of global banking at Citigroup. A few days out of the White House, he published an op-ed in the New York Times advising the president to extend the Bush-era tax cuts for the top 2% of Americans -- adding that Obama should indicate that the cuts would continue in force only through 2012. Obama took the advice.

8. Thomas Donilon: National Security Adviser and (after the departure of Gates) Obama's closest consultant on foreign policy. Donilon supported the 34,000 troop-escalation order that followed the president's inconclusive 2009 Afghanistan War review. He encouraged and warmly applauded Obama's non-binding "final orders" on Afghanistan, which all the participants in the 2009 review were asked formally to approve. (The final orders speak of "a prioritized comprehensive approach" by which the U.S. will "work with [Afghan President Hamid] Karzai when we can" to set "the conditions for an accelerated transition," to bring about "effective sub-national governance," and to "transfer" the responsibility for fighting the war while continuing to "degrade" enemy forces.)

Donilon comes from the worlds of business, the law, and government in about equal measure: a versatile career spanning many orthodoxies. His open and unreserved admiration for President Obama seems to have counted more heavily in his appointment than the low opinion of his qualifications apparently held by several associates. As Assistant Secretary of State for Public Affairs during the Clinton administration, he helped arrange the eastward expansion of NATO after the Cold War: perhaps the most pointless and destructive bipartisan project of the epoch. He was Executive Vice President for Law and Policy at Fannie Mae, 1999-2005.

The Sacked

Advisers and nominees with views that were in line with Obama's 2008 election campaign or his professed goals in 2009, but who have since been fired, asked to resign or step down, or seen their nominations dropped:

1. General James Jones: Former Marine Corps Commandant and a skeptic of the Afghanistan escalation, Jones became the president's first National Security Adviser. He was, however, often denied meetings with Obama, who seems to have looked on Gates as a superior technocrat, Petraeus as a more prestigious officer, and Donilon as a more fervent believer in the split-the-difference war and diplomatic policies Obama elected to pursue. Jones resigned in October 2010, under pressure.

A curious point: Obama had spoken to Jones only twice before appointing him to so high a post and seems hardly to have come to know him by the time he resigned.

2. Karl Eikenberry: Commander of Combined Forces in Afghanistan before he was made ambassador, Eikenberry, a retired Lieutenant General, had seniority over both Petraeus and then war commander General Stanley McChrystal when it came to experience in that country and theater of war. He was the author of cables to the State Department in late 2009, which carried a stinging rebuke to the conduct of the war and unconcealed hostility toward any new policy of escalation. The Eikenberry cables were drafted in order to influence the White House review that fall; they advised that the Afghan war was in the process of being lost, that it could never be won, and that nothing good would come from an increased commitment of U.S. troops.

Petraeus, then Centcom commander, and McChrystal were both disturbed by the cables -- startled when they arrived unbidden and intimidated by their authority. Obama, astonishingly, chose to ignore them. This may be the single most baffling occasion of the many when fate dealt a winning card to the president and yet he folded. Among other such occasions: the 2008-2009 bank bailouts and the opening for financial regulation; the BP oil spill in the Gulf of Mexico and the opportunity for a revised environmental policy; the Fukushima nuclear plant meltdowns and a revised policy toward nuclear energy; the Goldstone Report and the chance for an end to the Gaza blockade. But of all these as well as other cases that might be mentioned, the Eikenberry cables offer the clearest instance of persisting in a discredited policy against the weight of impressive evidence.

Ambassador Eikenberry retired in 2011, and Obama replaced him with Ryan Crocker, the Foreign Service officer brought into Iraq by Bush to help General Petraeus manage the details and publicity around the Iraq surge of 2007-2008.

