Northern Country

How globalization changes capitalism, the economy and politics

Posts Tagged ‘democrats

Wall Street – Washington Connection, Part I

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DimonandBlankfeininWashington

When we think about the financial crisis on Wall Street and in the economy we try to figure out why it happened, who was responsible and how can we prevent it from happening again in the future. Today we still have a lot more questions than we have answers, but the sun is beginning to shine, and one issue is starting to emerge which probably for years and years has been tucked away from the public’s view.

This crisis is pulling the blanket of secrecy from a bunch of Wall Street bankers smooching and spooning undercover with Washington’s big guys for the last several decades. Of course we would expect them to be somewhat embarrassed about busting their secret arrangements, maybe even flee the scene to break up their unholy unity for good. Much to our surprise none of this is actually happening.

Mr. Dimon, chairman and head of JPMorgan Chase, has sought to ratchet up his business of influencing Washington in late 2007, when the financial crisis hit and the democrats together with the Obama administration were beginning to settle in. Jamie Dimon together with Goldman’s Loyed Blankfein are among a rare breed of executives who have not jeopardized their companies by taking unwise decisions. Both CEOs in the meantime have returned all funds received from Treasury’s capital assistance programs (CAP).

These days JPMorgan’s chairman comes to town about twice a month and not twice a year as he used to. He met with Treasury secretary Geithner, White House economic advisor Lawrence Summers, and several lawmakers in recent months and gets a list from his staff to call a half-dozen public officials each week. He has made it a regular thing to nurse his precious Washington relations to make sure he is not kept out of the loop.

When JPMorgan wanted to return its TARP funds his influential connections helped him to ease the terms for banks allowing them to repay the money. In the end Washington caved in to Dimon’s complaints about limitations for hiring skilled foreigners and on executive pay. He also helped thwart attempts to lower the principal on mortgage payments which would have benefited homeowners.

Another contentious issue is Mr. Dimon’s objection to regulate the market for credit derivatives by keeping part of it independent from regulated clearing operations. Fees from underwriting over-the-counter credit derivatives are a major source of income for JPMorgan Chase.

Mr. Dimon’s connections to Washington date back to his day at Citigroup when he offered Mr. Rahm Emanuel, then senior advisor to president Bill Clinton, a job at the firm. Today Mr. Emanuel serves in the Obama administration as White House Chief of Staff. William Daley, former commerce secretary and influential Chicago lobbyist, is also currently on JPMorgan’s payroll. Mr. Dimon mindfully replaced some of his staff with wired democrats to better serve his Washington agenda. 

Most surprising is his connection to Treasury secretary Geithner. Mr. Dimon holds a seat on the board of the New York Federal Reserve. Mr. Geithner served as president of the NY Fed till he joined the Obama administration in January of this year. How can a CEO of a public company sit on the board of a federal regulator? That’s like John Gotti being a member of the U.S. Department of Justice.

For the first time this Monday JPMorgan Chase held a meeting of the firm’s board in the nation’s capital. Messrs. Geithner and Emanuel were both invited, but only the chief of staff first agreed to later withdraw not to appear too cozy with Wall Street bankers. This invitation is nonetheless testament to the arrogance of invincibility that has shrouded executives of our most powerful corporations.

In Washington nothing gets done without support from Wall Street and Wall Street knows it. Wallshington is more important and influential than the oil industry, the industrial complex or even the powerful military. This has never been so true like it is today with a handful of firms left unfettered from the crisis and government’s control. Their power is more concentrated in the hands of a few and therefore even more difficult to control.

Executives on Wall Street get whatever they wish from every administration or congress there is. This too big to fail monster is sucking the lifeblood of morality, decency and sustainability out of a societal fabric that once was the envy of the rest of the world.

In the latest report for the period ending July 17, 2009, the Treasury department listed employed funds under the Troubled Asset Relieve Program (TARP). The financial industry received $204.2 billion, $70.2 billion have been returned, leaving the industry with a total of $134 billion outstanding. In the automotive industry $77.8 billion from 79.9 are still owed to the taxpayer. Automotive suppliers received a more humble $3.5 billion. Targeted investments in Citygroup and Bank of America totaled $40 billion and asset guarantee programs for Citigroup another $5 billion. The Troubled Asset Loan facility (TALF) committed $20 billion. Rescuing troubled insurer AIG required another $69.8 billion.

