29.07.2009

Wobbling to the right

Jim Creegan examines the first six months of Barack Obama’s administration

All of the reformist illusions that  accompanied the election of Barack Obama may be punctured during the second half of 2009.

The Democrats are in their strongest position in decades. They now control the White House and both chambers of Congress. With a contested Senatorial election in Minnesota recently resolved in favour of the Democratic candidate (a former television comedian named Al Franken), they also command the 60-vote ‘super-majority’ needed to thwart Republican attempts to block legislation in the Senate by means of the filibuster. Responsibility for the failure to carry forward the ‘progressive’ agenda upon which so many pinned their hopes in the November elections must now be laid at the door of Democratic Party, and it alone.

Bush-lite foreign policy

Obama has already gone a long way toward disappointing the expectations of his supporters during his first six months in office. Continuing a pattern established early in his political career, he compensated for every sop thrown to the left with fulsome reassurances to the right.

He decreed that the infamous Guantanamo Bay prison be closed by January 2010, only to add that most of its prisoners would continue to be held elsewhere, without the right to a trial in US courts, and that all the illegal instruments put in place by Bush for fighting the ‘war on terror’ - the indefinite detention of suspects, the ‘extraordinary rendition’ of suspects to foreign countries, and the military tribunals he had earlier vowed to abolish - would remain in place. He disclosed Pentagon documents detailing grisly techniques for torturing supposed al Qa’eda suspects, but then reneged on an earlier pledge to release thousands of photographs showing the actual torture. American troops may be further endangered, he said, if too much of the truth came out.

Obama has consistently refused to investigate, let alone prosecute, officials of the Bush administration for their unconstitutional wiretaps of US citizens or their recently exposed attempt to conceal from Congress a project to organise covert teams to assassinate ‘terrorists’ abroad. He says we need to put the past behind us and “move forward”. His ‘drawdown’ (far short of withdrawal) from Iraq was accompanied by the dispatch of over 20,000 additional troops to the counterinsurgency war in Afghanistan, with its routine butchery of civilians by bombs from pilotless drones.

In his one significant departure from imperial-foreign-policy-as-usual, Obama has insisted that Israel, in the interests of restarting the ‘peace process’, cease to expand its settlements in the West Bank - a demand the Netanyahu government has decided to flout in the expectation that the consequences of defiance will be less than devastating.

Economy: bankers’ bonanza

Obama’s attempts to address the ongoing economic crisis have made a mockery of liberal fantasies about a second version of Franklin Roosevelt’s new deal. The great depression threw up serious challenges to the two-party system in the electoral arena, drove farmers to take up arms against evictions in the midwestern farm belt, and resulted in industrial strikes that plunged several American cities into a virtual state of civil war. Roosevelt consequently made significant alterations in the way American capitalism was run.

The liberal left - which now claims the allegiance of most idealistic young Americans who want to change society - is not entirely unaware of this history. They therefore commonly argue that simply electing Obama is not enough, and that “mass movements” will be required to put pressure on him. What they miss, however, is that the third-party, agrarian and industrial movements of the 1930s were not organised with the aim of nudging Roosevelt to the left. It was rather because they were outside the control of the two-party duopoly that Roosevelt made the concessions that he did. In this way he succeeded in bringing most potential insurgents into the Democratic fold.

Obama, on the other hand, faces no comparable challenge (as yet), and knows that those whose declared aim is push the Democrats to the left continue to be party-loyal. He therefore feels no compulsion to make major changes. In fact, he has bent over backwards to avoid doing anything in the economic sphere that would offend the dominant financial wing of the American capitalist class.

While Roosevelt put hundreds of thousands to work directly for the federal government, Obama’s $770 billion stimulus package releases federal funds in dribs and drabs to state and local governments for a range of projects. It has failed to achieve its declared objective of holding the unemployment rate at eight percent - it climbed to 10% last month, the highest in 30 years.

