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Thursday, December 31, 2009

Obama's Big Sellout: An All-Out Giveaway to Wall Street !!!

Rolling Stone

Obama's Big Sellout

The president has packed his economic team with Wall Street insiders intent on turning the bailout into an all-out giveaway

MATT TAIBBI

Photo

Watch Matt Taibbi discuss "The Big Sellout" in a video on his blog, Taibblog.

Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.

Then he got elected.

What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.

How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?

Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.

How did we get here? It started just moments after the election — and almost nobody noticed.


Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.

Then he got elected.

What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.

How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?

Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.

How did we get here? It started just moments after the election — and almost nobody noticed.


'Just look at the timeline of the Citigroup deal," says one leading Democratic consultant. "Just look at it. It's fucking amazing. Amazing! And nobody said a thing about it."

Barack Obama was still just the president-elect when it happened, but the revolting and inexcusable $306 billion bailout that Citigroup received was the first major act of his presidency. In order to grasp the full horror of what took place, however, one needs to go back a few weeks before the actual bailout — to November 5th, 2008, the day after Obama's election.

That was the day the jubilant Obama campaign announced its transition team. Though many of the names were familiar — former Bill Clinton chief of staff John Podesta, long-time Obama confidante Valerie Jarrett — the list was most notable for who was not on it, especially on the economic side. Austan Goolsbee, a University of Chicago economist who had served as one of Obama's chief advisers during the campaign, didn't make the cut. Neither did Karen Kornbluh, who had served as Obama's policy director and was instrumental in crafting the Democratic Party's platform. Both had emphasized populist themes during the campaign: Kornbluh was known for pushing Democrats to focus on the plight of the poor and middle class, while Goolsbee was an aggressive critic of Wall Street, declaring that AIG executives should receive "a Nobel Prize — for evil."

But come November 5th, both were banished from Obama's inner circle — and replaced with a group of Wall Street bankers. Leading the search for the president's new economic team was his close friend and Harvard Law classmate Michael Froman, a high-ranking executive at Citigroup. During the campaign, Froman had emerged as one of Obama's biggest fundraisers, bundling $200,000 in contributions and introducing the candidate to a host of heavy hitters — chief among them his mentor Bob Rubin, the former co-chairman of Goldman Sachs who served as Treasury secretary under Bill Clinton. Froman had served as chief of staff to Rubin at Treasury, and had followed his boss when Rubin left the Clinton administration to serve as a senior counselor to Citigroup (a massive new financial conglomerate created by deregulatory moves pushed through by Rubin himself).

Incredibly, Froman did not resign from the bank when he went to work for Obama: He remained in the employ of Citigroup for two more months, even as he helped appoint the very people who would shape the future of his own firm. And to help him pick Obama's economic team, Froman brought in none other than Jamie Rubin, who happens to be Bob Rubin's son. At the time, Jamie's dad was still earning roughly $15 million a year working for Citigroup, which was in the midst of a collapse brought on in part because Rubin had pushed the bank to invest heavily in mortgage-backed CDOs and other risky instruments.

Now here's where it gets really interesting. It's three weeks after the election. You have a lame-duck president in George W. Bush — still nominally in charge, but in reality already halfway to the golf-and-O'Doul's portion of his career and more than happy to vacate the scene. Left to deal with the still-reeling economy are lame-duck Treasury Secretary Henry Paulson, a former head of Goldman Sachs, and New York Fed chief Timothy Geithner, who served under Bob Rubin in the Clinton White House. Running Obama's economic team are a still-employed Citigroup executive and the son of another Citigroup executive, who himself joined Obama's transition team that same month.

So on November 23rd, 2008, a deal is announced in which the government will bail out Rubin's messes at Citigroup with a massive buffet of taxpayer-funded cash and guarantees. It is a terrible deal for the government, almost universally panned by all serious economists, an outrage to anyone who pays taxes. Under the deal, the bank gets $20 billion in cash, on top of the $25 billion it had already received just weeks before as part of the Troubled Asset Relief Program. But that's just the appetizer. The government also agrees to charge taxpayers for up to $277 billion in losses on troubled Citi assets, many of them those toxic CDOs that Rubin had pushed Citi to invest in. No Citi executives are replaced, and few restrictions are placed on their compensation. It's the sweetheart deal of the century, putting generations of working-stiff taxpayers on the hook to pay off Bob Rubin's fuck-up-rich tenure at Citi. "If you had any doubts at all about the primacy of Wall Street over Main Street," former labor secretary Robert Reich declares when the bailout is announced, "your doubts should be laid to rest."

It is bad enough that one of Bob Rubin's former protégés from the Clinton years, the New York Fed chief Geithner, is intimately involved in the negotiations, which unsurprisingly leave the Federal Reserve massively exposed to future Citi losses. But the real stunner comes only hours after the bailout deal is struck, when the Obama transition team makes a cheerful announcement: Timothy Geithner is going to be Barack Obama's Treasury secretary!

Geithner, in other words, is hired to head the U.S. Treasury by an executive from Citigroup — Michael Froman — before the ink is even dry on a massive government giveaway to Citigroup that Geithner himself was instrumental in delivering. In the annals of brazen political swindles, this one has to go in the all-time Fuck-the-Optics Hall of Fame.

Wall Street loved the Citi bailout and the Geithner nomination so much that the Dow immediately posted its biggest two-day jump since 1987, rising 11.8 percent. Citi shares jumped 58 percent in a single day, and JP Morgan Chase, Merrill Lynch and Morgan Stanley soared more than 20 percent, as Wall Street embraced the news that the government's bailout generosity would not die with George W. Bush and Hank Paulson. "Geithner assures a smooth transition between the Bush administration and that of Obama, because he's already co-managing what's happening now," observed Stephen Leeb, president of Leeb Capital Management.

Left unnoticed, however, was the fact that Geithner had been hired by a sitting Citigroup executive who still had a big bonus coming despite his proximity to Obama. In January 2009, just over a month after the bailout, Citigroup paid Froman a year-end bonus of $2.25 million. But as outrageous as it was, that payoff would prove to be chump change for the banker crowd, who were about to get everything they wanted — and more — from the new president.

The irony of Bob Rubin: He's an unapologetic arch-capitalist demagogue whose very career is proof that a free-market meritocracy is a myth. Much like Alan Greenspan, a staggeringly incompetent economic forecaster who was worshipped by four decades of politicians because he once dated Barbara Walters, Rubin has been held in awe by the American political elite for nearly 20 years despite having fucked up virtually every project he ever got his hands on. He went from running Goldman Sachs (1990-1992) to the Clinton White House (1993-1999) to Citigroup (1999-2009), leaving behind a trail of historic gaffes that somehow boosted his stature every step of the way.

As Treasury secretary under Clinton, Rubin was the driving force behind two monstrous deregulatory actions that would be primary causes of last year's financial crisis: the repeal of the Glass-Steagall Act (passed specifically to legalize the Citigroup megamerger) and the deregulation of the derivatives market. Having set that time bomb, Rubin left government to join Citi, which promptly expressed its gratitude by giving him $126 million in compensation over the next eight years (they don't call it bribery in this country when they give you the money post factum). After urging management to amp up its risky investments in toxic vehicles, a strategy that very nearly destroyed the company, Rubin blamed Citi's board for his screw-ups and complained that he had been underpaid to boot. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said.

Despite being perhaps more responsible for last year's crash than any other single living person — his colossally stupid decisions at both the highest levels of government and the management of a private financial superpower make him unique — Rubin was the man Barack Obama chose to build his White House around.

There are four main ways to be connected to Bob Rubin: through Goldman Sachs, the Clinton administration, Citigroup and, finally, the Hamilton Project, a think tank Rubin spearheaded under the auspices of the Brookings Institute to promote his philosophy of balanced budgets, free trade and financial deregulation. The team Obama put in place to run his economic policy after his inauguration was dominated by people who boasted connections to at least one of these four institutions — so much so that the White House now looks like a backstage party for an episode of Bob Rubin, This Is Your Life!

At Treasury, there is Geithner, who worked under Rubin in the Clinton years. Serving as Geithner's "counselor" — a made-up post not subject to Senate confirmation — is Lewis Alexander, the former chief economist of Citigroup, who advised Citi back in 2007 that the upcoming housing crash was nothing to worry about. Two other top Geithner "counselors" — Gene Sperling and Lael Brainard — worked under Rubin at the National Economic Council, the key group that coordinates all economic policymaking for the White House.

