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Debunking Attacks on Sanders That Depict Obama as Lefty Failure, Not Neoliberal Success

Thursday, October 22, 2015 By Yves Smith, Naked Capitalism | Op-Ed
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A sign that the progressive cause is moving out of the wilderness and starting to rattle The Powers That Be is that the messaging apparatus is starting to attempt to demonize Sanders as a hopeless cause. That means he's moved from the "first they ignore you" phase in Gandhi's classic trajectory of activism to somewhere between the "then they ridicule you, then they fight you" phases.

We'll use a particularly noxious article from Slate, flagged by reader Jeff W, called, No, He Can't - Bernie Sanders is an inspirational candidate, but his theory of change doesn't have a chance. Jeff W thought it warranted an NC version of "Where's Waldo?" as in "How many errors can readers spot in this article?"

Mind you, what is important about pieces like this is not that they go after Sanders per se. The headline conveys the much bigger message: Change based on popular will won't happen, so all of you voters should just stop trying.

Now this is a ratcheting up of anti-democratic messaging when we are seeing major cracks in the institutional ice in the US and other countries that had moved strongly in the neoliberal direction. Jeremy Corbyn's trouncing of the Blairites has had the elites in the UK frothing at the mouth. The magnitude of Justin Trudeau's win in Canada caught pundits by surprise. And in the US, Bernie Sanders was written off by the chattering classes from the very start of his campaign. Yet with virtually no media buys, the Democratic party turning away Sanders backers at the local level, until recently, a press blackout on his campaign, Sanders polls at somewhere between 25% ad 35% of Democratic voters, and nearly met Clintons' fundraising level last quarter at far lower cost, meaning he almost certainly raised more money on a net basis.

I encourage readers to shred the details of the Slate article, but let me go after its thesis, which regular readers, and anyone with any political savvy, will recognize as bunk. As Jeff W summarized it: "Bernie Sanders will fail because Barack Obama failed."

This is utterly ludicrous because Obama did not fail. He was always a neoliberal, pro-status quo candidate who artfully presented himself when campaigning as being well to the left of where he actually sat. He used his early opposition to Iraq and his short tenure in the Senate, where he was absent from a remarkably high proportion of votes, to play on deep antipathy to Bush. But as readers know, he's for the most part continued Bush policies with slightly improved optics.

I was not a very close watcher of politics then, and I have to confess to believing for a bit that he might be tough on banks by virtue of having Paul Volcker as his most visible economic policy advisor. But anyone who knew Obama's history would recognize that he was a made man of the powerful Rubin wing of the Democratic party, which a colleague who is deeply knowledgeable about bank regulatory politics has long called the Rubino syndicate. But even if you had not made that much study of Obama, the key tell came before the election, when Obama whipped for the TARP, which insiders say was critical to its passage. And right after the election, the "save the incumbents" trajectory of financial services policy was made crystal clear with Obama's choice of New York Fed president Timothy Geithner to head the Treasury Department. Volcker was exiled to the political version of Siberia, given a prestigious-sounding committee with no real mandate to baby-sit.

A critical part of the history of the Obama Administration that is repeatedly airbrushed out of existence is that when Obama came into office, he not only had majorities in both Houses, but he had a country that was frightened and desperate for leadership. The banks were cowed and uncertain of their survival. As we wrote of this period in 2010:

Recall how we got here. Early in 2009, the banking industry was on the ropes. Both the stock and the credit default swaps markets said that many of the big players were at serious risk of failure. Commentators debated whether to nationalize Citibank, Bank of America, and other large, floundering institutions.

The case for bold action was sound. The history of financial crises showed that the least costly approach is to resolve mortally wounded organizations, install new management, set strict guidelines, and separate out the bad loans and investments in order to restructure and sell them. An IMF study of 124 banking crises concluded that regulatory forbearance, the term of art for letting impaired banks soldier on, found:

The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred…

Shuttering sick banks is hardly a radical idea; the FDIC does it on a routine basis. So the difference here was not in the nature of the exercise, but its operational complexity.

This juncture was a crucial window of opportunity. The financial services industry had become systematically predatory. Its victims now extended well beyond precarious, clueless, and sometimes undisciplined consumers who took on too much debt via credit cards with gotcha features that successfully enticed into a treadmill of chronic debt, or now infamous subprime and option-ARM mortgages.

