In the Obama years, Democratic supporters had a contemptuous slogan for left-wing critics of the president. The people who insisted that the president could and should do more were supporters of “Green lantern theory“of the Presidency, after the comic book where someone in possession of a particular ring can do anything, limited only by their imagination and will. From this point of view, the Presidency is an inherently weak office and leftists who think putting a more progressive person in the White House will make a big difference on their own are naive and stupid.
Ezra Klein follows this line of argument in a new piece at Vox, attacking what he calls the “epiphany policy”, illustrated by different tensions from Democratic candidates like Bernie Sanders or Joe Biden who maintain that they will be able to break the deadlock in Congress. Just look at Obama, who “has passed more and more consistent national laws than any president since Lyndon Johnson.” But it was a fraction of what he promised, and the bills that were passed were strewn with compromises and concessions, ”Klein writes. “He promised hope and change, but not enough change, and it robbed the activists he inspired of hope.”
Now, getting anything through Congress is always a challenge. But critics of Green Lanternism dramatically underestimate Obama’s freedom of action, especially early in his presidency. He had a huge opportunity to make America a better place and chose not to.
This reality is clearly shown in A wasted crisis, a book by Obama fundraiser Reed Hundt, who also worked on the transition from 2008 to 2009. Hundt was personally present for most of the key decisions and interviewed many key players later for the book.
For starters, Obama’s first and most important move actually happened before the presidential election, when he allowed then-President George W. Bush’s Treasury Secretary Hank Paulson to define. the priorities of the bank rescue plan. As the financial crisis deepened in 2008, Bush was largely excluded from day-to-day governance and Paulson took control. He desperately wanted to restore the pre-crisis status quo – save the banks while avoiding any serious questioning of their profitability or their political power. This approach ruled out any in-depth reform.
But as Wall Street needed bigger and bigger injections of government money and credit to avoid collapsing, the bailout became a massive scandal, and Paulson felt he needed to political coverage. His own party would not support him and the Democrats controlled the House, so he turned to the Democratic presidential candidate (who was largely supposed to win) for his support. Obama gave this voluntarily and got votes for Paulson’s $ 700 billion blank check used to bail out the banks. Paulson’s first bill was so outrageously lax that it failed in the House, but after the markets fell, a second iteration that featured a bit more oversight and homeowner assistance, but was fundamentally similar, did been adopted.
The Obama camp’s argument was that it would have been irresponsible to force Paulson to add conditions to the bailout, even though he absolutely could have, since Democrats provide most of the votes. “We could have forced more mortgage relief. We could have imposed stricter conditions on dividends and executive compensation,” Obama economic adviser Austan Goolsbee told Hundt, but Obama did not want to be perceived as exploiting the disaster.
In fact, it was horribly irresponsible not to do so. The crisis has put Wall Street in a desperately pleading position, offering a brief golden opportunity to break their grip on the federal government. But by quickly restoring gigantic bank profits, Obama preserved the tendrils of corruption that still plague Congress today, kept the financial system swollen and crisis-prone, and ensured that future financial reform Dodd- Frank would be woefully inadequate. And by characterizing the crisis as a natural disaster instead of the product of Wall Street’s greed and crime, Obama has made himself a heat shield for banker crooks, burning off much of his political support – and opening up space. for Donald Trump to later claim the coat of populist crusader.
Once Obama chose the Paulson path, his second biggest mistake, the lockdown crisis, naturally followed. House Democrats had included a blanket provision allowing homeowner assistance in the bailout – but left the details to the next president, who they said would be a Democrat and therefore trustworthy to use his authority to help. actually the owners. They were wrong.
Obama attributed homeowner aid to his Treasury Secretary Tim Geithner, who turned homeowner aid into another backdoor bank bailout. As Carolyn Sissoko explains in great detail, even after the financial sector stabilized, banks still had huge volumes of worthless mortgage bonds on their books. Geither chose to use mortgage policy to stealthily transfer these losses from banks to homeowners and the government. There were two main strategies. First, Geithner pushed Obama to reverse a pledge of support that would allow homeowners to reduce the value of their primary mortgage to the home’s appraised value. Then he refused to allow reductions in mortgage principal under his homeowner assistance program. Either one would have allowed homeowners to write off hundreds of billions of bad debts, and thus left a hole in bank balance sheets. Because Obama had ruled out a drastic restructuring of Wall Street, it could not be allowed.