As director of the NEC, meanwhile, Obama installed economic czar Larry Summers, who had served as Rubin's protégé at Treasury. Just below Summers is Jason Furman, who worked for Rubin in the Clinton White House and was one of the first directors of Rubin's Hamilton Project. The appointment of Furman — a persistent advocate of free-trade agreements like NAFTA and the author of droolingly pro-globalization reports with titles like "Walmart: A Progressive Success Story" — provided one of the first clues that Obama had only been posturing when he promised crowds of struggling Midwesterners during the campaign that he would renegotiate NAFTA, which facilitated the flight of blue-collar jobs to other countries. "NAFTA's shortcomings were evident when signed, and we must now amend the agreement to fix them," Obama declared. A few months after hiring Furman to help shape its economic policy, however, the White House quietly quashed any talk of renegotiating the trade deal. "The president has said we will look at all of our options, but I think they can be addressed without having to reopen the agreement," U.S. Trade Representative Ronald Kirk told reporters in a little-publicized conference call last April.

The announcement was not so surprising, given who Obama hired to serve alongside Furman at the NEC: management consultant Diana Farrell, who worked under Rubin at Goldman Sachs. In 2003, Farrell was the author of an infamous paper in which she argued that sending American jobs overseas might be "as beneficial to the U.S. as to the destination country, probably more so."

Joining Summers, Furman and Farrell at the NEC is Froman, who by then had been formally appointed to a unique position: He is not only Obama's international finance adviser at the National Economic Council, he simultaneously serves as deputy national security adviser at the National Security Council. The twin posts give Froman a direct line to the president, putting him in a position to coordinate Obama's international economic policy during a crisis. He'll have help from David Lipton, another joint appointee to the economics and security councils who worked with Rubin at Treasury and Citigroup, and from Jacob Lew, a former Citi colleague of Rubin's whom Obama named as deputy director at the State Department to focus on international finance.

Over at the Commodity Futures Trading Commission, which is supposed to regulate derivatives trading, Obama appointed Gary Gensler, a former Goldman banker who worked under Rubin in the Clinton White House. Gensler had been instrumental in helping to pass the infamous Commodity Futures Modernization Act of 2000, which prevented regulation of derivative instruments like CDOs and credit-default swaps that played such a big role in cratering the economy last year. And as head of the powerful Office of Management and Budget, Obama named Peter Orszag, who served as the first director of Rubin's Hamilton Project. Orszag once succinctly summed up the project's ideology as a sort of liberal spin on trickle-down Reaganomics: "Market competition and globalization generate significant economic benefits."

Taken together, the rash of appointments with ties to Bob Rubin may well represent the most sweeping influence by a single Wall Street insider in the history of government. "Rather than having a team of rivals, they've got a team of Rubins," says Steven Clemons, director of the American Strategy Program at the New America Foundation. "You see that in policy choices that have resuscitated — but not reformed — Wall Street."

While Rubin's allies and acolytes got all the important jobs in the Obama administration, the academics and progressives got banished to semi-meaningless, even comical roles. Kornbluh was rewarded for being the chief policy architect of Obama's meteoric rise by being outfitted with a pith helmet and booted across the ocean to Paris, where she now serves as America's never-again-to-be-seen-on-TV ambassador to the Organization for Economic Cooperation and Development. Goolsbee, meanwhile, was appointed as staff director of the President's Economic Recovery Advisory Board, a kind of dumping ground for Wall Street critics who had assisted Obama during the campaign; one top Democrat calls the panel "Siberia."

Joining Goolsbee as chairman of the PERAB gulag is former Fed chief Paul Volcker, who back in March 2008 helped candidate Obama write a speech declaring that the deregulatory efforts of the Eighties and Nineties had "excused and even embraced an ethic of greed, corner-cutting, insider dealing, things that have always threatened the long-term stability of our economic system." That speech met with rapturous applause, but the commission Obama gave Volcker to manage is so toothless that it didn't even meet for the first time until last May. The lone progressive in the White House, economist Jared Bernstein, holds the impressive-sounding title of chief economist and national policy adviser — except that the man he is advising is Joe Biden, who seems more interested in foreign policy than financial reform.

The significance of all of these appointments isn't that the Wall Street types are now in a position to provide direct favors to their former employers. It's that, with one or two exceptions, they collectively offer a microcosm of what the Democratic Party has come to stand for in the 21st century. Virtually all of the Rubinites brought in to manage the economy under Obama share the same fundamental political philosophy carefully articulated for years by the Hamilton Project: Expand the safety net to protect the poor, but let Wall Street do whatever it wants. "Bob Rubin, these guys, they're classic limousine liberals," says David Sirota, a former Democratic strategist. "These are basically people who have made shitloads of money in the speculative economy, but they want to call themselves good Democrats because they're willing to give a little more to the poor. That's the model for this Democratic Party: Let the rich do their thing, but give a fraction more to everyone else."

Even the members of Obama's economic team who have spent most of their lives in public office have managed to make small fortunes on Wall Street. The president's economic czar, Larry Summers, was paid more than $5.2 million in 2008 alone as a managing director of the hedge fund D.E. Shaw, and pocketed an additional $2.7 million in speaking fees from a smorgasbord of future bailout recipients, including Goldman Sachs and Citigroup. At Treasury, Geithner's aide Gene Sperling earned a staggering $887,727 from Goldman Sachs last year for performing the punch-line-worthy service of "advice on charitable giving." Sperling's fellow Treasury appointee, Mark Patterson, received $637,492 as a full-time lobbyist for Goldman Sachs, and another top Geithner aide, Lee Sachs, made more than $3 million working for a New York hedge fund called Mariner Investment Group. The list goes on and on. Even Obama's chief of staff, Rahm Emanuel, who has been out of government for only 30 months of his adult life, managed to collect $18 million during his private-sector stint with a Wall Street firm called Wasserstein-Perella.

The point is that an economic team made up exclusively of callous millionaire-assholes has absolutely zero interest in reforming the gamed system that made them rich in the first place. "You can't expect these people to do anything other than protect Wall Street," says Rep. Cliff Stearns, a Republican from Florida. That thinking was clear from Obama's first address to Congress, when he stressed the importance of getting Americans to borrow like crazy again. "Credit is the lifeblood of the economy," he declared, pledging "the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money." A president elected on a platform of change was announcing, in so many words, that he planned to change nothing fundamental when it came to the economy. Rather than doing what FDR had done during the Great Depression and institute stringent new rules to curb financial abuses, Obama planned to institutionalize the policy, firmly established during the Bush years, of keeping a few megafirms rich at the expense of everyone else.

Obama hasn't always toed the Rubin line when it comes to economic policy. Despite being surrounded by a team that is powerfully opposed to deficit spending — balanced budgets and deficit reduction have always been central to the Rubin way of thinking — Obama came out of the gate with a huge stimulus plan designed to kick-start the economy and address the job losses brought on by the 2008 crisis. "You have to give him credit there," says Sen. Bernie Sanders, an advocate of using government resources to address unemployment. "It's a very significant piece of legislation, and $787 billion is a lot of money."

But whatever jobs the stimulus has created or preserved so far — 640,329, according to an absurdly precise and already debunked calculation by the White House — the aid that Obama has provided to real people has been dwarfed in size and scope by the taxpayer money that has been handed over to America's financial giants. "They spent $75 billion on mortgage relief, but come on — look at how much they gave Wall Street," says a leading Democratic strategist. Neil Barofsky, the inspector general charged with overseeing TARP, estimates that the total cost of the Wall Street bailouts could eventually reach $23.7 trillion. And while the government continues to dole out big money to big banks, Obama and his team of Rubinites have done almost nothing to reform the warped financial system responsible for imploding the global economy in the first place.

The push for reform seemed to get off to a promising start. In the House, the charge was led by Rep. Barney Frank, the outspoken chair of the House Financial Services Committee, who emerged during last year's Bush bailouts as a sharp-tongued critic of Wall Street. Back when Obama was still a senator, he and Frank even worked together to introduce a populist bill targeting executive compensation. Last spring, with the economy shattered, Frank began to hold hearings on a host of reforms, crafted with significant input from the White House, that initially contained some very good elements. There were measures to curb abusive credit-card lending, prevent banks from charging excessive fees, force publicly traded firms to conduct meaningful risk assessment and allow shareholders to vote on executive compensation. There were even measures to crack down on risky derivatives and to bar firms like AIG from picking their own regulators.

Then the committee went to work — and the loopholes started to appear.

The most notable of these came in the proposal to regulate derivatives like credit-default swaps. Even Gary Gensler, the former Goldmanite whom Obama put in charge of commodities regulation, was pushing to make these normally obscure investments more transparent, enabling regulators and investors to identify speculative bubbles sooner. But in August, a month after Gensler came out in favor of reform, Geithner slapped him down by issuing a 115-page paper called "Improvements to Regulation of Over-the-Counter Derivatives Markets" that called for a series of exemptions for "end users" — i.e., almost all of the clients who buy derivatives from banks like Goldman Sachs and Morgan Stanley. Even more stunning, Frank's bill included a blanket exception to the rules for currency swaps traded on foreign exchanges — the very instruments that had triggered the Long-Term Capital Management meltdown in the late 1990s.