Over twenty years of malfeasance, from the savings and loan crisis (where fraud was a leading cause of bank failures) to a catastrophic set of blow-ups in over the counter derivatives in 1994, which produced total losses of $1.5 trillion, the biggest wipeout since the 1929 crash, through a 1990s subprime meltdown, dot com chicanery, Enron and other accounting scandals, and now the global financial crisis, the industry each time had been able to beat neuter meaningful reform. But this time, the scale of the damage was so great that it extended beyond investors to hapless bystanders, ordinary citizens who were also paying via their taxes and job losses. And unlike the past, where news of financial blow-ups was largely confined to the business section, the public could not miss the scale of the damage and how it came about, and was outraged.

The widespread, vocal opposition to the TARP was evidence that a once complacent populace had been roused. Reform, if proposed with energy and confidence, wasn't a risk; not only was it badly needed, it was just what voters wanted.

But incoming president Obama failed to act. Whether he failed to see the opportunity, didn't understand it, or was simply not interested is moot. Rather than bring vested banking interests to heel, the Obama administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff. There would be no Nixon goes to China moment from the architects of the policies that created the crisis, namely Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Director of the National Economic Council Larry Summers.

Defenders of the administration no doubt will content that the public was not ready for measures like the putting large banks like Citigroup into receivership. Even if that were true (and the current widespread outrage against banks says otherwise), that view assumes that the executive branch is a mere spectator, when it has the most powerful bully pulpit in the nation. Other leaders have taken unpopular moves and still maintained public support.

Obama's repudiation of his campaign promise of change, by turning his back on meaningful reform of the financial services industry, in turn locked his Administration into a course of action. The new administration would have no choice other that working fist in glove with the banksters, supporting and amplifying their own, well established, propaganda efforts.

Thus Obama's incentives are to come up with "solutions" that paper over problems, avoid meaningful conflict with the industry, minimize complaints, and restore the old practice of using leverage and investment gains to cover up stagnation in worker incomes. Potemkin reforms dovetail with the financial service industry's goal of forestalling any measures that would interfere with its looting. So the only problem with this picture was how to fool the now-impoverished public into thinking a program of Mussolini-style corporatism represented progress.

With the benefit of hindsight, treating Obama as perhaps having "failed to see the opportunity" was too charitable. His health care reform program was deeply cynical, with no consideration given to single payer, and the public option a merely decoration that the Administration dropped rather than traded away. And please don't try the excuse "Obama never had the votes." First, Obama never made the slightest effort to campaign for universal health care. The legislation was written by the health care industry and both Big Pharma and health insurance stocks traded up when the ACA was passed. Second, even though health care was supposedly one of the incoming President's top policy concerns, he did not try to push it through in the first 100 days when Presidents have the most leverage. Third, the loss of the 60 seat majority in the Senate was the direct consequence of the bank-friendy approach to the crisis. As political scientist Tom Ferguson has demonstrated through granular analysis of voting results in the Senate election that produced the Scott Brown win, the Republican votes were highest in districts with the greatest declines in home prices. We even had several staunch liberal voters in Massachusetts write us saying they had voted for Brown out of disgust with how the Democrats had handled the crisis. That pattern was repeated in each Congressional election under Obams, as neoliberal Blue Dog Democrats were turfed out in all but the most secure districts while progressives held their seats or were even voted in.

If you still harbor doubts at to the depth of Obama's commitment to the interests of the wealthy, a remarkable piece of evidence comes from a speech made by Robert Fitch on heels of Obama's historic election. I'm embedding this must-read at the end of this post. [The document can be found here.] From a 2012 post:

A remarkable speech by Robert Fitch puts Obama's early career in a new perspective that explains the man we see now in the Oval Office: one who pretends to befriend ordinary people but sells them out again and again to wealthy, powerful interests - the banks, big Pharma and health insurers, and lately, the fracking-industrial complex.

Fitch, who died last year, was an academic and journalist, well regarded for his forensic and archival work, as described by Doug Henwood in an obituary in the Nation. He is best known for his book Solidarity for Sale, which chronicled corruption in American unions, but his work that is germane to his analysis of Obama is Assassination of New York. In that, he documented the concerted efforts by powerful real estate and financial interests to drive manufacturing and low-income renters out of Manhattan so they could turn it over to office and residential space for high income professionals.

