Obama’s Two Mistakes That Lost the Country
Early this year President Obama spoke before the Cleveland Club. After the speech 7th grader Alura Winfrey inquired, “If you could go back to the first day of your first term what advice would you give yourself?” Obama reflected for a moment and then blithely explained he would have worked harder to sell his economic policies.
Young Ms. Winfrey asked the right question but might have elicited a more revealing response if the question was given more context and phrased more insistently. Something like this: “Given that under your watch your party lost the country, in retrospect what would you have done differently?”
The data clearly would have supported her. When Barack Obama took office Democrats controlled the White House, both houses of Congress and had outright control (both houses of the state legislature and the governorship) of 27 states. Republicans controlled 17. In 2010 Democrats lost the House and the number of Democrat to Republican-controlled states almost exactly reversed. In 2014 Republicans won the Senate and the score regarding state control now stands at an astonishing 32 to 7 in favor of Republicans. And Republicans could complete the federal trifecta in 2016.
Nothing Obama could have done would have avoided the tsunami of vicious racist and xenophobic hatred that washed over him and the country, aided and abetted by the savagely partisan and vitriolic FOX news. Nothing would have stopped obscenely rich and intensely self-interested individuals like the Koch brothers from pouring hundreds of millions of dollars into campaigns to discredit and defile the President and the government in general.
But Obama might well have stunted the emergence of a rightwing populist movement if he had pursued an aggressive populist strategy of his own, one that demonstrated government could effectively challenge giant corporations and unbridled private greed on behalf of small business and the average family.
Obama certainly had the opportunity. The economy was in free fall. Millions faced the prospect of losing their homes. Millions more were losing their jobs. After being freed of most government restrictions and oversight, the financial sector had become dysfunctional. Even stalwart defenders of laissez faire capitalism were confessing the error of their deregulatory ways. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?” Representative Henry A. Waxman (D-CA) asked Ayn Rand acolyte Alan Greenspan, Chairman of the Federal Reserve, in October 2008. “Yes, I’ve found a flaw,” Greenspan reluctantly conceded, and added, “I’ve been very distressed by that fact.”
The crisis in the health care sector was less visible at that point in history but the sector’s inefficiencies and callousness were manifest. At a cost 30-100 percent higher than other nations were paying for universal health care, the America health care “system” left over 40 million people uninsured. As many as 45,000 people died each year because they lacked health insurance. Medical expenses caused 60 percent of Americans’ personal bankruptcies and had been rising by twice the inflation rate for several decades. Shrinking numbers of companies were offering employees adequate health care insurance and those that did were requiring more of the premium to be paid out of the workers’ paychecks even while insurance companies increased the level of deductibles.
To his credit, Obama did try to make systemic changes in both the financial and health care sector. To his everlasting discredit he tried to make these changes without actually structurally changing the system. Instead of confronting power he bribed the powerful: $700 billion in direct support and trillions in low cost money for the banks, $500 billion for the health insurance companies. He enlisted the support of giant pharmaceutical companies, among the most profitable of all manufacturing firms, by refusing to cap drug prices. He enlisted the support of giant insurance companies by embracing an individual mandate he had opposed during the campaign, thus guaranteeing the companies millions of new mostly healthy younger customers, whose premiums would be heavily subsidized by the government.
At one point Obama met with the CEOs of the nation’s 13 largest banks. He accurately warned them, “My administration is the only thing between you and the pitchforks.” But rather than make demands, he pleaded with the bankers: “Help me help you.” They were only too glad to do so.
Those with the pitchforks were enraged. Anti-government activists were delighted. The American public needed someone to blame and if Obama wasn’t willing to blame those who deserved it, the Koch brothers and Fox News and others were more than willing to step into the vacuum and blame the government.
What Obama Could Have Done
Obama could have chosen a different path. But doing so would have required that he tell the American people who really deserved blame for the crises and why the system that allowed them to do so must be changed.