Given that derivatives were at the heart of the financial meltdown last year, the decision to gut derivatives reform sent some legislators howling with disgust. Sen. Maria Cantwell of Washington, who estimates that as much as 90 percent of all derivatives could remain unregulated under the new rules, went so far as to say the new laws would make things worse. "Current law with its loopholes might actually be better than these loopholes," she said.

An even bigger loophole could do far worse damage to the economy. Under the original bill, the Securities and Exchange Commission and the Commodity Futures Trading Commission were granted the power to ban any credit swaps deemed to be "detrimental to the stability of a financial market or of participants in a financial market." By the time Frank's committee was done with the bill, however, the SEC and the CFTC were left with no authority to do anything about abusive derivatives other than to send a report to Congress. The move, in effect, would leave the kind of credit-default swaps that brought down AIG largely unregulated.

Why would leading congressional Democrats, working closely with the Obama administration, agree to leave one of the riskiest of all financial instruments unregulated, even before the issue could be debated by the House? "There was concern that a broad grant to ban abusive swaps would be unsettling," Frank explained.

Unsettling to whom? Certainly not to you and me — but then again, actual people are not really part of the calculus when it comes to finance reform. According to those close to the markup process, Frank's committee inserted loopholes under pressure from "constituents" — by which they mean anyone "who can afford a lobbyist," says Michael Greenberger, the former head of trading at the CFTC under Clinton.

This pattern would repeat itself over and over again throughout the fall. Take the centerpiece of Obama's reform proposal: the much-ballyhooed creation of a Consumer Finance Protection Agency to protect the little guy from abusive bank practices. Like the derivatives bill, the debate over the CFPA ended up being dominated by horse-trading for loopholes. In the end, Frank not only agreed to exempt some 8,000 of the nation's 8,200 banks from oversight by the castrated-in-advance agency, leaving most consumers unprotected, he allowed the committee to pass the exemption by voice vote, meaning that congressmen could side with the banks without actually attaching their name to their "Aye."

To win the support of conservative Democrats, Frank also backed down on another issue that seemed like a slam-dunk: a requirement that all banks offer so-called "plain vanilla" products, such as no-frills mortgages, to give consumers an alternative to deceptive, "fully loaded" deals like adjustable-rate loans. Frank's last-minute reversal — made in consultation with Geithner — was such a transparent giveaway to the banks that even an economics writer for Reuters, hardly a far-left source, called it "the beginning of the end of meaningful regulatory reform."

But the real kicker came when Frank's committee took up what is known as "resolution authority" — government-speak for "Who the hell is in charge the next time somebody at AIG or Lehman Brothers decides to vaporize the economy?" What the committee initially introduced bore a striking resemblance to a proposal written by Geithner earlier in the summer. A masterpiece of legislative chicanery, the measure would have given the White House permanent and unlimited authority to execute future bailouts of megaconglomerates like Citigroup and Bear Stearns.

Democrats pushed the move as politically uncontroversial, claiming that the bill will force Wall Street to pay for any future bailouts and "doesn't use taxpayer money." In reality, that was complete bullshit. The way the bill was written, the FDIC would basically borrow money from the Treasury — i.e., from ordinary taxpayers — to bail out any of the nation's two dozen or so largest financial companies that the president deems in need of government assistance. After the bailout is executed, the president would then levy a tax on financial firms with assets of more than $10 billion to repay the Treasury within 60 months — unless, that is, the president decides he doesn't want to! "They can wait indefinitely to repay," says Rep. Brad Sherman of California, who dubbed the early version of the bill "TARP on steroids."

The new bailout authority also mandated that future bailouts would not include an exchange of equity "in any form" — meaning that taxpayers would get nothing in return for underwriting Wall Street's mistakes. Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts. In fact, the resolution authority proposed by Frank was such a slurpingly obvious blow job of Wall Street that it provoked a revolt among his own committee members, with junior Democrats waging a spirited fight that restored congressional oversight to future bailouts, requires equity for taxpayer money and caps assistance to troubled firms at $150 billion. Another amendment to force companies with more than $50 billion in assets to pay into a rainy-day fund for bailouts passed by a resounding vote of 52 to 17 — with the "Nays" all coming from Frank and other senior Democrats loyal to the administration.

Even as amended, however, resolution authority still has the potential to be truly revolutionary legislation. The Senate version still grants the president unlimited power over equity-free bailouts, and the amended House bill still institutionalizes a system of taxpayer support for the 20 to 25 biggest banks in the country. It would essentially grant economic immortality to those top few megafirms, who will continually gobble up greater and greater slices of market share as money becomes cheaper and cheaper for them to borrow (after all, who wouldn't lend to a company permanently backstopped by the federal government?). It would also formalize the government's role in the global economy and turn the presidential-appointment process into an important part of every big firm's business strategy. "If this passes, the very first thing these companies are going to do in the future is ask themselves, 'How do we make sure that one of our executives becomes assistant Treasury secretary?'" says Sherman.

On the Senate side, finance reform has yet to make it through the markup process, but there's every reason to believe that its final bill will be as watered down as the House version by the time it comes to a vote. The original measure, drafted by chairman Christopher Dodd of the Senate Banking Committee, is surprisingly tough on Wall Street — a fact that almost everyone in town chalks up to Dodd's desperation to shake the bad publicity he incurred by accepting a sweetheart mortgage from the notorious lender Countrywide. "He's got to do the shake-his-fist-at-Wall Street thing because of his, you know, problems," says a Democratic Senate aide. "So that's why the bill is starting out kind of tough."

The aide pauses. "The question is, though, what will it end up looking like?"

He's right — that is the question. Because the way it works is that all of these great-sounding reforms get whittled down bit by bit as they move through the committee markup process, until finally there's nothing left but the exceptions. In one example, a measure that would have forced financial companies to be more accountable to shareholders by holding elections for their entire boards every year has already been watered down to preserve the current system of staggered votes. In other cases, this being the Senate, loopholes were inserted before the debate even began: The Dodd bill included the exemption for foreign-currency swaps — a gift to Wall Street that only appeared in the Frank bill during the course of hearings — from the very outset.

The White House's refusal to push for real reform stands in stark contrast to what it should be doing. It was left to Rep. Paul Kanjorski in the House and Bernie Sanders in the Senate to propose bills to break up the so-called "too big to fail" banks. Both measures would give Congress the power to dismantle those pseudomonopolies controlling almost the entire derivatives market (Goldman, Citi, Chase, Morgan Stanley and Bank of America control 95 percent of the $290 trillion over-the-counter market) and the consumer-lending market (Citi, Chase, Bank of America and Wells Fargo issue one of every two mortgages, and two of every three credit cards). On November 18th, in a move that demonstrates just how nervous Democrats are getting about the growing outrage over taxpayer giveaways, Barney Frank's committee actually passed Kanjorski's measure. "It's a beginning," Kanjorski says hopefully. "We're on our way." But even if the Senate follows suit, big banks could well survive — depending on whom the president appoints to sit on the new regulatory board mandated by the measure. An oversight body filled with executives of the type Obama has favored to date from Citi and Goldman Sachs hardly seems like a strong bet to start taking an ax to concentrated wealth. And given the new bailout provisions that provide these megafirms a market advantage over smaller banks (those Paul Volcker calls "too small to save"), the failure to break them up qualifies as a major policy decision with potentially disastrous consequences.

"They should be doing what Teddy Roosevelt did," says Sanders. "They should be busting the trusts."

That probably won't happen anytime soon. But at a minimum, Obama should start on the road back to sanity by making a long-overdue move: firing Geithner. Not only are the mop-headed weenie of a Treasury secretary's fingerprints on virtually all the gross giveaways in the new reform legislation, he's a living symbol of the Rubinite gangrene crawling up the leg of this administration. Putting Geithner against the wall and replacing him with an actual human being not recently employed by a Wall Street megabank would do a lot to prove that Obama was listening this past Election Day. And while there are some who think Geithner is about to go — "he almost has to," says one Democratic strategist — at the moment, the president is still letting Wall Street do his talking.

Morning, the National Mall, November 5th. A year to the day after Obama named Michael Froman to his transition team, his political "opposition" has descended upon the city. Republican teabaggers from all 50 states have showed up, a vast horde of frowning, pissed-off middle-aged white people with their idiot placards in hand, ready to do cultural battle. They are here to protest Obama's "socialist" health care bill — you know, the one that even a bloodsucking capitalist interest group like Big Pharma spent $150 million to get passed.

These teabaggers don't know that, however. All they know is that a big government program might end up using tax dollars to pay the medical bills of rapidly breeding Dominican immigrants. So they hate it. They're also in a groove, knowing that at the polls a few days earlier, people like themselves had a big hand in ousting several Obama-allied Democrats, including a governor of New Jersey who just happened to be the former CEO of Goldman Sachs. A sign held up by New Jersey protesters bears the warning, "If You Vote For Obamacare, We Will Corzine You."

