On Obama’s Sellout
This is pernicious for a lot of journalistic reasons, but politically it’s bad for progressives beacuse conspiracy theories stand in the way of good policy analysis and good activism, replacing them with apathy and fear.
When we went to print with the latest Rolling Stone piece about Obama’s economic hires, a couple of my sources advised me to expect some nastiness in the way of a response from Obama apologists. One jokingly suggested that there would be a waiting period to see if anyone even read the piece first, and only if there was enough negative buzz would I start getting hit with the charges of being an irresponsible conspiracy theorist, factually sloppy, and so on.
Well, weeks after the piece came out, that process is finally underway, most notably with this post on the American Prospect. And, to be perfectly honest, some of this is my own fault, since there is indeed a factual error in the piece — a minor biographical detail that identifies Bob Rubin’s son Jamie as a former Clinton diplomat. There is in fact a James Rubin who was a diplomat in the Clinton White House, but that James Rubin is not the James Rubin I’m referring to in the piece.
So I fucked up with that line — “a former Clinton diplomat” — and for that I certainly am sorry, among other things because Rolling Stone’s fact-checkers are the most rigorous in the business (much more so than any other newspaper or magazine I’ve worked for) and I think actually this was my error and not theirs, a late-stage mixup near press time.
Now, that said, it was indeed Bob Rubin’s son Jamie who worked with Michael Froman in the Obama transition team. Had it not been Bob Rubin’s son, that would certainly have qualified as a serious error, because then we’d be making an argument based upon a factual error.
But the basic argument of the article was that an enormous number of people with ties to Bob Rubin and/or other Wall Street insiders had assumed positions of responsibility in the Obama transition and White House. And Jamie Rubin is Bob Rubin’s son, and he was a headhunter for Obama’s economic hires from the first days of the transition. So the meaning here is really not significantly different. The fact that this heads the Prospect’s list of complaints says a lot about the substance of this criticism.
I’m not going to go through all of this Prospect post now, but I feel like I ought to address some of it, since it’s really an obnoxious piece of writing, on par with what I got from the Goldman people. The “factual” issues he addresses are mostly areas in which we agree on the facts and he disagrees with me on how they should be interpreted.
Take this bit about Karen Kornbluh. In my story all I really wrote about her was that she played a key advisory role in Obama’s campaign and had a major influence on the party platform, but after the campaign had lost influence and had been shipped overseas to work at the OECD (I described her post-election role as Obama’s “never-again-to-be-seen-on-TV ambassador to the OECD”). The Prospect writer recounts exactly the same facts and somehow makes it sound like there is an error somewhere. See if you can understand the point of this passage:
“Neither did Karen Kornbluh, who had served as Obama’s policy director and was instrumental in crafting the Democratic Party’s platform.” The reasons why Kornbluh didn’t get a job remain unclear, but she lost her influence earlier in the year while Obama campaign and she remained in Washington as his Senate Office policy director and later at the DNC, where she played an important role by crafting the 2008 Democratic platform. She has recently been nominated as U.S. Ambassador to the Organization for Economic Co-Operation and Development.
So in other words while I reported that Kornbluh had been a key voice in the campaign only to lose influence and ultimately get shipped off to the OECD, the truth is that she was a key voice in the campaign who lost her influence and ultimately got shipped off to the OECD. Am I missing something?
Then there’s this bit about Michael Froman, the Citigroup executive who was Obama’s economic headhunter during the transition:
His connection to Obama is through their time together on the Harvard Law Review, not through Rubin. He did indeed once work for Rubin, and was a member of Obama’s transition advisory board; he was not on the transition staff.
Again, this is exactly what I reported. I reported that Froman was Obama’s former Harvard classmate, that he had later worked for Rubin, and that he had introduced Obama to Rubin. I think what this person is trying to say is that it’s wrong to suggest that Froman was a Rubin connection when in fact it was Rubin who was a Froman connection. Or something like that. Actually, I’m not sure what he’s trying to say. Again, the point of the article was that a lot of Obama’s key hires have close ties to Rubin. And Froman, who’s held important roles in both the transition and in the White House, certainly qualifies on that front. So what’s the issue here?
