The Empire Continues to Strike Back: Team Obama Propaganda Campaign Reaches Fever Pitch

I’ve seldom seen so much rubbish written by people who ought to know better in a single day. Many critical thinkers have heaped the scorn and incredulity on three articles, one a piece on Rahm Emanuel slotted to run in the Sunday New York Times Magazine, another an artfully packed laudatory piece on Timothy Geithner by John Cassidy in the New Yorker and a more even handed looking one (I stress “looking”) in the Atlantic.

Ed Harrison has skillfully shredded parsed the Geithner pieces . Simon Johnson thrashed the New Yorker story. A key paragraph below:

The main feature of the plan, of course, was – following the stress tests – to communicate effectively that there was a government guarantee behind every major bank or quasi-bank in the United States. Of course this works in the short-term – investors like such guarantees. But there’s a good reason we usually don’t guarantee all financial institutions – or act happy when other countries do the same. Unconditional bailouts lead to trouble, encouraging reckless risk-taking and undermining responsible governance. You can’t run any form of reasonable market system when some big players hold “get out of bankruptcy free” cards.

Banking expert Chris Whalen was so disturbed by the numerous distortions in the New Yorker piece that he had already fired off a long letter to the editor by the time I pinged him, with these starting paragraphs:

Jack Cassidy tells us that “Timothy Geithner’s financial plan is working—and making him very unpopular.” Unfortunately this is completely wrong. Cassidy’s comment just illustrates why the New Yorker has fallen into such obscurity, namely because it is more Vanity Fair than its vivacious sibling and unable to perform critical journalism.

In fact, the banking system is continuing to sink under bad loans and even worse securities losses. Telling the public that the banks are “fixed” is irresponsible. Unfortunately this false perception is widespread, including among major media such as CNBC and also with a number of my clients in the hedge fund world.

And from Marshall Auerback, who had a ringside view of the aftermath of the Japanese bubble:

Cassidy’s article brings to mind a retort by Chou En Lai when he was asked about the success of the French Revolution. He said, “It’s too early to tell”. Yet here we have John Cassidy from the New Yorker and Joshua Green from The Atlantic both making the assumption that the Geithner plan “worked”. This whole line about “taxpayers to recover bailout money” is based on an accounting fraud, because accounting abuses are the primary means by which TARP recipients have repaid bailout money — putting us at greater risk. That may seem paradoxical, but the rush to repay is driven by a desire to have unrestrained executive bonuses (a very bad thing associated with far greater accounting fraud and failures — requiring future, larger taxpayer bailouts) and accounting abuses produce the (fictional) ability to repay the United States (primarily by failing to recognize existing losses). The TARP recipients weakened their financial condition, and increased moral hazard, when they rushed to repay the TARP funds. Both factors increase the risk of making more expensive future bailouts more likely.

Yves here. The reason that people who can discern clearly what is afoot are so deeply disturbed is simple, and all the comments touch on it. The campaign to defend Geithner and Emanuel, both architects of the administration’s finance friendly policies has gone beyond what most people would see as spin into such an aggressive effort to manipulate popular perceptions that it is not a stretch to call it propaganda.

This strategy, of relying on propaganda to mask their true intent, has become inevitable, given the strategic corner the Obama Adminstration has painted itself in. And this campaign has become increasingly desperate as the inconsistency between the Adminsitration’s “product positioning” and observable reality becomes increasingly evident.

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.

How did the Administration and financial services message control teams work together?

The first was the refusal to consider investigations of any kind. Obama is widely reported to have studied the early days of Franklin Delano Roosevelt’s administration for inspiration; it would be impossible for him to miss the dramatic steps FDR took, including supporting the continuation of a Senate Banking Committee investigation into the misdeeds of the Roaring Twenties, the Pecora Commission. The Pecora Commission not only kept the bankers on the defensive, but it also did the forensic work into the abuses. It was critical to bring the nefarious practices to light to devise durable and lasting reforms.

Why were there no inquiries into how the firms that needed bailouts got themselves into a mess? This was an obvious and comparatively easy avenue of inquiry which would make a great deal of useful background accessible and identified issues for further examination. For instance, after the rescue of UBS, the Swiss Federal Banking Commission required UBS to provide an extensive report of what went wrong, and also had the bank make considerable portions of that information public, via a special report to its shareholders. Yet no US firm has been asked to make any explanation of how it managed its affairs so badly as to require extensive public support to keep from failing.

The choice here was obvious. A refusal to investigate was tantamount to a refusal to reform. A good understanding of what had happened was essential, not merely to develop sound new rules, but also to keep the industry from muddying the waters, which would be easy to do, given how complex and opaque many of the products are

More compelling evidence of the Administration’s lack of interest in reining in the money-changers came via Treasury Secretary Timothy Geithner’s first presentation on his reform plan, which was more accurately a plan to have a plan. It was widely criticized for its sketchiness, but most observers missed the true significance. Had the Obama transition team done any serious thinking about the financial crisis? Obviously not, because you don’t need to think too hard if the game plan is to go back to business as usual to the extent possible. Geither’s presentation came nearly three weeks after Obama was sworn in, and all its initiatives were Bush/Paulson wine in new bottles: a new go at the failed idea of having the government overpay for bad bank assets; “stress tests” to put more discipline around the process of handing out TARP funds to the needy; and a mortgage modification program which pretended to be able to square the circle of saving borrowers without taking on investors in mortgage securitizations.

Geithner’s not-much-of-a-plan exemplified the second tool in the Obama campaign to sell doing as little as possible to the financiers: the Theory of Positive Thinking.
That notion has a proud tradition in America and was much in evidence in the run-up to the crisis. It promises that the economy will be fine as long as everyone thinks happy thoughts about it. For instance, I noted in a March 2007 blog post that while the tone of the Financial Times as of March 2007 had become generally grim, the US had become a Tinkerbell market, where valuations are held aloft by faith, and participants conspire to stoke true belief. And as the crisis wore on, other magical personages intervened. As a hedge fund manager who writes as Augustus Melmotte noted,

The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being transported back to that magical place where Lehman still sells for over $70 per share….. Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. …. Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, “Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star…” The SEC is reportedly planning to set up re-education camps for short-sellers.

Remember that the US has an entire cable channel devoted to the Theory of Positive Thinking, namely CNBC, and a goodly portion of the financial media falls into CNBC-style cheerleading with more than occasional abandon.

Now it is true that this idea has a kernel of truth. John Maynard Keynes attributed the Depression to a change in investor “liquidity preferences,” which meant they had suddenly become very risk averse and preferred to hold cash until they felt conditions had improved, with devastating consequences for economic activity. Uncertainty can morph into a self-reinforcing downcycle. But it is one thing to use confidence boosting as a tool, quite another to regard it as a magic bullet. Merely clapping our hands all together will not cure the long-standing ailments in the economy.

Moreover, the Theory of Positive Thinking has been used, upon occasion, to suggest that conditions will only deteriorate if the public examines the financial services industry critically. It isn’t hard to see whose interests benefit from that posture.

Now it is hard to prove in a tidy way that the tone of financial press coverage had shifted suddenly, and decisively, to optimism as of early March. But many professional investors in my circle started regularly talking of cheerleading. Two Wall Street veterans, Sandy Lewis and William Cohan, weighed in on this pattern at the New York Times:

Whether at a fund-raising dinner for wealthy supporters in Beverly Hills, or at an Air Force base in Nevada, or at Charlie Rose’s table in New York City, President Obama is conducting an all-out campaign to try to make us feel a whole lot better about the economy as quickly as possible… We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March.

