By Nomi Prins
The Republicans may have stormed the House, but it was Wall Street and the Fed that won the election. Regardless of party power plays and posturing, there are two constants that remain unaltered after the election. First, Wall Street will continue on with business as usual while shifting its campaign and lobbying dollars to the new winning team. And second, the Fed will keep on pretending to prop up the economy by buying more U.S. debt, thereby keeping interest rates low, the dollar weak and money cheap for the banking system to inhale. This fictional boosting of the financial economy, absent the real boosting of the general economy, will march on sans debate, inspection or restriction.
In the wake of the election, the Fed pulled off a move detected only by downtown Manhattan. It quietly announced a purchase of $600 billion in Treasury securities (read: our debt) while pundits on the left and right were dissecting the role of the tea party in political life as we know it, the Obama dissatisfaction quotient, and the chance of Sarah Palin heading for the White House in 2012.
That $600 billion figure was about twice what the proverbial “analysts” on Wall Street had predicted. This means that, adding to the current stash, the Fed will have shifted onto its books about $1 trillion of the debt that the Treasury Department has manufactured. That’s in addition to $1.25 trillion more in various assets backed by mortgages that the Fed is keeping in its till (not including AIG and other backing) from the 2008 crisis days. This ongoing bailout of the financial system received not a mention in pre- or postelection talk. No one in Congress or the White House gets a say on the maneuver. Yet, it was the Fed buying more treasuries, and not the fact that the Republicans gained control of the House, that caused the Dow to shoot to a 2010 high and bank stocks to rally 2 percent on average.
Like many other Americans, as the results of the elections were pouring in for insta-analysis I was obsessively flipping cable TV channels. It didn’t matter whether I landed on Fox, CNBC or MSNBC, the same two main items were being debated: (1) the tea party’s rise and (2) the other victorious Republicans (including the ones labeled as tea party candidates—even though they did not actually run as candidates of a separate party, a trick that progressives have never managed to pull off or even try).
All the Republicans sang their refrain from the same song sheet, vowing to work on extending George W. Bush’s tax cuts, killing what they refer to as Obamacare, cutting spending (though none gave specific details as to how) and, of course, getting Americans back to work. The catch—and this was a notion taken up by President Barack Obama and ignored by the Fed the very next day—is that the Republicans wanted to do so the free-market way, by reducing government constraints on businesses so they can stop worrying about obstacles like rules, and thus somehow spontaneously start hiring more. (Note: To underscore this strategy, CNBC paraded a bunch of chief executive officers on screen throughout the election night.)
But, for the most part, the Republicans left the so-called financial reform bill alone as a topic, except to make it clear, as incoming House Majority Whip (aka 2012 contender) Eric Cantor did, that they don’t want onerous regulations (it is much better to wait for the next leg of this crisis and the loss of more jobs and homes, apparently, than to bar Wall Street from financial innovation).
Here’s what wasn’t mentioned during the election or postelection chatter: the cost and logic of bailing out, subsidizing and now propping up Wall Street as it heads decisively (despite Obama’s promises of those days of fill-in-the-blank being over) to another year of record bonuses.
No winning Republican mentioned repealing the financial reform bill, since it doesn’t really actually reform finance, bring back Glass-Steagall, make the big banks smaller or keep them from creating complex assets for big fees. Score one for Wall Street. No winning Democrat thought out loud that maybe since the Republican tea partyers were so anti-bailouts they should suggest a strategy that dials back ongoing support for the banking sector as it continues to foreclose on homes, deny consumer and small business lending restructuring despite their federal windfall, and rake in trading profits. The Democrats couldn’t suggest that, because they were complicit. Score two for Wall Street.
In other words, nothing will change. And that, more than the disillusionment of his supporters who had thought he would actually stand by his campaign rhetoric, is why Obama will lose the White House in 2012.
Then, there’s the Fed. Ben Bernanke, who like Treasury Secretary Timothy Geithner has survived two administrations under different parties to have a hand in bailing out the banking system and fictitiously stabilizing the markets, continues to run the country into the path of massive debt in the name of easing money, so as to avoid the Second Great Depression from which Obama thinks he saved us (along with Geithner and former Treasury Secretary Hank Paulson).
Last Wednesday morning, Obama had the chance to at least attempt to re-engage the voters who believed in his mantra of change. In his contrition speech, he took responsibility (read: apologized) for having made it seem he extended government too much (thereby taking on the language of the Republican opponents), explaining that we were in an emergency situation (not that the banks screwed up and stole the life rafts). He assured businesses he was still on their side (in case the fact that he’s keeping Wall Street lackey Geithner on and his ringing praise for Larry Summers on “The Daily Show” weren’t sufficient signs).
It is likely that, going forward, Democrats will fear losing more seats in 2012 and vote more with the pro-bank center. That would be a mistake for them and bad for the country.
Yet sadly, Obama showed pre-emptive signs of capitulation with two words: free market. Toward the end of the Q&A session after his speech, Obama said that the free market has to be “nurtured and cultivated” and that he has to take responsibility to make clear to the business community and the country that the most important thing we can do is boost and encourage our business sector and make sure that companies are hiring. His facial expression was as hollow as his words. He added that “we” have been talking to CEOs constantly (and don’t we all feel good about that?)—and that on his trip to Asia this week his whole focus will be on opening up markets, so “we can prosper, sell more goods and create more jobs in the United States” (that playbook comes from Bush Treasury Secretary Paulson, but that policy has been shown only to enable CEOs to outsource more, not less). He also pointed out that a whole bunch of corporate executives will join “us.”
And that is the second reason he will not be re-elected: Businesses won’t need to fund his next campaign when they can fund the Republicans now that they are back in vogue. Businesses will meanwhile just extract what they can as long as they can, like better deals abroad in the name of free markets—the kind that the Fed is subsidizing back here at home. Obama and his supporters will see this in 2012 if they don’t now. The president could go all out and ignore the CEOs and focus on the general populace, but signs point to the contrary. If he has learned something from the November elections about loyalty to his voters, he isn’t showing it. So maybe progressives should stop defending him and start yelling at him … or seriously look for another 2012 candidate to run against Sarah Palin.
AP / Frank Franklin II