Fitch gave his eye-opening speech before an unlikely audience at an unlikely time: the Harlem Tenants Association in November 2008, hard on the heels of Obama's electrifying presidential win. The first part contains his prescient prediction: that Obama's Third Way stance, that we all need to put our differences aside and get along, was tantamount to advocating the interests of the wealthy, since they seldom give anything to the have-nots without a fight.

That discussion alone is reason to read the piece. But the important part is his description of the role that Obama played in the redevelopment of the near South Side of Chicago, and how he and other middle class blacks, including Valerie Jarrett and his wife Michelle, advanced at the expense of poor blacks by aligning themselves with what Fitch calls "friendly FIRE": powerful real estate players like the Pritzkers and the Crown family, major banks, the University of Chicago, as well as non-profit community developers and real estate reverends.

In other words, any time anyone tries to present Obama as having failed to implement a "liberal" agenda because the right was too powerful is either an apologist or ignorant. Obama has achieved precisely what he intended to achieve, which was to implement center-right economic policies with tepid social justice measures to divert attention from how he was serving the interests of the 1% and even more so, the 0.1%. And the fact that his allies in Congress have in large measure been voted out of office, that Sanders is going from strength to strength despite his lack of big corporate support, and that the neoliberal diehard Clinton is being forced to feint to the left are signs that the political tectonic plates are shifting. Much more is possible now than was six years ago. That does not mean progressives will prevail, but it means there's a real opportunity to make very serious inroads. The pundit classes clearly recognize this opening; hence the eagerness to stanch populist energy and engagement through heavy doses of defeatism.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Yves Smith

Yves Smith has been in and around finance for more than 30 years as an investment banker, management consultant to financial institutions across a large range of wholesale banking and trading markets businesses, and a corporate finance adviser. She has also written for The New York Times, Al Jazeera, the New Republic, Salon, the Conference Board Review, the Australian Financial Review and other financial publications. Her TV appearances include NBC News, CNBC, Fox Business, PBS, Bill Moyers, The Real News Network, Democracy Now!, Russia TV, ABC (Australia), Al Jazeera and BNN (Canada). Follow her on Twitter: @yvessmith.

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Debunking Attacks on Sanders That Depict Obama as Lefty Failure, Not Neoliberal Success

Thursday, October 22, 2015 By Yves Smith, Naked Capitalism | Op-Ed
  • font size decrease font size decrease font size increase font size increase font size
  • Print

A sign that the progressive cause is moving out of the wilderness and starting to rattle The Powers That Be is that the messaging apparatus is starting to attempt to demonize Sanders as a hopeless cause. That means he's moved from the "first they ignore you" phase in Gandhi's classic trajectory of activism to somewhere between the "then they ridicule you, then they fight you" phases.

We'll use a particularly noxious article from Slate, flagged by reader Jeff W, called, No, He Can't - Bernie Sanders is an inspirational candidate, but his theory of change doesn't have a chance. Jeff W thought it warranted an NC version of "Where's Waldo?" as in "How many errors can readers spot in this article?"

Mind you, what is important about pieces like this is not that they go after Sanders per se. The headline conveys the much bigger message: Change based on popular will won't happen, so all of you voters should just stop trying.

Now this is a ratcheting up of anti-democratic messaging when we are seeing major cracks in the institutional ice in the US and other countries that had moved strongly in the neoliberal direction. Jeremy Corbyn's trouncing of the Blairites has had the elites in the UK frothing at the mouth. The magnitude of Justin Trudeau's win in Canada caught pundits by surprise. And in the US, Bernie Sanders was written off by the chattering classes from the very start of his campaign. Yet with virtually no media buys, the Democratic party turning away Sanders backers at the local level, until recently, a press blackout on his campaign, Sanders polls at somewhere between 25% ad 35% of Democratic voters, and nearly met Clintons' fundraising level last quarter at far lower cost, meaning he almost certainly raised more money on a net basis.

I encourage readers to shred the details of the Slate article, but let me go after its thesis, which regular readers, and anyone with any political savvy, will recognize as bunk. As Jeff W summarized it: "Bernie Sanders will fail because Barack Obama failed."

This is utterly ludicrous because Obama did not fail. He was always a neoliberal, pro-status quo candidate who artfully presented himself when campaigning as being well to the left of where he actually sat. He used his early opposition to Iraq and his short tenure in the Senate, where he was absent from a remarkably high proportion of votes, to play on deep antipathy to Bush. But as readers know, he's for the most part continued Bush policies with slightly improved optics.