Roosevelt sought to curb reckless financial speculation on the part of banks by engineering an overhaul of the financial system; customer deposits were insured by the government, and commercial and investment banking strictly separated. By contrast, the efforts of Obama and his economic team of Wall Street cronies - headed by treasury secretary Tim Geithner and chief economic adviser Lawrence Summers - seem to have no other objective than the restoration of pre-meltdown conditions without addressing the causes of the meltdown.

To get bankers lending again, Geithner has devised a scheme called the Public-Private Investment Program. PIPP aims to remove toxic assets from the books of major financial institutions. The government will not purchase these assets on its own, but rather form partnerships with private investors to do so. Assets will be bought not at their currently low market values, but at the prices the financiers think they would fetch in a ‘healthy’ economy. Should investors balk at these inflated prices, the government has offered to put up part of the cash, and to ‘loan’ investors the rest. Should they rise in value, the assets could be sold at or above the original purchase price by the investors, who would pocket most of the profits.

If, on the other hand, the assets fail to appreciate, the investors will not be required to pay back loans from the government, which will hence absorb the greater part of the loss. PIPP, in other words, amounts to a more convoluted and less transparent scheme for doing the same thing that Bush and his treasury secretary, Henry Paulson, took so much heat for funnelling billions of taxpayer dollars to banks and investment houses with few strings attached.

In the regulatory sphere, Obama/Geithner are proposing a commission to protect consumers against fraud by financial institutions, and want to make it easier for the government to nationalise banks that fail. They have, however, conspicuously avoided any strong curbs upon the one practice that, more than any other, led to last summer’s disaster: the unregulated trade in derivatives (ie, financial instruments, such as futures, options and swaps, based upon the value of an underlying asset). They seek to expand regulation by giving more power to the Federal Reserve, the very agency that played a key role in preventing the regulation of the huge hedge funds behind the explosion of derivative trade in the first place.

One form of derivative deeply implicated in the financial crisis is the credit default swap (CDS) - a kind of insurance for mortgage-based assets, among other things. At the time of the 2008 financial crisis, the value of CDSs had grown to an astronomical $45 trillion, but because derivatives were unregulated, the holders of CDSs were not, like normal insurers, required to disclose their value or hold any portion of their value in reserve. When the real estate markets collapsed, the insurers nearly went under. The single largest recipient of government bailout money ($180 billion) was the American International Group, the biggest insurance company in the world.

Obama/Geithner now propose to regulate the CDS market by creating an exchange in which these derivatives would be traded at publicly accessible prices and subjected to normal reserve requirements. These regulations, however, contain a loophole big enough to encompass another bubble: they apply only to ‘standardised’ swaps; on the other hand, ‘customised’ swaps (those specifically tailored to the needs of a particular buyer) are exempt. Wall Street is notoriously proficient at changing labels when the need arises. In the words of Senator Tom Harkin of Iowa, “These mathematical geniuses who create these things can find a way to turn anything into a customised swap” (The New York Times June 1).

The big banks and investment houses have no interest in modifying the practices that led to the crash of 2008. For the most part, they have not even felt compelled to alter the appearance of the way they do business. They would like nothing better than to return to pre-crisis swindling as quickly as possible. Obama and the coterie of bankers surrounding him seem only too willing to ease their way, at stupendous public expense. The two financial firms that were strong enough to weather the storm - Goldman Sachs and JP Morgan - have returned their bailout money to the government in order to avoid even the anaemic regulations imposed thus far; they could afford to do this because money is flowing into their coffers in torrents. Goldman Sachs has posted a profit of $3.4 billion for the second quarter. It also paid out over $11 billion on employee compensation, oblivious to the public outcry over obscene bonuses.

The EFCA debacle

Finally, Roosevelt recognised the right of workers to organise into unions and bargain collectively with their employers. These rights have been effectively abrogated over the past 35 years, as employers have busted existing unions and formed a solid front to prevent workers from organising themselves into new ones. The federal agency charged with enforcing worker rights, the National Labor Relations Board (NLRB), has also been deliberately underfunded, understaffed and filled with pro-corporate hacks.

Both major trade union groups, the AFL-CIO and the fractious Change to Win coalition, pulled out all stops to get Obama elected in hopes that, backed by a Democratic Congress, he would redress this state of affairs.