I approach a woman named Pat Defillipis from Toms River, New Jersey, and ask her why she's here. "To protest health care," she answers. "And then amnesty. You know, immigration amnesty."

I ask her if she's aware that there's a big hearing going on in the House today, where Barney Frank's committee is marking up a bill to reform the financial regulatory system. She recognizes Frank's name, wincing, but the rest of my question leaves her staring at me like I'm an alien.

"Do you care at all about economic regulation?" I ask. "There was sort of a big economic collapse last year. Do you have any ideas about how that whole deal should be fixed?"

"We got to slow down on spending," she says. "We can't afford it."

"But what do we do about the rules governing Wall Street . . ."

She walks away. She doesn't give a fuck. People like Pat aren't aware of it, but they're the best friends Obama has. They hate him, sure, but they don't hate him for any reasons that make sense. When it comes down to it, most of them hate the president for all the usual reasons they hate "liberals" — because he uses big words, doesn't believe in hell and doesn't flip out at the sight of gay people holding hands. Additionally, of course, he's black, and wasn't born in America, and is married to a woman who secretly hates our country.

These are the kinds of voters whom Obama's gang of Wall Street advisers is counting on: idiots. People whose votes depend not on whether the party in power delivers them jobs or protects them from economic villains, but on what cultural markers the candidate flashes on TV. Finance reform has become to Obama what Iraq War coffins were to Bush: something to be tucked safely out of sight.

Around the same time that finance reform was being watered down in Congress at the behest of his Treasury secretary, Obama was making a pit stop to raise money from Wall Street. On October 20th, the president went to the Mandarin Oriental Hotel in New York and addressed some 200 financiers and business moguls, each of whom paid the maximum allowable contribution of $30,400 to the Democratic Party. But an organizer of the event, Daniel Fass, announced in advance that support for the president might be lighter than expected — bailed-out firms like JP Morgan Chase and Goldman Sachs were expected to contribute a meager $91,000 to the event — because bankers were tired of being lectured about their misdeeds.

"The investment community feels very put-upon," Fass explained. "They feel there is no reason why they shouldn't earn $1 million to $200 million a year, and they don't want to be held responsible for the global financial meltdown."

Which makes sense. Shit, who could blame the investment community for the meltdown? What kind of assholes are we to put any of this on them?

This is the kind of person who is working for the Obama administration, which makes it unsurprising that we're getting no real reform of the finance industry. There's no other way to say it: Barack Obama, a once-in-a-generation political talent whose graceful conquest of America's racial dragons en route to the White House inspired the entire world, has for some reason allowed his presidency to be hijacked by sniveling, low-rent shitheads. Instead of reining in Wall Street, Obama has allowed himself to be seduced by it, leaving even his erstwhile campaign adviser, ex-Fed chief Paul Volcker, concerned about a "moral hazard" creeping over his administration.

"The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted," Volcker told Congress in September, expressing concerns about all the regulatory loopholes in Frank's bill. "Ultimately, the possibility of further crises — even greater crises — will increase."

What's most troubling is that we don't know if Obama has changed, or if the influence of Wall Street is simply a fundamental and ineradicable element of our electoral system. What we do know is that Barack Obama pulled a bait-and-switch on us. If it were any other politician, we wouldn't be surprised. Maybe it's our fault, for thinking he was different.

Correction: Due to an editing error, the original version of this story incorrectly identified Jamie Rubin, Bob Rubin's son, as a former diplomat in the Clinton administration.

Watch Matt Taibbi discuss "The Big Sellout" in a video on his blog, Taibblog.

[From Issue 1093 — December 10, 2009]

Related Stories:

Obama: Digging Out or Digging Deeper?

Obama: Digging Out or Digging Deeper?

by Jim Lobe

WASHINGTON - As 2009 draws to a close, the big question here is whether President Barack Obama is succeeding in digging out of the hole - international as well as financial - that he inherited from George W. Bush or digging deeper into it.

[U.S. President Barack Obama in the East Room at the White House in Washington October 7, 2009. Obama said on Tuesday that it was clear a "systemic failure" had occurred in connection with the failed attack on a Detroit-bound passenger plane on Christmas Day. (REUTERS/Jim Young/Files)]U.S. President Barack Obama in the East Room at the White House in Washington October 7, 2009. Obama said on Tuesday that it was clear a "systemic failure" had occurred in connection with the failed attack on a Detroit-bound passenger plane on Christmas Day. (REUTERS/Jim Young/Files)
The answers to that question are both varied and decidedly mixed.

One school of thought, for example, sees Obama as having gone far in restoring Washington's image as a generally law-abiding hegemon with a renewed commitment to multilateralism and international cooperation after the neo-imperialist trajectory on which Bush, especially in his first term, set the nation's course.

Obama's has adopted more humble rhetoric and outreach to the Muslim world, banned torture, promised to close down the Guantanamo Bay detention camp, and cleared all U.S. arrearages owed the U.N.

These moves, and his dispatch of delegations to treaty conferences shunned or outright rejected by Bush, not to mention his personal participation at the Copenhagen Climate Summit and his policy of diplomatic engagement with U.S. foes, have all been cited as evidence of a decisive break with his predecessor that is reestablishing Washington's "authority and respect as a global leader", as the international relations scholar John Ikenberry recently put it.

"If this were a poker game," wrote Jessica Tuchman Mathews, president of the Carnegie Endowment for International Peace in a recent symposium published by The American Interest, "Uncle Sam now sits with a large pile of chips in front of him that he didn't have before. He may still lose some big hands, but the odds have shifted importantly in his favour."

Some proponents of this view believe that the president is moving slowly but steadily toward building a somewhat more democratic global order of great powers - including emerging giants, as well as longstanding heavyweights. This would permit an increasingly cash-strapped Washington to gradually devolve some of its more costly responsibilities to other states and international institutions while retaining its "indispensable" status.

They see Obama's championship of the G20, which he hosted at the Pittsburgh Summit in September, as the replacement for the G8 - as well as the last-minute deal he crafted in Copenhagen with China, India, Brazil and South Africa - as indicative of his vision for a new world order.

While that vision may indeed guide Obama's long-term ambition, however, policy decisions based on shorter-term political and tactical calculations, as well as his cautious and non-confrontational temperament, may be moving the U.S. in the opposite direction.

That is particularly true regarding the Greater Middle East, where Bush's unilateralism and belief in "hard power" clearly did the most damage to Washington's global standing and influence.

While the slow U.S. drawdown from Iraq appears to be on track, Obama has repeatedly characterised the conflict with the Taliban in Afghanistan as a "war of necessity". His deference to the Pentagon has resulted in a major military escalation in that country with only the vaguest notion of an "exit strategy" that may or may not get underway 18 months from now.

As Mathews put it, it is a war "that could gobble up the Obama presidency".

At the same time, the administration has backed what appears to be a more aggressive - if largely covert - counterterrorist strategy from Pakistan through Yemen and into the Horn of Africa that relies heavily on the accuracy of Predator drones and cruise missiles and the full cooperation of local potentates and militaries whose interests may not always be aligned with Washington's.

Concerns are growing in some quarters that the increased U.S. military presence in Afghanistan and related conflict in Pakistan's frontier regions could reverse whatever gains Obama has made in his efforts to reassure Muslims that Washington is not waging war against Islam.

Those efforts have already been badly set back throughout the Arab world, in particular, by his failure to stand by his demand that Israel cease all settlement expansion in the West Bank and East Jerusalem and to exert serious pressure on Prime Minister Binyamin Netanyahu to address final-status issues in a way that would make Obama's promised two-state solution a far less distant prospect than it has become over the last 11 months.

"The next few months will be critical, and the time for decisive action is running out," wrote Jimmy Carter's national security adviser, Zbigniew Brzezinski, in the cover article of the latest Foreign Affairs journal.

Brzezinski praised Obama's overall grand strategy but warned that it was "vulnerable to dilution or delay by upper-level officials", some of whom "may even be unsympathetic to the president's priorities regarding the Middle East and Iran".

Indeed, pressure on Obama from Israel and, more important for domestic political reasons, the so-called "Israel Lobby" here - as well as the continuing post-election turmoil in Iran itself - is moving the administration toward a more confrontational stance with Tehran, one that could very well make a peaceful compromise on its nuclear programme more difficult.

While the administration insists it wants to keep the door open to a diplomatic solution, it is also moving to impose new sanctions against Tehran. However, the growing conviction among Iran specialists here is that such efforts, unless extremely well-targeted, could well prove counterproductive, both by strengthening hardliners in the regime and by losing the support of key powers, notably Russia and China.

And, if, as most experts believe, sanctions fail to bend Iran to Washington's will by mid-2010, Obama may well be faced with demands - already voiced with increasing frequency in the mainstream media - that he attack Tehran's nuclear facilities or at least acquiesce in Israel's doing so.

