Democrats can’t win until they recognize how bad Obama’s financial policies were

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He had opportunities to help the working class, and he passed them up.

Washington Post - January 2017

... Obama can’t place the blame for Clinton’s poor performance purely on her campaign. On the contrary, the past eight years of policymaking have damaged Democrats at all levels. Recovering Democratic strength will require the party’s leaders to come to terms with what it has become — and the role Obama played in bringing it to this point.

Two key elements characterized the kind of domestic political economy the administration pursued: The first was the foreclosure crisis and the subsequent bank bailouts. The resulting policy framework of Tim Geithner’s Treasury Department was, in effect, a wholesale attack on the American home (the main store of middle-class wealth) in favor of concentrated financial power. The second was the administration’s pro-monopoly policies, which crushed the rural areas that in 2016 lost voter turnout and swung to Donald Trump.

Obama didn’t cause the financial panic, and he is only partially responsible for the bailouts, as most of them were passed before he was elected. But financial collapses, while bad for the country, are opportunities for elected leaders to reorganize our culture. Franklin Roosevelt took a frozen banking system and created the New Deal. Ronald Reagan used the sharp recession of the early 1980s to seriously damage unions. In January 2009, Obama had overwhelming Democratic majorities in Congress, $350 billion of no-strings-attached bailout money and enormous legal latitude. What did he do to reshape a country on its back?

First, he saved the financial system. A financial system in collapse has to allocate losses. In this case, big banks and homeowners both experienced losses, and it was up to the Obama administration to decide who should bear those burdens. Typically, such losses would be shared between debtors and creditors, through a deal like the Home Owners Loan Corporation in the 1930s or bankruptcy reform. But the Obama administration took a different approach. Rather than forcing some burden-sharing between banks and homeowners through bankruptcy reform or debt relief, Obama prioritized creditor rights, placing most of the burden on borrowers. This kept big banks functional and ensured that financiers would maintain their positions in the recovery. At a 2010 hearing, Damon Silvers, vice chairman of the independent Congressional Oversight Panel, which was created to monitor the bailouts, told Obama’s Treasury Department: “We can either have a rational resolution to the foreclosure crisis, or we can preserve the capital structure of the banks. We can’t do both.”

Second, Obama’s administration let big-bank executives off the hook for their roles in the crisis. Sen. Carl Levin (D-Mich.) referred criminal cases to the Justice Department and was ignoredWhistleblowers from the government and from large banks noted a lack of appetite among prosecutors. In 2012, then-Attorney General Eric Holder ordered prosecutors not to go after mega-bank HSBC for money laundering. Using prosecutorial discretion to not take bank executives to task, while legal, was neither moral nor politically wise; in a 2013 poll, more than half of Americans still said they wanted the bankers behind the crisis punished. But the Obama administration failed to act, and this pattern seems to be continuing. No one, for instance, from Wells Fargo has been indicted for mass fraud in opening fake accounts. ...
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