President Obama and Goldman Sachs: A Quid Pro Quo?

Wall Street and the White House may be closer than the typical American thinks. One way this is accomplished is for a bank to contribute heavily to both presidential campaigns so as to be able to hedge political risk by getting ex-managers into strategic posts in the executive arm of the U.S. Government. This can be the case even when one of the candidates has campaigned on holding Wall Street accountable, such as after the financial crisis of 2008. There is the campaign slogan, and there is the political-economic reality underneath. 

U.S. President Obama nominated Timothy Geithner to be Secretary of the Treasury. While president of the New York Federal Reserve Bank, he had played a key role in forcing AIG to pay Goldman Sachs’ claims dollar for dollar. Geithner, as well as Henry Paulson, Goldman’s ex-CEO who was serving at the time as Secretary of the Treasury under President Bush, stopped AIG from the leverage in its bankrupt condition to pay claimants much less than full value, which would have been expected given AIG's plight. Once Geithner became Secretary of the Treasury under Obama, Geithner’s chief of staff was Mark Patterson, a former lobbyist for Goldman Sachs.

To head the Commodity Futures Trading Commission—the regulatory agency that Born had headed during the previous administration—Obama picked Gary Gensler, a former Goldman Sachs executive who had helped ban the regulation of derivatives in 1999. Born had pushed for the securities to be regulated, only to be bullied by Alan Greenspan (Chairman of the Federal Revere) and Larry Summers, whom Obama would have as his chief economic adviser. To head the SEC, Obama nominated Mary Shapiro, the former CEO of FINRA, the financial industry’s self-regulatory body.

In short, Obama stacked his financial appointees during his first term with people who had played a role in or at least benefited financially from financial bubble that came crashing down in September 2008. Put another way, Obama selected people who had taken down the barriers to spreading systemic risk to fix the problem. Why would he have done so? Could it have been part of the quid pro quo the president had agreed to when he accepted the $1 million campaign contribution from Goldman Sachs (the largest contribution to Obama in 2007)? Might Goldman’s executives have wanted to hedge their bets should the Democrat win? Unfortunately, getting Goldman alums in high positions of government would essentially make the U.S. Government a Wall Street Government—one that would be hampered in holding Wall Streeters accountable, even in terms of criminal prosecutions related to the financial crisis. It is no accident, we can conclude, that the spiraling economic inequality increased during the Democrat’s first term of office.

Source: Inside Job (2010), directed by Charles Ferguson

Big Bankers and the U.S. Government: A Coalition Circumventing Accountability on Wall Street

It is interesting that the U.S. Department of Justice did not pursue the fraudulent bankers on Wall Street not only during the Bush presidency, but also the following presidency, that of Barak Obama.  Not coincidentally, Goldman Sachs was the single biggest campaign contributor to Obama’s 2008 candidacy for president. It would seem that Wall Street had both political parties in a net by the time of the financial crisis in September, 2008. A sector of the economy being able to control both major parties is bad for not only industrial policy (i.e., favoritism), but also democracy. In short, a government should have enough strength to constrain a business sector, rather than being subject to it. The latter condition implies continued vulnerability should greed again get ahead of itself on Wall Street. By nature, greed, if allowed to go on running on its own steam, accumulates more and more momentum. 

The New York Times reported in 2011, “legal experts point to numerous questionable activities where criminal probes might have borne fruit and possibly still could. Investigators, they argue, could look more deeply at the failure of executives to fully disclose the scope of the risks on their books during the mortgage mania, or the amounts of questionable loans they bundled into securities sold to investors that soured. Prosecutors also could pursue evidence that executives knowingly awarded bonuses to themselves and colleagues based on overly optimistic valuations of mortgage assets — in effect, creating illusory profits that were wiped out by subsequent losses on the same assets. And they might also investigate whether executives cashed in shares based on inside information, or misled regulators and their own boards about looming problems. Merrill Lynch, for example, understated its risky mortgage holdings by hundreds of billions of dollars. And public comments made by Angelo R. Mozilo, the chief executive of Countrywide Financial, praising his mortgage company’s practices were at odds with derisive statements  he made privately in e-mails as he sold shares; the stock subsequently fell sharply as the company’s losses became known. Executives at Lehman Brothers assured investors in the summer of 2008 that the company’s financial position was sound, even though they appeared to have counted as assets certain holdings pledged by Lehman to other companies, according to a person briefed on that case. At Bear Sterns, the first major Wall Street player to collapse, a private litigant says evidence shows that the firm’s executives may have pocketed revenues that should have gone to investors to offset losses when complex mortgage securities soured.”[1]  David Skeel, a law instructor at the University of Pennsylvania, remarked, “It’s consistent with what many people were worried about during the crisis, that different rules would be applied to different players. It goes to the whole perception that Wall Street was taken care of, and Main Street was not.”[2]

Elliot Spitzer, the Attorney General of New York, was preparing to go after some big bankers until he stopped when a lawyer at the U.S. Department of Justice (DOJ) told him to back off because the department would be moving against the bankers. However, it did no such thing; the DOJ would not in fact "move" against the bankers. So it is suspicious; the lie may have been fabricated in Washington, D.C. to protect the bankers. If so, elected representatives including the president who had received sizable campaign contributions from the bankers themselves or their banks would be prime suspects. To suggest that an elected official would not protect a major contributor is like asking water to go up hill.  The subterfuge used by the DOJ at the time was that if the department went after the bankers, the banks themselves, which were too big to fail without taking the financial sector and even the economy with them, would become too unstable.
Incredibly, not only did the bankers not get punished; the banks got bailouts, which the bankers could use to pay themselves bonuses! This included bonuses at Goldman Sachs for selling "crap" (i.e., the subprime-mortgage-based bonds) to even good clients and of course lying about how solid the bonds actually were. 

