Read The Roots of Obama's Rage Online
Authors: Dinesh D'Souza
The Roots of Obama's Rage (22 page)
But this isn’t just about the big countries like India, China, and America. Other poor and developing nations are also trying to improve their standard of living, and this requires that they raise—not curtail—their energy consumption. Obama stressed to the UN that it would be hard for the poorer countries of the world to do anything by themselves for the environment. Therefore, “we have a responsibility to provide the financial and technical assistance needed to help these nations adapt to the impacts of climate change and pursue low-carbon development.”
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This isn’t just talk: the agreement coming out of the UN Summit proposed that the West fork over $100 billion to developing countries in exchange for those countries agreeing to some limits on their carbon use.
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The Obama administration supports this measure, although Congress has so far refused to go along. During his time in the Senate, Obama attempted an even bigger transfer of wealth: he sponsored the Global Poverty Act that would have committed the United States to spending over $800 billion over a decade or so to eradicate poverty in the Third World and also to enable Third World countries to follow Western environmental standards.
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Obama seems convinced that there is a “climate debt” that rich nations owe poor nations. When it comes to combating global warming, he is determined to ensure that the rich nations pay not only their share but also the share of the poor nations.
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The Obama administration supports this measure, although Congress has so far refused to go along. During his time in the Senate, Obama attempted an even bigger transfer of wealth: he sponsored the Global Poverty Act that would have committed the United States to spending over $800 billion over a decade or so to eradicate poverty in the Third World and also to enable Third World countries to follow Western environmental standards.
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Obama seems convinced that there is a “climate debt” that rich nations owe poor nations. When it comes to combating global warming, he is determined to ensure that the rich nations pay not only their share but also the share of the poor nations.
What’s the effect of all this? Obviously it is to make the rich nations poorer and the poor nations richer. See how this fits neatly into the anti-colonial paradigm? Obama’s basic assumption is that America and the West are using up too much of the planet’s resources. This is a huge theme with Obama; he never stops talking about it. In a 2008 appearance on
60 Minutes
, for instance, Obama told interviewer Steve Kroft, “This has been our pattern. We go from shock to trance. You know, oil prices go up, gas prices at the pump go up, everybody goes into a flurry of activity. And then prices go back down again and suddenly we act like it’s not important, and we start, you know, filling up our SUVs again. And, as a consequence, we never make any progress. It’s part of the addiction, all right. That has to be broken. Now is the time to break it.”
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60 Minutes
, for instance, Obama told interviewer Steve Kroft, “This has been our pattern. We go from shock to trance. You know, oil prices go up, gas prices at the pump go up, everybody goes into a flurry of activity. And then prices go back down again and suddenly we act like it’s not important, and we start, you know, filling up our SUVs again. And, as a consequence, we never make any progress. It’s part of the addiction, all right. That has to be broken. Now is the time to break it.”
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For Obama, the high oil prices aren’t the problem; America’s level of consumption is the problem. America’s energy “addiction” is presumed to be a new form of neocolonial exploitation: the planet has limited resources, and the greedy West is taking a disproportionate share. So Obama’s cap and trade policies are aimed at taxing America and using some of that money to subsidize the wretched of the earth. He is raising the cost of doing business for the colonizers in order to give an economic advantage to the colonized. Who cares whether the planet is actually getting hotter or colder? As long as Obama achieves this transfer of income from the big guys to the little guys, he will most likely consider his environmental and energy policies a success.
In focusing on Obama’s energy and environmental policy I have, in a sense, gotten ahead of myself. So let’s back up a bit and examine how Obama’s anti-colonial agenda began with the very first days of his presidency—days he spent not undermining the overclass and the big banks but bailing them out. Actually, Obama began both by attacking the big banks and by rescuing them from apparent financial ruin. Previously the Bush administration had approved a multibillion dollar bailout plan for Wall Street and the banks. For many, that may not come as a surprise: Republicans are known to be friendly to Wall Street and the bankers. But from the beginning Obama went along with this plan, actually expanding it along the way. Now why would he do that?
In the months leading up to the 2008 presidential election, the economy went into a free-fall. The free-fall began with a Wall Street financial crisis that involved major investment firms—Lehman Brothers, Bear Stearns, Merrill Lynch—as well as the nation’s largest mortgage companies, Fannie Mae and Freddie Mac, and also the nation’s largest insurance company, American International Group (AIG). All were going down, and taking the stock market with them. The Dow Jones average plunged 2,500 points from 11,000 in September to around 8,500 in October. Economic activity virtually froze, and a panicked Bush administration prepared plans for a massive $700 billion bailout, paid for with taxpayer money.
