President-elect Barack Obama is expected to name his Treasury Secretary soon and is moving quickly to form his response to the economic crisis. We speak to Robert Kuttner, author of Obama’s Challenge, and Arun Gupta of The Indypendent. [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: President-elect Barack Obama is moving swiftly to fill his administration and form his response to the economic crisis. Obama is expected to soon choose his Treasury Secretary, and the two names reportedly at the top of the list are Timothy Geithner, the president of the New York Federal Reserve Bank, and Lawrence Summers, who held the post during the Clinton administration.
In one of his first orders of public business since the election, Obama has convened an economic advisory board to meet today in Chicago. The group includes billionaire investor Warren Buffett, former presidential cabinet officials, and executives from various corporations, including Xerox, Time Warner, Google and the Hyatt hotel company.
This comes as more signs emerge that the nation will be facing a prolonged recession. The Labor Department reported Thursday the number of people receiving unemployment benefits has jumped to 3.8 million, the highest level since 1983. On Wall Street, the S&P 500 has lost ten percent in the last two days, its worst two-day decline since 1987.
On Monday, Obama is scheduled to meet with President Bush to discuss the global economic crisis and the war in Iraq. Obama has declined to attend the President’s global economic summit meeting on November 15th.
The New York Times reports the Obama camp is feeling pressure from the Bush administration, specifically from Treasury Secretary Henry Paulson, to "co-own" the bailout program, which remains unpopular among voters. The Treasury has reserved office space, so far unused, for Obama representatives, and Paulson has reportedly sought Obama’s advice into the choice of a permanent director of the bailout program.
To talk more about the state of the economy and the economic policies of Barack Obama, we’re joined by two guests. Robert Kuttner is the author of the new book Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency. He’s also the co-founder and co-editor of The American Prospect magazine. Arun Gupta joins us here in New York. He’s a reporter and editor at The Indypendent newspaper in New York. His latest article is called "Now That the Election Is Over, the Fight for Economic Justice Begins!" In September, he organized a protest on Wall Street opposing the bailout.
Bob Kuttner, let’s begin with you. You begin your book, Obama’s Challenge, by saying that Obama has the potential to be a transformative progressive president. “By that,” you write, “I mean a president who profoundly alters American politics and the role of government in American life.” Can you talk about how he can fulfill this potential?
ROBERT KUTTNER: You know, Amy, a crisis is also an opportunity, and the crash on Wall Street was also the crash of right-wing ideology, the ideology that claimed that markets could do nothing bad and governments could do nothing good. We’re going to have reality making the most compelling case for activist government since the New Deal. The question is whether Obama seizes the moment. He will either be Roosevelt, or he will be Hoover. There’s no middle ground.
We need the most expansive use of government. We need Obama’s ability to teach, to be wielded in service of a massive recovery program that I think has four parts. First of all, do the financial rescue right, not just to throw money at Wall Street, but to get the credit system functioning again. Second, put a floor under housing prices, so that the collapse doesn’t continue. Third, re-regulate banks. And fourth, spend a lot of public money to rebuild infrastructure, do green energy, turn bad jobs into good jobs, put money back into people’s pockets.
The concern I have is the names you hear floated about are Clintonistas. Their economic centrists. And my bet is that Obama is smart enough that he does not want to fail and that events will force him to be sufficiently bold, but he has very little time to get this right.
AMY GOODMAN: Alright, let’s talk, Robert Kuttner, about some of the names being bandied about, for example, to be Treasury Secretary. Larry Summers, former president of Harvard, former Treasury Secretary under President Clinton, what does he represent?
ROBERT KUTTNER: Well, he — I mean, I’m speaking candidly here. He would be my last choice. He is a protege of Bob Rubin. When he was at Treasury, he was part of the group that promoted greater deregulation, the same deregulation that brought this collapse. He’s not famous for being a respectful listener. He had a disastrous experience as president of Harvard. And in the conversations within the Obama camp and between the Obama camp and the Democratic leadership, Summers has been a force for the idea of not spending too much money on a stimulus, not spending too much money on a permanent recovery program, fiscal caution, not putting too much pressure on the banks to resume lending. It would be both the wrong signal and the wrong policy.
The other name you hear, Tim Geithner, who’s the president of the Federal Reserve Bank of New York, he would be somewhat better. In the negotiations about rescues for Wall Street banks, he has been a somewhat more forceful advocate of stronger regulation.
The best one — I hope she’s still under consideration — would be Sheila Bair, head of the FDIC. She’s been the toughest regulator of the batch. She happens to be, nominally at least, a Republican, as well as a woman. That would be a very classy appointment, but I fear it may not happen.