Bank regulators, who can be "captured" by regulatees not only due to reliance on information from them, but also political pressure from the regulatees' political protectors in Congress and the White House, may have played a role too. According to The New York Times, bank regulators referred 1,837 cases to the Justice Department in 1995. In 2007-2010, an average of only 72 a year was referred for criminal prosecution.  “The Office of Thrift Supervision was in a particularly good position to help guide possible prosecutions.” From the summer of 2007 to the end of 2008, O.T.S.-overseen banks with $355 billion in assets failed. The thrift supervisor, however, did not refer a single case to the Justice Department between 2000 and 2010. The Office of the Comptroller of the Currency, a unit of the Treasury Department, referred only three in that decade.[3]

The relationship between the head of Thrift Supervision and the CEO of Countrywide is particularly revealing.  In March 2007, Countrywide was regulated exclusively by the regulatory agency. That agency was overseen at the time by John M. Reich, a former banker and Senate staff member appointed in 2005 by President George W. Bush. Reich was on all for deregulation. Robert Gnaizda, a former general counsel at the Greenlining Institute, a nonprofit consumer organization in Oakland, Calif., said he had spoken often with Reich about Countrywide’s reckless lending. Gnaizda says that when he suggested to Reich how he could build a case against Mozilo, the CEO of Countrywide, Reich “was uninterested. He told me he was a good friend of Mozilo’s.”[4] Reich subsequently refuted that the two were friends. “I met with Mr. Mozilo only a few times," Reich insisted, "always in a business environment, and any insinuation of a personal friendship is simply false.”[5] Even a few business meetings can be sufficient and the same ideology can be sufficient, however, to bend the ear of a regulator. Besides, Reich had reason after the financial crisis to deny any friendship with a man largely discredited due to the mortgage-producing antics at Countrywide. Mozilo’s flush fingers may have stretched as far as the chairman of the Financial Crisis Inquiry Commission, Phil Angelides. The New York Times reported in 2011 that he had told two deputies that Mozilo and Countrywide were off limits, though Angelides subsequently denied having made the statement. Instead, he pointed instead to the Republican opposition to hearings on Countrywide in Congress.

I suspect that whether of the deregulation crowd or Democratic, both parties, being of part and parcel of the establishment, had by the financial crisis of 2008 become too close to the vested interests on Wall Street to effectively regulate its banks and bankers, and thus to be in a position to investigate cases of regulatory failure. In other words, when the necessary relationship between financiers and regulators breaks down, accountability does as well. Without the regulators and DOJ being able to constrain excessive greed by holding the people in the financial sector accountable, continued vulnerability to the financial system collapsing as it almost did in September, 2008 can be expected even if it is ignored.  

See Essays on the Financial Crisis: Systemic Greed and Arrogant Stupidity, available at Amazon.

1. Gretchen Morgenson and Louise Story, “In Financial Crisis, No Prosecutions of Top Figures,” The New York Times, April 14, 2011.

2. Ibid.

3. Ibid.

4. Ibid.

5. Ibid.

Was U.S. President Obama the Antichrist?

In the twentieth century, Christian apocalypticism thought it saw the end of days in the midst of baleful signs, including historical biblical criticism, the return of the Jews to the Holy Land, evolutionary science, and the United Nations. In the United States, the consolidation of power in the federal government at the expense of federalism (and, theoretically, liberty as well) was apocalyptically taken as a precursor to the end. According to Matt Sutton, “As the government grew in response to industrialization, fundamentalists concluded that the rapture was approaching.” The trajectory, in other words, was viewed as headed toward a global super-state under the thumb of a seemingly benevolent ruler. Franklin D. Roosevelt’s “consolidation of power across more than three terms in the White House, his efforts to undermine the autonomy of the Supreme Court, his dream of a global United Nations and especially his rapid expansion of the government confirmed what many fundamentalists had feared: the United States was lining up with Europe in preparation for a new world dictator. This “leader would ultimately prove to be the Antichrist, who, after the so-called rapture of true saints to heaven, would lead humanity through a great tribulation culminating in the second coming and Armageddon.”

Thanks to Obamacare and the Dodd-Frank financial regulation law of 2010, some of the anti-state apocalyptic voters viewed Barak Obama during his first few years as president as possibly being the antichrist. Questions about Obama’s birth only fueled the speculation. According to Sutton, the “specious theories about his place of birth, his internationalist tendencies, his measured support for Israel and his Nobel Peace Prize fit their long-held expectations about the Antichrist. So does his commitment to expanding the reach of government in areas like health care. In 2008, the campaign of Senator John McCain, the Republican nominee, presciently tapped into evangelicals’ apocalyptic fears by producing an ad, ‘The One,’ that sarcastically heralded Mr. Obama as a messiah.” On the Fox News network, one host regularly referred to Obama as “the anointed one.” This reference was not lost on evangelical apocalyptic voters.  

Analysis:

The sheer paradigmatic distance between twenty-first century secularists and evangelical apocalyptics may go a long way in explaining the blockages between the U.S. House Republicans and the U.S. Senate Democrats (and the president). In other words, the voters represented by the two parties are not only on different pages—the two groups are reading different books. Indeed, beyond having radically different theological assumptions and beliefs, the two groups may differ even on whether religion is legitimate. For example, a modernist secular voter might characterize the apocalyptics as superstitious. The voter could point to the failure of the world to end in the twentieth century in spite of all the signs of the impending rapture and period of tribulation. Indeed, “the sky is falling” Christian reading goes back to the pre-Constantine persecutions. 

In spite of the problems with the apocalyptic interpretation (which seems to have been applied in any decadent or disruptive period in the history of Christianity), definite trends can be identified, such as the U.S. Government’s increase of power at the expense of the several states. Furthermore, increasing global interdependence—such as in regard to health, nuclear weapons, and climate—has indeed increased pressure on politicians to increase the power of the U.N. The proliferation of empire-scale federal unions beyond that of the U.S.—as evinced by the E.U. and even the A.U.—can also be viewed as a trend toward globalized governance (i.e., a federation of regional federations, which themselves are made up of kingdom-level states).

How such trends are interpreted is what triggers the gulf between the apocalyptics and the secularists (and even the mainline churches). My main point is that political intransience can be expected with such divergent views of social reality and its basis. For instance, does society (and government) result from a social contract (e.g. Hobbes, Locke, Kant) or a divine decree (e.g., Augustine and Aquinas)? Is increasing statism a sign of the Antichrist or simply a response to problems of industrialization? The interpretations go beyond whether the trends are good or bad. Accordingly, discourse itself can be expected to be extremely difficult. It is not, however, impossible, and solutions are possible.

