Choices

by: Mike Lux

Thu Mar 19, 2009 at 19:30


I have been wrestling all day with what to write about this AIG mess.

On the one hand, as anyone who reads my stuff knows, I am a big supporter and admirer of President Obama, and was a part of Team Obama during the transition.  I strongly support his bold progressive plans on healthcare, energy, education, and his budget. My strongest instinct is always to back his play, or to be quiet if I can't.

But as I wrote a couple of days ago, Obama has to make some clear choices on how he deals with the big banks and AIG.  He is doing the right thing on just about everything else, but one issue can hurt a President badly, and the banks and AIG are at the absolute center of both our economic crisis and our politics right now.  The Obama team is all over the map, with wildly mixed messages about how important the AIG bonuses are, and what the sequence of events was on who knew what when.  I love and admire David Axelrod, but he is just plain wrong if he really believes that "people are not sitting around their kitchen tables thinking about AIG". Um, yes they are.  And they are pissed out of their minds.

Look, this problem all goes back to the one thing, and if Obama gets it right, his troubles with AIG go away quickly.  Right now, Obama is trying to walk on an incredibly narrow line with no safety net beneath: on the one had, he is trying to re-assure Wall Street that he's not going to come down too hard on them, or force them to re-structure their operations too much.  On the other, he's trying to respond to the populist anger that he understands and feels in his own gut.
Mike Lux :: Choices
I know you don't like us bloggers who over-simplify things, Mr. President, but this is gut-check time: you have to decide which side you are on.  Many of my friends are calling for Tim Geithner's head, but I don't think that is what this is about.  You as President need to decide which way you are going to go.  One path keeps dribbling out more and more money to big bankers while letting them operate according to their version of "free market principles," such as giving multi-million dollar bonuses to retain employees.  The other path says you save our banking system by taking it over, firing the executives who have put us in this mess, and putting people in charge with the public interest in mind rather than their own.  The problem with trying to walk down both paths at once - giving out billions more to save the banks while letting them run things the way they are and at the same time expressing justifiable outrage when they screw up - is that it is politically untenable.  It gets you in the AIG mess we have now, with Summers and Geithner saying we can't do anything about these bonuses and trying to justify their lack of attention to them, and other aides trying to defend them by saying this really doesn't matter much, while the nation keeps getting more and more pissed.

At some point, you are going to have to make a call, Mr. President:  in spite of all the complications, you are going to have to be on one side or another.  As one of your strongest and most loyal supporters, one who passionately wants you to succeed on your broad agenda, I hope you get it right. Because this is not a distraction, and it's not something people don't care about: it's at the core of whether your Presidency succeeds.  

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Choices | 40 comments
Great post (4.00 / 14)

It's no easy job (4.00 / 5)
and I believe no matter who (on the left) gets elected they become pragmatists because they sincerely want to get things done.  Some have been condemned for this.  Hopefully Obama will get a more fair and honest judgment from the left than the last few democratic presidents have gotten.

However I will disagree with you strongly about Obama's education choices.  His appointment of Arne Duncan and his support of charter schools is a disappointment to every teacher I know.  And after 40 years in public education, I know a lot of dedicated teachers.  We feel betrayed that so far it looks like NCLB will be given credence.  Funding it is not the answer.  NCLB turns teachers into trainers.  Instead of opening minds to explore, instead of getting children to be life long learners, eager to problem solve, teachers are forced to treat students like widgets.

If you have any influence with the Obama administration, I beg you to ask him to reconsider traveling down the Bush trail to  making the system worse for poor children. And NCLB has done that..

Don't forget ... (4.00 / 2)
... Congress can impeach any federal civilian officer such as the Secretary of the Treasury.  Geithner and Summers need to go.  If they don't quit on their own and if the President doesn't fire them, then Congress needs to escort them to the exits.


doesn't work (4.00 / 2)
Geithner is screwing up, and badly, but he hasn't committed high crimes and misdemeanors.  Besides, if Congress wouldn't impeach any of the Bushies, real crimes aren't enough either. It's up to Obama to change course.
[ Parent ]
Nailed it (4.00 / 7)
You've probably done this, but please, do everything you can to get this in the hands of the administration.

