Presidents in governments are called to be leaders, which means advocating a vision of change from the status quo. Otherwise, they are merely administrators. So it would be counter-productive for a U.S. president to fill his administration with people financially invested in the status quo. Yet President Obama did just that, in spite of the fact that his rhetoric envisioned radical change in health insurance and still regulations on Wall Street to prevent another financial crisis. In short, he not only let the regulatees in the room, but also gave them important roles with power that would affect their respective industries.
For example, President Obama's chief of staff, William Daley, had been a top executive at JPMorgan Chase, where according to The New York Times, he was paid as much as $5 million a year and supervised the Washington lobbying efforts of the nation’s second-largest bank. Daley also served on the board of directors at Boeing, a large military contractor, and Abbott Laboratories, the global drug company, which had "billions of dollars at stake in the overhaul of the health care system." Although some argued that the White House needed someone on the inside who had the ear of business, the conflict of interest in having someone so tied to vested commercial interests decide on who gets into the Oval Office and determine the President's agenda ought to be troubling. Just one year earlier, a Wall Street reform bill had been passed that sidestepped the question of whether banks too big to fail should be allowed to exist and did nothing to address the fact that executive compensation had been so out of step with performance in the years leading up to the financial crisis. Also, the enacted health-care reform law, Obamacare, included a mandate and excluded a public option as per the interests of the heath insurance lobby. Even the appearance of a conflict of interest like this one is enough to spur us on to investigate it even though Obama's time in office has passed. That there were more blatant conflicts of interests in Obama's choice of appointees should raise even more of a red flag. Was he blind to them (unlikely), or did he intend to stay within the status quo in spite of his rhetoric against health insurance companies and investment banks? Put another way, if he really intended to offer an alternative to private insurance companies and constrain Wall Street firms in the wake of the financial crisis, putting corporate insiders in key offices would be counter-productive. Of course, he may have meant to hold back on his rhetoric, given all the financial inducements that the corporate sector could offer. Obama was much richer leaving office than he was when he entered the White House.
Larry Summers, whom Obama appointed as his chief economic advisor, had been instrumental in the Clinton Administration in keeping derivative securities from being regulated. How could Summers advise on a solution when he was against regulating the financial sector, at least where most needed (CDO's), and had actually played a role in causing the financial crisis? Simply in his choice of Summers, Obama sent a signal that he was a creature of the status quo (and its powerful adherents).
Timothy Geithner, whom Obama nominated to be Secretary of the Treasury, had been president of the New York Fed, a job that not even Geithner saw as regulating. The big banks had had a formal say in his assuming that role--Citigroup being his sponsor. It is no surprise that he played a major role in AIG paying Goldman Sacks dollar-for-dollar on the CDO swaps even though AIG was essentially on life-support with federal money. So he would be an unlikely pick for a president who wanted systemic change involving the relationship between the federal government and Wall Street. Mark Patterson, Geithner's chief of staff, had been a lobbyist for Goldman Sachs, and Lewis Sachs, a senior advisor at Treasury, had been head of Tricadia, which bet against the CDOs (mortgage-based derivatives) it was selling to clients.
William C. Dodley, President of the New York Federal Reserve after Geithner left to become Treasury Secretary, had praised financial derivatives (including sub-prime-mortgage-based) before the financial crisis and, not coincidentally, had also been the chief economist at Goldman Sachs.
Gary Ginsler, Obama's head of the Commodities Futures Trading Commission, had been an executive at Goldman Sachs. He had helped ban the regulation of financial derivatives, including those based on risky sub-prime mortgages.
Mary Shapero, Obama's head of the Securities and Exchange Commission (SEC) had been CEO of an investment banking self-regulation body. As a MBA student, I volunteered to help a professor with his research on NASD self-regulation. I was attracted by the application of systems theory to the notion of industry self-regulation. In hindsight, I was very naive concerning the propensity of a self-regulatory body to hold to the public good, rather than take the industry's own interest as a starting point and perhaps even devolve to enable a few bad participants with the self-regulatory body serving as a cloak. Even at the industry level, money talks; securitizing especially sub-prime mortgages was very profitable for investment banks through the first seven years of the twenty-first century.
Campaigning on September 29, 2008 in heat of the financial crisis, Obama said, "The era of greed and irresponsibility on Wall Street and in Washington have led us to a financial crisis." That is, "A lack of oversight in Washington and on Wall Street got us into this mess." Even so, as president he signed the Dodd-Frank Financial Reform Act, which in hindsight has been recognized as moderate at best, for it left the conflict of interest at rating agencies, executive compensation, and CPA firms largely entact. Obama resisted adding strings to the TARP federal funds for the big banks, such as restrictions on executive compensation and employee bonuses even though the E.U. enacted new restrictions. Furthermore, as of mid-2010, no financial firm or individuals therein had been prosecuted under Obama for fraud--not even Countrywide. In short, Obama as president fell well short of the "Real Change" mantra of his campaign. As one person observed at the time, Obama put together a Wall Street government. To think that real change could come from such a status-quo of appointees is so incredulous that Obama's very claim of real change could only be taken in hindsight as a false selling-point not unlike the traders at Goldman Sachs who were telling even good clients that the bonds based on sub-prime derivatives were safe even as the traders privately regarded them as "crap." Whether misleading the American people or good clients, the culprit is private advantage over public good via deceit.