For example, federalism can accommodate such divergent views as long as the federal units have enough autonomy from the general government. The E.U. is in a better condition in this respect than is the U.S., though the European Union risks dissolution (e.g., the state debt crisis) because the E.U. Government does not have enough competencies to effectively manage the integration already accomplished.  However, federalism should not be viewed as a panacea. It is possible that the fundamentally disparate differences between the apocalyptics and the secularists regarding the role of government are such that political separation is the only suitable solution. This may be why Texas under Rick Perry flirted with succession in Obama’s early years. In any case, as difficult as discourse between the representatives of the two groups may be, being in political union demands tolerance and discussion, which in turn require humility (including a recognition that one can be wrong). Yet even here, Biblical inerrancy throws in a wrench, making discourse tortuous for both sides.

The distance between the parties is indeed formidable and perhaps even intractable. Even deciding whether to separate would be daunting. A union containing a very deep cleft is thus what we Americans suffer to manage amid political paralysis, finger-pointing, and shouting. God must surely be diverting his eyes in utter disgust and ultimately sadness—not about the signs or trends necessarily, but, rather, concerning the sheer anger being evinced in such tight quarters. Were there any adults willing to come to the fore, a secular voter might lightheartedly proffer in generosity, God shines His light on this city on a hill. Otherwise, we are together in quite another place.

Source:

Matthew A. Sutton, “Why the Antichrist Matters in Politics,” The New York Times, September 25, 2011. 

Obama's Meeting with Culpable Top Bankers

When he was running for US President, Barak Obama said that the financial crisis provided an opportunity for financial system reform beyond that which is in the interest of the big banks because the power of the latter is temporarily eclipsed and the US Government can take advantage of that.  His assumption is that during normal times, the banking industry essentially owns the Congress (Sen Dick Durbin’s statement just after the banking lobby defeated a foreclosure bill in the US Senate in 2009).  Sadly, the government did not use the eclipse; rather, it has been using the appearance of power and direction in the relumed post-crisis period to engage in window-dressing to assuage populist anger at the banks.

 Asserting that it “is among the strongest banks in the industry,” Citigroup announced in December, 2009 that it would soon repay $20 billion of federal bailout money. This from a bank that was in the red for most of the preceding two years, that was expected to limp through 2010 amid a torrent of loan losses, that saw its stock price close after the announcement at a measly $3.70 a share — and that, like other big banks, was still reluctant to lend. Citigroup’s planned exit from the bailout — like Bank of America’s earlier this month — would be welcome if the banks were the picture of health. But their main motive was to get out from under the bailout’s pay caps and other restraints. Perhaps the bankers were motivated to attract talent;  perhaps they were acting in their personal financial interests.  The Treasury Department’s approval was a grim reminder of the political power of the banks, even as the economy they did so much to damage continued at the time to struggle and the banks have benefited from taxpayer money.

Big bank profits, for instance, still came mostly courtesy of taxpayers. Their trading earnings were financed by more than a trillion dollars’ worth of cheap loans from the Federal Reserve, for which some of their most noxious assets were collateral. They benefitted from immense federal loan guarantees, but they were not lending much. Lending to business, notably, was very tight.  Barak Obama’s “urging” the banks to lend more to small business was not apt to be taken seriously by the big banks, given their financial power.   To exort banks to be good “corporate citizens” is only to twist “citzen” beyond its pale.

Let’s be clear. Organizations are not citizens.  For one thing, they can’t vote.  Exxon can’t mail in its ballot for president.  Nor can it be drafted to fight (rather, it can receive military contracts; its lobby knows how to procure those).  Moreover, they are designed (real citizens are not “designed”) to retain income without limit.  Extrinsic normative claims on the organizational machines do not register in the corporate calculus unless there is a financial cost.

Being called to the “woodshed” at a White House meeting is mere political theatre—something the bankers who bothered to attend in person must have known was something merely to sit through.  Some of the biggest recipients of taxpayers’ money, including Citigroup and Goldman Sachs, didn’t even bother making the extra effort to get there ahead of time to avoid the predictable winter weather that grounded their flights.  The acela train from NYC was running on time, yet the CEOs cited flight delays as making it impossible for them to attend in person.  Perhaps the CEOs correctly determined that Barak Obama’s meeting was mere political theatre.  The banking lobby was surely not being distracted from the financial reform legislation making its way through Congress.  That lobby has gained significant loopholes in the House’s passed bill (see my post on the House bill).  Aside from the loopholes (such as derivatives still not subject to regulation!), the apparently “strong” provisions of that bill are vulnerable to being gamed. The Senate, which is unlikely to pass its version of the deal until next year, should explore more direct measures, like banning banks beyond a certain size, measured by their liabilities. If we have learned anything over the last couple of years, it is that banks that are too big to fail pose too much of a risk to the economy. Any serious effort to reform the financial system must ensure that no such banks exist.  But can you imagine our elected officials having the guts to split up Goldman Sachs?  Can you imagine what that bank would do to avoid such a fate?  … and yet such private power is not a threat to a republic?   As voters, we are asleep at the wheel, too easily taken in by the theatrics of impotent politicians.

In general terms, it is ironic that the banks too big to fail may be even more of a risk after the financial crisis.  What profits the banks have been making have come mostly from trading. Many big banks were happy to depend on the lifeline from the Fed and hang onto their toxic assets hoping for a rebound in prices.  Crucially in terms of the systemic risk in “too big to fail,” the whole system has grown more concentrated since the crisis. Bank of America was considered too big to fail before the meltdown. Since then, it has acquired Merrill Lynch. Wells Fargo took over Wachovia. And JPMorgan Chase gobbled up Bear Stearns.  If the goal is to reduce the number of huge banks that taxpayers must rescue at any cost, the US Goverment has been moving in the wrong direction. The growth of the biggest banks ensures that the next bailout will have to be even bigger. These banks will be more likely to take on excessive risk because they have the implicit assurance of rescue.  In short, there is even more systemic risk after the financial crisis of 2008.  Creating a new consumer protection agency is a feckless attempt by the US Government to show some muscle to face entrenched (and even more powerful) financial interests on Wall St.  Even giving the government the power to deal with banks deemed too risky to the financial market itself does not guarantee that the power will be used.  Consider, for example, the lack of enforcement of anti-trust law.  For a comparison, look at the EU—not only in terms of going after big companies like Microsoft, but big banker bonuses.   In the US, we much face the fact that the big banks are on top.  If what is good for Goldman Sachs or Citigroup is not necessarily good for us, the American people, then there is a tremendous systemic risk for us in being appeased by Barak Obama’s public “scolding” of Wall Street and by the Swiss-cheeze financial reform bill making its way through Congress.  Neither branch is taking seriously the question of the existence itself of the banks too big to fail.  Moreover, the question of whether large concentrations of private power have become a threat to our republic—on account not only of the ability of a big bank to shaft its customers, but also of the relative power of the banks and their lobby over our government—has effectively been sidelined.   It as as though popular sovereignty here means charting a ship’s course without looking beyond the bow.   Some of the wealthy passenagers have told us: don’t look out there!  Don’t ask the real questions!  And we, being reduced to unconscious herd animals, happily comply and stiffle our anguish because we feel the big banks have already won.