This result relied on more than mere dint of personality. A Pew Research Center study found that roughly government and businesses originated over half the economics-related news after the crisis. Obama himself “dominated” the key images and ideas. The reporting had a clear arc. The early coverage focused on the struggles over the stimulus plan and the banking industry plans, and as those faded, so did coverage of the crisis in any form. The tacit assumption was that the crisis was over, and the performance of the supposedly forward looking stock market was proof. But as anyone with a modicum of detachment could see, the market was a false positive, treating an aversion of utter disaster as an imminent return to normalcy.

The stock market has rallied over 60% from its early March lows, enabling the wounded banks to sell new equity to the public and avoid further contentious taxpayer-funded rescue measures. But the justification for the soft glove treatment of the banking classes, that what was good for them would prove to be good for everyone else, has proven to be wildly false. When the Dow levitated over 10,000, mainstream news outlets celebrated the event, with nary a mention of the continued train wreck in the real economy. As Matt Taibbi observed, “the dichotomy between the economic health of ordinary people and the traditional ‘market indicators’ is not merely a non-story, it is a sort of taboo — unmentionable in major news coverage.”

But banking boosterism has succeeded all too well, allowing Team Obama to fantasize that it can get away with creating Potemkin prosperity in lieu of waging the pitched battles needed to lay the groundwork for the real thing.

Indeed, the adoption of the Theory of Positive Thinking has virtually guaranteed that nothing will change, unless there is sufficient deterioration in the real economy or the financial markets to provide compelling counter-evidence. One example is the “paying back the TARP” charade. As the banks continued to post improved earnings, no matter how phony they were, they argued that they were now healthy and should be allowed to pay back the TARP funding that had been crucial to their survival. The reason they were so keenly motivated to do should have been reason enough to deny their request: namely, that they wanted to escape restraints on executive compensation, virtually the only demand that the government had made. But overpaying staff and keeping too little in the way of risk reserves was precisely the behavior that led to the near collapse of the financial system. Going back to business as usual would virtually guarantee more looting of major financial firms and another series of collapses.

But the Obama administration miscalculated badly. First, it bought the financiers’ false promise that massive subsidies to them would kick start the economy. But economists are now estimating that it is likely to take five years to return to pre-crisis levels of unemployment. Obama took his eye off the ball. A Democratic President’s most important responsibility is job creation. It is simply unacceptable to most Americans for Wall Street to be reaping record profits and bonuses while the rest of the country is suffering. Second, it assumed finance was too complicated to hold the attention of most citizens, and so the (non) initiatives under way now would attract comparatively little scrutiny.

But as public ire remains high, the press coverage has become almost schizophrenic. Obvious public relations plants, like Ben Bernanke designation as Time Magazine’s Man of the Year (precisely when his confirmation is running into unexpected opposition) and stories in the New York Times that incorrectly reported some Goldman executive bonus cosmetics as meaningful concessions have co-existed with reports on the abject failure of Geithner’s mortgage modification program. While mainstream press coverage is still largely flattering, the desperation of the recent PR moves versus the continued public ire and recognition of where the Adminsitrations’s priorities truly lie means the fissures are becoming a gaping chasm.

So with Obama’s popularity falling sharply, it should be no surprise that the Administration is resorting to more concerted propaganda efforts. It may have no choice. Having ceded so much ground to the financiers, it has lost control of the battlefield. The banking lobbyists have perfected their tactics for blocking reform over the last two decades. Team Obama naively cast its lot with an industry that is vastly more skilled in the the dark art of the manufacture of consent than it is.

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  1. Albatross

    Woww, one of the better posts by Yves, and certainly one of the best that she put out in a long time, imho.

    Yves, thank you for furnishing ’empty shenanigans’ of the current administration, which started to act more like previous Bush administration.

    Does Obama need to see below 30% approval ratings to act more like a leader for American people instead of a leader for fat cat Wall Street bankers and lobbyists?…

  2. psychohistorian

    Powerful posting Yves!!!!

    Thanks for that. I think about how effective their propaganda efforts would be without the internet shadow press. Overwhelming comes to mind.

    Regardless of alternate perspectives on our situation, the folks in control have all the money and power at their fingertips. They are not going to let go of that control easily, if at all, ever.

    To the extent that they let us craft our textual white noise and rants about their malfeasance shows their strength. They have started a preemptive war in America’s name, killed and maimed thousands in America’s name tortured many in America’s name…..all in support of economic imperialism that is never discussed or even admitted to.

    After dragging America’s name through the mud as they are doing, what compunction do you think they will have for not taking us out when we become too much of a problem for them?

    After all, we all know it is the Dirty Fucking Hippies (DFH)fault anyway…..

    Bring on the evolution.

  3. Alexandra Hamilton

    “This strategy, of relying on propaganda to mask their true intent, has become inevitable, given the strategic corner the Obama Adminstration has painted itself in. And this campaign has become increasingly desperate as the inconsistency between the Adminsitration’s “product positioning” and observable reality become increasingly evident.”
    The critical question here is: What will they do once this approach fails?

    1. Ignim Brites

      What will the response be when the current approach fails? Stunned disbelief and catatonic paralysis. Does the Federal government really have the credibility to muster another 2 trillion or more for another bailout? Not likely. Consider how little it could get for another jobs bill. 15 billion. Come on. People need to begin thinking about how state governments can fill the void. And they need to start thinking about how the US Armed Forces will be paid. That is one reason to start thinking about shrinking the US Armed Forces radically. By 90% minimum. It’s a whole new world, a brand new day.

      1. Alexandra Hamilton

        by ‘they’ I meant the government.
        I agree that most people will exactly react the way you describe it, but the government?
        I am not so sure this is just a case of goverment not knowing what is doing and then being stunned that it doesn’t work. I suspect it is much more sinister than that.
        And very dangerous.

      2. Rebba

        A simpler solution to the budget crisis is a Wealth Tax. This would operated similar to property taxes. the effect would be to redistribute assets — hopefully back to where matters stood at the moment before Reagan got his tax breaks for the wealthy. I would also suggest using the military to invade any sovereign tax haven that sought to interfere.

        Scale from 1/2% above $10-million to 1% above $50-million.

        The yield in money would run to $1.5-trillion a decade.

        The yield in democracy… priceless.

        BTW: since corporations are now “persons” with added First Amendment rights as free associations, this Wealth Tax must needs apply first and most strongly to them.

        No exceptions. No offsets. No mercy. The bastards have killed more than 2,000,000 Americans by preventing socialized medicine since WW II. Take a tiny slice/tranche of their money. Use it to put this country back on a path that we can recognize as civilization.

    2. Uncle Billy Cunctator

      Don’t worry your little head about that. They have it all gamed out. Massive depression —> Populace looks for strong leadership and a socialist message —–> Organizers organize, massive civic programs —–> mabye a little global warfare —–> privatizations, newly concentrated power.

  4. SA

    The White House is worried about the midterm elections, and rightly so. The Republicans will attempt to co-opt populist resentment about the bailout of Wall St. and high unemployment on Main St. Expect to see campaign ads featuring Obama’s positive remarks about Blankfein and Diamond and Wall St comp during his ill-considered Bloomberg interview.

    We’re going to hear lots of nonsense from the White House about the low cost of the bailout (the true cost of which won’t be known for years), and about the brilliance of toadies like Geithner.

    Personally, I think the White House is pissing into the wind. They’re going to lose ground in the Senate and possibly the majority in the House.

  5. Daniel de Paris

    Absolutely brilliant post.

    Thank you

    From France, the US debate around Obama looks a bit harsh. Since nobody believe here that he would be in a political position to take a sounder position.

    But you made your point convincingly. Only “sound money proponents”, Republicans à la Ron Paul, offer some kind of support for the sort of policy you are pushing. Of course this means next to nothing.

