Andrew Sullivan is Right: Obama Has Governed as a Conservative
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Last week, Newsweek magazine and The Daily Beast published an article by Andrew Sullivan, “How Obama’s Long Game Will Outsmart His Critics,” which excoriated left-wing critics for failing to appreciate how much Obama has accomplished, while at the same time trying to convince conservatives that Obama is not a liberal, let alone a socialist, and that, in fact, he has governed as a conservative. The fact that these two critiques are internally inconsistent has somehow managed to escape Mr. Sullivan.
The main case Mr. Sullivan, a self-described “conservative-minded independent,” makes for Obama is that, “he continued the bank bailout begun by George W. Bush, he initiated the bailout of the auto industry, and he worked to pass a huge stimulus package of $787 billion.”
In fact, Obama deserves even more credit for the bank bailout (TARP) than Sullivan gives him: Obama did not simply “continue the bank bail-out,” he, more than Bush, was the main reason TARP passed Congress, as Congress first rejected TARP, then passed it by a narrow margin when Obama, then far in the lead of McCain in the Presidential race, endorsed it and actively campaigned for its passage. It was the first, but not the last, example of Obama promoting a Republican plan.
Sullivan essentially argues that the bank rescue was necessary, so stop whining about it and give Obama the credit he deserves. There are many problems with this theory, the first of which is that TARP, and the subsequent giveaways and guarantees given to banks by the Federal Reserve and overseen by Obama, put too much of a burden on taxpayers, too little on the bank shareholders, and placed almost no conditions on the banks in terms of how they used the federal hand-outs or how they compensated the managers of these failed banks. Normally, when a business fails in a capitalist economy, the shareholders take the losses. But what TARP did was shift losses for toxic investments in poorly collateralized debts (mostly mortgages) to taxpayers. At the same time the private equity market was paying 20 cents on the dollar for toxic assets, Obama’s advisor and later Treasury Secretary, Tim Geithner, was counseling Obama to agree to pay 100 cents on the dollar for the same junk, which he did. If you read Nobel Prize winning economist Joseph Stiglitz’ book, “Freefall,” you will see that Obama did this passively and reflexively, without any serious consideration of alternatives. Not only did the federal government overpay and over-guarantee bank obligations, it imposed no conditions on the banks to loan money to Main Street.
The central economic problem, of course, was the freezing up of credit, which blocked investment and development; even if saving the biggest banks was required (as opposed to other options, such as nationalizing the largest banks or letting banks fail and establishing a federal lending institution), the fact that money was not distributed downward into the economy allowed the economy to continue to stagnate while the banks were awash in cash, which they used mainly to buy up small and mid-sized banks so today the big banks are even bigger and there are fewer community-based and mid-sized banks to compete with them. And, of course, the banks continued their excessive compensation practices unabated while most taxpayers saw their house values, pension plans and net worth fall 30-40%. Arianna Huffington said at the time that Obama had sacrificed 70% of his credibility with voters by standing with the banks, and not average people, and that seems about right to me. The Democrats historic shellacking in the November 2010 election confirms this assessment. Was that huge election defeat part of Obama’s “long game,” Mr. Sullivan?