As Rahm and Hillary have both said

Never waste a good crisis

On the budget, forign policy, stimulus, housing, education, energy, healthcare and regulation (although we have not seen the final plan yet) Obama has been visionary in truly transforming our society towards a post-bubble economy but we have not seen that so far in dealing with the big banks and AIG. We need that.  

John McCain: Beacuse lobbyists should have more power

Actually Obama's doing OK on using the crisis (4.00 / 1)
The stimulus bill had a lot of good points, he's now pushing for a somewhat saner tax system, and he will probably soon start on meaningful financial regulation and some form of universal healthcare. He's using the deference the President gets in a crisis to get a decent set of center-left reforms through and that part is looking good, although I certainly wish his reforms were broader and more ambitious.

The problem is that Obama is not working to solve the fundamental crisis of trillions in bad debt, except possibly the horrible "solution" of dumping the entirety of the bad debt onto the back of the taxpayers. That error will far outweigh all the good of his reforms if he doesn't stop it and put the costs onto the financiers and capitalists who created the problem.

[ Parent ]
Well said (4.00 / 3)
My thoughts exactly.

And President Obama has something going for him that a lot of leaders around the world do not, he's the President of the United States so even if he scares capital, its not going to go running any where else.

"Never separate the life you live from the words you speak" -Paul Wellstone

People are more interested in "punishing" bankers... (0.00 / 0)
...than economic recovery.  I'm convinced that Americans had a choice between hurting bankers or a boom economy, they'd choose the former.

Punishing bankers or stripping AIG employees of bonuses isn't going to do diddly squat for my neighbors out of work... It may feel better about their situation, 'cos now they can be stickin' it to the man or whatever, but that doesn't put food on the table.

Color me one of the 11% who is not "outraged" at the bonuses... sure, I don't like it.. I want those guys in jail... but, if giving some undeserving guy a bonus creates 1,000 jobs in my city as a result?  He can have the friggin' money... I'd rather have the work...

Now, AIG bonuses aren't going to directly affect the economy one way or the other, so my example is moot, but that's the problem...  We are focusing all our energy on stuff that ultimately doesn't matter.

Anger rarely results in good policy, and right now, this "populist rage" is further tying the hands of those who are trying to fix the economy.

REID: Voting against us was never part of our arrangement!
SPECTER: I am altering the deal! Pray I don't alter it any further!
REID: This deal keeps getting worse all the time!

Really? (4.00 / 1)
Anger rarely results in good policy...

Yeah, the New Deal and Social Security were a big mistake.


Support a Pennsylvania Progressive for Governor - Joe Hoeffel

[ Parent ]
and Japanese internment, Iraq War and Patriot Act? (4.00 / 2)

[ Parent ]
Huh? (0.00 / 0)
IIRC correctly, none of these programs "punished" anyone...

Here's a great example of anger resulting in bad policy... The Iraq war... how about the Patriot Act?  Guantanimo bay is at the top....


REID: Voting against us was never part of our arrangement!
SPECTER: I am altering the deal! Pray I don't alter it any further!
REID: This deal keeps getting worse all the time!

[ Parent ]
But they were a product of anger. (4.00 / 4)
I'm not suggesting that anger always produces good things.

Lots of atrocious policy had NOT been a product of anger.

All I'm saying is that anger in politics, especially when it's reasonable to be angry, is not necessarily a bad thing.  

Support a Pennsylvania Progressive for Governor - Joe Hoeffel

[ Parent ]
I want to rephrase my 4th paragraph.... (4.00 / 3)
It came out wrong.