Unless backed by the U.N. Security Council - a most unlikely prospect given the veto power wielded by Russia and China and the likely opposition of such key emerging powers as Turkey, Turkey, and Brazil - such a step would not only deepen the hole into which Bush began digging Washington's international position nine years ago. It could well put paid to Obama's larger strategic vision as well.

Tuesday, December 29, 2009

Obama's Outrageous Christmas Gift to Fannie and Freddie



Obama's Outrageous Christmas Gift to Fannie and Freddie

Posted by Dean Baker, Comment Is Free at 12:30 PM on December 28, 2009.


After throwing the economy into the worst downturn since the Great Depression, the financial industry has used its political power to become stronger than ever.

On Christmas night in 1776, George Washington led a surprise attack on a group of Hessian mercenaries employed by the British to suppress the American revolution. This was one of the biggest military victories of the Revolutionary War.

In the same spirit of surprise, the Obama administration announced on Christmas eve that it was removing the $400bn cap on Fannie Mae and Freddie Mac's access to the U.S. Treasury. The new draw is limitless. It also announced that the chief executives of the two government-controlled mortgage giants would be getting compensation packages worth $6m a year. This was another big blow for the financial sector in its effort to sap every last cent from the productive economy.

After throwing the economy into the worst downturn since the Great Depression and bringing the whole sector to the edge of collapse, the financial industry has used its political power to succor itself back to life. It is now stronger than ever.

In the last quarter, the financial sector accounted for 34% of all corporate profits, dwarfing the share reached in the mad days at the peak of the housing bubble. The economy might look bleak on Main Street, with double-digit unemployment rates and nearly 200,000 foreclosures a month, but they were dividing up $13bn in bonuses at Goldman Sachs this Christmas.

Most people already knows the various public pots that Goldman and the rest tapped to make themselves healthy and rich again. There was the $700bn troubled asset relief program (Tarp) loan fund, the hundreds of billions of dollars worth of guarantees that the FDIC provided to cover their borrowing at the peak of the crisis, and the trillions of dollars lent out by the Fed. However, the bottomless line of credit for Fannie and Freddie could prove to be the biggest pot of gold of all.

Fannie and Freddie both collapsed in September of 2008 when the bad mortgage debt they purchased at the peak of the bubble overwhelmed their reserves. The Treasury Department put them into conservatorship and gave each of the mortgage giants a $100bn line of credit to cover future losses. This level was raised to $200bn each earlier this year as losses ran higher than expected.

However, this increase was supposed to be just a safeguard. We were assured that actual losses would never approach these levels. That seems reasonable since the bulk of Fannie and Freddie's loans were prime, meaning that they came with either a 20% down payment or mortgage insurance. Even with a collapsing housing bubble it is difficult to lose too much on prime mortgages.

If 10% of Fannie and Freddie's mortgages (held or insured) defaulted, this would amount to $550bn in bad mortgages. If they lost an average of 25% on these mortgages, this still only leads to losses of $163 billion, less than half of their $400 billion line of credit. And, this is before taking into account their prior reserves and profits on ongoing operations. As it stands, Fannie and Freddie had drawn just over $100bn of their line of credit, so it is difficult to understand the need for raising their borrowing limit from an amount almost four times this level.

There is one possible reason that Fannie and Freddie could see much higher losses. Suppose that they deliberately buy up mortgages from banks at inflated prices. This was the initial purpose of the Tarp, but it quickly got sidetracked into lending capital to banks. This was the better policy, but it still left the banks with huge amounts of bad loans.

Perhaps Fannie and Freddie are now acting as a "backdoor Tarp." This could easily lead to losses in excess of $400bn. It also is the type of policy that you might want to announce on Christmas eve when no one is paying much attention.

This goes along with the $6m pay package for the people who now run these government controlled entities. Is this really what we have to pay for good help? The Treasury secretary gets paid $191,300 a year. Should we infer, based on this fact, that he must be incompetent?

The folks running Fannie and Freddie prior to their collapse pocketed tens of millions of dollars in compensation. The Treasury now tells us that their incompetence could end up costing taxpayers more than $400bn.

If nothing else, the great recession should teach us that paying executives lots of money obviously does not ensure that we will get competent people in charge. But, this is not a story about doing what is best for the economy and the country. This is a story about doing what's best for the financial industry. That was the name of game in Washington DC before the collapse and that is still the name of the game --

Tread Carefully Obama: The Party is Over and You Killed It !!!

Tread Carefully Democrats

Share this on Twitter - Tread Carefully Democrats

Sun Dec 27, 2009 at 10:10:53 AM PST


As the Congress limps toward the finish line on health-care reform, it would be wise of Democrats to consider the last three significant pieces of legislation signed into law by a Democratic president and their effects. The current Senate version of HCR is significantly flawed and unless the bill is improved Democrats will face enormous electoral challenges in the near future.

"I would never knowingly do anything to cost an American a job."

Those were the confident words of President Bill Clinton to a skeptical AFL-CIO audience while urging passage of the North American Free Trade Association (NAFTA) in 1993. The cogent idea behind the agreement was that trade liberalization would result in new high paying jobs, paving the way for a 21st century economy for American families.

History however has rendered its own verdict on the legacy of NAFTA. The result has been the net loss of over one million American jobs and a decade of downward pressure on wages for middle class families. For those who still think NAFTA was a square deal, perhaps a visit to Detroit, a city whose real unemployment figures are nearing 50%, will dissuade you of those illusions.

"This legislation will stimulate investment, promote competition, provide open access for all citizens to the Information Superhighway."

Once again, overly optimistic words from the mouth of President Bill Clinton following his signing into law the Telecommunications Act of 1996. The avowed objective of the act was to promote competition, increase diversity, lower consumer prices, while delivering 1.5 million new jobs for the American economy.

Unfortunately, the result was greater media consolidation, less diversity, and increased prices for consumers, in addition to the loss of half a million jobs. The expansion of media conglomerate News Corp, along with the recent acquisition of NBC Universal by Comcast, highlights the failure to promote market competition.

"Today, Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century "This historic legislation will better enable American companies to compete in the new economy."

Finally, those were the buoyant words uttered in 1999 by then Treasury Secretary Larry Summers upon repeal of the Glass-Steagall Act. The stated goal of the legislation was to encourage the growth of US banks, presumably to better position them to compete on a global scale. And bigger they grew.

Following a $300 million lobbying effort, the deregulation of the financial sector was complete. Only two members of the US Senate, Byron Dorgan of North Dakota and Richard Shelby of Alabama, opposed the repeal of Glass-Steagall. The destruction of the regulatory firewall that stood between commercial and investment banks since 1933 resulted in too big to fail. Bigger is not always better.

All three bills; NAFTA, The Telecommunications Act of 1996, and the Gramm-Leach-Bliley Act, which repealed most of Glass-Steagall, were lauded at the time by a Democratic president, convinced that the only way to beat the Republicans at their own game was to mimic their corporate affinities. Some things never change.

So, where we stand today with health-care reform? Once again, a Democratic president is poised to sign into law a bill that will deliver few of its promises to the American people while simultaneously sullying the reputation of his own ideology in the pursuit of the path of least resistance for 2012.

To those who would argue that Democrats and progressives alike should begrudgingly fall into line and support the Senate health-care bill as it currently stands, I would urge caution. Aim before you shoot.

The examples above have shown that action simply for the sake of action is a course not worth navigating.

The blowback from such an obviously flawed bill will bring enormous electoral challenges to the Democratic Party in 2010 unless substantial changes are made once the House and Senate versions of the bill are merged. So where do we go from here?

To begin, the individual mandate along with any punitive measures must be removed from any final bill and a strong public option inserted. In addition, the restrictions on women’s reproductive rights, the ban on the re-importation of generic drugs, and the offsetting of most of the bills stated benefits until 2014 while taxation kicks in immediately must all be reconciled prior to the signing of this bill.

If the stated purpose of this bill is to lose 50 House seats next year, failure to include those considerations into the final bill would be a terrific start. And that is but a sample of the changes that must be made.

Thus far, the president has remained aloof on the issue of health-care reform, content to allow the Congress to shape HCR legislation in the round. Last week however, the president signaled his desire to help "wrap up health-care reform" as the two bills are merged next year. He better.

If the final bill resembles anything like the current Senate version, this president and his allies in Congress will have hell to pay with the voters in 2010 and beyond. And they should.

Is Obama Afraid of and in the Pocket of the CIA. too?

Are Presidents Afraid of the CIA?

by Ray McGovern

In the past I have alluded to Panetta and the Seven Dwarfs. The reference is to CIA Director Leon Panetta and seven of his moral-dwarf predecessors-the ones who sent President Barack Obama a letter on Sept. 18 asking him to "reverse Attorney General Holder's August 24 decision to re-open the criminal investigation of CIA interrogations."