In 1933 in his first Inaugural Address Franklin Delano Roosevelt identified the cause of the economic collapse and declared war on Wall Street. “Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men,” he declared. “They only know the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish…the money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.”
Forty-five years later Ronald Reagan came to office in the midst of another economic crisis but unlike FDR he declared war on government. “It is no coincidence that our present troubles parallel and are proportionate to the ... unnecessary and excessive growth of government…. government is not the solution to our problem; government is the problem.” Reagan’s narrative eventually became the guiding philosophy of both political parties. Recall Bill Clinton’s famous declaration, “the era of big government is over.” Indeed one might argue that it was not Ronald Reagan who undid the New Deal.
It was Bill Clinton.
In his Inaugural Address Obama needed only to change two words of Reagan’s to begin to change the narrative and foster a new populism: “It is no coincidence that our present troubles parallel and are proportionate to the ... unnecessary and excessive growth of giant corporations…. corporations are not the solution to our problem; corporations are the problem.”
The time was propitious for taking on corporate capitalism. A month before the election, responding to popular outrage, Congress had rejected the first no-strings-attached bailout bill despite warnings that it had to act within hours or risk a total financial meltdown-- doing this against the wishes of the White House and leaders of both parties. The American people wanted public money used for the public good rather than to satisfy private greed. A revised bill directed the use of bailout money to increase lending and prevent foreclosures.
The banks responded by thumbing their collective noses at the American public.
But by the time Obama took office bailout recipients were actually reducing lending and simply parking their money at the Federal Reserve. As Matt Taibbi notes, in August 2008, before the bailout, banks deposited $2 billion in excess reserves at the Fed. By January 2009, that sum had ballooned to an astonishing $843 billion. A few days before Obama’s inauguration the giant insurance company AIG, the largest bailout recipient paid out bonuses totaling $160 million, more than $1 million each to 73 employees of the department whose financial manipulations had bankrupted it.
In the early days Obama promised to take on the banks. A few weeks after taking office he told Congress, “I intend to hold these banks fully accountable for the assistance they receive, and this time, they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer.”
He had the tool to make that happen, and more. Congress had given the White House authority to own the banks. Indeed, support for government ownership had surprisingly broad support. In February 2009 Mr. Greenspan told the Financial Times, ”It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring,” The Financial Times reported, “policymakers across the political spectrum appeared to be moving towards accepting some form of bank nationalisation.” Senator Lindsey Graham (R-SC) told the FT. “We cannot keep pouring good money after bad…If nationalisation is what works, then we should do it.”
By early 2009 the federal government had effectively taken control of Fannie Mae, Freddie Mac and AIG, and it also acquired equity shares in the nine largest banks. In late February the US government took a 36 percent equity stake in Citigroup, gained control of half the seats on the Board of Directors, and gained the right to fire senior management. The government acquired a more modest share in the nation’s largest bank, Bank of America, but only because they refused to bargain with the banks the way banks bargained with their customers. The government had provided $40 billion to Bank of America. The Wall Street Journal noted that at the time the entire market value of Bank of America was about $25.5 billion.
The government, however, went out of its way to structure its equity investments in ways that would not permit it to dictate terms to the banks, but that was a policy path that wasn’t inevitable. The business world would have understood if the government had called what it was doing a “hostile takeover”. These were common. And often a hostile takeover was followed by firing senior management and breaking up a company to raise its share price. Obama could have done the same, as well as demand, rather than beg, for an increase in lending and a modification of mortgage terms to reduce foreclosures.
If he had done so, Obama would have earned undying hatred from Wall Street, as FDR had. But the American public likely would have supported him. Public opinion polls at the time consistently show that Americans wanted to break up the banks.
Public opinion polls also showed a deep suspicion of health insurance and pharmaceutical companies. Between one third and half supported redesigning the medical system to significantly reduce the role of private profit oriented insurance companies.
