Is Obama Responsible for Wall Street’s Meltdown? Where Populist Rage is Heading

Is Obama responsible for the meltdown of the Dow? The consistently wrong-headed Wall Street Journal’s editorial page says so, as does Republican Fox News, CNN’s reliably demagogic Lou Dobbs, and now CNBC (where, full disclosure, I frequently appear as a token liberal). CNBC’s Jim Cramer, who bloviates nightly about stock picks, says Obama is pushing a “radical agenda” that’s destroying investor’s wealth. My friend Larry Kudlow, who rants nightly about nearly everything, says Obama is destroying capitalism. CNBC reporter Rick Santelli’s ballistic nonsense about Obama’s mortgage plan made him a pop-populist icon for a week or so.

The argument that Obama is somehow responsible for the collapse of Wall Street is absurd. First, every major policy that led to this collapse occurred under George W’s watch (or, more accurately, his failure to watch). The housing and financial bubbles were created under Bush and exploded under Bush. The stock market began to collapse under Bush.

Second, it’s inevitable that stocks, led by the bloated financial sector, would lose their remaining hot air as the new administration begins “stress-testing” the big banks, many of which are technically insolvent. After all, their share prices were built on a tissue of lies and dreams. Other sectors whose values were similarly distorted and distended by years of financial deception and regulatory disregard, such as housing and insurance, will also have to return to the real world before they can recover. Which could mean more stock losses.

Finally, none of the financial wizards who are now charging Obama with leading America into the abyss has offered an alternative plan for getting us out of the mess that, not incidentally, many of these same wizards happily led us into. For years, the Wall Street Journal editorial page and the financial gurus of cable news cheered as Wall Street leveraged its way into oblivion.

This bizarre charge wouldn’t be worth mentioning were it not a market test for a more intense attack from Wall Street and Republican media outlets next year as the nation moves into the gravitational range of the 2010 midterm elections. Republicans have made no secret of their wish to blame Obama for the bad economy, and to stir up as much populist rage against his so-called “socialist” tendencies as politically possible. History shows how effective demagogic ravings can be when a public is stressed economically. Make no mistake: Angry right-wing populism lurks just below the surface of the terrible American economy, ready to be launched not only at Obama but also at liberals, intellectuals, gays, blacks, Jews, the mainstream media, coastal elites, crypto socialists, and any other potential target of paranoid opportunity.

To complicate matters for Republicans, however, grass-roots populist rage is also building against Wall Street itself, and with some justification. Top Wall Streeters who raked in tens of millions of dollars a year for more than a decade have now effectively eviscerated the pension fund savings of millions of middle-class American workers and destroyed millions of Main Street jobs. The public is understandably appalled that its tax dollars are being used to pay and prop up the very people and institutions responsible for this debacle. And there seems to be no end in sight: Citigroup and the insurance mammoth AIG, in particular, have become giant ongoing sump-pumps for tens of billions of public dollars. Yet no one seems to know exactly where these dollars are going, or why.

Worse: When it turns out that people like Lloyd Blankfein, the CEO of Goldman Sachs, who took home $68 million in 1997, was the only Wall Streeter in a meeting last September at the New York Federal Reserve to discuss the initial AIG bailout with Tim Geithner, then New York Fed chair, among others, at the very time Goldman was AIG’s largest trading partner, a distinct scent of self-dealing begins to emanate. When it turns out that Citigroup got a bailout deal last October far more generous than that given to any other distressed bank, when a top Citi executive was advising the Treasury and Fed, the scent increases. Goldman’s past CEO was Treasury Secretary at that time, by the way, and another former Goldman’s CEO was a top Citi official and also a former Treasury Secretary. I am not suggesting anything so crude as corruption. But could it be, given these tangled webs, that — innocently, unintentionally, perhaps even subconsciously — the entire bailout effort was premised on saving these companies rather than protecting the public? Or that the distinction between the two was lost, and still is?

The Wall Street and Republican media attack machine doesn’t know exactly what to make of this. The Wall Street Journal’s editorial page, along with CNBC, alternates between attacking Obama for bailing out Wall Street and excusing Wall Street’s excesses. But then again, Obama doesn’t seem to know exactly what to make of it either. He seems to vacillate as well — one moment scorning Wall Street, the next moment justifying further bailouts. I do hope he takes a firmer hand, drawing a clearer distinction and making a clearer connection between clearing up these financial balance sheets and helping average people. Otherwise, the next populist uprising will be born in this moneyed quagmire. It is here — within the muck that was created by AIG, Citigroup, Fannie and Freddie, other giant financial institutions, now in combination with the U.S. Treasury and Fed — that the public is most confused, bears its most serious scars, and is potentially most burdened in future years, by decisions still made in secret.

Originally published at Robert Reich’s Blog and reproduced here with the author’s permission.