Panetta reportedly was also dead set against reopening the investigation-as he was against release of the Justice Department's "torture memoranda" of 2002, as he has been against releasing pretty much anything at all-the President's pledges of a new era of openness, notwithstanding. Panetta is even older than I, and I am aware that hearing is among the first faculties to fail. Perhaps he heard "error" when the President said "era."

As for the benighted seven, they are more to be pitied than scorned. No longer able to avail themselves of the services of clever Agency lawyers and wordsmiths, they put their names to a letter that reeked of self-interest-not to mention the inappropriateness of asking a President to interfere with an investigation already ordered by the Attorney General.

Three of the seven-George Tenet, Porter Goss, and Michael Hayden-were themselves involved, in one way or another, in planning, conducting, or covering up all manner of illegal actions, including torture, assassination, and illegal eavesdropping. In this light, the most transparent part of the letter may be the sentence in which they worry: "There is no reason to expect that the re-opened criminal investigation will remain narrowly focused."

When asked about the letter on the Sunday TV talk shows on Sept. 20, Obama was careful always to respond first by expressing obligatory "respect" for the CIA and its directors. With Bob Schieffer on Face the Nation, though, Obama did allow himself a condescending quip. He commented, "I appreciate the former CIA directors wanting to look out for an institution that they helped to build."

That quip was, sadly, the exception to the rule. While Obama keeps repeating the mantra that "nobody is above the law," there is no real sign that he intends to face down Panetta and the Seven Dwarfs-no sign that anyone has breathed new life into federal prosecutor John Durham, to whom Holder gave the mandate for further "preliminary investigation." What is generally forgotten is that it was former Attorney General Michael Mukasey who picked Durham two years ago to investigate CIA's destruction of 91 tapes of the interrogation of "high-value detainees."

Durham had scarcely been heard from when Holder added to Durham's job-jar the task of conducting a preliminary investigation regarding the CIA torture specialists. These are the ones whose zeal led them to go beyond the already highly permissive Department of Justice guidelines for "harsh interrogation."

Durham, clearly, is proceeding with all deliberate speed (emphasis on "deliberate"). Someone has even suggested-I trust, in jest-that he has been diverted to the search for the money and other assets that Bernie Maddow stashed away.

In any case, do not hold your breath for findings from Durham anytime soon. Holder appears in no hurry. And President Obama keeps giving off signals that he is afraid of getting crosswise with the CIA-that's right, afraid.

Not Just Paranoia

In that fear, President Obama stands in the tradition of a dozen American presidents. Harry Truman and John Kennedy were the only ones to take on the CIA directly. Worst of all, evidence continues to build that the CIA was responsible, at least in part, for the assassination of President Kennedy. Evidence new to me came in response to things I included in my article of Dec. 22, "Break the CIA in Two."

What follows can be considered a sequel that is based on the kind of documentary evidence after which intelligence analysts positively lust.

Unfortunately for the CIA operatives who were involved in the past activities outlined below, the temptation to ask Panetta to put a SECRET stamp on the documentary evidence will not work. Nothing short of torching the Truman Library might conceivably help. But even that would be a largely feckless "covert action," copy machines having long since done their thing.

In my article of Dec. 22, I referred to Harry Truman's op-ed of exactly 46 years before, titled "Limit CIA Role to Intelligence," in which the former President expressed dismay at what the Central Intelligence Agency had become just 16 years after he and Congress created it.

The Washington Post published the op-ed on December 22, 1963 in its early edition, but immediately excised it from later editions. Other media ignored it. The long hand of the CIA?

Truman wrote that he was "disturbed by the way CIA has been diverted from its original assignment" to keep the President promptly and fully informed and had become "an operational and at times policy-making arm of the government."

The Truman Papers

Documents in the Truman Library show that nine days after Kennedy was assassinated, Truman sketched out in handwritten notes what he wanted to say in the op-ed. He noted, among other things, that the CIA had worked as he intended only "when I had control."

In Truman's view, misuse of the CIA began in February 1953, when his successor, Dwight Eisenhower, named Allen Dulles CIA Director. Dulles' forte was overthrowing governments (in current parlance, "regime change"), and he was quite good at it. With coups in Iran (1953) and Guatemala (1954) under his belt, Dulles was riding high in the late Fifties and moved Cuba to the top of his to-do list.

Accustomed to the carte blanche given him by Eisenhower, Dulles was offended when young President Kennedy came on the scene and had the temerity to ask questions about the Bay of Pigs adventure, which had been set in motion under Eisenhower. When Kennedy made it clear he would NOT approve the use of U.S. combat forces, Dulles reacted with disdain and set out to mousetrap the new President.

Coffee-stained notes handwritten by Allen Dulles were discovered after his death and reported by historian Lucien S. Vandenbroucke. They show how Dulles drew Kennedy into a plan that was virtually certain to require the use of U.S. combat forces. In his notes Dulles explains that, "when the chips were down," the new President would be forced by "the realities of the situation" to give whatever military support was necessary "rather than permit the enterprise to fail."

Additional detail came from a March 2001 conference on the Bay of Pigs, which included CIA operatives, retired military commanders, scholars, and journalists. Daniel Schorr told National Public Radio that he had gained one new perception as a result of the "many hours of talk and heaps of declassified secret documents:"

"It was that the CIA overlords of the invasion, Director Allen Dulles and Deputy Richard Bissell had their own plan on how to bring the United States into the conflict...What they expected was that the invaders would establish a beachhead...and appeal for aid from the United States...

"The assumption was that President Kennedy, who had emphatically banned direct American involvement, would be forced by public opinion to come to the aid of the returning patriots. American forces, probably Marines, would come in to expand the beachhead.

"In fact, President Kennedy was the target of a CIA covert operation that collapsed when the invasion collapsed," added Schorr.

The "enterprise" which Dulles said could not fail was, of course, the overthrow of Fidel Castro. After mounting several failed operations to assassinate him, this time Dulles meant to get his man, with little or no attention to what the Russians might do in reaction. Kennedy stuck to his guns, so to speak; fired Dulles and his co-conspirators a few months after the abortive invasion in April 1961; and told a friend that he wanted to "splinter the CIA into a thousand pieces and scatter it into the winds."

The outrage was mutual, and when Kennedy himself was assassinated on November 22, 1963, it must have occurred to Truman that the disgraced Dulles and his outraged associates might not be above conspiring to get rid of a President they felt was soft on Communism-and, incidentally, get even.

In his op-ed of December 22, 1963 Truman warned: "The most important thing...was to guard against the chance of intelligence being used to influence or to lead the President into unwise decisions." It is a safe bet that Truman had the Bay of Pigs fiasco uppermost in mind.

Truman called outright for CIA's operational duties [to] be terminated or properly used elsewhere." (This is as good a recommendation now as it was then, in my view.)

On December 27, retired Admiral Sidney Souers, whom Truman had appointed to lead his first central intelligence group, sent a "Dear Boss" letter applauding Truman's outspokenness and blaming Dulles for making the CIA "a different animal than I tried to set up for you." Souers specifically lambasted the attempt "to conduct a ‘war' invading Cuba with a handful of men and without air cover."

Souers also lamented the fact that the agency's "principal effort" had evolved into causing "revolutions in smaller countries around the globe," and added:

With so much emphasis on operations, it would not surprise me to find that the matter of collecting and processing intelligence has suffered some."

Clearly, CIA's operational tail was wagging the substantive dog-a serious problem that persists to this day. For example, CIA analysts are super-busy supporting operations in Afghanistan and Pakistan; no one seems to have told them that they need to hazard a guess as to where this is all leading and whether it makes any sense.

That is traditionally done in a National Intelligence Estimate. Can you believe there at this late date there is still no such Estimate? Instead, the President has chosen to rely on he advice of Gen. David Petraeus, who many believe will be Obama's opponent in the 2012 presidential election.

Fox Guarding Henhouse?

In any case, the well-connected Dulles got himself appointed to the Warren Commission and took the lead in shaping the investigation of JFK's assassination. Documents in the Truman Library show that he then mounted a targeted domestic covert action of his own to neutralize any future airing of Truman's and Souers' warnings about covert action.

So important was this to Dulles that he invented a pretext to get himself invited to visit Truman in Independence, Missouri. On the afternoon of April 17, 1964 he spent a half-hour trying to get the former President to retract what he had said in his op-ed. No dice, said Truman.

No problem, thought Dulles. Four days later, in a formal memo for his old buddy Lawrence Houston, CIA General Counsel from 1947 to 1973, Dulles fabricated a private retraction, claiming that Truman told him the Washington Post article was "all wrong," and that Truman "seemed quite astounded at it."

No doubt Dulles thought it might be handy to have such a memo in CIA files, just in case.

A fabricated retraction? It certainly seems so, because Truman did not change his tune. Far from it. In a June 10, 1964 letter to the managing editor of Look magazine, for example, Truman restated his critique of covert action, emphasizing that he never intended the CIA to get involved in "strange activities."