Source: http://www.nytimes.com/2009/12/15/opinion/15tue1.html

Obama Standing up to Wall Street: Fact or Fiction?

An interesting bit of news-reporting from the time of the Obama Administration sheds light on business and government: “What haunts the Obama administration is what still haunts the country: the stunning lack of accountability for the greed and misdeeds that brought America to its gravest financial crisis since the Great Depression. There has been no legal, moral, or financial reckoning for the most powerful wrongdoers. Nor have there been meaningful reforms that might prevent a repeat catastrophe. Time may heal most wounds, but not these. . . . After the 1929 crash, and thanks in part to the legendary Ferdinand Pecora’s fierce thirties Senate hearings, America gained a Securities and Exchange Commission, the Public Utility Holding Company Act, and the Glass-Steagall Act to forestall a rerun. After the savings-and-loan debacle of the eighties, some 800 miscreants went to jail. But those who ran the central financial institutions of our fiasco escaped culpability (as did most of the institutions). . . . The weak Dodd-Frank financial-reform law that rose from the ruins remains largely inoperative, since the actual rule-writing was delegated to understaffed agencies now under siege by banking lobbyists and their well-greased congressional overlords. . . . Rather than purge the crash’s crimes, Wall Street’s leaders are sticking to their alibi: Everyone was guilty of fomenting this “perfect storm,” and so no one is. Too-big-to-fail banks are bigger than ever, and ­Masters of the Universe swagger is back.”

Analysis:

 The hegemony of the moneyed interest in any republic renders the public weal subject to a plutocracy—rule by wealth. In the wake of the credit crisis of 2008, U.S. Senator Richard Durbin of Illinois observed that the banking lobby still owned Congress even as the public regarded the banks as at least partially culpable for the crisis. Durbin made his remark after the Senate defeated his amendment that would have allowed foreclosure judges to modify mortgages in trouble. Even though mortgage companies had written steep interest rate hikes into the subprime mortgages that the mortgage writers must surely have known the borrowers could not afford, the servicers stood by the vaunted sanctity of contract doctrine—a faithfulness conditioned, no doubt, by the article serving their interests. Financial influence over elected representatives enabled the U.S. Government to provide cover, or at least to refrain from going after the financial institutions that had been so culpable. That government also refused to break up the banks too big to fail, whose very concentrations of wealth, increased by the TARP program, stood even more as systemic risk.

 Historically, Americans have looked to independently-minded occupants of the U.S. Presidency to stand up to powers of the day to protect the viability of the states. Andrew Jackson, for example, stood up to the moneyed interest before his reelection in 1832 in depleting the Second National Bank of the United States of funding (the bank ended in 1836). Doubtless Jackson spent many nights before the election worried that standing up to money might cost him the election. Of course, he won and enjoyed distinct respect.

 I suspect that Barak Obama did not enjoy respect in the wake of the credit crisis precisely because he did not stand up to the banking lobby. Relatedly, he caved to the demands of the health insurance industry lobby that he no longer push for a public option and resist a mandate for guaranteed customers. I suspect that people sense a lack of political courage and recalibrate their respect accordingly. The political weight of such a collective judgment at the ballot box is an open question; the reward such as Jackson received in 1832 is likely more certain even as it is thought less. Herein occupies the political trap wherein the path of least resistance may gain the upper hand in a president’s political calculation. Faith in the people rewarding courage against concentrated interests can be difficult to embrace even as such reward is perhaps germane to the office as it was designed and intended. Americans seem to innately know this, even as their collective judgment is difficult for politicians to discern.

 In the want of a Jacksonian presider standing for the public weal against being overrun by the private moneyed interest, the historical answer would have been to look to normative, even religious, constraints. Frank Rich includes this type among the more contemporaneously popular legalistic and economic ones where he writes, “There has been no legal, moral, or financial reckoning for the most powerful wrongdoers.” Even so, he concentrates on government regulation as essentially the only means available to constrain the unrepentant greed of Wall Street. Historically, ethical constraint against greed was thought to depend on religious, and specifically Christian, auspices. Frank Rich’s focus alone may be read as rendering a verdict on the efficacy of Christian ethics in countering the fundamental desire for more. Yet how many Jackson’s have the States seen that we may rely on presidential leadership and any ensuing regulation to constrain the moneyed interest?  Moreover, what if greed is so entrenched in human nature that virtually any bulwark must ultimately be found wanting?  

 Source:

 Frank Rich, “Obama’s Original Sin,” The New Yorker, July 3, 2011.

Related essay: “Godliness and Greed”

Betraying an Electorate: On President Obama's Deal with Drug Companies

While campaigning for the U.S. presidency in 2008, Barak Obama decried the greedy Republican lawmakers acting at the behest of the drug companies to keep drug prices artificially high. A year later, those same drug companies wanted Obama to oppose a Democratic proposal that was intended to bring down the prices of medicine. Beyond betraying those voters who voted for him based on his campaign rhetoric on drug prices, Obama belied the trust that is necessary for a viable republic to function democratically.

 “On June 3, 2009,” according to the New York Times, “one of the lobbyists e-mailed Nancy-Ann DeParle, the president’s top health care adviser. Ms. DeParle sent a message back reassuring the lobbyist. Although Mr. Obama was overseas, she wrote, she and other top officials had ‘made decision, based on how constructive you guys have been, to oppose importation on the bill.’ Just like that, Mr. Obama’s staff abandoned his support for the reimportation of prescription medicines at lower prices and with it solidified a growing compact with an industry he had vilified on the campaign trail the year before.” 

As per the quid pro quo, the industry sponsored its own advertising campaign in favor of Obama’s health-insurance proposal. It was not just the guys’ constructiveness that had convinced Obama’s staff to “make the deal.” To be sure, the staff could have been supposing that the subsidies enabling middle-income Americans to afford health insurance and the expansion of Medicaid to cover 30 million uninsured Americans would relieve people from having to pay high prices for medicine (though everyone, even if only as payers of higher taxes, would be paying the price in the form of higher insurance premiums). However, there would be no guarantee that the government would pick up the tab when needed. Furthermore, the higher prices could widen government deficits.