Then there’s this:
“Rubin was the man Barack Obama chose to build his White House around.” Or maybe he merely built his White House around economic policy experts who had been mid-level officials in the previous Democratic administration? To my knowledge, Rubin has not been involved with policymaking efforts.
I’m not sure how anyone could describe Gary Gensler, Larry Summers, and Timothy Geithner as mid-level officials in the previous administration. They were three of Rubin’s closest aides during his Clinton years, and Summers was Treasury Secretary, for God’s sake. Rubin’s son was one of the key headhunters during the Obama transition, and Rubin himself was part of the transition effort; Froman, another Rubin colleague, has a key role; not one but two former heads of Rubin’s Hamilton Project think tank, Peter Orzsag and Jason Furman, hold key roles. And all this doesn’t even take into account the people who have less direct ties to Rubin, either by being former Hamilton Project members, or vets from Goldman or Citi.
Moreover the proof here is really in the pudding, to use a worn analogy. It wouldn’t matter that all of these people had ties to Rubin if they didn’t also follow Rubinite principles after joining the Obama White House. Obama the candidate promised to renegotiate NAFTA; Obama the president, led by his new economic team, abandoned the idea (free trade is one of the pillars of Rubinite thought). We see Orszag now talking about deficit reduction, and the word is that this key Rubinite principle is going to be a focus of the administration going forward. And the deregulatory instinct that was such a key part of Rubin’s world view has shone through during the decidedly soft-touch regulatory reform effort.
Even CFTC chief and former Rubin aide Gary Gensler’s apparently sincere religious conversion in the area of derivatives reform took place in opposition to loopholes put forward by another former Rubin aide, Timothy Geithner. (One of my sources, former CFTC official Michael Greenberger, joked about Gensler: “Gensler turned out to be one of the good guys on this stuff, but that was an accident. He would never have been nominated if they’d known that was going to happen.”)
In any case, to point out that all of these people who are making these decisions have ties to Rubin is absolutely valid. It’s certainly not invalid or factually incorrect to point out that Gensler worked closely with Rubin in the Clinton White House and also worked at Goldman Sachs. That fact was significant enough to cause two Senators to place a hold on his nomination.
Moreover it was symptomatic of the larger issue this piece is all about. Gensler, as one of the prime forces behind the disastrous Commodity Futures Modernization Act in 2000 (which affirmatively deregulated the derivatives market and helped make disasters like AIG possible), was a guy who bore direct responsibility for the financial crisis, and he was the guy Obama put in charge of this crucial post at the CFTC. Even just from an optics standpoint, it’s a terrible decision, and many people who work in the commodities business were genuinely appalled when Gensler’s name was first put forward. That he subsequently proved to be more sensible than Tim Geithner on the one issue of derivatives reform is a nice mitigating detail, but I personally would rather be talking about a CFTC chief who didn’t have to completely change his mind and reverse his long-demonstrated course in order to do the right thing.
Then there’s this passage, which is really irritating:
“Neil Barofsky, the inspector general charged with overseeing TARP, estimates that the total cost of the Wall Street bailouts could eventually reach $23.7 trillion.” It could, if every single loan guaranteed by the Federal government failed at once and all of the assets bought with those loans were destroyed — and many of those loans are to homeowners, including low-income homeowners, through Fannie Mae and Freddie Mac, or to small businesses. Some of that money went to Chrysler and GM in what was primarily a job saving move. TARP’s actual outlays are only $518 billion (still nothing to sneeze at), including foreclosure relief for homeowners. More money has been actually allocated so far on fiscal stimulus, including funds to reinforce the social safety net, than on the bank bailouts.
First of all, Barofsky did use that number, so let’s get that out of the way — there’s no factual issue with the passage I wrote. The Prospect writer wants to take issue with Barofsky’s number and imply that the use of it is misleading. Obviously Barofsky’s number is a worst-case scenario. But let’s cut the bullshit about the bailouts being intended to help ordinary homeowners and save auto workers. We could have paid off every subprime mortgage in America for about $1.4 trillion and instead shelled out at least ten times that to Wall Street, primarily to pay off derivative bets made by bankers on those assets.
