As a socialist, I have a confession to make: Back in 2008, I was a campaign volunteer for Barack Obama. I supported him over Hillary Clinton in that year’s Democratic primary for the obvious reason — she had supported the Iraq War, and he had not — but I worked for him because I read his 1995 book Dreams from My Father. It seemed to me he was an excellent writer and an unusually thoughtful person, especially for a politician. Maybe he wouldn’t be able to fix all the problems, but he would surely try, and at least be a breath of fresh air. Finally, someone to vote for rather than picking the lesser evil through gritted teeth — and with the massive Democratic majorities in Congress that followed his election, little stood in his way.
Twelve years on from that minor episode of door-knocking and phone-banking in rural Colorado, it’s looking increasingly possible that the ensuing two-year period from 2009-2010 will be the last time the Democratic Party ever controls both the presidency and both houses of Congress. Democrats will have to sweep two January runoffs in Georgia to be able to control a tied Senate next year, and if they don’t, a future of ever-more extreme gerrymandering and judicial vote suppression might make it impossible for Democrats to ever win again.
What went wrong? Obama attempts to grapple with the massive failures of his presidency in A Promised Land, his new memoir describing his rise to power and early presidency, but ultimately the book is slippery and unconvincing. America is circling the political toilet in part because Obama had the chance to fix many longstanding problems and did not rise to the occasion, a fact the former president is still stubbornly unwilling or unable to see.
A Promised Land is a maddening book. On the one hand, Obama’s graceful eloquence is there (if somewhat more forced than it was in Dreams), and his discussions of his family life and his relationships with his closest staffers is genuinely warm. Unlike virtually every book written by a politician, it is obviously his own work. Time after time Obama nails some bit of history or politics with a firm, confident touch — on the buffoonish yet alarming rise of Sarah Palin, the accidental origins and racist history of the Senate filibuster, or even on the basics of Keynesian economics.
But on the other hand, Obama elsewhere evinces a political naivete and passivity that borders on the incomprehensible. For the sake of brevity, let me address just the three most important policy decisions of his presidency: the 2008 bank bailout, the 2009 Recovery Act stimulus, and his foreclosure policy.
The bank bailout, or Troubled Asset Relief Package (TARP), was passed before Obama took office, but he was still instrumental in its passage. By that time President Bush was enormously unpopular and had largely checked out from governance, and Treasury Secretary Hank Paulson had taken the lead in addressing the financial crisis. Desperate for political support and isolated in his own party, which was even then succumbing to the conspiratorial madness that grips it fully today, Paulson turned to Obama and the Democrats for help getting something through Congress, since they controlled both chambers.
Obama provides a fairly accurate gloss on how the crisis happened, and indeed mentions that he personally had experienced how irresponsible banks had been during the bubble years. He got a home equity loan without an inspection and “with me providing only three months of pay stubs and a handful of bank statements,” he notes. He also correctly notes that Republicans were ridiculous hypocrites for arguing against TARP when their own favored deregulation policies had helped create the crisis in the first place.
Yet by his own account, Obama was preposterously credulous towards Paulson — who was, let me emphasize, a lifelong Republican and the former head of the infamous Wall Street firm Goldman Sachs — when he came calling for help. Obama just blithely went along with Paulson’s plan, which naturally, given his background and politics, was basically what the banks would have written for themselves — a huge blank check. “With the stakes this high, I would do whatever was necessary, regardless of the politics, to help the administration stabilize the situation,” Obama writes. “If I wanted to be president, I told myself, I needed to act like one.”
It seemingly never occurred to Obama that responsibly addressing the crisis would have required doing politics instead of acting magnanimous towards a conservative Wall Street banker. Nor did Obama consider the idea that he could have used his leverage to make the bailout better, because Democrats would be making up most of the votes. Reed Hundt, a former Obama fundraiser, got administration economist Austan Goolsbee on the record in his book A Crisis Wasted admitting they could have gotten more concessions. “We could have forced more mortgage relief. We could have imposed tighter conditions on dividends and executive compensation,” Goolsbee said. They just thought it would be irresponsible to use that leverage to extract concessions.
In reality, it was irresponsible not to use this one chance to cut the banks’ profitability and therefore power down to size, so the banking system could be fixed instead of just patched. As I’ve argued at length before, this would have been both fairer and better on the merits, because it would have allowed all the bad housing debt to be deleted through nationalization and bankruptcy rather than having to rely on huge, unpopular appropriations (more on this below).
Pages later, Obama is complaining bitterly that Wall Street swindlers were all paying themselves massive bonuses as a reward for blowing up themselves and the economy, all while still swinging from the government teat, and then whining when he mildly criticized them for doing so. One feels like reaching through the pages of the book and shaking him by the collar. What did you expect, man?
A similar dynamic holds in the stimulus section of the book. Obama gives a lucid explanation of how the financial collapse had damaged the economy, and how it might be fixed with stimulus: “Once the economy was kick-started, the government could then turn off the spigot and recoup its money through the resulting boost in tax revenue.” He also notes that if the government did not step in to arrest the cycle of collapse, the Democrats would be blamed for it as incumbents.
