I wish it were true.
I wish it were true that Occupy Wall Street could morph into our “American spring,” a left-wing counterweight to the tea party.
I wish it were true that this naive and incoherent movement could somehow turn itself into the long-overdue national protest against speculation and manipulation by a financial services industry that misallocated so much capital and talent and continues to keep much of the global economy on the edge of recession.
I wish it were true that Bank of America’s bone-headed decision to charge a $5 monthly fee for debit cards would prove to be the point at which public opinion finally turned against those who blame government regulation for our economic problems.
I wish it were true that the Obama administration had learned how to channel public anger to lasting political advantage.
When asked about the protests at his news conference last week, President Obama answered with perfect political pitch. Without buying into the exaggerated and uninformed rhetoric of the young protesters, the president aligned himself with the “broad-based frustration about how our financial system works.”
He endorsed the kind of free-market competition that is based on the price and quality of products and services rather than “hidden fees, deceptive practices [and] derivative cocktails that nobody understands and that exposed the entire economy to enormous risks.” And taking a page from the Clinton hymnal, he channeled some of the anger of people who “play by the rules” and are falling behind while those on Wall Street keep getting richer and richer.
And his Treasury secretary? Asked about the protests the previous day at a conference hosted by The Atlantic, here’s a generously edited and cleaned-up version of what Tim Geithner had to say:
“No, I feel a lot of sympathy for what you might describe as the general sense among Americans that we’ve lost a sense of possibility, that after a lost decade of income growth and fiscal irresponsibility, a devastating financial crisis and a huge loss of confidence in public institutions, people do wonder whether we have the ability to do things that can help the average person’s sense of opportunity.”
Or how about White House Chief of Staff Bill Daley, outside the same conference, responding to a reporter’s question about whether the protests were helpful to the White House in furthering its economic agenda:
“I don’t know if it’s helpful.”
Trust me on this one, Bill: It’s helpful. And the fact that the White House chief of staff can’t see that and say it publicly is why Barack Obama finds himself in the political pickle he’s in.
I realize Daley has taken it as his personal challenge to repair relations with the business community. But the first thing to point out is that the business community isn’t Wall Street. More significantly, however, you can’t “repair” relations with the business community while its members are pushing back against virtually every one of your initiatives and generously financing the Republican opposition. The way to “repair” your relationship with the business community under such conditions is to provide convincing political evidence that they need to repair their relationship with you.
I’m sure Daley and Geithner are keenly aware that there’s a nasty political war going on out there and that they’re losing. What I suspect they don’t fully understand is that one reason they’re losing it is that people aren’t sure which side they’re on. And the way to let people know which side you’re on is to send clear signals through what you say and what you do.
Columnists and voters aren’t the only ones frustrated by the administration’s mixed signals. So, it turns out, is President Obama. That’s the message I took away from Ron Suskind’s new book on the Obama economic team. As Suskind relates it, time and again the president would come in with a letter or an anecdote or newspaper clipping and ask his advisers, “Why aren’t we doing this?” And in time what he would get would be explanations of why this wouldn’t work and that can’t be done. A president who ran on the motto of “Yes We Can” seems to have found himself surrounded by an economic and political team whose motto is “No We Can’t.”
I’m imagining how the conversations might have gone, but it’s not totally uninformed imagining:
Hiring a million young Americans for minimum-wage public service jobs? Sorry, boss, the execution would be too difficult and there would be problems with the unions.
Embracing the recommendations of his own deficit-reduction commission? Sorry, Mr. President, can’t risk alienating congressional Democrats and special-interest groups.
Using legal and regulatory sticks to force the biggest banks to renegotiate millions of souring mortgage loans? Sorry, can’t risk destabilizing the mortgage markets and weakening bank balance sheets.
Having government and nonprofits buy up millions of foreclosed properties at fire-sale prices, fixing them up and renting them out to low-income families until the economy and the real estate market recover? Sorry, too expensive, too slow, too much government involvement in the economy, too much risk of fraud.
And the beat goes on.
Right now, the European Union is moving to impose a small tax (one-tenth of one percent) on all financial transactions as a way of raising money for bailouts and discouraging speculative, high-volume trading schemes that have turbo-charged market volatility and put extra pressure on banks and over-leveraged governments. For the idea to work, the Europeans need the United States and Britain to participate.
This is actually an old idea, first proposed by John Maynard Keynes, revived by Nobel-prize winning economist James Tobin in the 1960s and defended in a 1989 paper by Harvard economists Lawrence and Victoria Summers. The Summers’ basic conclusion was that while the transaction tax might reduce trading volume, it was the kind of trading volume that we could do without — the kind that was speculative and detracted from the overall health of the economy. They found there would be little negative impact on the cost of raising capital from long-term investors.
But when the financial-transaction tax was proposed in the aftermath of the most recent financial crisis, Larry Summers had a change of heart. The new director of Obama’s National Economic Council concluded that financial markets had changed so much in the past two decades that the tax was unlikely to be effective and could wind up destabilizing markets even further. The administration has opposed them ever since.
Unfortunately, Summers was right the first time, economically as well as politically. The fact that the administration can’t join a global effort to rein in excessive speculation while raising tens of billions of dollars a year from banks to help pay for the mess they created — that’s precisely the sort of signal that lets everyone knows what side you are on.
So is a concerted global effort to limit the use of credit-default swaps to legitimate hedging rather than as a way for the Wall Street wise guys to place bets against bonds they don’t even own. These highly leveraged bets have now greatly complicated the effort to restructure Greece’s outstanding bonds while fueling the self-fulfilling speculation over a default by Italy and Spain and a number of European banks. Figuring out how to regulate CDSs without banning them is a tricky bit of business, one that is well above my pay grade. But it is telling that rather than joining European countries to devise such a policy, Obama’s Treasury is once again allied with Wall Street in trying to quash it.
Here’s a little free advice for Secretary Geithner and Chief of Staff Daley: This weekend, put on jeans and a sweatshirt, ditch the security detail and make an unannounced visit to Zuccotti Park. You just might learn something, but for sure you’ll let everyone know what side you are on.