The writer notes that the total TARP outlay was only $518 billion, and implies that this is the entire outlay for the bailouts when in fact the TARP is just one small slice of the bailout package — most of the bailout monies went out through little-known Fed programs like the TALF, the TLGP, the TIP, the PPI, and the Maiden Lanes. The number my friend Nomi Prins is using now for the bailouts is about $14 trillion in total outlays, and just as Barofsky pointed out, that number could rise. But to imply that the bailout outlay is not only comparable to the $700 billion stimulus but smaller than it is totally disingenuous.
The bailouts have been a massive boon to Wall Street, not so much to the rest of us (again, see Nomi’s report on that). Most of the bailouts came in the form of very cheap money lent out to the same banks that caused the crisis, who then took that money and lent it out at market rates, pocketing the difference.
That’s where all these billions in bonuses for the major banks are coming from this year. It’s almost impossible to not make mountains of money when your cost of capital is next to nothing because you’re borrowing your money from the government basically for free. Moreover we issued government guarantees for all the least responsible banks in the country — so while you and I have to keep our same old shitty credit scores, all the people who leveraged themselves to the hilt and bet the farm on subprime mortgages that we ended up bailing out now get squeaky clean, brand-new AAA credit ratings to borrow from. The cost of credit for them plummeted thanks to these guarantees, while we’re paying the same old rates to borrow our money.
This, again, is perfectly in line with the basic premise of the article. Geithner and Ben Bernanke continued a bailout policy that rewarded the very people who were most responsible for the crisis. The rest of the population did not see those same benefits. We can argue about the motives behind Obama’s bailout decision, but the numbers are not really a factual issue.
Then there’s this:
“It’s the sweetheart deal of the century, putting generations of working-stiff taxpayers on the hook to pay off Bob Rubin’s fuck-up-rich tenure at Citi.” Actually, the U.S. structural deficit and resultant national debt is mainly a hangover from the Bush Administration, with economic remedies to the financial crisis and the recession making a relatively small piece of the pie. Obama will be rolling back most of Bush’s tax cuts for the wealthy, but Taibbi deigns not to mention that.
I have no idea what he’s talking about here. I was referring specifically to the Citigroup bailout, which was indeed a sweetheart deal and does indeed put working-stiff taxpayers on the hook to pay for Bob Rubin’s fuckups. Not generally speaking, not metaphorically speaking, but literally. Rubin encouraged Citi to leverage up to invest in subprime crap; it blew up; we’re paying for it. I’m not sure what the factual issue is here.
Lastly, there’s this bit about the “resolution authority” part of Frank’s regulatory reform bill:
“Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts.” The legislation actually only allows federal regulators to use funds taxed from banks to assist them in a crisis; if they want to use taxpayer money, Congress can say no.
The writer is correct — thanks to late intervention in committee by congressmen like Brad Sherman well after my piece went to print, Congress does now indeed have veto power over future bailouts in the House version of the bill. When we went to print, however, the measure concocted by Frank’s staff in conjunction with Geithner specifically excluded any requirement for congressional approval. In fact, as we went to press, Sherman and others were fighting just to obtain a compromise in the form of a “resolution of disapproval,” which would have given Congress the right to vote on future bailouts only after they had been implemented.
And even then, if both houses passed such a resolution, the White House could have overturned it using a Presidential veto. That was what was on the table as we went to press; ultimately Sherman and the rest overcame opposition from the more senior Democrats to restore congressional approval. But that was no thanks to the Obama White House. Undeniably, the original proposal that was drawn up by Frank’s committee in conjunction with Geithner did not include any sort of congressional oversight over future bailouts.
As for the idea that only funds taxed from banks can be used for bailouts, that is indeed how it’s supposed to work. But the original legislation had the actual money for future bailouts coming via a several stage process. First it would be borrowed directly from the Treasury (or from other agencies like the FDIC). Later, that money would be recouped through a tax imposed by the White House on financial businesses with assets larger than $10 billion.