The main vehicle of redress was to be a piece of legislation called the Employee Free Choice Act (EFCA). This bill sought to streamline the process by which employees in any given firm gain union recognition. As things now stand, workers wishing to form a union must petition the NLRB for an election. But between the time an election is ordered and the actual day of the vote there is an interval of three months, during which employers are legally entitled to make anti-union propaganda. They almost invariably exercise this right in compulsory one-on-one meetings with workers, as well as group meetings with employees as a captive audience. They also use the time to harass and sack anyone who speaks out for the union - illegal under national labour laws that are almost never enforced. This intimidation makes organising campaigns extremely difficult to win.

EFCA aimed to circumvent this Calvary through a procedure called card check. Under it employers would have been required to recognise the union after a majority of the workers signed authorisation cards. The bill also provided for compulsory arbitration after 120 days in the all too common event that the employer refused to negotiate a contract with the union even after it had won an election, or dragged out negotiations indefinitely. (The arbitration provision was not the unalloyed boon that union bureaucrats billed it as; unions that entrust their fate to ‘neutral third parties’ usually lose.)

In response, the country’s biggest employer association, the US Chamber of Commerce, mounted a ferocious anti-EFCA campaign, including intense lobbying efforts in Washington and a media blitz. In multiple television and newspaper adverts, the employers, suddenly converted into champions of workers’ democracy, said card check would deprive employees of the sacred right to vote in representation elections. When it comes to unions, all ruling class factions and shadings of opinion instantly dissolve. The billionaire liberal Democratic hedge fund manager, Warren Buffet, who has spoken out for a more equitable tax code, closed ranks with the worst Republican troglodytes to oppose the card check measure.

For their part, the union bureaucrats undertook what for them was an ambitious effort to get EFCA passed. They ran their own television adverts, and even held a few rallies. But their main strategy, as usual, centred around lobbying members of Congress and intriguing in the corridors of power rather than attempting to get workers out onto the streets.

In the end, it was the bosses’ campaign that produced results. Obama had pledged to support the bill when campaigning, but spoke not a word about it once in office, leaving his chief of staff, Rahm Emanuel, to signal Congress that improving the lot of workers was not at the top of his legislative list. Although EFCA had enough backing to pass handily in the House of Representatives, in which the Democrats hold a two-to-one majority, things stood very differently in the Senate. There, ‘moderate’ Democrats began, one by one, to announce that they would not vote to prevent Republicans from filibustering to kill the bill. Hoping to placate the Republicans, who opposed EFCA to a woman and man, the Democratic leadership then announced that it was dropping the card check provision from the bill, disembowelling it entirely. The trade union bureaucrats, ever Democrat-loyal, sought to put the best face on the toothless version of EFCA that is left, and may not even pass.

EFCA’s fate reprises that of many a piece of legislation that would cause even the slightest discomfort to what the media call the ‘business community’. Such bills are unanimously opposed by the Republicans. But even if backed by the majority of Democrats, they almost always founder on opposition from a handful of ‘moderate’ or ‘blue dog’ Democrats (so named after the painting of a blue dog on the wall of a house in which their caucus meets). They represent the more rightwing southern and western states, and often vote with the Republicans.

Yet the Democratic leadership rarely attempt to bring these defectors to heel, despite ample means at their disposal for applying pressure. Some Democrats are no doubt sincere in their desire to bring about reforms. But many more, especially in the leadership, are wary of disturbing a Mammon-friendly status quo. The ‘blue dogs’ provide the ideal excuse for inaction.

And thus unfolded the eminently foreseeable dynamic through which those who thought they were voting for another Franklin Roosevelt wound up with a less oleaginous Bill Clinton.

But now is not the time for their tears! There is, we are told, a single effort that will redeem all past disappointments, and in whose name all other hopes must be deferred and all secondary conflicts avoided: Obama’s push to reform America’s disgraceful healthcare system. It is this drama that now dominates the news in the United States, and will be the subject of another article.