  6. Travis


    After following you for a number of years I have to applaud you on what is quite possibly your best post yet to succinctly explain the root problems and the failures of our government to correct them.

    I sincerely hope this post can pickup some widespread interest because it’s simply phenomenal. Brilliant work, Yves. THANK YOU.

  7. fiscalliberal

    Excellent points to consider. I would just add that there has been no effective prosecution of the fraud in loan origination, ratings and regulaters not doing their jobs. Yes, I am suggesting that when regulaters look the other way, they should be held accountable. The Madow poster boy is meant to distract people, while the real crooks get a pass.

    Got your book yesterday and starting to reading it.

  8. Walkabout

    Yes, that was brilliant.

    Currently there are too few economist willing to question any line of argument that comes from the propaganda machines. I fear many economists have even partaken in the kool aid and cannot think for themselves anymore. But as you suggest, we are not in Oz and all the heel clicking won’t get us safely home.

    Thank you. Please keep at it.

  9. Siggy

    Nicely done. A bit long, but then that seems to reflect the necessity of supporting what are otherwise self evident facts.

    The previous administration was a failed administration prior to and upon its exit. The new administration would have 100 days to right the course of the ship of state. While change was promised, we’ve seen no hard a port nor hard starboard. It’s been full ahead and prime the money pump.

    This is a very big ship of state and it does not turn on a dime. While sentiment and the rudder may well be set to turn the ship, it will lumber on mile after mile before it even begins to shudder before initiating a turn. Knowing that, we’ve yet to see this administration even order a full rudder port or starboard.

    The light speed flow of media eminations are capable of applying layer after layer of misinformation in a very short time. Leaks and spin that build to propaganda are what is being undertaken. It is blatant and cynical in its exercise and publication.

    The thought that troubles me is that the children of light and the children of darkness are in conflict and it appears that the children of light are of insufficent number, awareness and power to prevail. The children of darkness are small in number yet wield enormous power that has been purchased with the bon mots of filthy lucre they bestow on those entrusted with the protection of the commonweal.

    In far too many aspects its not about ideology, its about money grubbing and the self serving quest for power and all else be dammed.

    1. Usual Suspect

      “The previous administration was a failed administration prior to and upon its exit.”

      While this is true from the peoples perspective, I suspect that our leaders accomplished much more than they thought possible when the administration began. We have been crushed and it was intentional.

  10. i on the ball patriot

    Yves said;

    “So with Obama’s popularity falling sharply, it should be no surprise that the Administration is resorting to more concerted propaganda efforts. It may have no choice. Having ceded so much ground to the financiers, it has lost control of the battlefield. The banking lobbyists have perfected their tactics for blocking reform over the last two decades. Team Obama naively cast its lot with an industry that is vastly more skilled in the the dark art of the manufacture of consent than it is.”

    Team Obama is team neo-con with its roots in Reagan and his mentor, commie union bashing Lemuel Boulware of GE. Team Obama is solidly in charge of the battlefield. The more concerted propaganda efforts (and spin is propaganda, there are no shades of gray) are meant to frenzify the divisiveness, easily done with so many of the marks still believing that this is about vanilla greed profit and taking such a limited domestic viewpoint. It is not, it is about pernicious greed control, global in nature, and creating a two tier global ruler and ruled world. Intentional global credit trap bombs plus intentionally over leverged counterfeit derivative bunker busting bombs, strategically dropped around the globe, have set the stage for the real battlefield of perpetual conflict that will cause the marks to struggle themselves to their own deaths.

    The ‘empire’, in your title, is a global empire. The propaganda orchestration is global, and transparently similar in plan. Good summary and fire in this article, but give your gift to the globe. Broaden your viewpoint.

    Deception is the strongest political force on the planet.

  11. john c. halasz

    Reposting a comment from another blog to save time and effort:

    A slick, smooth-operating lawyer, projecting a “vibrant” profile after a decrepit predecessor, highly ambitious and therefore highly conformist, who accedes to power by promising to restore the status quo ante by “reforming” it, while struggling to hold together the “center” which will not hold, and all the while possessing only the dimmest operational grasp of the actual economic system he seeks to preserve/”reform”. Sounds a lot like Obama, no? AFAICT, aside from the contract law courses at Harvard, he’s imbibed the neo-liberal brew at U. of Chi. with the slight leavening of behavioral economics/”libertarian paternalism”, and that’s all he knows, while delegating the rest to his “highly qualified” advisors.

    But who else does that basic description evoke? Perhaps Gorbachev? (Who attempted to revive the fortunes of the central planning system by decentralizing it, without realizing that the system had long since been a Potemkin village operation atop what amounted to an already de-centralized industrial barter system, thus “decentralizing” policies were actually re-centralizing and provoked an further economic decline).

  12. Danb

    A recent Rasmussen Poll indicates deep mistrust in government expressed in the sentiment that it works to serve itself and big business at the expense of the public. With about 11 million+ unemployed, peak oil, hidden debt, and so on, we have a system creaking and straining to stay erect. This is classic unsustainability that leads to collapse.
    Team Obama is solving the wrong problem: relying on Edward Bernays when it should understand M. King Hubbert.

  13. weinerdog43

    This DFH will not be voting for Team Obama in 2012 unless some serious changes are made and made soon.

    Luckily for Obama, (and unluckily for us) the Republic party is so chock full of nuts, that the question becomes whether or not any truly serious person could vote for more of GW Bush and friends again. With the exception of Ron Paul, I can’t name another Republic that I consider serious enough to ever vote for.

    1. Ratdog

      Unlucky for Obama, (and lucky for us) the democrat party is so chock full of nuts, that the question becomes whether or not any truly serious person could vote for more of Obama and friends again. With the exception of Ron Paul, I can’t name another democrat or Republic that I consider serious enough to ever vote for. Go back into the pen, sheeple.

  14. Jackrabbit

    Excellent Post!

    But I think this point:
    “But the Obama administration miscalculated badly. First, it bought the financiers’ false promise that massive subsidies to them would kick start a economy.”
    needs further elaboration.

    1) The Obama administration DID pass a stimulus plan also, so they we’re relying entirely on the bank bailout.

    2) What they actually bought into was a bit more subtle than you express: the fear that nationalization was an unknown that could possibly do more harm than good.

    The key failure was not that they didn’t nationalize the banks but that they got absolutely nothing in return for their largess. Now they are forced to put lipstick on this pig (“propaganda” as you say) by pretending that banks are healthy (they repaid the TARP!) and pretending that they are getting tough with the banks (Obama’s going to get back “every dime” given to the “fat cat” bankers).

    Geithner, Summers, et al saved the banks but their closeness to the financial industry makes their actions in doing so suspect. Whether true or not, the way that bankers and the wealthy and well connected operate makes it easy to believe that Geithner, Summers, et al. 1) manipulated the debate so that the banks got much more favorable treatment than they deserved and 2) FAILED Obama by not providing a fuller picture of what the trade-offs were going forward. For his part, Obama FAILED the nation by ceding economic policymaking to the banks (in the form of Geithner, Summers, et al). It seems clear that Obama was more interested in reforming healthcare.

    All in all, its a perfect political storm for Obama: he winds up owning the problems of the Bush administration (economy, war) and being much too close to the banks which are more hated now than at any time since the Great Depression.

    The sad thing is: 1) so many hoped for so much better, and 2) the repubs would likely be much worse.

    The best solution: take money out of politics:

    1. anon

      “It seems clear that Obama was more interested in reforming healthcare.”

      If by “reforming healthcare” you mean big giveaways to big pharma and big insurance companies, you may be right.

  15. Tom Crowl

    A great post!

    At root civilizations are products of millions of decisions (Decision= Idea + an Action).