AMY GOODMAN: Arun Gupta?
ARUN GUPTA: Well, you know, with Democrats like these, who needs Republicans? Larry Summers recently wrote an editorial in the Financial Times where he said we must address entitlements. And, of course, when you hear a statement like that, that doesn’t mean that we need to have better Social Security payments or more Medicare; what he’s — it’s code words for cutting entitlements, one that of course would be disastrous in a recession. But he represents this Washington Consensus, both domestically and globally, that says we need to cut social welfare programs while bailing out the banks, the rich.
Geithner, I think, yeah, maybe he would be marginally better, but if you look at the deal he initially did with Bear Stearns and JPMorgan, there are a lot of critics of that who say he was had. He was negotiating with Jamie Dimon, who sits on the board of the New York Federal Reserve Bank along with Geithner. And he’s — Geithner is considered to have been hoodwinked in that deal, because the New York Federal Reserve ended up mainly getting worthless subprime mortgage securities in return as collateral for the nearly $30 billion it put up. It’s already recorded a paper loss of $2.7 billion. And he outsourced the management of the collateral to BlackRock. Now, it’s probably just a coincidence that also as part of the — one of Geithner’s main advisers is John Thain, who was CEO of Merrill Lynch before it was swallowed up by Bank of America, and it’s probably just a coincidence that Merrill Lynch owns a 49 percent stake in BlackRock. And what this really represents is, you know, the old boy network. The Federal Reserve Banks are in many ways just Wall Street clubs. And so, I think Geithner himself would not be that good of an appointment, you know.
I think Sheila Bair would be a better appointment. But why not think different? If we want to have a Clintonista, how about Robert Reich? You know, why not put someone who is for workers in charge of the Treasury, instead of leaving it in charge of Wall Street?
AMY GOODMAN: We’re talking to Arun Gupta, the reporter and editor of The Indypendent newspaper. You protested on Wall Street against the bailout. Hundreds of people came out for that. How do you think President Obama can deal with this bailout, that he did vote for, now Henry Paulson making room for his camp to be there to participate, Obama saying that he will not participate in President Bush’s November 15th economic summit?
ARUN GUPTA: Well, I think it was really unfortunate that Obama supported the bailout. I think one of the things to understand about Obama, there is the potential there for it to be a transformative presidency if it comes from below; he, himself, is not going to be a transformative president. He’s ultimately a conservative. He’s very conservative on economic issues, foreign policy. Yet, given the extreme rule of the Republicans over the last year, that conservativism became a change, compared to what the radical right-wing positions of the Republicans.
The bailout itself, I think you could argue, has been a complete failure. While the rest of the country was focused on the election, what’s been going on is that the Treasury has been allowing the banks to essentially self-regulate. They’re not putting any demands over how this money should be used to get the credit markets going. So what they’re going to be using it for, they’re going to be paying out these mass of dividends still. They’re going to be using it to acquire weaker rivals. They’re going to sit on it. And because they got it at such favorable terms, they’re going to use it to pay off higher-interest debts. In fact, there is so little indication that the banks are going to be using the capital to get the credit markets going again, the Federal Reserve has set up what’s called special purpose vehicles. It set up three of them. What it’s essentially doing is it’s guaranteeing over $2 trillion in corporate debt. The Federal Reserve has become the day-to-day banker — backer of corporate activity. It’s the one that’s getting the corporate liquidity going again. So what that means is, the bailout is a total failure in terms of this injection of capital into the banks, that it’s not doing what it’s supposed to, and they’re basically just taking the money and running.
AMY GOODMAN: Bob Kuttner, do you agree with this?
ROBERT KUTTNER: I do agree with this. I’m a shade more optimistic for the reason that in desperate times, ideas that are usually dismissed as impossibly radical become barely adequate. And those are the times that we live in. And I hope Obama grasps this sooner rather than later.
I completely agree that the bailout has been a total failure. I wrote a piece last week arguing that it would be much more straightforward and effective if the government simply took some of this money and nationalized one or two banks. Then the government-owned bank could resume lending, would not have to worry about paying dividends, because there wouldn’t be any shareholders, would not have to worry about executive bonuses, because these would be civil servants. And a lot of the civil servants at places like the FDIC are a lot more competent at running banks than most of the bankers these days. But these half-measures of throwing money at banks and then not realizing how much leverage you have, probably because Paulson still views himself as Wall Street’s guy in Washington who just happens to be occupying the post of Treasury Secretary rather than the instrument of America’s citizens and taxpayers — so you need a radical change in the way the Treasury Department views the task of recapitalizing American banks and getting credit flowing again.