To this day the financial and the automotive industry owe the taxpayer $350 billion, yet government has devoted only $18.7 billion in home affordable modification programs to avoid foreclosures. While taxpayers were required to fund the bailout of Wall Street with 350 billion dollars the financial industry is reluctant to modify loans and scores of families are still forced out of their homes.

This current administration with the most eloquent president since years will have a hard time to sell this to the general public. Wall Street firms reverting to old habits by once again doling out mega bonuses to their club members will not make it any easer.

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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.

The new Bunch – climate change bill passes House

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Obama Democrats

I recently argued in What change – one step forward two steps back that when it comes to foreign policy the Obama administration lacks their long touted claims for change and yes we can. But I am willing to give Obama credit when it comes to making important progress on environmental policies. The bill passed by the House of Representatives on Friday can be viewed as a significant change and setback for neoliberal neoconservative forces in Washington.

After many years of stonewalling international efforts to fight climate change politicians in Washington demonstrated that change is indeed possible. Friday evening a much anticipated roll call on the floor of the House of Representatives succeeded with a narrow margin of 219 to 212 votes. This historic climate and energy legislation is a significant win for House Speaker Nancy Pelosi, a democrat from California, and president Barack Obama.

Of course this vote is only the first step to a final legislation finding its way to Obama’s desk. It is now up to the Senate to take the bill to the next level. This might be more challenging than Friday’s vote. Already Forty-four democrats voted against the bill and just eight republicans crossed the aisle to support it. In the Senate the margin of the vote for democrats is certainly smaller.

Some freshman democrats, who’s vote is up again in 2010, had to be protected by their older peers. Nevertheless a day long effort by leading democrats in the House of Representatives and outside obviously helped to secure the necessary votes. It is no secrete that republicans in general consider this bill unpopular among ordinary Americans and blast it as economic catastrophe . In an immediate reaction the National Republican Congressional Committee in a press release therefore accused more than two dozen democrats to support a bill that would cost jobs and raise electricity prices for already recession plagued consumers.

“This is the biggest job killing bill that’s ever been on the floor of the House of Representatives. Right here, this bill, said House Minority Leader John Boehner. And I don’t think that’s what the American people want.”

Old-America versus new-America is the struggle that is heating up since the Obama administration moved into the White House. The old neoconservative, neoliberal leadership is wearing down and a new modern America emerges with a renewal to the claim for World-leadership. The world is ready to say to America: If you just unite us we are ready to follow.

There is of course a long way to go but this bill is certainly a step in the right direction. The main sponsors were House Energy and Commerce committee chairman Henry Waxman (D-Ca.) and Massachusetts Rep. Edward Markey (D). Together Speaker Nancy Pelosi, former vice president Al Gore, the don of the climate-change world, and significant efforts from the White House helped to push it through.

“We passed transformational legislation which takes us into the future, Pelosi said at a press conference following the vote, after she and other leaders took congratulatory phone calls from Obama, former Vice President Al Gore and Senate Majority Leader Harry Reid.”

The final legislation will help to cut greenhouse gas emissions by 17 percent by 2020 and 83 percent by 2050. It will do so by putting a price on carbon dioxide emissions through a cap-and–trade system. It will help to increase energy efficiency and mandate a 20 percent renewable energy contribution by 2020. According to democrats it will, increase electricity prices for consumers only by $175 a year per household by 2020, much less than the $3000 price hike predicted by republicans.

More proof for democrats’ commitment to change in environmental policies came also on Friday with a $32.3 billion natural resources budget bill clearing the House. Additional funds will be used to increase Energy Protection Agency core programs in clean-water projects and Superfund toxic-waste cleanups. Unlike the climate-change vote this call, 261 to 179, was more decisive. Most republicans of course rejected the bill and argued that increasing EPA funds by almost 40 percent is simply irresponsible with the economy contracting. Funny I am sure they did not oppose the spending-on-the-troops part of a $106 billion war-funding bill that passed the House on June 16. Democrats argued that additional funding for EPA is only making up for years of real reductions under George W.

Written by Alfred

27. June 2009 at 11:10 am