    I view ‘money’ as a store and allocator for “social energy” though a very imperfect one. (a better analogy than as a ‘store of value’ in my opinion)…

    Government and finance are both technologies for the allocation of a good portion of this social energy.

    They are, in fact, even now allocating YOUR social energy and that of your children and grand-children…

    They’re both badly broken technologies.

    Some brief thoughts on this here with more detail to come…

    On Social Energy, Enterprise & Expanding the Technology of Money

    The Individually-controlled / Commons-dedicated Account

  16. Independent Accountant

    The same Wall Street crowd which owned Bush owns Obama. I’ve said the stress tests were a sham and so have you. I am bored with this. The public will make no money from TARP. You have commented on poor TARP accounting. What more can I say? Kill the Fed.

  17. jake chase


    Mainstream media financial and business and economic reporting has been propaganda and nothing else since at least 1960. Before that I was too young to pay attention, although the 1913 Federal Reserve Act was certainly a triumph of manipulation and propaganda orchestrated by the insertion of Teddy Roosevelt into the 1912 presidential election as a third party candidate, which ousted the conservative, Taft, and installed the Morgan stooge, Woodrow Wilson, in the White House and made the Wall Street capture of money complete.

    1. Cynthia

      Obama’s critics are stuck between a rock and a hard place — they’ll be accused of racism whether they criticize him for being naive to fall for the banksters or for tricking the American people into believing that he would stand up against the banksters. This makes him above criticism. Which is why the banksters helped groom him for the presidency.

      1. John

        Obama has lost the people who hoped he would be different and who now understand how he isn’t.

        I do not think he will win the presidency in 2021 without this segment of the population.

        But what matter? Our future is already clear and will not change. We are to be modern era serfs.

        It’s been two years since Lehman’s collapse and not one law was passed, not one criminal was indicted, not one has gone to jail.

        We are like astronauts who have been shot from the earth in a rocket and long to return to the Terra Firma even as it recedes further and further into the distance. With each passing day we speed further from our desire. And we will never be able to go back to the world we loved as space and time move us into a black, cold, empty place.

  18. Attitude_Check

    Anyone who is familiar with Chicago machine politics is not surprised by the actions of the present administration. Machine politics in the White House.

    No, team Obama/Rahm is FAR from naive, and highly intelligent, just spectacularly foolish. To believe that machine politics that works in Chicago can be successfully transplanted into the White House is very foolish. The blow-back will not be pretty.


  19. Blurtman

    I’ve mentioned this before, but one more time. In March 2009, on the Jay Leno show, Obama quipped to Jay in response to Jay’s inquiry into the Wall Street financial crisis that it was indeed serious, but that “no crimes had been committed.”

    This is only a few months after Obama took office. There were no investigations. But Obama concludes that bo crimes had been committed.

    1. BDBlue

      That’s because in Obama’s world elites – like him – are incapable of committing crimes. It doesn’t matter what they do, because they’re the ones doing it, it isn’t a crime. Which is why there also will be no prosecutions for torture or domestic spying and why he believes he has the right to assassinate Americans extrajudicially and hold them without trials by declaring them terrorists. It is a view of the world that is based more in monarchy than democracy, but it seems virtually all of our elites have it. In that way, Obama is not unique.

  20. G Kaiser

    Cut the bankers short. Keep your investments in gold.
    Enjoy each day, grow your own food and live simply, but be rich and behave with humility.
    You will have a fuller life and sleep better at night.

  21. Stelios Theoharidis

    The problem of political capture has become largely intractable in US politics. Nothing short of a constitutional convention for competitive redistricting of congressional districts, reorganization of the senate to make it more democratic, campaign finance reform, a windfall profit tax on lobbyists, reform to the PAC system, and a universal day off for voting in the USA is going to give us the possibility of real reform and responsiveness.

    If the root issue is that the political system is broken it really doesn’t matter who enters into political office and what types of fantastic policy prescriptions you have for them. The latter is certainly worth talking about. But the issues of the day are symptoms of a larger disease. Until you begin to resolve the system you are not going to see legislation that doesn’t simply work to perpetuate the interests of a narrow section of the US population, the concentrated groups that are protecting their privileges.

    1. JCusick


      I’ve followed your posts for quite a few months now. Coincidentally I sent something almost exactly along these lines (though shorter and not nearly as sweetly) to a couple of friends just last night. I had just finished re-reading Neil Postman’s updated “Amusing Ourselves To Death”, a great book and I hope when yours arrives in my mailbox it will be as good (because as one of the many unemployed today, this is the only leisure expenditure I’ve dared to make in awhile).

      And, Stellos, I finished up my post with essentially the same 1st paragraph as yours. But my second paragraph was far more bleak… it ain’t gonna happen.

      Start with Neil Postman’s “Amusing Ourselves To Death” to see why. It is a classic book on modern media and propaganda.

      Instead, if and when it finally dawns on the majority of the American Public that they have been buggered royally, it will be a mess and a good outcome is not an odds-on favorite.

    2. b


      I have to agree with you. That’s why as much as the likes of Ron Paul or Bernie Sanders would be a refreshing change, it won’t happen until the structural political issues you addressed are resolved. Weinerdog and ratdog above, take note. Sheep indeed.

  22. mikefromArlington

    Zandi from Moody’s must be in on the propaganda thing too!

    “The U.S. may add as many as 300,000 jobs in March, the most in four years, David Greenlaw, chief fixed-income economist at Morgan Stanley in New York, said in a Bloomberg Radio interview.

    Zandi said the economic rebound is largely a result of the policies of the White House and Federal Reserve. He cited the bank bailout, the Fed’s low-interest-rate policy and support for credit markets, and the Obama administration’s stimulus plan, bank stress tests and backing of Fannie Mae and Freddie Mac.

    “When you take it all together, the response was massive and unprecedented and ultimately successful,” Zandi said.

    Phil Swagel, who was assistant Treasury secretary for economic policy in George W. Bush’s administration, considers himself a critic of Obama, though he said the White House policies were crucial.

    “They could have done a better job, but their economic policies, including the stimulus, have helped move the economy in the right direction,” said Swagel, now an economics professor at Georgetown University’s McDonough School of Business.””

  23. Rich

    Yves, this excellent essay has convinced me to purchase your book. It has become popular sport to take shots at the purveyors of market propaganda (e.g. Jim Cramer) without any attempt to understand the underlying concept – that being to manipulate consumer and investor confidence to increase spending and risk taking, both of which actually do improve outward economic conditions, without drawing attention to the underlying ailment, the cancer that is devouring our economy and our future. That cancer is a complex disease – it involves unsustainable debt, risk taking, and profit maximization, but at its core, it is the capture of government by powerful corporate interests. The current economic ills are themselves byproducts of this capture. You are stunningly bright and painfully direct. Live long and prosper.

  24. Anonymous Jones

    As most have noted in this thread, the post was indeed excellent. Your nod to “manufacture of consent” at the end was very interesting to me, precisely because I was thinking of Chomsky as I read your ideas.

    Chomsky can spin a brilliant analysis just like you can, but he is also prone to idiotic conspiracy theories (e.g., that the promotion of the NFL is done by the elites to give us the “circuses” part of “bread and circuses”). It is easy to blame one side in any conflict, but often the truth may contain more subtle yin-yang complicity on the part of both.

    I do not hide my contempt for the banksters, but at the same time, it is the masses who allow this to continue. For instance, a comment mentioned Jim Cramer. To blame CNBC for putting on Jim Cramer without acknowledging that some blame must also fall on those who continue to watch and float his ratings is perhaps, shall we say, a little bit skewed…

    It can be argued that this country had a “golden age” of middle class empowerment after the GD, but how did it disappear? Was everyone duped by a vast conspiracy, or were members of the middle class too greedy for their own good? I really don’t know (and I certainly don’t think it’s an easy either-or), but I think the question must be asked.