Dulles and Dallas

Dulles could hardly have expected to get Truman to recant publicly. So why was it so important for Dulles to place in CIA files a fabricated retraction. My guess is that in early 1964 he was feeling a good bit of heat from those suggesting the CIA might have been involved somehow in the Kennedy assassination. Indeed, one or two not-yet-intimidated columnists were daring to ask how the truth could ever come out with Allen Dulles on the Warren Commission. Prescient.

Dulles feared, rightly, that Truman's limited-edition op-ed might yet get some ink, and perhaps even airtime, and raise serious questions about covert action. Dulles would have wanted to be in position to flash the Truman "retraction," with the hope that this would nip any serious questioning in the bud. The media had already shown how co-opted-er, I mean "cooperative"-it could be.

As the de facto head of the Warren Commission, Dulles was perfectly positioned to exculpate himself and any of his associates, were any commissioners or investigators-or journalists-tempted to question whether the killing in Dallas might have been a CIA covert action.

Did Allen Dulles and other "cloak-and-dagger" CIA operatives have a hand in killing President Kennedy and then covering it up? The most up-to-date-and, in my view, the best-dissection of the assassination appeared last year in James Douglass' book, JFK and the Unspeakable: Why He Died and Why It Matters. After updating and arraying the abundant evidence, and conducting still more interviews, Douglass concludes the answer is Yes.

This article first appeared on Consortiumnews.com.

Ray McGovern works with Tell the Word, the publishing arm of the ecumenical Church of the Saviour in Washington, DC. During his career as a CIA analyst, he prepared and briefed the President's Daily Brief and chaired National Intelligence Estimates. He is a member of the Steering Group of Veteran Intelligence Professionals for Sanity (VIPS).

Monday, December 28, 2009

The Self-Destruction of Barack Obama



The Self-Destruction of Barack Obama


By Bernard Weiner
Co-Editor, The Crisis Papers

December 15, 2009


President Obama has lost his 2012 bid for re-election.

He has made key decisions in three areas that, unless he alters his approach (not likely), could well guarantee a Republican victory: an embarrassingly rolled-out, badly-compromised health-care reform bill; his continuing slavish subservience to those on Wall Street that took the country into the economic toilet; and his sad imitation of CheneyBush's imperial campaign in Afghanistan.

(Obama's only hope for 2012 may depend on Sarah Palin getting the GOP nomination. Even better if Glenn Beck or Dick Cheney is her running mate -- tickets, I'm appalled to say, that have been mentioned seriously. The Democrats can only hope to face such Republican candidates.)

If Obama goes down to defeat in 2012, he could take with him any hope for a major revitalization of American democracy after eight years of wrack and ruin under CheneyBush. And Obama's own Democratic majority in Congress might well suffer, perhaps quite badly, at the polls in November of 2010.

Yes, yes, I know that Obama's only been in office for a month shy of one year, and dumping on the guy may seem way early, especially given the humongous mess he inherited from his disastrous predecessor, and the vicious, destructively partisan warfare being waged by the Congressional Republicans. Still, as we approach the New Year, some summarizing truths need to be spoken now, and loudly, if we are to gain anything from the current situation in the way of possible alterations of course that can still be made.

TIMIDITY IS NOT GOOD POLITICS

The long and short of Obama's present dilemma lies in his inability and/or unwillingness to use his massive electoral mandate in the service of the kind of systemic change he promised and that most Americans thought they were voting for. He seems afraid to step out of the D.C. Beltway manner of thinking and acting. Or, more likely, he is behaving the way he is because he really feels comfortable with the elitist/corporatist power-wielders and doesn't want to rock any boats.

Instead of being a transformational president, in the mode of FDR, willing to think boldly and move courageously, he's quickly turning into a lame-duck Democratic place-holder for whomever comes next. The incremental change he's willing to fight for is not the the major-change platform he ran on, certainly not on health-care reform, not on helping middle-class homeowners, not on extricating the U.S. from mistaken wars.

America needs major surgery, but Obama is supplying little more than Band-Aids while trying to pass himself off as a successful surgeon. The Democratic base is not buying what he's selling, especially liberal/progressive Dems, moderate Independents, and Republicans who voted for Obama because they were appalled by the extreme rhetoric coming from the crazies in charge of the GOP. In the eyes of these voting blocs, which overwhelmingly backed Obama in 2008, he is just your average politician, promising anything to get elected but not fighting and following through when it counts. No wonder 25% of Democrats already say they probably won't vote for him again.

EXAMPLES OF WRONG-HEADEDNESS

It didn't have to turn out this way.

  • Millions of citizens were energized to work for and vote for and contribute to Obama's campaign. I was one of those in the political trenches, sending money, ringing doorbells, writing editorial columns, etc. Even though I saw him as little more than a pragmatic centrist, Obama seemed unlike a traditional politician and made promising speeches about taking on the entrenched power structure in Washington and in the country in general, enacting major reforms.

    As one who was a bit inside the campaign, I can verify that the energy and hope in 2008 was palpable. Finally, FINALLY!, this was our chance -- after backward-looking Reaganism, after greedy and power-hungry CheneyBushism -- to turn things around, cleanse the foul-smelling stables, get America's priorities right. Maybe Obama wasn't a true progressive, but he wasn't Bush or Cheney or McCain or Palin and his liberal tendencies might come to the fore.

    It's plain that too many liberals let their fervent dreams of change cloud their assessment of the man. Now, even in his first year, everyone can see that he's pretty much a politician of the old school, willing to compromise and triangulate and water down, often even before the fight is joined. In short, he is averse to taking on the powers-that-be, in part because he is a product of and a true believer in that status quo system. Or, too naively, he hopes he can convert the opposition to voluntarily do the right thing. Ain't gonna happen.

  • How else to explain Obama's wishy-washy support of true health-care reform? OK, he won't accept the single-payer, Medicare-for-all approach that would be so simple, cost-effective, universal. We understand his reticence while bemoaning his lack of courage. But not to fight tooth and nail for a robust public-option plan that was supported by two-thirds of the American citizenry in polls? All along, he could have made clear that he would veto any legislation that did not include that robust option, and thus altered the debate and outcome. Instead, his chief of staff and other key Democrats effectively indicated for weeks that even the much-compomised, less-than-robust public-option could disappear with no great loss. With a jerry-rigged "trigger" substitute and buy-in for some, Obama still believes he can claim a "victory," placate his base, and thereby boost his electoral chances. He and Rahm have badly miscalulated.

  • How else to explain Obama's embrace of the very financial players who helped get us into our current economic trauma? Not just the financiers on Wall Street (who, not incidentally, are still engaged in some of the very greedy tactics that created the mess in the first place) but bringing those types into vital policy-making roles in his administration: Geithner, Summers, Bernanke, et al.? Obama's dedication to propping up a corrupted form of capitalism makes him seem to be moving the deck chairs around the Titanic, rather than charting a new, more secure, more economically-just course. We've hit the economic iceberg, but are blithely continuing on toward the next catastrophe.

  • How else to explain Obama's mirroring of CheneyBush's penchant for anti-democratic secrecy ("state secrets"), and their neo-con, American-exceptionalist foreign/military policies?

  • How else to explain Obama's abysmal, CheneyBush-like record on civil liberties: asserting the right to hold detainees forever without charging them or bringing them to trial, to "render" them to states that engage in extreme torture, to continue domestic spying on U.S. citizens, to claim to be fighting "just wars," etc. And to the amassing of enormous powers, a la CheneyBush, in the Chief Executive's hands? The political lesson here seems to be: If you build it, they will come -- and not leave.

Yes, of course we're glad, and infinitely relieved, that the McCain/Palin ticket was not elected and are encouraged in so many other areas of governance with Obama's appointments, his record on the environment and global warming and science and so on. But he's sold out in so many important ways that his future, and the hope for vitally-needed meaningful reforms, is not bright.

Unless Obama is willing to make a drastic shift in course, he's going to be a lame duck, one-term President. Those who worked so hard for him are starting to abandon him, or are being pushed out (example: Greg Craig) because of ideological differences in approach on the wars, the economic bailouts, torture, holding officials accountable for war crimes and unconstitutional behaviors, civil liberties, etc.

AND WRONG ON AFGHANISTAN

But even more than his arm's-length behavior on health-care reform dragging Obama down in the public's estimation, it's the escalation of the war in Afghanistan that may well doom his political future -- in much the same way Vietnam destroyed the effectiveness and presidencies of LBJ and Nixon.

In trying to play to every faction with his newly-announced Afghanistan policy, Obama pleases no one. Obama may think that means he's in the comfortable middle and has maneuvered skillfully with his triangulation, but, in truth, it suggests that his policy is pretty much a congealed mess.

