Wow, the Obama Administration is less than a year and a half old, and it’s already twiddling with the record. I was gobsmacked to see this section in a post by Felix Salmon today, on a new book by Jonathan Alter and a New York Magazine cover story by John Heilemann:
Both Alter and Heilemann trace the decision not to nationalize to a dinner at the White House in April 2009, attended by Paul Krugman, Joe Stiglitz, Alan Blinder, Ken Rogoff, and, at least according to Heilemann, Jeff Sachs as well. Krugman and Stiglitz were in favor of nationalization, but we open about the fact that it would be an expensive and fraught course of action; Obama, faced with an alternative, sensibly took it.
Huh? This is a complete and utter fabrication. And Felix gives Alter and Heilemann a free pass for deciding to take dictation from Team Obama rather than do basic reality-checking?
It was obvious LONG before April that the Administration had NO interest in nationalizing financial firms; Geithner made that clear as of his very first policy statement on the financial services industry as new Treasury Secretary. Merely searching my archives, I find:
“Geithner Plan Smackdown Wrap.” February 10, 2009:
As we, and increasingly others, have said, the Obama economic team is every bit as captive to Wall Street’s interests as the Bushies were. The differences increasingly look stylistic, not substantive…
Thus Geithner’s belief that government can’t manage assets is sheer projection of his own inability to deliver. The FDIC winds up banks all the time. During the S&L crisis, as William Black reminds us, FSLIC appointed receivership managers that later research determined did reduce losses. Sweden, Norway, and Chile all nationalized (and relatively quickly reprivatized) dud banks during their financial crises. This isn’t like trying to go the moon (which was a government initiative, lest we forget). There are plenty of models and lots of good proposals. What is lacking is will. History says that an aggressive, take-out-the-dead-banks program is the fastest and all-in cheapest way out of a financial crisis. But if you believe that something will not work, as Geithner does, it isn’t at all hard to produce that outcome.
The Administration’s full bore effort to talk up confidence in general and banks in particular as of March made it impossible.
“White House Says Banks Should Stay Private,” February 20, 2009:
Amid fears that Citigroup Inc. and Bank of America Corp. could be on the verge of being nationalized, the White House gave assurances that it prefers banks to remain out of the government’s hands.
“This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government,” White House spokesman Robert Gibbs said Friday. “That’s been our belief for quite some time, and we continue to have that.”
We provided a longer-form analysis this year, in “The Empire Continues to Strike Back: Team Obama Propaganda Campaign Reaches Fever Pitch.” Some extracts:
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….
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….
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….
Back to our current post. I also checked my assessment with Newsweek’s Washington DC based commentator Michael Hirsh, who confirms that the decisions not to nationalize banks had been taken long before April, and the dinner with Stiglitz, Krugman, et al was “pro forma and largely meaningless.” Hirsh, by the way, broke the story of that dinner.
Separately, it is also utterly implausible that Obama would place much weight on a decision of this magnitude on a single session with individuals outside his team. Large and at least adequately managed organizations (and the Obama crew prides itself on being buttoned down) aspire to have a deliberate, analytical approach to Big Decisions. And given how high profile this issue was, having a solid, defensible-sounding rationale would be even more important.
So why would Team Obama go to the lengths of telling a verifiably false account to at least two reporters? Perhaps events in due course will reveal why they are so eager to revise the timeline, but all I can fathom now is that for some reason the Administration is trying to make it appear that the decision not to nationalize (or to use our current Newspeak, resolve) the really sick banks was:
a. Made by Obama, as opposed a matter that either didn’t interest him or one in which he deferred to Summers, Geithner & Co.
b. One that a majority of famous economists endorsed.
I’m open to other theories as to why Team Obama is going to such extremes to change the record.