Obama succeeded in dramatically expanding one public insurance program, Medicaid. During the campaign he had supported a broader public option. The Public Option Act would have allowed all citizens and permanent residents to participate in the nation’s largest single payer insurance program, Medicare.
Expanding Medicare would have given the American people the ability to choose public over private, non-profit over profit. Would there have been any role for private insurance companies? Possibly. Many nations with excellent universal health plans do rely on private insurance companies. But these companies are so tightly regulated as to make them essentially public utilities. Their profits are capped. The menu of basic services mandated is extensive. Drug prices are strictly regulated. The companies compete less on price than on service.
In both the health care and financial sectors Obama could have educated Americans about how the profit motive provides a powerful incentive for corporations to do the wrong thing. To maximize profit for shareholders, health insurance companies deny services to policyholders. Even the conservative federal Appeals Court Judge Richard Posner has observed that the “incentive [of some insurers] is to keep you healthy if it can but if you get very sick, and are unlikely to recover to a healthy state involving few medical expenses, to let you die as quickly and cheaply as possible.”
In early 2009 an investigation by the House Subcommittee on Oversight and Investigations concluded that over a five year period three large health insurers had denied payments to 20,000 customers in order to increase profits by $300 million. An investigation by Senator Jay Rockefeller (D-WV) found that just 74 cents of every premium dollar for individual health insurance actually went to pay for health care. One company paid out only 66 cents on the premium dollar. By contrast Medicare, America’s largest (although not the only) single payer system, spends 95-98 cents on the dollar it receives in taxes for medical expenses.
The same dynamic infected the financial sector. Bonuses were based on selling products, toxic on not. Banks pushed no-down-payment mortgages on people without jobs setting payments artificially low for the first few years. After putting together millions of little ticking time bombs, banks then bundled mortgages and offloaded their fiduciary responsibility to investors. Rating agencies fraudulently gave these securities high ratings. Appraisers fraudulently inflated the market value of the properties.
Just before the 2008 election Bank of America agreed to pay $8.4 billion to 400,000 defrauded customers to settle a suit filed by 11 states. One trader at Barclays more recently summarized the ethics of the financial sector, “If you ain’t cheating you ain’t trying.”
To accomplish a systemic restructuring of the health and financial sectors Obama would have had to mobilize the American public. He was and is an excellent communicator. And he could have taken a page from the right wing playbook by putting a human face on his message. Ronald Reagan had a gift for doing so. He repeatedly talked of a Welfare Queen who used multiple identities to defraud the welfare system in order to substantiate his point that the poor were freeloaders taking advantage of bleeding heart liberals.
Obama would have had no problem putting a human face on unbridled greed. The CEO of the giant insurance company United Health was given stock options worth $1.1 billion and then had the arrogance and gall to fraudulently backdate these options to allow him to reap another $500 million. Now that’s a welfare queen!
Obama would have had no trouble offering the American people horror stories from both the financial and health sectors. In early 2010 a Google search for the term "health insurance horror stories" generated 419,000 hits. Former Cigna insurance company executive Wendell Potter observed, "If you're not outraged, you're not paying attention." Obama’s job should have been to make Americans pay attention.
He could have run a series of TV ads similar to the ones the health insurance companies financed that helped derail Clinton’s ill-fated health plan in 1994. Those starred the mythical couple Harry and Louise terrified at the prospect of government health care.
Obama’s could have starred real individuals and couples in real life situations where private profit-oriented corporations are terrorizing them. Like the woman who was denied breast cancer surgery because she had been treated for acne in the past or the man whose policy was rescinded just as he needed costly medical intervention because his insurance agent had incorrectly entered his weight on the application forms.
And Obama could have highlighted some of the many horror stories stemming from the unquenchable greed of giant pharmaceutical companies. Congressional hearings held in 2008 found one company that acquired an existing drug to treat breathing problems in newborns and hiked the price from $100 a unit to $1500. Another company acquired a decades-old drug for infantile spasms and raised its price from $40 a vial to over $23,000!
