Obama and the Economy

Here's today's (from my perspective) must read - Frank Rich: Obama's Original Sin. Rich makes a compelling argument that Obama's failure to "go after the banks" could lead to his losing in 2012. I am not interested in handicapping that race right now. I want to think about why Obama has chosen his current path. Sitting right here, right now, I am not sure of my own answer, much less of what the "truth" of the matter is.

I am an Obama fan. I am also a serious student of Ken Wilber. See here, here, and here. I will post much more about Wilber's Integral Map in the future. For now, I will simply say that I believe Obama is an Integral Leader - someone who has done the necessary work of self-awareness and personal, transformative growth to achieve what Ken calls second tier consciousness and integral leadership. There is no failure-proof test to measure precisely who has achieved this level; Ken's estimate is that this level is beginning to emerge, but that now only 2-4% of the population has achieved it. I do not posit this to convince you that this is true. I do so to let you know the depth of my respect for our President, and to encourage you to see this question through my eyes.

So why has Obama thus far let the banks off the hook?

Frank Rich suggests that Obama is less comfortable in the economic domain than he is in, say, the race domain. When Rich rhetorically asks why the President hasn't dumped Bob Rubin, Tim Geithner, et al., like he dumped the Rev. Richard Wright, he answers his own question by saying that Obama is completely sure of himself in the race domain, but not so confident in the economic arena. This sounds logical, but appears to fly in the face of the President's seemingly inexhaustible sense of self confidence. What did the President know about military matters, or running a war? Yet no one, and certainly not Bob Woodward, thinks anyone other than Obama made the key calls in the Afghanistan surge and drawdown situations.

Many observers say that the Democratic Party, and Obama, are just as "Wall Street captive" as the Republicans. Obama needs a lot of money to be reelected, the argument goes, and he won't, therefore, provoke a complete break with the Street. Why did he bring in GE's Jeffrey Immelt for his Jobs Council or Bill Daly as Chief of Staff? He wants the Street to know that he gets their point of view. Disillusioned liberals say Obama has sold out to the banksters, and will not move against their interests. This line makes some sense, but still seems very incomplete.

What other arguments do we hear? Obama is in thrall to Tim Geithner. Obama is completely inexperienced and doesn't know any better. Obama is chicken and won't stay in a real fight. Obama doesn't want to rock the economic boat, and attacking the banks could take them down and tank the economy. Obama wants to look forward, not backwards - he refused to prosecute the terror issue and this is the same thing. Obama wants to be a post-partisan President of all the people and does not want to be a populist and just choose one side. Obama does not want to be seen as "an angry black man", which he feels would spell sure electoral defeat. Obama is constitutionally incapable of anger and true attack politics. And so on.

So where do I come out?

I agree with Rich that this is Obama's main, and possibly his "original sin". I reluctantly accepted Obama's judgment that the country would be better served by moving forward, rather than conducting investigations of Justice or the CIA in the matters of enhanced interrogation. But I think the President has erred seriously in not requiring Justice and Treasury to conduct aggressive, serious and in depth investigations of the Banks and Wall Street around mortgage lending and securitization.

 In the mortgage foreclosure mess, the OCC and Treasury have steadfastly refused to do a thorough, in-depth investigation of mortgage loan files held in securitization trusts, sponsored by Wall Street, held by the big Banks in their status as Trustees, where the loans are serviced by the servicing arms of the big four banks (BOA, Citi, JPM, Wells Fargo). The states' Attorneys General are trying to negotiate a blanket settlement with the Banks, without having conducted such an investigation, i.e., without any real leverage with the banks, since no one really knows what's in the loan files. Fortunately, New York's AG, Eric Schneiderman, has opted out and is going aggressively after the loan files.

In an amazing recent event, BOA has agreed to an $8.5 billion settlement of a multiparty investor lawsuit (Pimco, Blackrock, New York Fed, et al.) claiming BOA/Countrywide consistently failed to meet their reps and warranties in $424 billion of mortgage loans, then bundled into securities and placed into various mortgage trusts. The suit also alleges a variety of paper documentation and servicing errors/frauds. Experts earlier had opined that this suit wouldn't get too far, because it is extremely difficult for investors to gain access to the loan files, and an earlier suit had already been dismissed on grounds of standing to sue (not enough of investors by mortgage trust issue banding together to get standing).  Some people are saying that the reason BOA has agreed to settle so quickly is that they know exactly what is inside the trust loan files, and they don't want anybody else to take a look.

Some people say the combination of Schneiderman's commitment to serious investigations and BOA's early cave-in on their (one of many) investor suits are the cracks into the rock of Bank/Fed/Obama's complacency. I hope and actually believe this is true.

So will this force Obama's hand, so that he will have to move against the banks sometime before the 2012 elections? My answer is yes. And here is my prediction: one of the major banks, probably BOA, will be under resolution authority before the election, and a major campaign theme for Obama will be to provide true mortgage principal relief for the 12 or so million underwater homeowners.

So why do I think Obama has gone easy on the Banks thus far? He didn't think he could win the fight, at least not win it and get Healthcare's ACA as well. I think he and Geithner agreed to lay off the Banks, hoping they might regain strong balance sheets through growth, and trusting that somewhere in the vast and complex US legal system, some aggrieved party or parties would force the ugly truth about Bank mortgage lending practices to the surface, and the legal system itself would, over time, grind the Banks down, begin to provide clarity, and at least some justice.

Obama is determined not to be the "angry black man", populist President attacking Wall Street and their greed and corruption, as Ferdinand Pecora did for FDR almost 80 years ago. "Don't attack," the Master says. "Let your adversary attack himself, or let the circumstances work their own peculiar logic. Patience. Save your energy. Do not fight, until you must."

I think Obama chose to wait. Was he influenced by opportunism, political calculation, special relationships, an excess of caution and the like? Yes. AND he chose to wait.