For the hapless Bush team, already in the process of cleaning out their desks, this was a basic issue of saving a legacy. But from the outset Obama wholeheartedly supported the bailout. The reason for this is suggested in something that Obama’s adviser, and later his chief of staff, Rahm Emanuel said. “You never want a serious crisis to go to waste. What I mean by that is it’s an opportunity to do things you could not do before.”
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But what is it that Obama wanted to do? At first glance it seems that he must have wanted to save the economy. Maybe he thought that in order to save Main Street you have to save Wall Street. But Obama usually portrays the interests of Wall Street as opposed to those of Main Street. Moreover, while it’s clear that the financial sector was suffering a liquidity crisis, it’s not clear that it was suffering a bankruptcy crisis. Panics can cause people to act hastily, but in retrospect it’s not obvious that a bailout of this magnitude was even necessary.
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But what is it that Obama wanted to do? At first glance it seems that he must have wanted to save the economy. Maybe he thought that in order to save Main Street you have to save Wall Street. But Obama usually portrays the interests of Wall Street as opposed to those of Main Street. Moreover, while it’s clear that the financial sector was suffering a liquidity crisis, it’s not clear that it was suffering a bankruptcy crisis. Panics can cause people to act hastily, but in retrospect it’s not obvious that a bailout of this magnitude was even necessary.
For Obama, however, the bailout was an opportunity to rescue Wall Street and the banks even while lambasting the financial sector for getting the country into this mess. This drumbeat has continued for two years. To get a small whiff of Obama’s rhetoric, in late 2009 he blasted “fat cat bankers on Wall Street” who had not displayed “a lot of shame” and “still don’t get it” about why the public was infuriated with them. In January 2010, Obama said his determination to regulate the financial sector “is only heightened when I see reports of massive profits and obscene bonuses.” In April 2010, he scolded Wall Street: “A free market was never meant to be a free license to take whatever you can get, however you can get it.” Big, fat executive bonuses, he said, “offend our fundamental values.”
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Obama’s main charge was that Wall Street had succumbed to “greed.” But if you think about it, Wall Street is based on greed. People go there to make money. What inhibits greed on Wall Street is not public-minded altruism but rather fear. Greed drives the aggressive desire to make more money while caution is produced by the fear of losing money. If financial crises were merely the result of outbreaks of greed, Wall Street would be in perpetual crisis. Our economic system is based on directing or channeling greed in such a way that it serves the economic welfare of society. Somewhere along the way, this channeling system broke down, and that’s what caused our financial system to go into a tailspin.
But how did it break down? While Obama conveniently blamed the investment bankers, in reality a good deal of the blame lay with the U.S. government.
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For nearly two decades, both Congress and the Republican and Democratic administrations have been pushing to expand housing loans to more and more Americans. Activist groups such as ACORN—where Obama worked both in New York and Chicago—demanded that banks change their lending practices to benefit minorities and the poor. Now these lending practices had been in place for a long time. Traditionally you cannot buy a house unless you can afford a 20 percent down payment and show that you have a steady, dependable income. But since houses had been rising in value, many politicians and community activists figured that lending standards could be lowered. Even if people couldn’t make the payments, the house could always be sold at a profit and no one would get hurt.
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For nearly two decades, both Congress and the Republican and Democratic administrations have been pushing to expand housing loans to more and more Americans. Activist groups such as ACORN—where Obama worked both in New York and Chicago—demanded that banks change their lending practices to benefit minorities and the poor. Now these lending practices had been in place for a long time. Traditionally you cannot buy a house unless you can afford a 20 percent down payment and show that you have a steady, dependable income. But since houses had been rising in value, many politicians and community activists figured that lending standards could be lowered. Even if people couldn’t make the payments, the house could always be sold at a profit and no one would get hurt.
Consequently, Congress, which regulates banks and mortgage companies, began to push for easier lending standards. Fannie Mae and Freddie Mac, which were set up by the government and always had implicit government backing, virtually abandoned responsible lending criteria and encouraged private banks to do the same. In fact, when banks made irresponsible loans they could package and bundle them and then sell them to Fannie and Freddie, thus transferring the risk to these quasi-government entities. This lending binge was lubricated with interest rates that were kept low by another government entity, the Federal Reserve. The Federal Reserve also lowered bank reserve requirements—the minimum amount of capital that banks are required to maintain when they make loans of a certain size.
Once the government kicked off this reckless binge, it created an infectious mood across the country. Soon everyone got into the spirit. Bankers found they could make more federally guaranteed loans. Mortgage writers introduced all kinds of go-go financing schemes such as teaser rates and negative amortization. Wall Street found it could profitably trade bundles of these loans in a form called mortgage-backed securities. Ordinary Americans on shaky financial ground discovered that, hey, they could afford expensive houses with modest initial monthly payments and little or no money down.