At least Obama has the good sense to understand that "winning" in Afghanistan is impossible, as imperialist powers like the Brits and the Soviets in different centuries finally had to concede in the end. And so, Obama is launching a major escalation of a lost war mostly not to win it but to buy a little time in order to extricate U.S. troops on our own schedule (which just happens to coincide with the 2012 election). "We came in to help the Afghan people stand up for themselves, but it turns out they are so factionalized and corrupt that they cannot successfully be helped. We tried and now we're coming home." That seems to be the Obama scenario.

The $30-billion allocated for this escalation is money poured down a rathole, funding that could do wonders in helping nation-build and create jobs back in the U.S. This cost does not even include the brave young men and women in the U.S. military -- along with thousands of innocent Afghan civilians -- who will be slaughtered and maimed in this Vietnam-like quagmire of a war. (Karzai and a goodly number of U.S. generals figure we're in Afghanistan for anywhere from five to 20 years.)

WHAT IS TO BE DONE?

So what, if anything, can be done about this trifecta of disasters: an endlessly-compromised, less-than-satisfactory health-care reform; a senseless, immoral war in our names (fought, to a large degree, with outside-the-law mercenaries); and a slow, partial economic recovery that helps the wealthy and corporations -- the insurance giants, the financial/banking sector, the pharmaceuticals, the oil moguls, et al. -- but not the American working- and middle-class?

Though the momentum currently is with Obama and the Democratic leaders, none of these issues are done deals as of this writing. We should be putting immense and unrelenting pressure on the President and our members of Congress to at least place tough, enforceable regulatory sanctions on the Wall Street robber-barons; to stick with the robust public-option on health-care reform; and to not fund the Afghanistan escalation. These oppositional actions could be accomplished through phone calls, petitions, letters, online agitation, sit-ins at their offices, protests on the campuses and in the streets, creative political theatre at a wide variety of venues, etc.

That's short term. Long term, we must work to fertilize the field in various states and Congressional districts for liberal/progressive candidates to run against conservative Democrats who too often side with the Republican extremists. Obviously, no Democrat can be 100% in correct votes for there are occasionally issues, or political realities in the field, that will lead to a bad vote on a particular bill.

The targets, though, are those DINOs (Dems in name only) who habitually desert the Democratic caucus to side with the worst of "conservative" positions on key popular issues. In the Senate, think Lieberman, Bayh, Nelson, Lincoln, Landrieu and that crew. The House is replete with conservative Blue Dog Democrats who proudly perform their obstructionist role time and again by siding with Republicans on decent legislation. At the very least, those politicians should have to face solid, viable liberal opposition in the primaries. That way, even if the Blue Dogs eke out victories, a potential progressive base can be identified and built on for future campaigns. And, who knows?, threatening these conservative Democrats with opposition in the primaries could affect their votes right now.

Even more long-term, we must start thinking, and talking, about the alternatives open to progressives in the 2012 presidential race. Including joining with many other Americans who are turned off by the current stranglehood on power held by elite forces seemingly beyond our control. Among these options might well be the founding of a viable third party.

Copyright 2009, by Bernard Weiner

Sunday, December 27, 2009

Debate Shows Obama Plays by Washington’s Rules



Political Memo

Debate Shows Obama Plays by Washington’s Rules


Published: December 25, 2009

WASHINGTON — Howard Dean ran for president in 2004 as the outsider ready to battle an entrenched establishment in Washington. And so, four years later, did Barack Obama.

Mandel Ngan/Agence France-Presse — Getty Images

President Obama spoke on health care Dec. 19 at the White House as Rahm Emanuel looked on.


Ruth Fremson/The New York Times

Howard Dean shown in his presidential run in 2004.

Now, one year into Mr. Obama’s presidency, a sharp dispute between the president and Mr. Dean over the health care bill the Senate approved Thursday — Mr. Dean denounced it as a sellout, while Mr. Obama heralded it as a historic breakthrough — is illustrating the roots of the ideological breach within the Democratic party.

It is not just that the left wing of the party thinks that its centrists hold too much sway and are too quick to cave when faced with pressure from the right. It is also that this White House, stocked as it is with insiders, people whose view of politics is shaped by the compromises inherent in legislating, is confronting a liberal base made up largely of outsiders to the lawmaking process who are asking why they should accept politics as usual.

As much as Mr. Obama presented himself as an outsider during his campaign, a lesson of this battle is that this is a president who would rather work within the system than seek to upend it. He is not the ideologue ready to stage a symbolic fight that could end in defeat; he is a former senator comfortable in dealing with the arcane rules of the Senate and prepared to accept compromise in search of a larger goal. For the most part, Democrats on Capitol Hill have stuck with him.

By contrast, Mr. Dean, the former Democratic Party chairman who has long had strained relations with this administration, said the White House was slow to fight and quick to make concessions — particularly on creating a public insurance plan — and demanded that Democrats kill the Senate version of the health care bill.

That sentiment was echoed by liberal efforts that grew up around the Dean campaign, notably Daily Kos and MoveOn.org, which argued that Mr. Obama was not tough enough in staring down foes, be they insurance companies or Senator Joseph I. Lieberman, the Democrat-turned-independent from Connecticut.

“He ran as someone who would fight against entrenched special interests on behalf of the little guy,” said Adam Green, co-founder of the Progressive Change Campaign Committee, which has emerged as one of Mr. Obama’s leading critics in recent days. “And what we learned in this debate is that he’s not willing to fight and exert pressure on entrenched special interests when it comes to big ideas.”

Of course, it is easier to be an outsider when you are on the outside, which is where Mr. Dean is these days, after making an unsuccessful effort to win a post in the Obama White House. And Mr. Dean’s longtime feud with Rahm Emanuel, the White House chief of staff, was noted by many Democrats who were taken aback by the sharp tenor of Mr. Dean’s attack on others in the party. (Mr. Dean declined to comment.)

Still, Mr. Obama’s approach to this battle should not be a surprise to anyone who has followed his career or his campaign for the White House. He served in the United States Senate and in the Illinois Senate. His choice for chief of staff — Mr. Emanuel — was the No. 3 person in the House Democratic leadership, and many of his top West Wing aides came out of staff jobs in the Senate.

Mr. Obama may find it frustrating that it is impossible under Senate rules to get something through without 60 votes, but those are the rules and he is going to play by them. He was not about to go to Connecticut and to whip up the public against Mr. Lieberman, or to press for him to be relieved of his leadership positions in the Senate, as Mr. Green suggested he do.

“The president wasn’t after a Pyrrhic victory — he wasn’t into symbolism,” said David Axelrod, a senior adviser to Mr. Obama. “The president is after solving a problem that has bedeviled a country and countless families for generations.”

All of this has come at a time of strains between Mr. Obama and the left. Mr. Obama has come under fire on several fronts, like health care, escalation of the war in Afghanistan and his failure so far to make good on a campaign pledge to end the ban on open homosexuals in the military.

Mr. Obama has moved to the center on some issues since he became president, particularly on elements of national security. Still, he never presented himself as a doctrinaire liberal, and much of what he is doing as president tracks with what he talked about during the campaign.

Mr. Obama’s call to send more troops to Afghanistan is what he always talked about in the context of outlining his opposition to the war in Iraq. “It’s not like he woke up one morning and said, ‘Let’s go fight a war in Afghanistan,’ ” Mr. Emanuel said. “He talked about it in the campaign.”

And Mr. Obama never exhibited the left’s passion for establishing a public insurance option as part of an overhaul of health care. He rarely talked about it during scores of debates, speeches and interviews during the campaign; instead he focused on expanding coverage, lowering costs and ending health insurance abuses.

During the campaign, many people saw in Mr. Obama what they wanted to see in him, and in the Democratic primaries he often appealed more directly to the left than did Hillary Rodham Clinton, his main rival for most of the contest. The question now is whether legislative and policy accomplishment — signing a health care bill, however imperfect in the eyes of liberals, steadying the economy, winding down the war in Iraq — will be enough, assuming Mr. Obama achieves them, to maintain the support and enthusiasm of those on the left who wanted even more from him.

Mr. Green said that Mr. Obama’s failure to push for the public option — or to enlist his network of grass-root supporters behind it — had sapped the energy out of the base and would have consequences for the 2010 elections. If Mr. Green is correct, that could be a real problem for Democrats, particularly given how energetic opposition to the health bill and the entire Obama agenda appears to be among Republicans.

But this could also prove to be a test of just how much power the outside voices in the left wing have over the insiders in the White House and on Capitol Hill. The stinging attack from Mr. Dean and organizations on the left calling for the defeat of the health care bill failed to dissuade a single Senate Democrat from voting for it. And Mr. Axelrod said he was not worried that would hurt the party come November.

“When people focus on what this bill is and not what it isn’t and recognize what an enormous landmark achievement it is, progressive achievement, you’ll see folks rallying around this and not running away from it,” he said.