I don't want to minimize the anger towards AIG. It's legitimate... but, I agree with Eliot Spitzer.  It's a smokescreen designed to distract from the bigger problems at hand....

And the GOP wants Obama to desperately fail, so they are fanning the flames in order to tie the administration's hands on economic recovery.

Let's not fall into their trap!

REID: Voting against us was never part of our arrangement!
SPECTER: I am altering the deal! Pray I don't alter it any further!
REID: This deal keeps getting worse all the time!

[ Parent ]
It's intended as a smokescreen (4.00 / 10)
It needs to be transformed into a springboard.

The momentum behind punishing AIG needs to be harnessed towards actual substantive change. I don't know what concrete step, I don't much care which concrete step, but somebody needs to be using all this energy to get in and fix the bailout mess, providing decent oversight and a path to nationalisation.

Forgotten Countries - a foreign policy-focused blog

[ Parent ]
. (4.00 / 1)
Well, the problem is that if you pulled your pitchfork out for problem A and not problem B (and problem B has been around for a while), then why all of a sudden are people supposed to fix B?

If the media discussion is driven toward the small things, then you are going to get small solutions.

[ Parent ]
it has been transformed into a springboard (4.00 / 5)
A 90% marginal tax rate on high income individuals is the substantive, progressive change I've been looking for. It's just a beginning, they'll have to spread it beyond just bailout recipients and bonuses, but it's something. It's the first real legislative move to address income inequality to come out of our newly Democratic government. Addressing income inequality was the second consensus priority of the Democratic presidential candidates, after health care reform.

[ Parent ]
This were "retention bonuses" (4.00 / 4)
Sound economic policy should mean that every single of one of these "bankers" should not be retained. They should be fired, not retained.

One of the underlying sytemic problems in the banking world is the mindset of the last few decades of gung ho, do anything to get their bonuses style of banking policy.  These AIGFP folks are the epitome of what's wrong with the personnel in the banking world.

They should be fired.  They should be replaced with old fashined, boring middle of the road bankers, not masters of the universe types.

The anger gets at one of the egregious symptoms of what is wrong with the banking system sytemically.


"Incrementalism isn't a different path to the same place, it could be a different path to a different place"
Stoller

[ Parent ]
I read elsewhere (0.00 / 0)
"retention bonuses" are what they call them when they lose money. When they are making money they are called "performance bonuses" (yeah, right).

Pretty  much a "heads I win, tails I win" deal, in which they pay themselves obscene amounts regardless of what's happening with the firm.

Montani semper liberi

[ Parent ]
I'm pretty sure that anger (4.00 / 2)
of one sort or another was at the root of the Declaration of Indpendence and the Emancipation Proclaimation.


"It sounds wrong...
     ...but its right."
[ Parent ]
Well said... (4.00 / 6)
...except that the problem with trying to play both sides is more than just that it's "politically untenable" to do so.  It is first and foremost a theft and a fraud perpetrated against the American people.  It is a gross betrayal by Obama of his supporters and of those who chose to vote for him based on his promises of ending DC business as usual.

The AIG bonuses are merely a symptom.

It is about his cabinet choices. (4.00 / 10)
Geithner and Summers are part of the problem.  It's no coincidence that Bob Rubin was among Obama's advisors during the campaign.  These guys are some of the creators and developers of the "failed economic policies" that Obama campaigned against.

I will let other, more credible critics say it.

Prof. James Galbraith:

The chance of a return to normal depends, in turn, on the banking strategy. To Obama's economists a "normal" economy is led and guided by private banks. When domestic credit booms are under way, they tend to generate high employment and low inflation; this makes the public budget look good, and spares the president and Congress many hard decisions. For this reason the new team instinctively seeks to return the bankers to their normal position at the top of the economic hill. Secretary Geithner told CNBC, "We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."
 {snip}

Geithner's banking plan would prolong the state of denial. It involves government guarantees of the bad assets, keeping current management in place and attempting to attract new private capital. (Conversion of preferred shares to equity, which may happen with Citigroup, conveys no powers that the government, as regulator, does not already have.) The idea is that one can fix the banks from the top down, by reestablishing markets for their bad securities. If the idea seems familiar, it is: Henry Paulson also pressed for this, to the point of winning congressional approval. But then he abandoned the idea. Why? He learned it could not work.