Foreclosure horror stories were, and are as common as health insurance horror stories. As Matt Browner Hamlin of Occupy Our Homes told Alternet several years ago, “You can basically throw a dart off a building and hit someone with a foreclosure horror story.” Sarah Jaffe reported how Christine Frazer and her family were thrown out of the Atlanta home they'd lived in for 18 years, at gunpoint in the dead of night. Kathryn Nava wound up on disability and had trouble making her mortgage payments. A friend was willing to help her make her back payments, but wanted to see a payment history. The mortgage company wouldn’t provide that history. In desperation Nava called the president of the company. Here is his coldhearted voicemail, “Let me enlighten you, Kathy. First of all, there's nothing in your contract with us says we owe you any history, now, next year, five years from now or the next time...I've begun foreclosure today. I bet you're sorry now that you made that phone call. I don't need to put up with your crap, OK?...Bottom line, I'm doing nothing for you now.”
Even if Obama had done all these things he would still have had to counter those who echoed (and echo) Ronald Reagan’s narrative. Responding to a later State of the Union address by Obama, Senator Marco Rubio (R-FL) offered up the Republican trope, "In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies."
Obama could have noted that in 2006 private lending institutions issued about 85 percent of subprime mortgages. But he could and should have gone much further and performed an ideological jujitsu on the right wing narrative by agreeing with Rubio that the collapse was in large part driven by “reckless government policies” but then explain that the recklessness was in eliminating safeguards that for more than two generations had protected the American economy and households.
In 1999 Congress recklessly repealed the Glass-Steagall Act that for 50 years had stopped Wall Street from speculating with government guaranteed deposits. A year later Congress recklessly deregulated the derivatives market. The next year the new federal bankruptcy act gave derivatives priority for payment. In 2004 the SEC recklessly waived the rules that limited lenders to a maximum debt-to-net-capital ratio of 12 to 1 for five giant Wall Street firms-- Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. They promptly ratcheted up ratios to 30 and even 40 to 1. Three years later Washington overturned effective state anti-predatory lending laws.
As William Black reports, from 2002-2007 honest appraisers delivered to Washington officials a petition ultimately signed by 11,000 of their colleagues charging that lenders were pressuring them to artificially inflate prices on properties and blacklisted those who refused. The government recklessly refused to act.
But Obama did none of those things. One result is that today if you do a Google search with the term “insurance horror stories” you’ll get over 1 million hits. But now many if not most are horror stories about Obamacare. Another result is that economic power has become even more concentrated as the number of community banks shrinks while the assets of the 5 biggest banks are almost 40 percent larger than they were before the crisis. These five banks now control over 44 percent of the nation’s banking assets and 39 percent of the nation’s GDP. In the health sector, insurance companies, hospitals, drug companies and doctor organizations have engaged in a frenzy of mergers and acquisitions.
The failure of Obama to either rhetorically or operationally adopt a truly populist strategy has, I firmly believe, given rise to the Bernie Sanders phenomenon. His message is resonating because he is clearly saying that he will bring real change by restructuring the system and redistributing and democratizing power and resources. It may be one reason he labels himself a socialist. After a speech at Georgetown University Sanders answered a French student who asked why he feels the need to call himself a socialist. “(M)y vision is not just making modest changes around the edge – it is transforming American society,” he responded.
So how might President Obama have answered 7th grader Alura Winfrey? Perhaps this way: “Frederick Douglass once declared, ‘Power concedes nothing without a demand. It never did and it never will.’ I was challenging two unethical and inhumane systems dominated by giant private corporations whose sole aim was to maximize corporate and individual profits. I should have realized that I needed to convince a skeptical public that government could act on their behalf. And I could do so only be clearly acting on their behalf, which meant confronting power with power.”