Administration insiders have been perfectly clear on this decision. There was “$ 750 billion in negative equity in housing – the amount of mortgages exceeded the value of houses,” Goolsbee told Hundt. “Someone should eat this money. Of course, the banks couldn’t take $ 750 billion in losses.[.]”The result: some 10 million people lost their homes.
Finally, there was the undersized stimulus, which administration economist Christy Romer said should have been as large as $ 1.8 trillion, but which ultimately grew to around $ 789 billion. Obama apologists like Michael Grunwald (who ghostwritten a memoir by Tim Geithner) insist that the administration got as much as it could have gotten through Congress, given moderate Democrats’ fears of a budget deficit. That may be true, but it is impossible to say, as the White House has never even tried to pass anything bigger, despite a 58-42 majority in the Senate and a similar advantage in the Bedroom. When initial economic data on the extent of the collapse turned out to be a drastic understatement, the administration did not escalate its demands. They also didn’t put an appropriately sized stimulus in front of Congress and then signaled the market panic and ongoing economic collapse to intimidate wimpy Democrats if he failed – that’s precisely how. the rescue plan was adopted a few months earlier.
No doubt this kind of hardball tactic would also have been deemed “irresponsible”. But the insufficient stimulus was a disastrous failure that doomed the economy to continued economic stagnation, doomed Democrats midway through 2010, and delayed the job recovery for so long that Trump gets all the credit for it. It is bad leadership not to exercise your authority as much as possible to stop depression.
The administration also rejected smart proposals to increase the size of the stimulus while keeping its overall price low. He could have refinanced state debt at extremely low federal interest rates, giving states more leeway. He could have created an infrastructure bank, which would have legally authorized $ 10 in loans for every appropriate dollar. He could have played on the 10-year fiscal window by spending (or cutting taxes) and then offsetting with tax hikes that would not take effect until years later. But even though Hundt personally offered a green infrastructure bank to Obama’s top economic team, the administration rejected it all on ideological grounds.
Now Klein is absolutely correct that the President has little power to pass laws in times of divided government. A blocked and non-functioning Congress is now the rule rather than the exception. It will hardly be impossible to pass legislation through a Republican-controlled Senate, whether it’s Medicare-for-All or Amy Klobuchar’s program. Moreover, to our knowledge, the next president will not have a financial crisis to exploit in the negotiations.
But the flip side of the congressional stalemate is that power has flowed through the presidency over the years. Many of President Obama’s failures in the aftermath of the crisis were in the details of how he chose to execute his authorities, especially who he appointed to his cabinet. President Trump has pursued extremely consistent policies outside of Congress – like banning Muslims, trade war with China, throwing thousands of people off Medicaid, and the huge bailout of farmers – through the aggressive use of executive orders and taking over the neglected authorities delegated by Congress years ago.
Now these policies are horrible, but better ones are readily available. a all recent issue of The American Prospect was devoted to unilateral action the president could take immediately – including canceling nearly all student debt (which belongs directly to the government), creating a public option for students. banks, restoring union rights for home care workers, reducing carbon emissions, and much more.
Would many of these actions be challenged and possibly blocked by the Conservative Supreme Court? Surely. But declaring defeat even before the battle is fought is exactly how Obama approached his response to the crisis. As Trump shows, the courts move slowly, and you can set them back with a flurry of executive orders, tweaking the legal justification if one is shot down.
And since Obama failed to bring Wall Street under control and the Dodd-Frank reform is being shredded under the Republican government, another financial crisis of some magnitude will surely occur sooner or later. The next Democratic president must be ready to seize any opportunity. They should be prepared to exercise every last bit of authority to improve the lives of the American people instead of worrying about propriety and appearances, or pretending that the most powerful office in the world is surrounded on all sides.
Want more essential comments and analysis like this straight to your inbox? Subscribe to the newsletter “The best articles of the day” of the week here.