Beyond health-care and budget policy, moreover, is the contradiction between Obama’s campaign speeches and his staff’s decision to oppose the bill. The implication is that Obama went back on his word, essentially betraying anyone who voted for him because he promised to support lower drug prices. Beyond Obama’s public credibility lies the mechanism of democracy wherein voters trust that a candidate’s campaign bears some relation to the candidate’s governance. Otherwise, the “will of the people” breaks down and mistrust sets in on a societal basis. In other words, when representatives say one thing on the trail and quietly do the opposite behind their desks, democracy itself suffers.

In the wake of the financial crisis of 2008, it was said that trust is vital to the financial system. The same can be said of a viable republic. The question, therefore, is how candidates can be held accountable for the assumed congruence when so much of governance is done behind closed doors. In an electoral system where not voting for one candidate benefits the candidate even further from the voter’s preferences, it can be difficult indeed to hold an office-holder accountable at the ballot box. 

Source:

Peter Baker, “LobbyE-Mails Show Depth of Obama Ties to Drug Industry,” The New York Times, June 8, 2012.

The Wisconsin Recall Election: A Predictor of the U.S. Presidential Election?

According to Paul Abowd of the Center for Public Integrity in 2012, the election to fill the governor’s office in the wake of Scott Walker’s recall “has become a referendum on the future of public sector unions.”[1] That the union of teaching-assistant students at the University of Wisconsin in Madison refused to endorse Barrett precisely because he was not making collective bargaining rights a salient part of his campaign would suggest that Abowd had it wrong. Moreover, it is a mistake to read the election results in Wisconsin as a harbinger of things to come in the U.S. presidential election five months later in November 2012.

During his campaign, Barrett downplayed the public-sector union issue because he figured he already had his base, which had detested Walker for more than a year. Barrett was going for the independents who saw the recall petition as sour-grapes by a vocal interest group (the student union validating this judgment). Most tellingly, the teaching-assistant student-union had even refused to endorse the unions’ own favorite for Democratic nominee, Kathleen Falk, who had lost to Barrett in the primary by twenty points. Falk had promised not to sign any legislation until a bill restoring the public-sector unions' collective-bargaining rights is presented. You cannot get much more pro-union than that, and yet even THAT was not good enough for the graduate students at the University of Wisconsin in Madison. At the very least, it would appear that the graduate school's admissions committees at the university in Madison could have been doing better in their decisions, at least in regard to assessing maturity and judgment. 

I count it as a good thing that Barrett’s position on restoring the Wisconsin government workers’ bargaining right was less “my way or the highway” than was Falk’s position because Barrett was evincing a more mature or seasoned approach to governance. In contrast, the teaching-assistants’ union can be read as evincing the self-defeating and immature rigidity of “my way or the highway.” The contending camps in Wisconsin’s Democratic Party reflected this difference of political culture between Milwaukee and Madison. Hence, the dynamic cannot be assumed to operate at the U.S. level.

Furthermore, Mitchell, a young fireman whose involvement in his union probably won him the Democratic nomination for Vice (or lieutenant) Governor (as an after-thought by most voters), was at the time both too young and inexperienced in terms of public office to occupy the second-highest office in the land, not to mention the highest. At an outdoor rally in a street-alcove after a motley march that took place in downtown Madison the day after the primary, Mitchell easily stood out in video of the event because he was the only person in the warm weather wearing a grey suit. His political inexperience really stood out as he could be seen walking through the crowd, insisting on shaking hands with people even as they were trying to listen to the speakers. Perhaps most tellingly, he bumped into at least one person who preferred to keep listening to the speaker rather than turn around to shake hands. I suspect that Mitchell was trying to be a "professional" politician in a very atypical (and thus inappropriate) context (i.e., the recall). This itself essentially disqualified him from the office he was seeking, especially because it was possible that had he won along with Walker, the young fireman could have found himself assuming the office of governor.

The quality of the Democrats’ choice for vice governor mattered particularly because Walker was being investigated at the time by U.S. and Wisconsin law-enforcement agencies for corruption while he had been chief executive of the County of Milwaukee. In Illinois, Quinn had become the head of state and chief executive of the government when "Blago" was impeached and removed from office for trying to sell Barak Obama's vacated U.S. Senate seat. Were Mitchell to have won even as Bartlett lost, the novice could have found himself eventually taking over for Walker. It is not at all advisable to have a political novice in the highest office in the land. I suspect that this factor weighed on independent voters.

It would be perfectly understandable, therefore, for Wisconsinites in favor of Barrett to have skipped the lieutenant governor race based on principle (i.e., putting the interest of the public good over partisanship), even if that could have resulted in the governor and lieutenant governor being of different parties. Because the lieutenant governor office has some important powers when the governor is not in Wisconsin, such a scenario would certainly not be optimal for Barrett supporters. Therefore, I believe the Democrats in Wisconsin dropped the ball in voting in the primary for a nominee for lieutenant governor. To be sure, they made a good choice in picking Barrett’s mature approach to restoring union rights over Falk’s “my way of the highway” mentality on the "single issue" of a union's bargaining rights. The refusal of at least one union in Madison to back Barrett further compromised the Democrats’ strength in defeating Walker.  These are idiosyncratic elements in the Wisconsin “recall election” that don’t project onto the U.S. as a whole. 

Most obviously, going into the recall election, the sitting governor of Wisconsin was a Republican whereas the sitting U.S. president was a Democrat. Also, whereas Mitchell was a political novice at the time (being plucked out of a fire department union), Obama’s VP was an experienced former U.S. Senator and VP. In terms of the parties, Barrett was not associated with Obama's weaknesses (e.g., Obamacare), and Walker did not have Romney's problems with conservatives. Indeed, some Obama supporters crossed over to vote for Walker--a fact that Obama no doubt had foreseen as he was staying away from campaigning for Barrett.