    Further, I know that I am pissing in the wind, but we constantly discuss the “world of should” rather than the world that exists. This world we have is the result of human nature, the result of putting this being evolved under far different circumstances into a highly mechanized, speedy world of financial dealings.

    I am not saying that the masses must not fight. Au contraire. I think that the masses must realize that hoping that people will do what they “should” do is folly. The masses must fight for laws and processes that restrain the accumulation of power in individuals and tightly bound groups, because this power almost always corrupts. But of course, I cannot convince enough people to put their asses on the line for this concept. In fact, I’m not sure I could get most to agree with me. So here we are, stuck.

    There are conspiracies in the world, but not everything is a conspiracy. As I’ve said before, water flowing downhill is not a conspiracy of H2O molecules.

    Anyway, good post (and keep fighting).

    1. Yves Smith Post author

      “Manufacture of consent” originates with Walter Lippmann, not Chomsky. Read his Public Opinion (1922).

    2. i on the ball patriot

      Anonymous Jones says: “There are conspiracies in the world, but not everything is a conspiracy. As I’ve said before, water flowing downhill is not a conspiracy of H2O molecules.”

      Of course not, and meaningless by itself as water molecules are not humans.

      But, exploiting the flow of the energy in water molecules can easily be a conspiracy when humans are brought into the picture …

      To exploit and control H2O molecules you must first know that water has the potential energy of weight, is easily diverted, and follows the path of least resistance.

      When humans direct the flow of water downhill to turn a water wheel to exploit the energy in it is also not a conspiracy of the H2O molecules.

      Nor would it be a conspiracy when other humans do the same to exploit the energy in the H2O molecules that are flowing downhill.

      But when the water energy being exploited downstream is diminished, by those many upstream exploiting so much of the energy; some humans at the bottom will conspire together to move upstream, some will conspire together to build a dam, some will conspire together to make laws regulating the use of, and ‘fair’ division of, the energy, etc.

      But, and, since you brought it up, humans do exhibit some similarities to water molecules; they have the potential energy of the human spirit that can be exploited, those less perceptive are easily diverted (by propaganda), and many of them follow the path of least resistance (cheap and abundant credit is one such path of many paths).

      Humans, through alliances of deception, have been conspiring together throughout all of evolution to exploit each other. The most common denominator of conspiracy alliance is class. All alliances of humans are conspiracies, not necessarily secret …

      1 a : to join in a secret agreement to do an unlawful or wrongful act or an act which becomes unlawful as a result of the secret agreement b : scheme
      2 : to act in harmony toward a common end

      If you really want to — “convince enough people to put their asses on the line” — you first have to show them that there are others conspiring against them and how they are going about it. That won’t happen if you are feeding the tin foil hat conspiracy meme.

      Deception is the strongest political force on the planet.

      1. wd40

        Beautiful stuff patriot – seriously, that just turned Yves’ post (which was a 10) all the way up to eleven ;)

  25. charcad

    stagnation in worker incomes.

    How can this be addressed? What roles – if any – do “Wall Street” and Washington DC have to play here?

  26. EmilianoZ

    This’ll go down as one of the greatest posts of our new blogger era. I’ve PDFed it to keep in my archives.

    We should all print it and send it to Obama or some “representative”.

    Among the culprits that have caused this crisis a lot has been said about bankers, regulators, credit rating agencies… IMO not enough has been laid at door of the mainstream media. I’ve come to thoroughly despise them. They have build an imaginary world around us, a world where “free markets” and deregulation are the best things that befell humanity, a world where the recession is over and bankers have repaid almost all their debts.

  27. Naive_person

    Yes, good post. Sleep does wonders. Quality is always better than quantity in the realm of ideas.

  28. Hugh

    Excellent writing. Obama was around Chicago School types for years. Robert Rubin was his chief economics adviser. He is a believer. I have said that if you look at Obama as a Blue Dog status quo corporatist, what he says may surprise you, but nothing he does will.

    The Power of Positive Thinking is a nice image. Team Obama early on said (and acted) as if the financial system was sound and the real crisis was one of confidence. Despite all the bailouts and the continuing deterioration in the fundamentals, unemployment, debt, state budget shortfalls, foreclosures and underwater mortgages, as well as the return to leveraging, moral hazard, and bubble formation, they continue to hold to this view. However the rubes remain restless, and it is an election year, so Team Obama is busy out declaring victory and letting the hoi polloi know they should not believe their lying eyes.

  29. bluffraise

    Franklin D. Roosevelt issued the “Bank Holiday” proclamation of March 6, 1933. All banks were ordered closed until Federal bank examiners gave them the “ok” to reopen. The tooth fairy of the day carried a big stick. On April 5, 1933 an executive order demanded surrender of all gold or be subject to a $10,000 dollar fine, ten years in jail, or both. In 1934 the Silver purchase act demanded you hand in your silver. The fairy dust at the time increased U.S. gold reserves from 4 to 7 billion(devalued gold from $20.67 to $30). Seems to be plenty of fairy dust in Europe, with a few weak sisters of the EMU weighing on the Euro. Would not be surprised if capital returned to the U.S once again, while the EMU searches for stable ground in never-never land.

    1. Jim in MN


      But consider the timing: 1933. It took several years for the Roosevelt team to reach the levels of bank holidays and the Reconstruction Finance Corporation. We may well be facing such policy choices in the event of Another Leg Down into 2011.

      In the 1930 timeframe they thought the stimulus would work :^)…..

  30. Papa Boule

    “Moreover, the Theory of Positive Thinking has been used, upon occasion, to suggest that conditions will only deteriorate if the public examines the financial services industry critically.”


    Just wow.

  31. Yearning to Learn

    Obama’s critics are stuck between a rock and a hard place — they’ll be accused of racism whether they criticize him

    I disagree. there are already choruses of critics against Mr. Obama. Just as many were surprised that an African American could even win the Presidency, we’ll be “surprised” when the criticism starts.

    as example: I didn’t see a single person above call Yves a racist, and her article was hardly supportive of Obama.

    IMO much of the criticism has been kept at bay because he has a good persona/stage presence. thus, many still refuse to believe the worst in him. They’re trapped in the “hope and change” loop.

    it’s changing though. many of the far left are realizing they’ve been betrayed. and the betrayal is moving towards the centrists as well.

    Yves: great post. Unfortunately, although I was never a believer in the “Hope and Change” message (it was too ethereal for me), I did have higher hopes for O than what I’ve seen to date. So count me among the disillusioned.
    If we can’t get change with a Hope and Change candidate, who can we get hope and change from? I almost always vote for Kucinich, but that’s even more futile as voting for Ron Paul.

  32. Uncle Billy Cunctator

    I posted link this everywhere I could, sent it to my entire email list, and asked everyone to do the same.

    The wealthiest and most powerful people in the world say: If most of the lurkers and commenters here do the same, karma will rain down upon them so fast they won’t know what hit them.

  33. moodygirl

    Except for the pot shots at capitalism and support for Marxist and socialist ideology, the comments to this outstanding post could be found on any top-notch conservative or libertarian blog.

    True conservatives and libertarians who are themselves not members of the elite or political class are also profoundly disturbed that their government has been captured by the financial sector. They are at least as angry as everyone here, if not more so.

    Obama has lost whatever conservative support he had, he’s lost the independent vote, but he hasn’t lost most of the progressive ( and I do not mean liberal) vote. This is his core support. Now, why do you think that is?

    Liberals, independents and conservatives are on the same page. It is a tragedy that they can not put their politics aside and pull together to demand financial reform.