I was not a very close watcher of politics then, and I have to confess to believing for a bit that he might be tough on banks by virtue of having Paul Volcker as his most visible economic policy advisor. But anyone who knew Obama's history would recognize that he was a made man of the powerful Rubin wing of the Democratic party, which a colleague who is deeply knowledgeable about bank regulatory politics has long called the Rubino syndicate. But even if you had not made that much study of Obama, the key tell came before the election, when Obama whipped for the TARP, which insiders say was critical to its passage. And right after the election, the "save the incumbents" trajectory of financial services policy was made crystal clear with Obama's choice of New York Fed president Timothy Geithner to head the Treasury Department. Volcker was exiled to the political version of Siberia, given a prestigious-sounding committee with no real mandate to baby-sit.

A critical part of the history of the Obama Administration that is repeatedly airbrushed out of existence is that when Obama came into office, he not only had majorities in both Houses, but he had a country that was frightened and desperate for leadership. The banks were cowed and uncertain of their survival. As we wrote of this period in 2010:

Recall how we got here. Early in 2009, the banking industry was on the ropes. Both the stock and the credit default swaps markets said that many of the big players were at serious risk of failure. Commentators debated whether to nationalize Citibank, Bank of America, and other large, floundering institutions.

The case for bold action was sound. The history of financial crises showed that the least costly approach is to resolve mortally wounded organizations, install new management, set strict guidelines, and separate out the bad loans and investments in order to restructure and sell them. An IMF study of 124 banking crises concluded that regulatory forbearance, the term of art for letting impaired banks soldier on, found:

The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred…

Shuttering sick banks is hardly a radical idea; the FDIC does it on a routine basis. So the difference here was not in the nature of the exercise, but its operational complexity.

This juncture was a crucial window of opportunity. The financial services industry had become systematically predatory. Its victims now extended well beyond precarious, clueless, and sometimes undisciplined consumers who took on too much debt via credit cards with gotcha features that successfully enticed into a treadmill of chronic debt, or now infamous subprime and option-ARM mortgages.

Over twenty years of malfeasance, from the savings and loan crisis (where fraud was a leading cause of bank failures) to a catastrophic set of blow-ups in over the counter derivatives in 1994, which produced total losses of $1.5 trillion, the biggest wipeout since the 1929 crash, through a 1990s subprime meltdown, dot com chicanery, Enron and other accounting scandals, and now the global financial crisis, the industry each time had been able to beat neuter meaningful reform. But this time, the scale of the damage was so great that it extended beyond investors to hapless bystanders, ordinary citizens who were also paying via their taxes and job losses. And unlike the past, where news of financial blow-ups was largely confined to the business section, the public could not miss the scale of the damage and how it came about, and was outraged.

The widespread, vocal opposition to the TARP was evidence that a once complacent populace had been roused. Reform, if proposed with energy and confidence, wasn't a risk; not only was it badly needed, it was just what voters wanted.

But incoming president Obama failed to act. Whether he failed to see the opportunity, didn't understand it, or was simply not interested is moot. Rather than bring vested banking interests to heel, the Obama administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff. There would be no Nixon goes to China moment from the architects of the policies that created the crisis, namely Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Director of the National Economic Council Larry Summers.

Defenders of the administration no doubt will content that the public was not ready for measures like the putting large banks like Citigroup into receivership. Even if that were true (and the current widespread outrage against banks says otherwise), that view assumes that the executive branch is a mere spectator, when it has the most powerful bully pulpit in the nation. Other leaders have taken unpopular moves and still maintained public support.

Obama's repudiation of his campaign promise of change, by turning his back on meaningful reform of the financial services industry, in turn locked his Administration into a course of action. The new administration would have no choice other that working fist in glove with the banksters, supporting and amplifying their own, well established, propaganda efforts.

Thus Obama's incentives are to come up with "solutions" that paper over problems, avoid meaningful conflict with the industry, minimize complaints, and restore the old practice of using leverage and investment gains to cover up stagnation in worker incomes. Potemkin reforms dovetail with the financial service industry's goal of forestalling any measures that would interfere with its looting. So the only problem with this picture was how to fool the now-impoverished public into thinking a program of Mussolini-style corporatism represented progress.