Moreover, the United States is not a state with a very large back yard. Given the heterogeneous political, economic, religious and social cultures of the republics in the U.S., it is not a good idea to simply project the results in Wisconsin on the U.S. as a whole. Furthermore, there are issues that are only relevant at the U.S. level, such as foreign policy. I must conclude that the U.S.-based media was being much too simplistic in regarding the Wisconsin race as an indicator of the “upcoming” U.S. elections. Lest all politics is local, the results of a U.S.-wide election can be viewed as a quilt of various majorities rather than as one huge aggregate. Yet reductionism to U.S.-level politics seems a preoccupation or obsession, at least for the major American media companies, as if the American republics existed only in so far as they contribute to U.S. races. I suspect that the culprit is American business more generally, as large corporations have found it cheaper to have one set rather than fifty sets of government regulations. Reducing American politics to the U.S. stage serves this purpose.

1. Amanda Terkel, “Wisconsin Recall: Election Law Quirk Could Throw Governance Into Disarray,” The Huffington Post, June 3, 2012. See Paul Abowd, “CPI: Wisconsin Recall Battle Is State’s Most Expensive Election,”MSNBC.com, June 3, 2012. 

"Real Change" Belied: Lobbyists in Obama's White House

Visitor logs for January 17, 2012 show that the lobbying industry that Obama had vowed to constrain was nonetheless a regular presence at 1600 Pennsylvania Ave.[1] That's the address of the White House. Even though the president barred recent lobbyists from joining his administration or even serving on its advisory boards and forbid federal employees from accepting free admission to receptions and conferences sponsored by lobbying groups, records suggest that lobbyists with personal connections to the White House enjoyed the easiest access. The principle of fairness (not to mention consistency) seems to have been sacrificed for political (and campaign finance) expediency.

Lobbyist Marshal Matz, for example, who served as an unpaid adviser to Obama’s 2008 campaign, gained access to the White House roughly two dozen times through May 2012.[2] He brought along the general council for the Biotechnology Industry Organization, the chief executive of cereal maker General Mills and pro bono clients, including advocates for farmers in Africa. It seems that the “Wall Street needs reform” president was rather pro-business behind the gates.

Another such lobbyist with close ties to the White House was former New York congressman Tom Downey, who at the time was married to Carol Browner. Until 2010, she was Obama’s energy czar. Downey was the head of Downey McGrath Group, a lobbying firm whose clients include Time Warner Cable and Herbalife, which sells nutrition and dieting products. As of January 2012, he had been to the White House complex for meetings and events 31 times. On Dec. 10, 2010, Downey held a meeting with economic adviser Lawrence H. Summers and just happened to bring along Bill Cheney, the head of the Credit Union National Association and one of Downey McGrath’s clients. John Magill, the top lobbyist for the association, said that the group was pushing to lift the cap on the percentage of assets its members can lend out.[3]

“A lot of folks,” Obama said in April 2012, “see the amounts of money that are being spent and the special interests that dominate and the lobbyists that always have access, and they say to themselves, maybe I don’t count.”[3] That is also the inevitable reaction from the White House visitor log. Even members of Congress may conclude that they don't count.

According to U.S. Sen. Ron Wyden (D-Oregon), for example, the U.S. Trade Representative was sharing draft negotiation documents on the Trans-Pacific trade deal with the governments of other countries and American corporate executives who serve on advisory boards, no such access was being provided to the majority of Congress or most nonprofit groups. "The majority of Congress is being kept in the dark as to the substance of the TPP negotiations, while representatives of U.S. corporations--like Halliburton, Chevron, PhRMA, Comcast and the Motion Picture Association of America--are being consulted and made privy to details of the agreement," Wyden said[4]. A subsidiarity of Halliburton had been accused by the U.S. military of charging it $1.6 billion for fake services. The Motion Picture Association had former U.S. Senator Chris Dodd (D-Conn.) as its head. 

Furthermore, ABC News had reported in 2011 that employees of Comcast had "contributed more money to President Obama's reelection bid than employees from any other organization, according to [an] analysis of the Federal Election Commission data by the Center for Responsive Politics."[5]  It appears that the Obama administration was being quite responsive to Comcast in enabling the company to "buy" the access to the trade negotiations. In fact, Obama attended "an intimate fundraiser at the home of Comcast executive vice president David Cohen in Philadelphia in June [2011] and a private 'social reception' at the Martha's Vineyard estate of Comcast CEO Brian Roberts [in August 2011]. Cohen put together more than $500,000 in contributions to the Obama campaign and the DNC for the 2012 election. Nonetheless, the president’s press secretary—speaking as if tone-deaf—said, “Our goal has been to reduce the influence of special interests in Washington — which we’ve done more than any Administration in history.”[6] 

It seems to me that the Obama administration's mutual back-scratching with big business can explain why Obama caved on the "public option" in his health-insurance reform law--essentially handing the existing private insurance companies tens of millions of new customers financed by the U.S. Government without any competition from a public insurer. The close ties can also explain why Obama backed off from his statements that Wall Street banks too big to fail should be broken up preemptively (rather than merely having the government get involved to help out on the liquidation after a bank has gone bankrupt as is the case in the resulting law). Even though the positive correlation of campaign contributions and favorable access and legislation (and trade negotiations) does not in itself prove the existence of a quid pro quo, the fingerprints are all over the darkened windows of Obama's White House. Rather than attacking capitalism, Obama was wallowing in it even as he occasionally threw red meat to his anti-corporate base to get it out to the polls. 

Moreover, both the matter of White House access and access to trade deal negotiation point to the partisan nature of the office of the U.S. Presidency. With regard to the White House access, the Post reports that “Republican lobbyists coming to visit are rare, while Democratic lobbyists are common, whether they are representing corporate clients or liberal causes.” This suggests that the presidency itself may be more partisan than is consistent with representing the United States itself (i.e., the figure-head role of the office).

In general terms, it would be naïve to suppose that powerful figures in Washington, D.C. could somehow be immune from lobbyists when the clients have so much money (i.e., economic power). In other words, concentrated wealth must needs eventuate in pressure on public policy. To restrict lobbyist access at the White House would thus only plug a hole that is a symptom. While doing so might assuage our frustration at such blatant favoritism bought with campaign (or SuperPac) donations, it is that money and the related mammoth size and power of modern corporations that must ultimately be challenged for there to be any change in substance. However, we should not be so naïve as to expect that barring lobbyists from the People’s House or even outlawing corporate political campaign contributions would reduce the influence. Where there are deep pockets of concentrated private wealth, the public weale must needs be so oriented. 