    1. Jim in MN


      Sadly, the oil industry has poisoned the two most important issues other than the financial crisis/economy: Health care and climate change. The funding of the town hall and teaparty efforts by Koch and Exxon has effectively destroyed an entire wing of American politics, rendering it unable to function.

      As a result no ‘faction’ will be able to assemble a centrist coalition. Health care and climate are the two most important issues to American big business, and there is no chance. None. The oil industry has screwed us all at the worst possible moment. I wish it weren’t so but ’tis.

      Hysterical politics has come to mainstream issues (replacing identity politics which are going into deep cover or hiding in plain sight), so Team USA seems to be defunct as a practical matter until we can calmly handle health care, climate, entitlement programs, the defense budget etc. Maybe cells of dedicated citizens working in person across the land could somehow pull it off, but the atmosphere is getting uglier and uglier.

      (ducks head back into foxhole)

  34. Uncle Billy Cunctator

    Wait just one second though…

    “Team Obama naively cast its lot with an industry that is vastly more skilled in the the dark art of the manufacture of consent than it is.”

    You honestly believe that the folks guiding Team Obama are different from the ones running the industry?

    Let’s call Richard and Daniel Edelman and ask him, shall we? And maybe get Martin Sorrell conferenced in?

    1. anon

      Believing that Obama’s support of the financial industry is naive is an excellent example of cognitive dissonance. I’m fine with his supporters believing that rationalization. All of us use similar rationalizations on a regular basis.

      BTW, Yves, great post! Thank you.

    2. anon

      Sorry, I forgot to add that it’s also a good example of projection. “I wasn’t naive to believe Obama’s campaign promises and cast my lot with Obama, Obama was naive to cast his lot with the banksters.” “Obama didn’t con me, the banksters conned him.”

      One denies one’s own naivety or other mistake and instead projects it onto someone else. I’m not trying to point fingers at Yves; it’s something we all do.

      1. ArmchairRevolutionary

        I have to agree with you on this one. Obama appears to me to be very smart. It means he understands what he did and what he is doing. He is not being fooled by bankers. So, unless he is some kind of political chess master and I just cannot see his game, he is part of the problem.

        1. Yves Smith Post author

          I have to disagree, and this is from someone who supported Obama because the notion that Palin could conceivably become president was anathema.

          Intellectually smart does NOT mean smart in a negotiating or strategic context. I’ve seen this again and again on deals, and I’ve seen and suffered this politically. Someone who is merely cunning will generally run rings around someone nominally much smarter.

          Obama ran on the big issue of 2006, and the economy was not one of them. He has never evidenced much interest in economics. Plus despite his “change” branding, his instincts are conservative.

          So what does someone who is profoundly NOT interested in economics and banking do when faced with a mess? Bring in “credible” people, who will inevitably be part of the problem. I can see him getting on well with Geithner and Summers for all the wrong reasons: they are smart in the same way Obama is and have the right pedigrees.

          And I do NOT see that as a defense of Obama. The buck stops with the president. His reliance on Geither et al reflects profound intellectual laziness and an unwillingness to stir up controversy or risk serious opposition.

          1. psychohistorian

            Yves said:
            “The buck stops with the president. His reliance on Geither et al reflects profound intellectual laziness and an unwillingness to stir up controversy or risk serious opposition.”

            I have to respectfully disagree with the profound laziness characterization. I think it gets down to moral turpitude and/or sharing/bootstrap anarchy values.

            Are we a society organized for the masses or the rich?

          2. Skippy

            So true, on the cunning aspect aka pathology (sic).

            The vivacious and comely local girl (OB) and her MSM inspired hero’s (Tim, Ben, Larry) are not all that she thought they would be…..Ride Amigos!!!

            Skippy…would love to see this lot negotiate food and supply’s whilst on deep recon with local paras ha ha ha…when things get fluid.

            PS. trust is a bee ach it or ask a adulterer upon whom the woe befalls whence they act out of short term desire.

            PSS. Very lovely work, the focus is sublime.

          3. Uncle Billy Cunctator

            This makes it sound like Obama is some kind of autonomous agent with his own agenda. Are we so far into the future that we forgot what puppets sounds like?? He’s just as much an actor as Reagan was. More. We have a group of very powerful people putting on a convincing show for us. Nothing more.

  35. Jim in MN

    Great post. We need the water on the boil during this ‘lull’ before the next wave of crisis.

    The greatest failure from a legitimacy standpoint has been the failure to be honest about the policy. We in the blogosphere have diligently parsed and analyzed, trying to figure out the situation, the options, the historical and international comparisons, the tradeoffs, etc.

    If the Administration decided they ‘had to’ go Japanese with no bond haircuts, no structural reforms, no major nationalization or bankruptcies (any of which would have priced the toxic waste i.e. forced the haircuts), why not just say so? This is the classic hubris and arrogance, and really the ultimate betrayal of the campaign itself (which I supported).

    My pet theory is that the risk of collapse among health insurance firms/health care systems (from the bond haircut) as well as life insurance and pensions was the show-stopper. For some reason I can’t get anyone to discuss it, but I will eventually. Either that, or it was just plan greed and stupidity. Maybe we’ll never know…national security demands the stupid citizens never be told the truth…but come on, REALLY????

    Again thanks Yves. I will be distributing several more copies of ECONNED to my friends in Chicago and DC soon.

    God bless…and God bless America…may we find our way

  36. Jonathan

    They pat themselves on the back for changing the accounting rules to lie about the value of the banks assets, then raising capital from private citizens against those assets, then allowing bankers to reinvest the capital in treasuries, and finally to withdraw hundreds of billions from the capital for bonuses.

    So not only did private investors pay way too much for stock for what is essentially bankrupt firms, they had their money used not to lend or make sensible business transactions, but to fund massive bonuses and put the firm on the same track towards the next financial crisis.

  37. john bougearel

    “the adoption of the Theory of Positive Thinking has virtually guaranteed that nothing will change, unless there is sufficient deterioration in the real economy or the financial markets to provide compelling counter-evidence”

    Rest-assured Yves, Hell is Coming to Breakfast in a way which will touch the personal lives of almost every American in 2012. When the peak of the debt restructuring wave hits our country, and our hoarding banks can’t possibly provide the financial intermediation that is required because the flawed securitization markets were never reformed so as to provide the necessary liquidity, the blood in the street will be widespread, masss suicides of small businesseses, CRE, LBOs, consumers…

    This is the reality towards which our Tinkerbell Economy of positive thinking rushes headlongs towards. We won’t have to wait long ‘fore the real economy to provide compelling counter-factual evidence that you can’t hide your rotting teeth under your pillow and hope the Tooth Fairy comes along and turns it into gold.

    You can bet your sweet ass that the administration will be howling at the banks to lend money into the economy, yet without the shadow banking system restored, nothing is to be done but for the economy to crash and burn.

    Get ready for the next stage of the Shock Doctrine. And consider that by the time the next series of economic shocks are complete, Americans will be so demoralized and defeated, their brains will be mush, a perfect tabla rasa environment for the next administration that takes over in 2013.

    1. Doug Terpstra

      Yours is a dire outlook, probably accurate, but I do hope you are wrong about the effects of the Shock Doctrine—the state of passive catatonia caused by disaster capitalism. Latin America seems to have been inured to its effect over decades(Bolivia, Venezuela, Chile, Argentina…) and have finally rebelled against the privatization of commonwealth. Yves (and your) educational tutorials on this stuff are fortifying and immunizing many lambs facing slaughter. Americans may not be so passive; I suspect (hope) they will feel harder pushback and blowback than they expect.

  38. sam hampster

    Thank you for detailing how the world really works and how it has always worked for us, the oppressed. Maybe, the only thing that is new is that you, America’s white-bread, wealth=dreaming foot soldiers, are now one of us, too.