The financial crisis occurred when interest rates began to rise and housing prices began to fall. That’s when people began to default on those loans and, in some cases, to stop making payments and walk away from the houses they had bought. Suddenly the banks realized that this problem could be very widespread, and since no one knew what the default rate might turn out to be, no one knew what those mortgage-backed securities were really worth. Wall Street had been buying and selling the securities in the expectation of traditionally low default rates. When investment houses figured out that they were holding “toxic” assets that might be worth only a fraction of their list price, they began to sell those assets at fire-sale prices. Investors with money parked at these investment houses feared losing their capital and demanded it back. A “run” on the investment houses ensued, and many found themselves facing liquidation and, in some cases, bankruptcy. This, then, was the panic that produced the Great Recession of 2008.
But it was a recession, not a depression. Its speed caught everyone by surprise, but America had endured severe recessions before, most recently in 1981–1982. To this day, economists debate whether the financial sector faced a crisis of bankruptcy or merely a crisis of liquidity. Bankruptcy means that your liabilities outweigh your assets, you cannot meet your debts, and under ordinary circumstances you should go out of business. A liquidity crisis means that you have the assets but you cannot convert them into cash right away. Now behind the so-called mortgage-backed securities were real homes and real people, most of whom were making regular monthly mortgage payments. Sure, some of these people may end up defaulting on their loans, but they hadn’t defaulted yet. The problem with the securities wasn’t that they had little or no value, but that no one had a good idea of what their value was. Uncertainty, rather than bankruptcy, seemed to be the real problem.
The federal government needed to restore liquidity throughout the financial system, so that banks could make loans once again; but just as important, the government needed to revive business, consumer, and investor confidence in the economy. Obama’s blasting of bankers and Wall Street executives could hardly be expected to restore business confidence. But even more revealing were Obama’s policy remedies, which tell us a lot about his real economic objectives.
First, the administration not only provided bailout funds for banks, but it also wrote the terms of those bailouts in such a way that the federal government would retain control over the banks. This is not to say that the government had no control before; banks have always been federally regulated. But Obama has expanded federal power over the banking sector. One clue to Obama’s intentions is that his administration insisted on bailing out not just banks that were failing but also banks that were not. Some 300 banks were force-fed a federal infusion of $200 billion. The largest banks all got infusions of capital, whether they wanted them or not.
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Some banks of course desperately needed the money, but others did not. Yet it seems that Obama wanted to exercise federal leverage over those banks as well. Most of the banks have now repaid their bailouts. But in some cases the Obama administration has refused to permit large banks to make repayments.
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Now this is very strange: you might expect that the government would, on behalf of the taxpayer, welcome the idea of getting its money back. But if the government takes back the money, then it no longer has the same degree of control over that bank. So Obama has approved a “stress test” in which the government decides which banks are economically healthy enough to be allowed to pay their bailouts back.
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Now this is very strange: you might expect that the government would, on behalf of the taxpayer, welcome the idea of getting its money back. But if the government takes back the money, then it no longer has the same degree of control over that bank. So Obama has approved a “stress test” in which the government decides which banks are economically healthy enough to be allowed to pay their bailouts back.
Normally moneylenders don’t need to do stress tests: if the guy is willing to pay his loan, it’s safe to assume he is in a position to do so. But the stress test keeps the decision in the hands of the government, not the banks, no matter how eager the bank may be to escape the clutches of the government.
Now one might assume that a financially healthy bank that has passed Obama’s stress test should be able to repay its bailout. Not so, according to Obama’s Treasury Secretary Timothy Geithner. Geithner told the
Wall Street Journal
that the health of individual banks isn’t enough to qualify them to repay the government. “We want to make sure that the financial system is not just stable but also not inducing a deeper contraction in economic activity. We want to have enough capital that it’s going to be able to support a recovery.”
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In essence, the banks have to wait until the Obama administration decides that it’s in the national interest for them to repay.
Wall Street Journal
that the health of individual banks isn’t enough to qualify them to repay the government. “We want to make sure that the financial system is not just stable but also not inducing a deeper contraction in economic activity. We want to have enough capital that it’s going to be able to support a recovery.”
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In essence, the banks have to wait until the Obama administration decides that it’s in the national interest for them to repay.
Second, the Obama administration diverted bailout money to rescue two of the Big Three Detroit auto companies, General Motors and Chrysler. Now as an economic solution, Obama’s actions were both unwise and unnecessary. The auto companies have been mismanaged for decades—partly because of the ineptitude of the bosses, partly because of the millstone effect of the auto unions. In an attempt to extract as much as possible from management, the unions have raised the cost of making cars so high that Detroit is no longer competitive. Japanese companies can make better cars in American plants for a cheaper price. Detroit is going under because it deserves to go under. Sure, a bailout can postpone the day of reckoning in the faint hope that Detroit will get its act together. But only an investor who is using other people’s money would be so careless as to take this kind of a chance.
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