Northern Country

How globalization changes capitalism, the economy and politics

Posts Tagged ‘Congress

Is there a rift between the democratic party and the Obama administration?

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Obama-democrats

I have written about Goldman Sachs and how the investment firm contributed to the worst financial crisis since the Great Depression. Matt Taibbi alluded to GS as The Great American Bubble Machine contributing substantially to all major investment bubbles since the 1930s. GS has always been a talent hotbed where privileged alumni leave the firm through what Stieglitz calls a revolving door to end up in critical positions of government. The list of those exiting Goldman and entering the government is long, but it is clear that they are all associated with the Democratic party.

Next to this one there could be another list, one of detrimental political decisions that contributed to the current crisis. On top of it is the repeal of the Glass-Steagall-Act under former GS employee and Bill Clinton’s Treasury secretary Robert Rubin, which allowed bank holding companies to own other financial institutions and eventually become too big to fail and a systemic risk. This of course was never intended but as we painfully recognize one of those far-reaching wrong judgments made by a democratic administration. In light of this anything but impeccable track record we have to ask if democrats are truly forthcoming in their desire for real change or are they about to make another big mistake?

In November of 2008 a new spirit of political leadership in the US was finally entering into the halls of congress and the White House. President Obama has promised to bring change to Washington and the democratic party vowed to stand beside him and his ambitious agenda. In the meantime democrats together with two independents have a sound filibuster majority of 60 in the senate. They are now calling the shots in the government and the legislature. It is therefore even more disturbing to see how the House of Representatives overwhelmingly rejected a signing statement from their president.

In June a $106 billion war supplemental bill passed legislation in the House and Senate which included conditions on World Bank and IMF funding. The bill would extend a credit line of $108 billion for international financial institutions (IFI) to aid struggling developing economies crippled by the current financial and economic crisis. Major recipients of IFI funds could be nations in Eastern Europe under immense pressure to devalue their currencies in an attempt to avoid a default scenario. This would have a ripple effect and threaten the stability of the global financial system similar to events during the Asian crisis in the late 90s.

Despite severe and eventually devastating consequences to an already ailing global financial system of such a devaluation scenario, resistance is mounting among lawmakers who view IFI funding as an unnecessary ‘global bailout’ . To reach a compromise and find the votes to pass the bill House and Senate leaders included restrictions resulting in an amendment requiring the Treasury department to report on World Bank and International Monetary Fund (IMF) activities. Late Thursday the amendment passed with strong bipartisan support and an overwhelming majority of 492-2 votes against the Obama administration.

The president in a statement during signing of the original bill rejected this restrictions and vowed to ignore the amendment’s conditions. They would "interfere with my constitutional authority to conduct foreign relations (with international organizations and foreign governments)… by requiring consultation with the Congress prior to such negotiations or discussions," Obama said in the signing statement. With the passage of the amendment lawmakers including Barney Frank, a democrat and head of the powerful House Financial Services Committee (HFSC), are now threatening to withhold funds in a stand-off with the Obama administration.

492 to 2 speaks a clear language and it remains to be seen if the administration can afford to ignore congress under these conditions. Though it certainly would mean a severe blow to the authority of the president if he will be forced to revoke his signing statement. His foray into environmental politics (see also here), for the first time opening up the United States to international commitments to substantially reducing carbon emissions, could be called into question. So could his commitments he made during his Moscow speech (see also here), to the establishment of an international body together with and under the leadership of the U.S.

Much needed reform in Washington away from neoliberalism towards true and sustainable world leadership hangs on a thread. While first signs emerge of a search for an effective international body that more truthfully represents interests of all nations in a global economy, the coverage of the G-8 summit in Italy by mainstream media in the U.S. suggests otherwise.

The media are either ignoring or mocking efforts of the G-8 to increase the scope of their discussion round tables by opening it up to other powerful nations like China, Brazil, India, Mexico, South Africa and others. The NYT writes: “Eventually, the so-called Group of 8 started what might be considered auxiliary clubs. And that was how they ended up with a meeting on Thursday that was actually dubbed the G-8 + 5 + 1 + 5. Seriously.”

The Times also calls into question the relevance of the G-8 if they seemingly cannot take landmark action without enlisting others, and misses the point completely: It is not about relevance of the G-8 but rather about sustainable credibility within the G-15, G-20 or even G-194. It is not about America but rather about sustainable relations between all nations in a political and economic environment more and more intertwined by globalization. If we have learned nothing else from the current financial and economic crisis this should be it.

Leaving other nations out makes the G-8 nothing but an elite club of snobbish leaders who in a reactionary move desperately seek to conserve neoliberal, neoconservative mindset. Barak Obama, Angela Merkel, Nicolas Sarkozy and other powerful leaders understand that and therefore support this search for a new international world order. Reactionary dinosaur politicians will eventually face the same destiny. In the meantime there are still too many of them and they are still very powerful. President Obama’s stand-off with the congress on the issue of the signing statement serves as a litmus test about the determination towards change in a modernized America.

Bernanke’s ‘shotgun marriage’ got him an invitation

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Few institutions enjoy such powerful position and reputation of the highest order like the Federal Reserve Bank in the US. The men who chaired it like Volcker, Greenspan and now Ben Bernanke are among the foremost economists and most influential people on the face of the Earth. While Greenspan’s role in the crisis, that has destroyed Wall Street and crippled the global economy, has been criticized the bank and its current chairman seemingly were left unharmed. To the contrary in the course of the crisis the Fed’s balance sheet has doubled and tripled and the role as lender of last resort has lifted Bernanke into the status of the almighty savior. 

That Ben Bernanke is no saint has now even reached into the halls of the US Congress. Last week Lewis CEO of Bank of America, a financial institution hit very hard by the crisis on Wall Street, testified before The House Committee on Oversight and Government Reform to the acquisition of investment bank Merrill Lynch in September of 2008. This panel has now ‘invited’ Bernanke to speak about the government’s role in this acquisition. This time it will be quite different though for the chairman, nothing like any of his scheduled testimonies before members of the House and the Senate.

The accusation is serious. According to Lewis government officials threatened to remove BofA’s management if they would step down from the Merrill deal. The House Committee’s questions will focus on numerous emails between Bernanke and other Fed officials from last December. Representative Darrell Issa, a Republican from California, stated at the hearing with Lewis that government officials do not have the power to ‘force shotgun weddings’. The Bernanke hearings will be held on June 25, certainly a day to mark in the calendar.

In another development a Congressman from Texas who is a notorious critic of the Federal Reserve has finally won sufficient support for his bill. Ron Paul and 221 of his colleagues signed on to the Fed Transparency Act, which would require a fresh outside audit of the Federal Reserve. It will now go to the Senate and should it pass it would mean for the first time in history sunshine could fall on this mighty institution. We can only chime in and sing in the age of Aquarius ‘Let the sunshine in’.

Written by Alfred

17. June 2009 at 6:15 pm