The Discomfort of the Establishment

While many have come to see Paul Krugman as a sort of folk hero for the emerging anti-Geithner mass movement, I think he reflects a common view among many mainstream economists.  Experts like Jeffrey Sachs, Dean Baker, Simon Johnson and Joseph Stiglitz all believe the Geithner-Summers banking plan is a thinly desguised scheme to transfer mass public wealth over to the largest financial institutions, in order to keep them from collapse.  And they all believe the plan is not only immoral but that it has no chance for success.  In case one were to suspect that this is only a view held by some snobby, ivory tower academics, I found a shockingly plain statement of concern from a journalist who claimed to be speaking for "the establishment":

“If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in "Lords of Finance," his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, "The Best and the Brightest." Krugman may be exaggerating the decay of the financial system or the devotion of Obama's team to preserving it. But what if he's right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether.”

                                                           Evan Thomas, Newsweek April 6, 2009

Putting aside the psychophantic stench of the quote, it appears there is some part of "the establishment," presumably some faction of the media, political or corporate elite, that is starting to get nervous.  Jodi Dean, among others, has made the point that Obama must clearly be weded to neoliberalism - otherwise what could explain an approach that seems so out of step with mainstream economic opinion?

I believe there may be a clue in an unusual comment Obama made back in March, during a town hall meeting in California.  He was discussing why the Federal government had to step in to save the larger banks, and said something that sounds like black mail:

"When you've got big big banks -- Citicorp or Bank of America or Wells Fargo -- that control 70% of the banking system and all of them are weakening, you can't afford to have all those banks going under, even though the deposits might be guaranteed. We had to step in, it was the right thing to do, even though it's infuriating. ..."

"Same thing with AIG," Obama said. "It was the right thing to do to step in. Like they've got a bomb strapped to them and they've got their hand on the trigger, you don't want them to blow up, but you've got to ease them off the trigger."

I actually watched this surreal moment on the news.  As he was using the suicide bomber image, the president held out his arm and simulated a hand on a trigger. 

What could the President mean by such an image?  It was used in the context of a response to a question from the audience - so perhaps it doesn't mean all the much.  Or, President Obama, in an unusual moment of candor, just told the American people that their financial system is being held hostage by a small group of suicidal/homocidal maniacs. 

Comments

[old - Doug Johnson]

Outstanding post Alain! What a great way to get Long Sunday going again. Perfectly pitched. Just the right questions and quotes.

For what it's worth, I have almost the mirror position of Evan Thomas. I'm pretty convinced that Krugman (and people far to the left of him) is right and that the economic system is a rotting corpse that somehow remains half alive.

But then I've got this sneaking dread that sometimes even squeaks out as hope. What if Obama really is able to rescue capitalism to die another decade?

[Alain]

Thanks Doug. I appreciate the kind words.

Interestingly, in Krugman's column yesterday, he had this to say: "There’s a palpable sense in the financial press that the storm has passed: stocks are up, the economy’s nose-dive may be leveling off, and the Obama administration will probably let the bankers off with nothing more than a few stern speeches. Rightly or wrongly, the bankers seem to believe that a return to business as usual is just around the corner."

For the rest of us living and working outside of Wallstreet and Washington, this sounds completely perverse. And like you, I suspect it isn't true. I think capitalism will save itself but not before the vast majority of us pay a very high price. It remains to be seen if Obama chooses to side with the people - so far his choice has been to place his bets with the plutocrats.

[Alain]

To confirm how total the control of Wall Street is, I came across the following account from Glenn Greenwald's site:

"Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is."