  39. Concerned

    I agree. Best post yet, Yves. Hopefully, the attention you will get promoting ECONNED and Naked Capitalism will wake thoughtful people out of their slumber and a ground swell will put pressure on politicians, the administration and regulators to start to address the problems even if very late.

    A while back I listened to President Eisenhower’s 15 minute farewell speech in 1961 to the US. After thanking the nation for the honor of serving as General, Commander of Allied Forces and President, he spent about a half of the speech expressing his concern re the growing military industrial complex and its negative affect on government. What would he think today if he could see the additional impact of service firms like financial services, health care and legal feeding at the trough pouring billions into lobbying and financing politicians. In the case of globalized financial services, players from places like London, Zurich and Frankfurt have too often followed the US and also drunk the kool aid.

    We all need a wake up call and I hope that your book and today’s post will sound the alarm.

    1. Yves Smith Post author

      Are you doing PR for the book, or just psychic? I quote that speech at the beginning of the afterword. Everyone should read it.

      1. Concerned

        I guess I am psychic. I am in Jamaica and just received your book yesterday. I had not looked at ECONNED before I wrote my comment. Having had a quick glance at the book including the surprise in the Afterword, it looks like a game changer. Well done and congratulations! I am looking forward to digging into ECONNED today.

  40. Winter

    At least you dropped the hateful term “bankster” in this post. Maybe you’ve taken The Epicurean Dealmaker’s advice to heart.

    1. Yves Smith Post author


      “Bankster” most assuredly is in the post, you read past it. And I disagree vehemently with TED on this matter. Wide-scale looting took place, and the attempts to control the language are part of an effort to minimize what happened.

      Moreover, TED has gone off the deep end in the past when he thinks finance professionals are being criticized. In an earlier post, he made the simply astonishing claim that he know of no M&A professionals who had ever peddled a bad deal to a client (except perhaps juniors who were not very competent). Sorry, I’ve worked in M&A and that is wildly counterfactual. One of the most valuable roles performed by M&A types is monetizing garbage barges. The rant below, which was angry, while the post he chose to criticize was not (I’m happy to own up to anger, but that post was no example of it) suggests that TED has a massive, self-serving blind spot.

      1. Doug Terpstra

        I just read the above comment as I was thanking you for a clear and compelling article and for not blunting your blade or shelving the apt term “bankster”. “Bankster” is indeed in there; it is not too hateful and may well be too kind for the crimes and the pain these pirates have inflicted on others. TED is a bit like our Lhasa; loves to hear his own voice, but wow, it can grate.

  41. chas

    Just give them plenty of rope & I can assure you they’ll hang themselves. They’re just too stupid. Of course there will be plenty of bawling & squalling when they do. But, it won’t help. It’ll be too late.

  42. Raging Debate

    Stellar piece Yves! That had to be one of the best pieces of literary political/economic blogging ever seen on the Internet and I have seen many in my day!

    I published your article on my own network with strong kudos to yourself and Naked Capitalism.

  43. Coop

    Excellent post Yves, the best I’ve read on the financial crisis so far.

    I think the fact that not one person has been accused of any wrong-doing (other than Madoff) tells the whole story.

    And I agree with the poster who said that it’s a “global” thing. I’ve always felt that the reason they had to pay off AIG’s bets was because they need to keep control of international finances. If AIG renaged on their derivatives, it would have been a real blow to US financial power, so it was important to pay them off.

    As a Canadian, I hear a lot about our own banks, and how wonderful they are. However, I believe that the same thing will happen up here once people hit that “wall of debt”, and start defaulting on houses and loans. (we are having a housing boom in the middle of a recession).

    And they will say the same thing: “we didn’t see it coming”!

    1. Doug Terpstra

      Yeah, who could have imagined the levees failing or terrorists flying planes into buildings? The conspicuous abasence of fraud investigations or war crimes prosecutions is really stunning, especially for a president who’s a vaunted constitutional scholar. The deflation of the hope bubble and the deep loss of faith has arguably caused more lasting damage than fiscal collapse.

    2. psychohistorian

      OF COURSE it is a global thing! America has been imperialistic since the WWII. They don’t hate us for our freedoms folks, they hate us for our imperialism which is totally whitewashed from existence by the media.

      The effect of media on the world “consciousness” and control over ongoing “conversation” is underestimated, IMO.

  44. MarkS

    Congratulations “Yves” on a compelling and accurate portrayal of the Obama administration’s capture by the finance industry, and why it imperils all other policy intiatives. Your writing is so fluid, that you approach epic poetry in this piece. I am in total awe of both the truth and the art of your writing.

  45. Dave

    Hopefully, the Obama administration is at least preparing a comprehensive plan for financial system reform to force upon the banksters for use if and when this newest bubble blows up in their faces.

  46. sam hampster

    Is the President the “decider,” or puppet in this crisis? Your essay doesn’t answer this question.

    1. Yves Smith Post author

      Frankly, that isn’t knowable, and at this point, it isn’t relevant. The Administration made a Faustian bargain, and now they are stuck with it.

      And I don’t think this is as clear cut as “puppet v. decider”.

      My personal belief is that Obama labors under the delusion that he is the decider, and is blind to both the ideological/tempermental blinkers he wears (which leads him to rule out certain options) and how the information he receives is also filtered (to put it politely) by people who have their own agendas. For someone who is nominally intelligent, Obama suffers from a bad case of not knowing what he does not know.

      There was a very good piece in the Times Online, an interview of Gore Vidal. Key bit:

      How’s Obama doing? “Dreadfully. I was hopeful. He was the most intelligent person we’ve had in that position for a long time. But he’s inexperienced. He has a total inability to understand military matters. He’s acting as if Afghanistan is the magic talisman: solve that and you solve terrorism….But he believes the generals. Even Bush knew the way to win a general was to give him another star. Obama believes the Republican Party is a party when in fact it’s a mindset, like Hitler Youth, based on hatred — religious hatred, racial hatred. When you foreigners hear the word ‘conservative’ you think of kindly old men hunting foxes. They’re not, they’re fascists.”

      Another notable Obama mis-step has been on healthcare reform. “He f***ed it up. I don’t know how because the country wanted it. We’ll never see it happen.” As for his wider vision: “Maybe he doesn’t have one, not to imply he is a fraud. He loves quoting Lincoln and there’s a great Lincoln quote from a letter he wrote to one of his generals in the South after the Civil War. ‘I am President of the United States. I have full overall power and never forget it, because I will exercise it’. That’s what Obama needs — a bit of Lincoln’s chill.”

      Now Vidal is too broad brush in his characterization of Republicans overall, but not of their extreme right wing. And he is on to something re Obama’s deference to powerful people… generals…..and those “savvy businessmen” bankers.

      He has never been an executive, and it shows.

      1. psychohistorian

        I find it hard to buy that Obama is the victim of his circumstances more than he is a willing co-conspirator. The situation we find ourselves in did not happen overnight and to not think that there was and continues to be an invisible hand behind the class warfare this more clearly is belies belief for me and others.

        Just because we are getting fascism lite instead of mainstreaming theocratic fascism does not make me feel any less guilty for the raping of the world that those in control of our country are doing in our name.

      2. sam hampster

        “The Administration made a Faustian bargain, and now they are stuck with it..”

        Did they? Or, is Obama just hitting all the marks, well on his way to being worth over $100 million in 15 years?

        Isn’t he a star player, just not for our team?

        I know that this question can’t be answered.

      3. Skippy

        He will be bled, but the big Q is what will he do, when he watches his political blood sprout forth and will it be red or blue, arterial or vein.

