Obama's Perilous Compromise with Wall Street Looters

By Jeffrey Klein, Huffington Post. Posted January 5, 2009.

Yet it's not only Rubin's acolytes who are pushing Obama's recovery plan. Experts from both parties have also endorsed it. The only catch? These are the same experts who were blind-sided by the mortgage security frauds that led to the credit freeze that triggered the de-leveraging that's plunged the world close to a Depression.

Does all this sound like a simple-minded diatribe? Perhaps it is. But when analyzing America's financiers, a simple-minded (as opposed to a naïve) approach may be best. For example, Hank Paulson, Ben Bernanke and Tim Geithner thought that the banks they generously recapitalized with the taxpayers' money would begin lending again. Instead the banks used the bailout cash to buy other banks, issue dividends or simply profit on Treasury spreads - i.e., to make what bookies call their juice.

It's altogether possible that Barack Obama's recovery plan will bless sweetheart deals and generate enough public debt to destroy global confidence in our government's bonds. Foreigners, who own about half of all Treasuries, could stop funding America's deficit-driven recovery plan. During Obama's administration, the dollar might lose its reserve-currency premium.

Would all Americans then suffer equally? No. Those likely to profit most from Obama's stimulus before we go bust are his political allies, and especially his big donors. That's the nature of the doling-out beast. To minimize corruption, Obama must pro-actively prevent Chicago-style swindles. E.g., who owns the real estate adjacent to the infrastructure the government will build? What specific penalties will be incorporated into Obama's recovery plan to punish politically-connected profiteers?

If a spiraling out-of-control stimulus seems as if it's undermining the full faith and credit of the U.S. government, Obama's biggest donors will hedge their personal risk by parking some of their capital abroad. Have they've done so already? A senator should ask prospective nominees this question at their confirmation hearings.

Obama could be a different kind of president. His broad base of financial support ensures he won't lack funds for a reelection run. The dark side of Obama's presidency, however, is likely to come less from ethical failings than from his fondness for compromise.

You can't compromise with America's looters. They're too opportunistic. The economics team Obama assembled betrays his respect for elites and a caution that may doom his presidency. A bolder politician would stimulate the economy and simultaneously expose the moral violations at the core of our economic predicament. Leaders who sent the cops home need to be shamed, not promoted. Financiers who misled investors should be prosecuted, not bailed out. Attorney General nominee Eric Holder, the man who pardoned Marc Rich, doesn't seem likely to take up these tasks.

On Inauguration Day, President Obama will surely deliver an inspirational address. But the confidence he inspires will be worthless until he calls out and cuts off the thieves.

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Jeffrey Klein is an investigative journalist who co-founded Mother Jones; directed exposes of Newt Gingrich, Big Tobacco and the introduction of offensive weapons into space; co-produced for The News Hour with Jim Lehrer a series on China's economy that won a Gerald Loeb Award; and taught journalism at Stanford, San Francisco State and Cal.

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