3. Paul Volcker: Head of the Federal Reserve under Presidents Carter and Reagan, Volker had a record (not necessarily common among upper-echelon workers in finance) entirely free of the reproach of venality. A steady adviser to the 2008 Obama campaign, he lent gravity to the young candidate's professions of competence in financial matters. He also counseled Obama against the one-sidedness of a recovery policy founded on repayment guarantees to financial outfits such as Citigroup and Bank of America: the policy, that is, favored by Summers and Geithner in preference to massive job creation and a major investment in infrastructure. "If you want to be a bank," he said, "follow the bank rules. If Goldman Sachs and the others want to do proprietary trading, then they shouldn't be banks." His advice -- to tighten regulation in order to curb speculative trading -- was adopted late and in diluted form. In January 2010, Jeff Immelt, CEO of General Electric, which paid no federal taxes that year, replaced him.

4. Dennis Blair: As Director of National Intelligence, Blair sought to limit the expansion of covert operations by the CIA. In this quest he was defeated by CIA Director Leon Panetta -- a seasoned infighter, though without any experience in intelligence, who successfully enlarged the Agency's prerogatives and limited oversight of its activities during his tenure. Blair refused to resign when Obama asked him to, and demanded to be fired. He finally stepped down on May 21, 2010.

Doubtless Blair hurt his prospects irreparably by making clear to the president his skepticism regarding the usefulness of drone warfare: a form of killing Obama favors as the most politic and antiseptic available to the U.S. Since being sacked, Blair has come out publicly against the broad use of drones in Pakistan and elsewhere.

On his way out, he was retrospectively made a scapegoat for the November 2009 Fort Hood, Texas, killing spree by Army psychiatrist Major Nidal Hasan; for the "underwear" bomber's attempt to blow up a plane on its way to Detroit on Christmas day 2009; and for the failed Times Square car bombing of May 2010 -- all attacks (it was implied) that Blair should have found the missing key to avert, even though the Army, the FBI, and the CIA were unable to do so.

5. James Cartwright: As vice-chairman of the Joint Chiefs of Staff, General Cartwright passed on to Obama, and interpreted for him, a good deal of information that proved useful in the Afghanistan War review. Their friendship outlasted the process and he came to be known as Obama's "favorite general," but Cartwright stirred the resentment from both Petraeus and Mullen for establishing a separate channel of influence with the president. Like Eikenberry, he had been a skeptic on the question of further escalation in Afghanistan. His name was floated by the White House as the front-runner to become chairman of the Joint Chiefs after the retirement of Mullen. Informed of the military opposition to the appointment, Obama reversed field and chose Army Chief of Staff General Martin Dempsey, a figure more agreeable to Petraeus and Mullen.

6. Dawn Johnsen: Obama's first choice to head the Office of Legal Council, a choice generally praised and closely watched by constitutional lawyers and civil libertarians. Her name was withdrawn after a 14-month wait, and she was denied a confirmation process. The cause: Republican objections to her writings and her public statements against the practice of torture and legal justifications for torture.

This reversal falls in with a larger pattern: the putting forward of candidates for government positions whose views are straightforward, publicly available, and consistent with the pre-2009 principles of Barack Obama -- followed by Obama's withdrawal of support for the same candidates. A more recent instance was the naming (after considerable delay) of Elizabeth Warren as a special advisor to organize the Consumer Financial Protection Bureau, followed by the decision in July not to nominate her as the first director of the bureau.

Avoidance of a drag-out fight in confirmation hearings repeatedly seems to be the recurrent motive here. Of course, the advantage of such a fight, given an articulate and willing nominee, is the education of public opinion. But in every possible instance, President Obama has been averse to any public engagement in the clash of ideas. "Bottom line is that it was going to be close," a Senate Democratic source told ABC's Jake Tapper when Johnsen's name was withdrawn. "If they wanted to, the White House could have pushed for a vote. But they didn't want to 'cause they didn't have the stomach for the debate."

Where the nomination of an "extreme" candidate might have hardened the impression of Obama as an extremist, might not a public hearing have helped eradicate the very preconception that a frightened withdrawal tends to confirm? This question is not asked.