1. T. W. Farnam, “White House Visitor Logs Provide Window into Lobbying Industry, The Washington Post, May 21, 2012.

2. Ibid.

3. Ibid.

4. Zach Carter, "Trans-Pacific Partnership: Key Senate Democrat Joins Bipartisan Trade Revolt Against Obama," The Huffington Post, May 23, 2012.

5. Devin Dwyer, "Comcast Employees Top Donors to Obama Campaign Accounts," ABC News, August 25, 2011.
6. Ibid.

Unions and States at a G-8 Meeting

At the G-8 summit at Camp David in May 2012, E.U. and U.S. leaders met with the leaders of four E.U. states (Italy, Germany, France and Britain). As this picture illustrates, the qualitative differences between looking after a union of states and a state can show up unintentionally in informal seating arrangements. In the context of the European debt crisis—in particular, whether to give one state (i.e., Greece) stimulus cash or just insist on the austerity programs already agreed to—the governors of the E.U. states have particular agendas (given the financial interests of the respective states) whereas the federal officials are oriented to the good of the whole (i.e., the E.U.). President Obama of the U.S. was by the time of the summit used to taking such a perspective over and above the interests of particular U.S. states. Such a commonality of federal, empire-level interests as distinct from the relatively particularized interests of E.U. (and U.S.) states could be reflected in the seating arrangement in the picture taken by the White House, wherein Obama, Barroso (sitting next to Obama), and Van Rompuy (in the sweater) seem to be facing the four governors. The seating arrangement could just as easily have been a circle. It probably was, originally, and I suspect that the federal v. states distinction operated unconsciously on the participants such that the three federal officials came to be as though a line facing the four governors of E.U. states.

The complete essay is at Essays on Two Federal Empires, available at Amazon.

Obama Caved to the Agribusiness Lobby

Faced with political pressure from Republicans and farming groups, the White House decided in April 2012 not to go ahead with rules that would have prevented children from “operating heavy machinery, handling tobacco crops, working in grain silos or performing other jobs considered potentially dangerous.”[1] The Labor Department issued a statement indicating it was withdrawing the rules due to concern from the public over how they could affect family farms. “The Obama administration is firmly committed to promoting family farmers and respecting the rural way of life, especially the role that parents and other family members play in passing those traditions down through the generations,” the department announced.[2] I contend that this rationale was a ruse intended to cover up the true source of the political pressure. Family farms were actually exempted from the proposed rules.

"Although family farms were actually exempted from the proposed rules, many opponents cast them as an assault on family farms and rural traditions, saying the White House wanted to keep children from doing even small chores. In fact, the rules would only have affected minors who were formally employed and on farm payrolls.”[3] To get at why Republicans would have stressed the family farm ruse, it is necessary to go to the funding—for motivation tends to follow it.

From 1996 through at least 2012, agribusiness has given much more to Republicans than to Democrats.[4] The disproportionate giving gave Republican lawmakers a financial (and political) incentive to protect agricultural corporations from regulations they do not want. Because the family farm has a much better reputation in society, it makes political sense that Republicans (and even the farm groups) would claim to be protecting the family farm when the real intent is to keep agribusiness free of unwanted regulations. What is surprising is not the subterfuge; rather, the surprise lies with the Democrat in the White House who caved into the agribusiness interest in spite of where that sector was directing its political contributions. Given the political maxim that perception can become reality, it is likely that the family farm subterfuge worked and Obama felt he had to acquiesce to it or be viewed as against the rural family in the midst of his re-election campaign.

See Related Essay: “Oil and Gas Companies: Citizens Buying Government”

1. Dave Jamieson, “Child Labor Farm Rules Scrapped by White House under Political Pressure,” The Huffington Post, April 27, 2012.
2. Ibid.
3. Ibid.
4. Dan Froomkin, "Corporate Campaign Contributions Show Some Industries Giving Up Appearance of Bipartisanship,”  The Huffington Post, April 26, 2012.

U.S. President Obama on Executive Power

In February 2011, U.S. President Barak Obama directed the U.S. Justice Department to stop defending the Defense of Marriage Act, which bars federal recognition of gay marriages, against constitutional challenges. “Previously, the administration had urged lawmakers to repeal it, but had defended their right to enact it. In the following months, the administration increased efforts to curb greenhouse gas emissions through environmental regulations, gave states waivers from federal mandates if they agreed to education overhauls, and refocused deportation policy in a way that in effect granted relief to some illegal immigrants brought to the country as children. Each step substituted for a faltered legislative proposal.”[1] While not defying Congressional statutes, the use of executive power to thwart defending a statute violates the enforcement function of the executive branch. The other matters—enacting environmental regulations, granting relief to some illegal immigrants, and issuing state waivers presumably were under broader statutes that permit administrative action by the executive branch. The danger, however, is that the enforcement branch or arm could become a legislative branch or arm of the U.S. Government.

The irony is that Barak Obama had criticized George W. Bush’s use of signing statements. The New York Times points out that the institutional incentives of the presidency had come to affect even Obama. This is an extremely significant point, for it suggests that “elections have consequences” is buffered by the institutional trappings of the particular office.

For example, as the E.U. was struggling to manage the debt of some large states by pressing for austerity budget cuts at the state level, it was feared that state office-holders would be elected who had promised to leave the euro and reject the austerity. From the example of Obama on executive power, we can say that such fear was over-stated.  A Euroskeptic once in office is subject to pressure from other states as well as from E.U. officials. The consequent backtracking is typically viewed as political fear. I contend that it is merely a natural reaction to the incentives of a given office and institutional placement (i.e., as a state in the E.U.).

Rather than being hypocrites,  office-holders who said one thing on the campaign trail but then modified their position once in office can be said to be shifting from campaigning to governing—the latter being subject to the institutional incentives of the office. The breadth of campaign proposals is almost necessarily to be wider than the actual conduct of office-holders because the “mandates” of an office have a converging effect because the office itself does not change.

Obama could have campaigned as an anti-executive candidate, but once he was sworn in he became an executive and thus had to function as one. His anti-executive campaign promises would translate at best on the margins of his governing decisions.  Hence, “real change” on the campaign trail is one thing, but change by office-holders is notoriously incremental by nature of the continuance of the respective offices. In other words, the status quo is the clear favorite where a government of offices has already been established. For “real change,” governmental change must also be included, and that cannot come from extant offices.

Generally speaking, what we take as change—what we expect in this regard from our elected office-holders—is only a very moderated sense of change. Put another way, we expect too much out of existing offices. If we want “real change” in terms of policy, we must also look at structural change of the government.