Yet the all-important discussion of the size of the stimulus passes in a couple sentences. When economic adviser Christina Romer mentioned in an early meeting that it should probably be over a trillion dollars, White House Chief of Staff Rahm Emanuel — who Obama personally coaxed into taking the job — instantly snapped that it was impossible. “There’s no f—ing way,” Emanuel said, claiming that the public and conservative Democrats would not countenance such a large number. The most they would be able to get was: “seven, maybe eight hundred billion, tops … and that’s a stretch.” Joe Biden nodded, and apparently that was the end of the conversation.
On any grounds one might care to choose, this was a brain-meltingly bad political decision. Here we have the single most important determinant of the future success of Obama and his party — the strength of the economy — and they didn’t even try to make the stimulus as big as the hole it was supposed to fill, much less include a margin of error in case the data was underestimating the size of the collapse (it was, by a lot). Instead, two guys made gut check guesses about what could be got through Congress, and that was that. Adviser David Axelrod even gloomily predicted afterwards they would get rinsed in the upcoming midterms. What?
However, Obama elides numerous important details about this debate. It turns out that Larry Summers, his choice for leading the Council of Economic Advisers, had already buffaloed Romer out of presenting her actual stimulus recommendation, which was more like $1.8 trillion. Hundt reports in his book that various people (including himself) tried to sell the administration on several clever ideas that would have boosted the effect of the stimulus without increasing the sticker price. They could have started a green infrastructure bank that would have lent 10 dollars for every dollar appropriated, or gamed the 10-year budget window by including tax hikes that wouldn’t take effect until years later, or they could have refinanced state and local debt with the federal government’s rock-bottom interest rate. Obama’s team dismissed all of these ideas out of hand.
What’s more, many of those conservative Democrats Emanuel was complaining about (most of whom would go on to lose their seats in the 2010 Republican wave) had been put there by Emanuel himself. As Ryan Grim details in his book We’ve Got People, as head of the Democratic Congressional Campaign Committee in 2005-6, Emanuel handpicked conservative candidates for swing districts and tried to prevent progressives from winning primary elections. Then he tried to create a self-fulfilling prophecy that only conservatives could win by lavishing money on his candidates and cutting off progressives. But in reality, it was just a great year for Democrats because Bush was so unpopular, and Emanuel could have gotten more seats if he had been willing to back progressives — many of his favorites lost, while other progressives won even with threadbare campaigns, and others came up only barely short. This was the guy Obama apparently thought he couldn’t do without.
In short, the Democratic Party as a whole had been setting up huge roadblocks to its own success, then pointing to those roadblocks as a reason it couldn’t do anything.
But even that doesn’t explain Obama’s different approaches to the bank bailout and the stimulus. In the former case, when Paulson said he needed a $700 billion blank check to stuff into the banks, Obama whipped votes hard for it in Congress — arguing to skeptical Democrats there would be a depression if Paulson didn’t get what he wanted. Then, when that bill failed, the resulting market crash provided enough leverage to get a modified version through.
But when it came to the stimulus — whose insufficient size actually did create a moderate depression for nearly Obama’s entire presidency — administration insiders feebly negotiated with themselves before even taking anything to Congress. Obama did not try to convince moderate Democrats, or the public, or the press, that falling short would lead to economic disaster, or that it was completely nonsensical to object to a bill simply because “wahh, number too big.” (For instance, the perception of a severe crisis got both the public and moderate Democrats behind the multi-trillion dollar CARES Act back in March.) Nor did he even threaten to replicate the TARP scenario — vetoing anything that fell short of what was needed and then using the resulting nosedive in markets and economic indicators to bully Congress into going big.
That brings me finally to foreclosure policy. Here Obama’s book is straight-up deceptive. He says that his two main programs, the Home Assistance Mortgage Program (HAMP) and the Home Affordable Refinance Program (HARP) would “reduce the monthly mortgage payments of eligible homeowners to no more than 31 percent of their income,” and “help borrowers refinance their mortgage at lower rates even if their homes were underwater” respectively. These would be heavily means-tested, but the “goal was to target several million families teetering on the edge: those who lived in their homes and had made what had seemed at the time like a responsible purchase, but now needed relief to get them through,” he writes.
Either Obama has no idea how his housing programs actually worked, or he is lying through his teeth. As I have explained in detail previously, what Obama’s housing policy actually did was stealthily move the massive subprime mortgage losses from the banks to the government and homeowners. The two main strategies, executed by Treasury Secretary Timothy Geithner, were to stop a legal reform allowing people to write down the value of their mortgage to the actual value of the home in bankruptcy (or “cramdown”), and to not include any reductions to mortgage principal in HAMP, despite that being the most effective homeowner relief and explicitly authorized in the bank bailout. Not coincidentally, the program was also such a Kafkaesque nightmare that many did not participate, and those who did were often tricked into foreclosure by corrupt mortgage servicers (who went largely unpunished).