7. Greg Craig: For two years special counsel in the Clinton White House, he led the team defending the president in the impeachment proceedings in Congress. Craig's declaration of support for Obama in March 2007 was vital to the insurgent candidate, because of his well-known loyalty to the Clintons. Obama made him White House Counsel, and his initial task was to draw up plans for the closing of Guantanamo, a promise made by the president on his first day in the Oval Office. But once the paper was signed, Obama showed little interest in the developing plans. Others were more passionate. Dick Cheney worked on a susceptible populace to resurrect old fears. The forces against closure rallied and spread panic, while the president said nothing. Craig was defeated inside the White House by the "realist" Rahm Emanuel, and sacked.

8. Carol Browner: A leading environmentalist in the Clinton administration, Browner was given a second shot by Obama as director of the White House Office of Energy and Climate Change Policy. She found her efforts thwarted within the administration as well as in Congress: in mid-2010 Obama decided that -- as a way to deal with global warming -- cap-and-trade legislation was a loser for the midterm elections. Pressure on Obama from the U.S. Chamber of Commerce to heed business interests served as a strong incitement in forcing Browner's resignation after the democratic "shellacking" in midterm elections, a result that his quiet abandonment of cap-and-trade had failed to prevent. The White House had no backup plan for addressing the disaster of global warming. After Browner's resignation in March 2011, her position was abolished. Since then, Obama has seldom spoken of global warming or climate change.

Moral and Political Limbo

The Obama presidency has been characterized by a refined sense of impossibility. A kind of suffocation sets in when a man of power floats carefully clear of all unorthodox stimuli and resorts to official comforters of the sort exemplified by Panetta. As the above partial list of the saved and the sacked shows, the president lives now in a world in which he is certain never to be told he is wrong when he happens to be on the wrong track. It is a world where the unconventionality of an opinion, or the existence of a possible majority against it somewhere, counts as prima facie evidence against its soundness.

So alternative ideas vanish -- along with the people who represent them. What, then, does President Obama imagine he is doing as he backs into one weak appointment after another, and purges all signs of thought and independence around him? We have a few dim clues.

A popular book on Abraham Lincoln, Team of Rivals, seems to have prompted Obama to suppose that Lincoln himself "led from behind" and was committed to bipartisanship not only as a tactic but as an always necessary means to the highest good of democracy. A more wishful conceit was never conceived; but Obama has talked of the book easily and often to support a "pragmatic" instinct for constant compromise that he believes himself to share with the American people and with Lincoln.

A larger hint may come from Obama's recently released National Strategy for Counterterrorism, where a sentence in the president's own voice asserts: "We face the world as it is, but we will also pursue a strategy for the world we seek." If the words "I face the world as it is" have a familiar sound, the reason is that they received a trial run in Obama's 2009 Nobel Prize speech. Those words were the bridge across which an ambivalent peacemaker walked to confront the heritage of Mahatma Gandhi and Martin Luther King with the realities of power as experienced by the leader of the only superpower in the world.

Indeed, Obama's understanding of international morality seems to be largely expressed by the proposition that "there's serious evil in the world" -- a truth he confided in 2007 to the New York Times conservative columnist David Brooks, and attributed to the theologian Reinhold Niebuhr -- combined with the assertion that he is ready to "face the world as it is." The world we seek is, of course, the better world of high morality. But morality, properly understood, is nothing but a framework for ideals. Once you have discharged your duty, by saying the right words for the right policies, you have to accommodate the world.


This has become the ethic of the Bush-Obama administration in a new phase. It explains, as nothing else does, Obama's enormous appetite for compromise, the growing conventionality of his choices of policy and person, and the legitimacy he has conferred on many radical innovations of the early Bush years by assenting to their logic and often widening their scope. They are, after all, the world as it is.

Obama's pragmatism comes down to a series of maxims that can be relied on to ratify the existing order -- any order, however recent its advent and however repulsive its effects. You must stay in power in order to go on "seeking." Therefore, in "the world as it is," you must requite evil with lesser evil. You do so to prevent your replacement by fanatics: people, for example, like those who invented the means you began by deploring but ended up adopting. Their difference from you is that they lack the vision of the seeker. Finally, in the world as it is, to retain your hold on power you must keep in place the sort of people who are normally found in places of power.