You’re not going to get this by any kind of variation in the Paulson plan. Obama would be right to resist Paulson’s overtures to buy into this. It’s a disaster. But it could be done right. And if you look at today’s headlines, each European country is struggling with how to do its version of this right. And Obama has a couple of people on his team who are much more progressive than either Summers or Geithner or the rest of the crowd. One of them is Dan Tarullo, who’s the best banking expert on the team and also a true progressive. Reich is also in the mix. So I am a little worried about who’s going to get these top jobs. But I think the jury is still out on what kind of policy Obama is going to ultimately pursue, not because he’s not a centrist — his history is that of a centrist — but I think events are going to force him to be bolder, more progressive, the same way they did with Roosevelt.
AMY GOODMAN: Bob Kuttner, what about Roosevelt? I mean, we’re talking about going from Hyde Park to, oh, Hyde Park, right?
ROBERT KUTTNER: Yeah.
AMY GOODMAN: From New York to Illinois.
ROBERT KUTTNER: Right.
AMY GOODMAN: What happened in those first 100 days? In fact, Roosevelt wasn’t Roosevelt at the very beginning, the Roosevelt we know of the New Deal. It took tremendous pressure from within his cabinet. Of course, they were people he appointed. Adam Cohen, the editorial writer for the New York Times, has a very important book coming out on exactly what happened in those hundred days. But, Bob Kuttner, you also write about it —-
ROBERT KUTTNER: Right.
AMY GOODMAN: —- how people struggled within the administration, like Frances Perkins, Henry Wallace, who became his vice president, Harry Hopkins, the social worker, and how they beat out the more conservative forces.
ROBERT KUTTNER: Well, and they had two things on their side. They had reality on their side. If Roosevelt didn’t become bolder, he would have been Hoover all over again. They also had social movements. And if you look at the great presidents — Lincoln, Roosevelt, the Johnson of the civil rights, not the Johnson of Vietnam — you had the abolitionist movement, you had the industrial labor movement, you had, of course, the civil rights movement.
And I think there’s going to be a tug-of-war inside the administration. And the really interesting question is, what is going happen to the youth movement that became an Obama movement that I think needs to become its own movement for social change, not simply Obama groupies. And I think there’s a lot to celebrate, obviously, in the election of Obama, but we need a social movement to stand on its own two feet and push Obama when he needs to be pushed, the same way Dr. King in the civil rights movement pushed Johnson, the same way the abolitionists pushed Lincoln, the same way the labor movement pushed Roosevelt. And the great presidents actually pushed the social movements to put pressure on themselves so that they could break logjams in Congress. It’s a very interesting dynamic, the way social movements interact with presidents.
AMY GOODMAN: I mean, Arun Gupta, Indypendent, Democracy Now!, we cover grassroots movements. This massive grassroots movement that elected President Obama, soon to be, was also coordinated by an extremely well-resourced community organizing strategy, what the Republicans mocked in Barack Obama as a community organizer. But the other part that might work against this now is that extremely well-resourced, right? The money and those who gave it. At the bottom, the people at the grassroots, you had a ten-million-person email text list for Barack Obama. They were coordinating from the top. How do they reorganize themselves, not — you know, by themselves, not as a tool of the state, because Barack Obama becomes now the head of state?
ARUN GUPTA: Well, that’s true. You know, the amount of money spent was absolutely insane. You know, back in 2000, we were lamenting how much was spent on the presidential contest, and just eight years later, it was three times the amount. Barack Obama raised at least $850 million, a staggering sum. He was essentially the number one recipient of funds across the finance sector, from hedge funds, from investment banks, from commercial banks. So there is a danger that there will be demobilization. He’s going to rely — he has a lot of chips he’s going to have to cash in for the corporations and the wealthy that backed him.
And I agree with Bob that we need to be thinking about really more progressive ideas, and we need to, like, challenge the issue of regulation. We’ve had a century of regulation. And the fact of the matter is, I don’t think it’s really going to work. The finance sector spent twelve years and something like $300 million during the ’80s and ’90s to repeal Glass-Steagall Act, which was one of the landmark pieces of legislation during the Roosevelt era that separated commercial banking and investment banking. The idea — you know, the purpose was to ensure that we don’t get these types of bubbles again. And so, this was repealed, and less than ten years later, we have this absolute economic disaster. I think we should talk about nationalizing commercial banking and to ban derivatives trading, those exotic financial instruments that are the root of much of this trouble.