9 Responses to "Is Obama Responsible for Wall Street’s Meltdown? Where Populist Rage is Heading"

  1. Guest   March 5, 2009 at 8:56 am

    Mr.Riech,Just a reminder,when it was known that B.Hussain Obama was going to be the next president of this Capilatist country in October,that is when the ecomomy went into the toilet..Think about it alone with a liberal and senate house…You don’t need to be a weahter man to know what way the wind is blowing,just look at the stock market since October..

  2. jwpegler   March 5, 2009 at 10:38 am

    The DOW is down 2,000 points in the last two months. The only major shocks to the system during that period were Obama’s “stimulus” bill and his proposed destruction of the healthcare system.

  3. Robert   March 5, 2009 at 6:32 pm

    “Meet John Doe” A Frank Capra movie.See it. Rent it. There will be no other explanation needed. Your Wall Street blues are being coordinated by the people who are making major money off of you.See also “On the Waterfront”. Brando personifies our pain and conflict of interest.Well, while you are at it… Oliver Stone had a good Wall Street movie too.Hmm. “Network”. Now that explains everything. “I’m mad as hell.”Are you Right, Left, or correct. About 8 hours of your time in front of the boob tube. But you do that anyway… checking… checking… (I won’t give you the next… checking). Bloomberg’s monitors are enticing, second by second.Do your own research.“I am not gonna take it anymore”Robert Gerard

  4. Guest   March 5, 2009 at 9:09 pm

    This mess is not Obama’s fault, but you conveniently forget that your man Bill Clinton happily signed the bill to repeal Glass-Steagall and let the banks get into investment banking. This is truly a bipartisan mess that took years to create. Your hands are not clean Mr. Reich.Gee, weren’t you somehow involved in that administration?…

  5. Gordy   March 6, 2009 at 12:21 am

    Bill Clinton’s dismantling of the regulatory system began in 1993 – actually it was Congress that took the intitiative encouraged by millions of dollars of campaign contributions from banks and various investment entities.

  6. Roland99   March 6, 2009 at 3:14 am

    The failure of 30 years of Supply-Side economics is what’s bringing down the markets, and our economy.Giving more to the rich and allowing corporations to offshore profits and shift losses back to the US has shifted the tax burden onto the lower and middle classes who have no tax havens in which to find shelter.The wealth gap is the greatest it’s been since the Roaring 20s. Remember how that decade ended?

  7. Sacrifice   March 6, 2009 at 10:57 am

    Dear Robert:Would you like a little cheese with all that whine?Any thinking person will agree that Macroeconomic forces are beyond any leaderscontrol and economic forces in motion take on a life of their own.However, it is programmatic human political behavior for politicians to:- take credit for everything right- deny responsibility for everything wrongThis type of political behavior is true of all politicians in all times.It is the height of hypocrisy for the Democrats to be complaining aboutbeing ‘unfairly’ blamed for this crisis and its ongoing sequelae.Welcome to power. If you are in charge, you must accept responsibility.When Bill Clinton was running for president. He did not hesitate to blameBush for the brief & mild recession that took place after the Gulf War.He also did not hesitate to take credit for the economic boom followingthat recession that began within months of him taking office.If the Democrats want to really lead, they must stop ranting about’unfair’ Republican criticism. No one is going to want to hear it. Itwill not take your party anywhere.Your party has complete control of the House, and the Administrationand predominate influence over the Senate, and the State Governments.If your party does not rise to the occasion and succeed in mitigating thisdisaster the electorate will once again cast you out into the political wilderness.IMHONLC

  8. Anonymous   March 6, 2009 at 1:37 pm

    Mr. Reich’s pointing finger at the last 8 years and stating that ” The housing and financial bubbles were created under Bush and exploded under Bush” is a ridiculous assertion given the White HOuse and it’s financial chiefs strongly raised issues about the housing crisis while Barney Frank, CHris Dodd and Charles Schumer denied any problems, instead using Fannie and Freddie not as competent bankers but as a social program. Now those three continue to assert that it’s the taxpayer who must clean up the mess they made with new bailouts. Mr. Reigh may want to review his history and I suggest he take a look at to see the words coming right out of the three liars mouths.

  9. Guest   March 6, 2009 at 4:11 pm

    the mess is not all Obama’s fault, but he’s not inspiring confidence these days by attacking different U.S. industries. This is the perfect political time for him to push though his liberal agenda and the market hates it. The market is a leading economic indicator and discounting mechanism. His policies put into question the long-term earnings power of industries after this downturn. I doubt the market multiple of the past is as high 1) due to less leverage and 2) due to greater risk from government regulation. People want a greater margin of safety to accept that type of risk. They also want a greater margin of safety because the capital gains and dividend rates are going to increase as well. People change their behavior in response to these changes in policy, that is a fact. You are missing the point, Obama is partly to Blame.