1. Charlie Savage, “Shift onExecutive Power Lets Obama Bypass Rivals,” The New York Times, April 22, 2012. 

A Lawyer Comes Up Short on Obama on the U.S. Supreme Court

As president, Thomas Jefferson campaigned against the U.S. Supreme Court in the pivotal 1800 election after the court let the Alien and Sedition Acts stand. The law criminalized criticizing government officials of the U.S. Government. Lincoln announced during his 1860 campaign that he would not enforce the court’s Dred Scott decision upholding slavery in U.S. territories. In saying that invalidating the Affordable Healthcare Act would represent an unprecedented act of judicial activism, Obama was not going nearly that far. In other words, he was not saying he would ignore the decision. Nor did Obama announce anything like Roosevelt’s unsuccessful court-packing scheme.

Even so, a lawyer who teaches law at Samford University in Alabama opined, “It’s virtually unprecedented for a president to criticize the institutional powers of the Supreme Court. I don’t know of any other instance where a president has publically questioned the legitimacy of judicial review.”[1] Apparently the lawyer had not heard of Lincoln’s announcement or Roosevelt’s court-packing.

This example of commentary by the lawyer illustrates why law schools hiring lawyers to teach law classes is fundamentally different than hiring legal scholars to be law professors. A lawyer can become an expert on the technical nuances of a statute or judicial opinion, as well as how to argue such points in a court of law. This is not the same as having scholarly expertise on jurisprudence, which includes constitutional philosophy and history. The difference can be expressed as that which exists between examining individual trees and grasping the contours of the forest. Ironically, as a graduate student in law progresses in the LLM and JSD degrees, the seminars become more specific in coverage (the dissertation of the doctoral candidate in a JSD program being incredibly specific), the level of abstraction increases so a wider perspective is proffered though the narrowing disciplinary focus.

Were law school deans in the U.S. republics to hire scholars as professors rather than lawyers as instructors, the students would benefit immensely from the standpoint of learning the knowledge of law, rather than simply how to practice it.

1. Richard Wolf, “Other Presidents Took on High Court before Obama,” USA Today, April 6, 2012. 

Obama’s Educational Waivers: Toward the Political Consolidation of an Empire

A decade after the No Child Left Behind federal law was enacted, “President Obama freed 10 states from some of its crucial provisions.”[1] The states’ freedom from a deadline for bringing all students to proficiency in reading and math by 2014 came with strings—accepting Obama’s own educational agenda, which focuses on accountability and teacher effectiveness and includes higher standards than the ones set in NCLB. Many state education officials have criticized the 2014 deadline as “an impossibly high bar” that “did not take into account the needs of some of the most disadvantaged children.”[2] In announcing the waivers from the deadline, Obama said that the goals of NCLB should be met “in a way that doesn’t force teachers to teach to the test, or encourage schools to lower their standards to avoid being labeled as failures.”[3] However, if the standards are to be even higher, might even fewer schools wind up passing—even if the deadline is extended?

In assuming that the setting education policy is one of the enumerated powers of the Federal Government, Obama was applying a “one size fits all” approach over what is essentially an empire of differing republics. Furthermore, having so much power over the states on education policy, the Obama administration was compromising the check and balance feature of federalism wherein the states are to act as a check on federal encroachment just as the federal government is to act as a check on states violating the rights of, or not providing for, their respective citizens. In other words, the significance of NCLB and the Obama administration’s own attempt to standardize education policy in the states through the spending clause of the U.S. Constitution (which alone is a stretch) goes well beyond education policy. The viability of the system of government in the United States can be seen to be severely compromised just in the president’s attitude toward the states—as if they were children and he was daddy.

Ken Wheare argues in his text, Federal Government, that state governments need be autonomous of federal authority in only one area for modern federalism to work. Wheare also extolls the mutual check and balance feature of federalism (as distinguished from a confederal alliance). The point I would like to make is that if the states of a federal system are “free” only in one domain, they do not have a sufficient basis of power on which to act  as a viable check against the encroachment of federal power over that of the states.

Where the federation is on the empire scale, such as the E.U., Russia, and the U.S., the consolidation that comes with federal encroachment means that inherent differences across the lands within the federation are stifled or ignored. Built-up pressure is not good for ongoing political stability. Policy itself tends to be of compromise that no one would independently want, rather than tailored to the particular political societies within the federation. As of at least the beginning of 2012, Europe has seemed more aware of the need of particular states to legislate for their respective polities  than has America.

As Justice Sandra Day O’Conner once said, “Congress is acting like a state legislature.”[3] Such a significant category mistake cannot be good for the viable of a republic of republics—what Montesquieu referred to as wheels within a wheel. If all of the wheels within the wheel of the whole cannot operate at least partially independently, then any problem in the mechanism can quickly bring the entire mechanism to a quick stop. Like genetic diversity with respect to health, semi-sovereign diversity is necessary for political stability where the federation is on the empire-scale (i.e., inherently heterogeneous). We focus only on the substance of education policy at the expense of the impact of  the “how” on our system of public governance at our own peril. As long as it has interlarded itself into the classroom, perhaps the Federal Government should mandate that federalism be taught in Civics. It is more than a little disconcerting that the White House staff and their boss might need to attend such a class before being able to grasp the importance of the topic.

1. Winnie Hu, “10 States Are Given Waivers from Education Law,” The New York Times, February 10, 2012. 
2. Ibid.
3. Personal Correspondance. 

An American President Meets the E.U.: Corrective Exigencies of a Debt Crisis

 Political protocol can take some time to catch up to changed political realities. For over two hundred years, it has been assumed that U.S. presidents have met with their counterparts in E.U. states such as Britain, France, and Germany. During the European debt crisis, “in numerous private conversations and increasingly forceful public statements, [American] policy makers are urging their European counterparts to take big steps and move fast to reassure markets.”[1] It was undoubtedly assumed that the counterparts were at the state level in the E.U., rather than in E.U. governmental institutions. So how are we to situate Barak Obama’s meeting on November 27, 2011 with José Manuel Barroso, president of the European Commission; Herman Van Rompuy, president of the European Council; and Catherine Ashton, the European foreign policy chief? 

 Doug Mills/NYT

1. Anne Lowrey, "Obama Meets Leaders of the European Union," The New York Times, November 28, 2011.