AMY GOODMAN: Robert Kuttner, it’s not only the people that are being talked about as the Treasury sector or the economy men and women. What about, for example, Rahm Emanuel? Now has accepted the job of Chief of Staff, he will be determining who gets Barack Obama’s ear, outside of Barack Obama. He, too, the top recipient of donations from hedge funds, private equity firms and the larger securities investment industry in the 2008 election cycle.
ROBERT KUTTNER: Yeah, very, very center-right. On the other hand, things change. I mean, Roosevelt campaigned on a balanced budget. And once he started serious public works spending, his budget director resigned in protest. This is going to move very quickly.
I just want to come back to social movements. Yes, a lot of money was spent by the Obama campaign to help mobilize young people, but you can’t just turn that off with a switch. That’s the great thing about texting and e-organizing. And if young people are in a state of mobilization, which they are, expecting change, it doesn’t work for the Obama administration to say, “OK, thank you very much, kids. You can go home now.” And this could turn into a genuine social movement that’s not just an Obama movement.
AMY GOODMAN: On the issue of the people who now Barack Obama is talking to in Chicago, for example, meeting with the advisory board, including Warren Buffett, the heads of corporations like Xerox, Time Warner, Google, Hyatt hotels, where are the labor activists in this, Bob Kuttner?
ROBERT KUTTNER: Well, good question. You have Bob Reich there. You have Jared Bernstein, who’s the chief economist at Economic Policy Institute. You have Dan Tarullo, a name you’re going to hear more about. I know the labor people are talking to him. But right now there’s too much corporate influence, not enough progressive influence.
But I may be — call me crazy, call me an optimist, we have reality on our side. Events are going to drive this, and he’s either going to rise to the occasion or he’s going to fail. And I think he’s a very smart, very decent guy who doesn’t want to fail. And unlike certain recent presidents, he’s also very intelligent. And I don’t think this is going to be a man who’s going to be steered by his staff. At all the key meetings, the meetings were run by Obama himself. And it’s going to be — I don’t think the die is yet cast. I think this is still a very fluid moment. I’m unnerved by the people he’s appointing. There are deep structural forces that we’ve talked about that put so much power in the hands of Wall Street, that push him in that direction. But this is one of those moments when things could change, if we get counterweights on the part of organizing at the grassroots.
AMY GOODMAN: Do you think labor could provide that counterweight or will simply be a central part of the insider in the administration?
ROBERT KUTTNER: Well, it’s certainly one of the counterweights. Labor is putting all its chips on getting early enactment of the Employee Free Choice Act, so that union-busting diminishes to some extent and labor can really start organizing again. Labor went all-out to elect Obama. He owes them this. He’s got the votes to pass it. So he will listen to them. The question is whether he’ll listen to them enough.
AMY GOODMAN: And last question to Arun Gupta, the role of the media, from the mainstream corporate media to the progressive media, how critical is it now? What has to happen?
ARUN GUPTA: I think it’s extremely critical, in terms of explaining exactly what’s going on. Social movements, grassroots movements can’t oppose the bailout and the economic agenda unless they really understand what’s going on. For instance, you know, explaining why regulation isn’t going to work, because the finance lobbyists will swarm all over it, they’ll put a thousand loopholes in it, and whatever is passed will — they’ll immediately try and undermine the enforcement. And so, the role really is to like offer a clear-eyed view of what is going on and, you know, to also take Obama to task in terms of ideas he was proposing.
You know, his healthcare plan is essentially the Mitt Romney plan for Massachusetts that has been a failure. It was endorsed by the Heritage Institute. Some of his economic ideas, such as a capital gains tax for small — tax cut for small businesses, again, that’s a poor idea, because it’s not really going to do anything to get the economy going. Or the Democrats, what they’re doing proposing in terms of a stimulus plan, it’s really just a drop in the bucket. They’re talking — one version I looked at said $18 billion in public works. We need some ten, twenty times that amount, if it’s going to have any sort of impact.
And there’s a lot of talk now also about a green-collar economy. I think that’s very important, but one of the reasons that it’s important to ban derivative trading is the investment banks are salivating over a green-collar economy, and that needs to be explained why, because they are — have set up trading desks. It’s estimated that carbon trading, the idea of trading in pollution rights, in ten years will be larger than all energy markets combined. So they’re looking to make a killing off of it. They’ll create derivative instruments, and this will just create another bubble. So we need to be now thinking about clearly exactly what to do to put in progressive ideas and to prevent this disaster from happening again.
AMY GOODMAN: Arun Gupta, I want to thank you for being with us, editor, reporter at The Indypendent newspaper here in New York. Robert Kuttner, journalist, economist, he is the co-editor of The American Prospect, a distinguished senior fellow at the think tank Demos. His latest book, Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.