This strategy emerged naturally from the original failure in TARP to deal with the bad debt. Allowing cramdown or principal reductions would let through a huge slug of debt write-offs that would have blown a big hole in banks’ balance sheets. Foreclosures would do a similar thing, but only slowly — and a lot of people who were underwater on their mortgages would continue paying on them if they could afford it. Basically the administration convinced themselves that the banks couldn’t eat the losses, and they feared Fox News would raise a stink about bailing out homeowners, so they let about 10 million people get thrown out of their homes and untold more get stuck paying down inflated mortgages into the 2030s.
Again, we have quotes from insiders admitting this. The point of all this was to “foam the runway” for the banks, Geithner told Elizabeth Warren — just spreading out foreclosures rather than preventing them. There “was $750 billion of negative equity in housing — the amount that mortgages exceeded the value of the houses. Somebody would have to eat that money. For sure the banks couldn’t take $750 billion of losses and for sure the government wasn’t willing to give $750 billion in subsidies to underwater homeowners, to say nothing of the anger it would engender among non-underwater homeowners,” Goolsbee told Hundt.
Worse, Obama does not even mention the robosigning scandal. It turned out that banks had screwed up practically all their paperwork during the go-go bubble days, and therefore, when it came time to foreclose on someone, they didn’t have the right documents. So they simply forged them by the millions. The banks had whole floors of people committing document fraud hundreds of times per day — but instead of using that leverage to pursue real homeowner relief, Obama’s Department of Justice instead let them off with a modest fine, apparently for fear that prosecutions would cause financial instability.
It is hard to know what to make of all this. Definitely Obama is being dishonest either with the reader or himself in some cases. His record on foreclosures is so horrible that it cannot possibly be defended on the merits. It was morally abominable and politically idiotic.
But ultimately there is a real problem of ideology here. Obama and all his top staffers represented the culmination of the neoliberal tradition in the Democratic Party, which holds that the self-regulating market should rule society. Because this is impossible, it amounts to saying that governance should be bold and aggressive if and only if it is protecting market institutions. A financial crisis means banks should get a blank check and face few or no consequences even when they commit crimes on an industrial scale, but a stimulus package should be small and timid. Health-care reform should be hesitant and operate through market structures. Social welfare should ideally happen through invisible tax credits that require people to work to obtain them.
When it comes to governing on behalf of the people, therefore, moderate Democrats like Obama try to do as little as possible. As infrastructure expert Alon Levy argues, most Democratic mayors and governors exhibit a “total unwillingness to do anything,” because “to be a moderate in the United States means to be extremely timid and technologically conservative.” As Hundt writes, “Obama could do almost anything he wanted about the crisis. His advisers suffered from stultifying discomfort with that power.”
This timidity comes out in A Promised Land’s discussion of Franklin Roosevelt’s early New Deal. Obama repeats the conservative lie that when a banking panic struck over the winter of 1932-33, “FDR made a point of rebuffing Hoover’s efforts to enlist his help,” so that he could stick Hoover with the blame. He also asserts that the economy started growing again in the months after FDR took office only thanks to a “stroke of luck” because he hadn’t yet put through any policies.
As historian Eric Rauchway carefully proves, this is trash history. The truth is the exact opposite — it was Hoover who tried to exploit the banking panic to get FDR to abandon the New Deal, and conversely the restoration of growth was thanks to Roosevelt’s lightning-fast moves to fix the banks and reform the currency, which started within days of taking power. But you can see why someone who is so convinced that it is nearly impossible to do anything would seize on a narrative that Roosevelt was a lucky cynic.
All this blows apart Obama’s pat self-justification as being too respectful of norms and traditions to take serious action. He considers and rejects some of the more radical options above, arguing that things like “nationalization of the banks, or stretching the definitions of criminal statutes to prosecute banking executives … would have required a violence to the social order, a wrenching of political and economic norms, that almost certainly would have made things worse.”
In truth, letting 10 million people get thrown out of their homes to save a bunch of rich bankers from their own misdeeds did stupendous violence to the social order. Letting bankers get away with an assembly line production of document fraud was a severe wrenching of political and economic norms. It wouldn’t have been a “stretch” of statutes to prosecute the thousands of Wall Street crimes — on the contrary, letting banks off with wrist-slap fines blew a ragged hole in the rule of law. It does not preserve our sainted norms and institutions to move heaven and earth to save job-killing financial parasites and then leave John Q. Homeowner twisting in the wind. The false assertion that doing so would have made things worse is straight out of The Rhetoric of Reaction.
We are still paying for Obama’s faceplant on his most important task. An increasingly lunatic Republican Party took advantage of that failure to seize control of Congress, and eventually elected Donald Trump, who is currently attempting to overturn the election he lost. It sure seems unlikely that Obama’s vice president Joe Biden will countenance the extreme action now necessary to preserve American democracy.
Obama had a golden opportunity to knit the country back together after a disastrous Republican presidency and a brief moment of Wall Street helplessness. He didn’t do so because he couldn’t stomach the radical action necessary to heal the nation’s wounds and repair the social contract, and instead invented a lot of excuses why he had to sit on his hands and do nothing.
The name for such a person is a coward.