With the benefit of hindsight, treating Obama as perhaps having "failed to see the opportunity" was too charitable. His health care reform program was deeply cynical, with no consideration given to single payer, and the public option a merely decoration that the Administration dropped rather than traded away. And please don't try the excuse "Obama never had the votes." First, Obama never made the slightest effort to campaign for universal health care. The legislation was written by the health care industry and both Big Pharma and health insurance stocks traded up when the ACA was passed. Second, even though health care was supposedly one of the incoming President's top policy concerns, he did not try to push it through in the first 100 days when Presidents have the most leverage. Third, the loss of the 60 seat majority in the Senate was the direct consequence of the bank-friendy approach to the crisis. As political scientist Tom Ferguson has demonstrated through granular analysis of voting results in the Senate election that produced the Scott Brown win, the Republican votes were highest in districts with the greatest declines in home prices. We even had several staunch liberal voters in Massachusetts write us saying they had voted for Brown out of disgust with how the Democrats had handled the crisis. That pattern was repeated in each Congressional election under Obams, as neoliberal Blue Dog Democrats were turfed out in all but the most secure districts while progressives held their seats or were even voted in.

If you still harbor doubts at to the depth of Obama's commitment to the interests of the wealthy, a remarkable piece of evidence comes from a speech made by Robert Fitch on heels of Obama's historic election. I'm embedding this must-read at the end of this post. [The document can be found here.] From a 2012 post:

A remarkable speech by Robert Fitch puts Obama's early career in a new perspective that explains the man we see now in the Oval Office: one who pretends to befriend ordinary people but sells them out again and again to wealthy, powerful interests - the banks, big Pharma and health insurers, and lately, the fracking-industrial complex.

Fitch, who died last year, was an academic and journalist, well regarded for his forensic and archival work, as described by Doug Henwood in an obituary in the Nation. He is best known for his book Solidarity for Sale, which chronicled corruption in American unions, but his work that is germane to his analysis of Obama is Assassination of New York. In that, he documented the concerted efforts by powerful real estate and financial interests to drive manufacturing and low-income renters out of Manhattan so they could turn it over to office and residential space for high income professionals.

Fitch gave his eye-opening speech before an unlikely audience at an unlikely time: the Harlem Tenants Association in November 2008, hard on the heels of Obama's electrifying presidential win. The first part contains his prescient prediction: that Obama's Third Way stance, that we all need to put our differences aside and get along, was tantamount to advocating the interests of the wealthy, since they seldom give anything to the have-nots without a fight.

That discussion alone is reason to read the piece. But the important part is his description of the role that Obama played in the redevelopment of the near South Side of Chicago, and how he and other middle class blacks, including Valerie Jarrett and his wife Michelle, advanced at the expense of poor blacks by aligning themselves with what Fitch calls "friendly FIRE": powerful real estate players like the Pritzkers and the Crown family, major banks, the University of Chicago, as well as non-profit community developers and real estate reverends.

In other words, any time anyone tries to present Obama as having failed to implement a "liberal" agenda because the right was too powerful is either an apologist or ignorant. Obama has achieved precisely what he intended to achieve, which was to implement center-right economic policies with tepid social justice measures to divert attention from how he was serving the interests of the 1% and even more so, the 0.1%. And the fact that his allies in Congress have in large measure been voted out of office, that Sanders is going from strength to strength despite his lack of big corporate support, and that the neoliberal diehard Clinton is being forced to feint to the left are signs that the political tectonic plates are shifting. Much more is possible now than was six years ago. That does not mean progressives will prevail, but it means there's a real opportunity to make very serious inroads. The pundit classes clearly recognize this opening; hence the eagerness to stanch populist energy and engagement through heavy doses of defeatism.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Yves Smith

Yves Smith has been in and around finance for more than 30 years as an investment banker, management consultant to financial institutions across a large range of wholesale banking and trading markets businesses, and a corporate finance adviser. She has also written for The New York Times, Al Jazeera, the New Republic, Salon, the Conference Board Review, the Australian Financial Review and other financial publications. Her TV appearances include NBC News, CNBC, Fox Business, PBS, Bill Moyers, The Real News Network, Democracy Now!, Russia TV, ABC (Australia), Al Jazeera and BNN (Canada). Follow her on Twitter: @yvessmith.