That sounded great — except that the measure contained no specific formula for when and how to recoup that money. The tax on these financial businesses could come in any amount, large or small, in any year. It could be put off indefinitely. In other words, the money could be borrowed first from the taxpayer and then later, eventually, would be collected via some unspecified vague taxation process from large financial companies. That has been corrected to a degree in the House version since we went to print, but that was the original scheme as envisioned by Obama’s appointee Geithner.
The writer’s interpretation of “no equity in any form” is interesting and clashes directly with what I was told by two different congressmen. Sherman, for instance, said that the measure, along with the lack of oversight, meant that future bailouts would be “Warren-less and warrant-less,” meaning no oversight (i.e. no meddling of the sort demonstrated by Elizabeth Warren’s congressional oversight panel) and no warrants — “no share in the upside,” as he put it.
“The House of Representatives had proven last year to be an unreliable partner of Wall Street,” Sherman said. “That’s why these things were included.”
In journalism one always comes across issues where one set of sources interprets facts one way and another sees it a different way. This resolution authority business is a classic example. Congressmen like Sherman and Paul Kanjorski were appalled by portions of the new bailout authority sections and worked to correct them, while others I spoke to seemed less concerned and, like the Prospect writer, said that they were uncontroversial technical matters merely describing a liquidation process similar to what the FDIC does. Their disagreement over how to interpret the facts extended to actual votes in the committee, where those who were alarmed by the bailout sections voted one way and those who weren’t, for whatever, reason, voted the other way.
I felt that Sherman and the others who opposed the bailout sections and fought to change them were more believable. Among other things this was because Sherman spent almost two hours walking me through the original bill line-by-line. On balance, all the evidence to me suggested that the original bill would have given the White House basically unlimited bailout authority, and it was only late-stage opposition from junior Democrats and Republicans that curbed that authority, restored congressional oversight, more clearly defined which firms could be taxed to pay for bailouts (the original version put forward by Geithner basically had medium-sized firms paying taxes for bailouts that could only go to the 20-25 largest firms), and moreover gave the government the authority to break up the so-called too-big-to-fail firms before they reached the stage where bailouts would be necessary.
So what this writer describes as a factual error is actually a question of me throwing in with one set of sources and him throwing in with another. And that’s basically what is going on with this whole Prospect post. My sources tell me that Austan Goolsbee doesn’t have the president’s ear (“Goolsbee answers his own phone,” was how one put it), point out that Goolsbee didn’t have a job in the transition, and note that the one genuine progressive in the administration, Jared Bernstein, works in the Vice President’s office in a job they had to invent for him.
This Prospect writer interprets the same facts this way: Goolsbee “skipped” transition work to immediately start working for the PERAB (which didn’t meet until May), while Bernstein now has an important job in the Vice President’s office! I don’t mind that he disagrees with my interpretation of things, but to couch those disagreements as factual errors on my part is, frankly, a little douchey.
Again, I do absolutely admit to mixing up that biographical passage about Jamie Rubin. But the rest of these issues are not issues of fact but differences of opinion. I understand the argument that the fact that Obama happened to name a dozen or so people with ties to Bob Rubin to key posts does not indicate a conspiracy, and undoubtedly I left out a great many good things that Obama has done, even in the realm of economic policy. But it’s not my job to give equal time to both the naughty and nice lists.
It is my job to point out that many of the same people who bear direct responsibility for the financial crisis were given positions of great power in the Obama White House, and that in many important ways the Obama appointments represented a resounding reaffirmation of the status quo (I didn’t even mention the renomination of Ben Bernanke), and the exact opposite of “change.” One can argue about the extent to which this is true, but I don’t think the facts are really in question.
p.s. The Prospect writer argues that “the problems Taibbi tries to describe aren’t some ridiculous cabal” but instead “come from group-think and structural influences.” Correct me if I’m wrong, but this was exactly the point of the article. The issue with the modern Democratic party is that its leaders all share a world view that’s extremely narrow. They genuinely believe in Rubinite ideas, have grown accustomed to an incestuous relationship with Wall Street, and they probably think that the right people were put in charge. Their failure to look beyond their own “group-think” for solutions to economic problems is exactly the issue.
Update Not that he did it for my benefit, but thanks to Felix Salmon at Reuters for this post fact-checking the Prospect fact-check.