Read the whole article.  It is more of what Galbraith, Krugman, Stiglitz, Roubini, and just about every other credible economist outside the administration has been saying for weeks (months?).

And this from the less reverent Ilargi:

It's high time to divert your attention from AIG bonuses, and to focus on the entire system. The one that's cost you $2 trillion, not just $165 million. Time to look at Goldman Sachs and Morgan Stanley, at the people who run those operations. At the role played in the whole scheme by the revolving door crowd of Henry Paulson, Tim Geithner, Robert Rubin, Lloyd Blankfein etc etc., who were all actively involved in the creatively innovative deals of the past decade that have led to the government spending $2 trillion on their firms. Actually, there are the very people who, once they entered government, obtained the power to spend your cash to cover the losses they had incurred for their companies while working in the private sector.

Mike, I agree with you totally that Obama needs to choose sides here, or forever hold his peace(hopefully, his choices don't already indicate that he has).  This is not an easy thing to do so early in what is arguably our most historically critical moment.  This can all go very, very wrong and I fear that it will.  Hell, he's showing more deference to Pete Peterson and his fiscal doomsday propaganda machine than he is to bona fide economists who have a plethora of ideas that sound like the change we voted for.

"We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both." - SCOTUS Justice Louis Brandeis

The statement you wrote that scares me (4.00 / 4)
and I don't use that word lightly, is this:Hell, he's showing more deference to Pete Peterson and his fiscal doomsday propaganda machine than he is to bona fide economists who have a plethora of ideas that sound like the change we voted for.

Why give ANY credence to this guy, why DO that?

When I see economic summits that include Stiglitz, Krugman, Dean Baker,Nouriel Roubini, and Jamie Galbraith at the White House I'll feel better.

But I'm not holding my breath

[ Parent ]
. (0.00 / 0)
it's at the core of whether your Presidency succeeds.  

There is only relevant "populist anger" for Obama to face if Obama takes the PR hit. Congress and AIG will take that hit way before he does however.

There is a difference between being angry about the bonuses and being angry at the Administration about the bonuses. Only people with an ax to grind (or interviews to give) jump from the former to the latter. Or did you guys think the GOP was running with this by coincidence?

Obama has to walk the tightrope so he doesn't get hung by his own rope like Senator Dodd. Treating it like the 1 week issue it is is smarter then fanning the flames of a situation and putting yourself in the crosshairs. Of course it's a fuckin distraction. You don't see congress holding special hearings or making special laws to see what AIG did with the rest of the money they got. You don't see Congress debating the budget. And this bonus "scnadal" damn sure isn't going to make the top 5 list of voting criteria in 2010 or 2012.

Maybe your attention span is < 2 years, (4.00 / 1)
but I assure you, for normal people it is not.

Montani semper liberi
[ Parent ]
. (0.00 / 0)
Attention spans at issue, it's the fact that normal people aren't myopic. And as such they have to deal with things like: am i employed, do i have health insurance, did my taxes go up, do i feel safe. Maybe somewhere on that list falls "did AIG give out bonuses"

And i'm being generous with the maybe.

[ Parent ]
After these past few days I can only conclude (0.00 / 0)
that you are either an AIG executive, or wish you were. I don't know which is more pathetic.

Montani semper liberi
[ Parent ]
. (0.00 / 0)
I'm not the type over person to get worked up over an issue that has no lasting consequence on the big picture and has no real consequence in the short term either. Whether or not we recoup the AIG money has on bearing on anything of importance outside of whether or not we recoup the money. I absolutely HATE symbolic issues. I mean, what, am I supposed to take pleasure in watching Congress flail around and do more about this and ask more questions about this than anything related to TARP? And that pleasure is supposed to take precedence over all the other political realities right now, like the budget or the healthcare debate or the EFCA?