      4. EmilianoZ

        One possibility that hasn’t been considered is that Obama is being blackmailed. The banksters could be telling him: “You try to break us, we wreck the economy, we give you Great Depression 2.0, Obama-villes all over the US, millions living on soup kitchen…”

  47. RPB


    Great post – probably one of your best.

    Wait until the slurry of unemployment data comes out ‘painted’ with census payroll temp jobs. The picture will continue to look rosy as the ‘smooth’ out those jobs added with seasonal adjustments rather than just one solid (temporary) pop.

    It is an absolute farce.

  48. Paul Tioxon

    Chalmers Johnson also speaks of the propaganda function of the entire Econ field, particularly post WWII, as one of the pillars of anti communist containment. Of course, WE now need to restructure ourselves, the Soviets and Chicoms are now free traders, investors etc. We are stuck with a 17 Navy advantage, and spend over half of the world’s total military consumption. The health care reform bill spends $1 trillion over ten years, about what the Pentagon devours in 365 days. If you are going to see transformational change, you need to have people on your side. By that, I mean all of the people all of the time. Health care is a down payment on assembling a coalition of the willing to change America. Please do not take this the wrong way, but if you look at the complicity of the average German citizen in Nazi Germany, the fanatical loyalty was bought. A lot of people had their lives dispossessed and it went directly into the standard of living in Germany which had been terribly eroded by the mandated austerity of war reparations, with all of its consequences. The material improvement had to come from somewhere. Similarly, health care will have to come out of the hides of the wealthy and the corporations. I do not think it is a coincidence that everything just started to unravel when Obama was clearly heading for a victory. I believe the banksters went and scorched the earth and left it for the Black Man, THAT ONE, to clean up. I know they are fascists, so do most people who do not come from the top of the heap. If you see the end of the oil age and all of the commensurate industry with it and the rising of the solar electric oligarchs, then you make it as impossible to rule, delay as much as you can, sow as much doubt, and burn as much as the earth in retreat as you can. The production and distribution of electricity is the new number one economic index by which all 21st century powers will be measured. As fast as you can get away from oil, we will get away from the unsustainable wealth transfer. I know there are a lot of moving parts in the complexity of our social order, but deal with it. If people do not have some material improvement that they know can NOT be taken from them or their kids, there is not much stake left for them. Over half the population has next to nothing saved for retirement. Social Security and Medicare keep people from an early death and poverty. Well now, everyone knows plenty of people who get deathly ill by the age of 50. And plenty die for a lack of money for adequate medical treatment. If this goes through, and medicare is expanded in the next 4 years, the middle class will wonder what the hell the republicans and conservatives dems have been holding out on for decades, while the rest of the world has it. Universal health care. The next steps to transform society, by creating more jobs, will allow for more dem consolidation of power. They republicans can simply not allow this to happen, they will fade away until another viable political party is built up. Health care is the big brown bag of cash for every American, to secure something for them in a world of too rapid change. The reps know that reconciliation is basically a done deal. They know if you have 50 senators, you have won. The VP can over rule the so called parliamentarian, or fire him, and get a more friendly ref for the sake of propaganda appearances. At any rate, the fix is in, health care is unstoppable except from within the democratic party by the catholics. I believe they will be taken care after the appropriate public display of morality and unwavering steadfastness. Financial reform, that is the real battle, one whose battlefield and generals you seem to know better than I do. These are the real power players. I can only hope that the outrage over banks does not end, because the foreclosures and unemployment they caused have not begun to be addressed. I only see more turmoil in the neighborhoods and townships around where I live from all of this and we are not particularly hit as badly as CA or FL. Obama can not act like a military dictator, hence the need for showmanship, forbearance and other mealy mouth tendencies. If he is running a deficit in his skill set around econ savvy, that is not good. He needs to understand what his advisers are saying and the consequences of the policy choices. Finally, by of explaining, not excusing, Obama or anyone else, rules with the extensive use of propaganda. It is the instrumentation of communication for the scale of society we live in. A better educated society may have less of it in the future, but honestly, how many people on this site did not attend an Ivy League school or its equivalent?

  49. JeffC

    Yves, I love your Theory of Positive Thinking! I’ve been saying for years that one of our biggest problems as a culture is that we were all raised on the children’s book “The Little Engine That Could” and have this idea that if we just keep repeating “I think I can… I think I can… I think I can…” over and over everything will be hunky dory. A few repetitions of the Disneyesque mantra “Just Believe!” will help matters along.

    It’s utterly astonishing how much pathetically horrible engineering (mis)management I’ve seen over the past 35 years (yes… I’m working on fossil credentials) that really comes down to nothing more than using this deeply ingrained Little Engine That Could Power of Positive Thinking Just Believe attitude as an excuse to either avoid careful, responsible analysis or to avoid accepting what it tells you.

  50. Gaucho

    Long ago we realized that bernanke, summers and geithner are in the pockets of the financial industry. Their careers depend on the financial industry. rubin made over $100 million at Citi after serving in the Clinton adm., Geithner is not going to miss that opportunity.
    But I’m still puzzled by President Obama. Is he dumb or he also sold us off???

  51. Tim

    Most everyone who reads Yves knows this.

    The problem is the masses not getting this.

    How can Econ-Geeks clearly explain their concerns to the non-Econ-Geeks?

    By getting people to join the FCIC’s social media feeds.

    It is fucking pathetic what has happened and what will continue to happen until the masses – the people – force real investigations, real reform, real transparency – & finally, the truth.

    Action. We need action. Not words.

    To me action is this:

    1. MAKE the FCIC do their job plus publicize everything they find.

    2. Reach out to Non-Econ Geeks and explain your real concerns in terms they understand.

    3. Hold politicians accountable. Screw the anti-reform lobbyists.

    I’m sure you all are at least as sick as I am.

  52. i on the ball patriot

    All you really need to know about scamerican politics …

    When you knowingly and willingly play in a rigged game you only serve to validate and legitimize that crooked game with your good name. You are a LOSER! And — YOU are the problem!

    Worse, when you boast of how you supported one or the other of the candidates, you only serve to proclaim to the world what a gullible, ignorant jackass fool you are, and at the same time besmirch any other positive attributes you might have as a human being. You deserve to lose when you play in a crooked game.

    It is time to stop being gullible weenies and think about being sentient winners. Positive thinking, coupled with clarity of thought and positive action, CAN win the day!

    Election boycotts are in order as an expression of NO CONFIDENCE in this totally non responsive to the will of the people government.

    No balls! No brains! No freedom!

    Deception is the strongest political force on the planet.

  53. Hillary

    The morons that voted for Obama are getting exactly what they deserve.


    Don’t blame me. I voted Liberterian.

  54. Roger Erickson

    we have become stsinummuoc?

    the mirror image of communists? Call it Stimulism?

    “It is simply unacceptable to most Americans for Wall Street to be reaping record profits and bonuses while the rest of the country is suffering.”

    Unbelievably, we have yet to see how unacceptable this is to American citizens. We have an administration constantly yelling, “You’re winning! You’re winning!” and it’s actually working to some degree. It’s not even clear that Obama personally realizes what’s going on.

    Isn’t that the inverse of the old communist joke?

    [No matter how hard brilliant citizens try, in ANY venue, they’re worn down by dumb Party member losers constantly shouting “I’m winning! I’m winning!” – because they can, at will, redefine who & what “wins”.]

    Will US citizens march with wild applause to the economic gallows, to accept their prize? CONGRATULATIONS!!! YOU’VE WON!

  55. Richard Whisler

    Yeah, yeah, yeah! Whine, whine, whine! All you babies sound almost as bad as the Fox Republican News Network! Grow up, or if that’s asking too much, GET A LIFE! LOSERS!

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