In the case of Obama, I suspect the answer can be found in following the money. Goldman Sachs contributed $1 million to Obama's presidential campaign. Also, he was considerably richer after his two terms in office. I suspect that he had discovered that he could say one thing in public and do another thing in private. It may be that representative democracies are susceptible to becoming invisible plutocracies with a patina of democracy to satisfy the masses while the representatives and the business executives make out quite well working together.
Larry Summers, whom Obama appointed as his chief economic advisor, had been instrumental in the Clinton Administration in keeping derivative securities from being regulated. How could Summers advise on a solution when he was against regulating the financial sector, at least where most needed (CDO's), and had actually played a role in causing the financial crisis? Simply in his choice of Summers, Obama sent a signal that he was a creature of the status quo (and its powerful adherents).
Timothy Geithner, whom Obama nominated to be Secretary of the Treasury, had been president of the New York Fed, a job that not even Geithner saw as regulating. The big banks had had a formal say in his assuming that role--Citigroup being his sponsor. It is no surprise that he played a major role in AIG paying Goldman Sacks dollar-for-dollar on the CDO swaps even though AIG was essentially on life-support with federal money. So he would be an unlikely pick for a president who wanted systemic change involving the relationship between the federal government and Wall Street. Mark Patterson, Geithner's chief of staff, had been a lobbyist for Goldman Sachs, and Lewis Sachs, a senior advisor at Treasury, had been head of Tricadia, which bet against the CDOs (mortgage-based derivatives) it was selling to clients.
William C. Dodley, President of the New York Federal Reserve after Geithner left to become Treasury Secretary, had praised financial derivatives (including sub-prime-mortgage-based) before the financial crisis and, not coincidentally, had also been the chief economist at Goldman Sachs.
Gary Ginsler, Obama's head of the Commodities Futures Trading Commission, had been an executive at Goldman Sachs. He had helped ban the regulation of financial derivatives, including those based on risky sub-prime mortgages.
Mary Shapero, Obama's head of the Securities and Exchange Commission (SEC) had been CEO of an investment banking self-regulation body. As a MBA student, I volunteered to help a professor with his research on NASD self-regulation. I was attracted by the application of systems theory to the notion of industry self-regulation. In hindsight, I was very naive concerning the propensity of a self-regulatory body to hold to the public good, rather than take the industry's own interest as a starting point and perhaps even devolve to enable a few bad participants with the self-regulatory body serving as a cloak. Even at the industry level, money talks; securitizing especially sub-prime mortgages was very profitable for investment banks through the first seven years of the twenty-first century.
Campaigning on September 29, 2008 in heat of the financial crisis, Obama said, "The era of greed and irresponsibility on Wall Street and in Washington have led us to a financial crisis." That is, "A lack of oversight in Washington and on Wall Street got us into this mess." Even so, as president he signed the Dodd-Frank Financial Reform Act, which in hindsight has been recognized as moderate at best, for it left the conflict of interest at rating agencies, executive compensation, and CPA firms largely entact. Obama resisted adding strings to the TARP federal funds for the big banks, such as restrictions on executive compensation and employee bonuses even though the E.U. enacted new restrictions. Furthermore, as of mid-2010, no financial firm or individuals therein had been prosecuted under Obama for fraud--not even Countrywide. In short, Obama as president fell well short of the "Real Change" mantra of his campaign. As one person observed at the time, Obama put together a Wall Street government. To think that real change could come from such a status-quo of appointees is so incredulous that Obama's very claim of real change could only be taken in hindsight as a false selling-point not unlike the traders at Goldman Sachs who were telling even good clients that the bonds based on sub-prime derivatives were safe even as the traders privately regarded them as "crap." Whether misleading the American people or good clients, the culprit is private advantage over public good via deceit.
In the case of Obama, I suspect the answer can be found in following the money. Goldman Sachs contributed $1 million to Obama's presidential campaign. Also, he was considerably richer after his two terms in office. I suspect that he had discovered that he could say one thing in public and do another thing in private. It may be that representative democracies are susceptible to becoming invisible plutocracies with a patina of democracy to satisfy the masses while the representatives and the business executives make out quite well working together.
For more on institutional conflicts of interest, see Institutional Conflicts of Interest, available at Amazon.com
Eric Lipton, “Business Background Defines Chief of Staff,” The New York Times, January 6, 2011.
"Inside Job" (2010), Sony Pictures Classics.
"Inside Job" (2010), Sony Pictures Classics.