Please.

[ Parent ]
Yet you have spent so many pixels (0.00 / 0)
telling the rest of us here what we should or shouldn't care about.

Sounds like the very definition of "worked up" to me.

Montani semper liberi

[ Parent ]
Hello (4.00 / 1)
What country are you living in?  
[ Parent ]
Obamanation (4.00 / 4)
i supported him, too, and i do think he is doing a good job in many areas, but i am not impressed with his approach to healthcare or education... we don't need insurance companies driving up the cost of care under the guise of universal access, and we don't need schools firing teachers because they don't have students as successful as other teachers. besides, in his education address, he spoke a great deal about training youth for the workplace, but nothing about citizenship. at least in those areas he is getting something started.
his hesitation on how to respond to the depression we are entering is not comforting or encouraging. i would have thought since he had 2 months to put together an economic team they would be more coordinated in their approach, as well as more forthright and intelligent in strategies by now.
his hesitancy to provide clear and bold leadership in the economic crisis is getting scary.
Forcing people to do business with insurance companies... (4.00 / 2)
... is hardly "bold".

I've noticed that when Obama is presented with door #1, door #2, and door #3, he tends to pick door #2 -- the middle.

That works in a stable system where the range of policies is relatively narrow.

It doesn't work at all in a system that's unstable, or is changing state. Sometimes, you have to choose, and you can't "muddle through."

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  

door #2 (0.00 / 0)
Amen!
[ Parent ]
And SOMETIMES You Have To Go Through The Window (4.00 / 3)
Just sayin'.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
[ Parent ]
Yep (0.00 / 0)
Agreed, but what's the point of the link?

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  
[ Parent ]
This is not just politically untenable (0.00 / 0)
which it is...it is economically counterproductive

"Incrementalism isn't a different path to the same place, it could be a different path to a different place"
Stoller
With all due respect, this is spoken like an insider. (4.00 / 1)
bold progressive plans on healthcare, energy, education, and his budget. My strongest instinct is always to back his play, or to be quiet if I can't.

There isn't anything bold about Obama except his talk.  Mandated healthcare insurance is not healthcare, it is welfare for insurance companies.   His education plan is nothing more than conservative talking points about teacher merit pay, more charter schools, and big brother data bases that will likely get outsourced to India.  His budgeting includes schemes to cut entitlements including social security while continuing to pay for two wars and the Bush tax cuts.  Did you read Paul's diary on Galbraith?

While I was never an Obama supporter, I was willing to give him a chance based on the assurances from many that he was a "new" kind of politician.  Well, he isn't.  He and his administration are clones of the Clinton WH and nothing more.   He is, at present, a shining example of what is wrong with the American political process.  We get nothing to vote for but insiders backed by insiders and big money - regardless of party.  



They're asking for another four years -- in a just world, they'd get 10 to 20. ~~ Dennis Kucinich  

The question about Obama for me (4.00 / 2)
has always been, when push came to shove, did he believe there were sides or was he so enamored of his ability to walk the high wire among screaming demands that he forgot that some time he would have to jump one way or another.

The "bonus" backlash, epiphenomenon of what seems to be real economic collapse, is pushing him to jump -- will he?

The high wire act isn't working. He can't satisfy everyone. Which side will he land on?

What's galling is that I begin to wonder whether he has the intellectual power to grasp that Summers et al are feeding him hot air. I've never wondered about his sheer smarts before.

And I hate it that the American people have been so reduced to spectators in our own polity that we can only intrude on our rulers by way of raving, angry eruptions.

Can it happen here?

about the 'fire geithner' sentiment (0.00 / 0)
It's not just Geithner. It's Summers and Romer too.
Choices | 40 comments
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