January 25, 2012

Barack Obama talked tough about Wall Street in his State of the Union speech. But look behind the rhetoric, and his economic proposals fall short of what's needed.

REPUBLICANS, DEMOCRATS, the media--they all agree: In his State of the Union speech Tuesday night, Barack Obama presented a populist economic program that would use the powers of the federal government to take on Wall Street and Corporate America.

That assessment is no surprise from Republicans. They've been raving about Obama's supposed "class warfare" tendencies from the moment he stepped into the Oval Office.

But the Democrats are actually singing a different tune. In contrast to other points during his first three years in office, Obama and his party are encouraging the idea that his presidency is crusading against corporate and financial power on behalf of ordinary people.

What's changed? Simple: It's an election year. As his advisers freely admitted to media commentators, Obama's speech was delivered with Election 2012 in mind--to draw a contrast with the multimillionaires and bigots (and multimillionaire bigots) battling over the Republican presidential nomination.

To some extent, the sharper edge in Obama's speech is another result of the rise of the Occupy movement and its impact on U.S. politics. Even mainstream Washington politicians have had to acknowledge the increasingly vocal discontent about a society divided between the super-rich 1 percent at the top and the rest of us.

President Obama presents his State of the Union address to Congress (Pete Souza)

This shift has been a breath of fresh air, especially considering what was dominating Washington politics before--obsessions about the deficit and the need to cut, cut and cut some more. When mainstream political leaders talk about increasing taxes on the rich and curbing Wall Street greed, even if they don't mean it, this can give ordinary people greater confidence to fight for an alternative to the status quo of austerity.

But there's another fact of history that bears on Obama's speech and can't be forgotten: Democrats always talk more left--at least in relation to the Republicans--when an election is looming.

It's a basic fact of the U.S. political system: The Democrats will say one thing to win votes and do another once in office. And if campaign promises aren't enough, there's always scare tactics--threatening supporters with the consequences of the Republicans in power to get their vote.

Those who care about winning the kind of policies and programs Democrats talk about around election time have to separate the rhetoric from the reality. And when you look at the fine print of the State of the Union, there's less to Obama's "left turn" than meets the eye.

OBAMA WAS explicit about growing inequality in U.S. society: "We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share and everyone plays by the same set of rules.

The first thing to say, of course, is that the U.S. has been "a country where a shrinking number of people do really well, while a growing number of Americans barely get by" throughout Obama's first three years in office--and he bears plenty of the responsibility for that.

When he took office, Obama's Treasury Department adopted nearly wholesale the Bush administration's Wall Street bailout. Literally trillions of dollars were committed to saving the biggest banks and financial firms--with few if any conditions imposed, much less talk about nationalization, which would have been an easy sell to the vast majority of people following the 2008 financial meltdown.

Meanwhile, the administration's help for homeowners suffering the effects of the mortgage crisis has been paltry.

According to a Treasury Department report on the Home Affordable Modification Program (HAMP), as of early January, just over 900,000 borrowers threatened with foreclosure have had their mortgage loans permanently modified under the program. That's a far cry from the administration's target, when HAMP was introduced three years ago, of helping 3 to 4 million households--and even further from the 8 million homeowners who have faced the threat of foreclosure since the crisis began.

Beyond the financial sector, too, Corporate America is enjoying record profits--nearly $2 trillion in the third quarter of last year alone, a new record. The Great Recession is becoming a dim memory in corporate boardrooms.

But not for U.S. workers. The most obvious symbol of continuing tough times is the stubborn hold of long-term unemployment.

The federal government's employment reports did show increases through the end of 2011, including a jump of 200,000 net new jobs in December. But the gap between this and what's needed to reach pre-recession employment levels is enormous. According to economist Heidi Shierholz of the Economic Policy Institute, the U.S. economy needs to add 10 million jobs--to make up for 6.1 million lost during the recession and 4 million needed to keep up with population growth over the period.

Obama and his advisers recognize that claims about the economy "turning a corner" aren't going to be convincing to lots of people still suffering the impact of the crisis. That's why his State of the Union speech stressed the need for government action to spur job creation.

Of course, the Obama administration knows full well that the president's State of the Union initiatives aren't likely to get through the GOP-controlled House with an election coming up--witness the fate of Obama's proposed "American Jobs Act," which was blocked nearly in its entirety by the Republican-controlled House last fall.

But even if Obama's job creation proposals stood a chance of being enacted, they mainly come in a form that would blunt their impact: tax breaks.

Instead of direct spending on government programs that would lead to more hiring, in both the public and private sector, Obama and his team have focused on tax breaks for corporations, as inducements to hire workers and keep jobs in the U.S.

But U.S. corporations have already returned to pre-recession levels of profitability without new hiring--by squeezing more work out of fewer employees. According to the latest estimate, U.S. corporations have more than $2 trillion in cash and other liquid assets on their books, and they're still not making investments that create jobs in large numbers. The prospect of more tax breaks--at a time when corporate tax revenues have fallen to historic lows--isn't going to be the decisive factor in companies investing again.

By comparison, programs that would be far more effective in getting jobs for the unemployed--like projects to rebuild infrastructure--got short-changed again by the administration.

SO EVEN when you take Obama's proposals at face value, they fall short of anything that would deserve to be called "populist," much less "radical."

Keep that in mind when you hear Obama talk about coming down hard on Wall Street fraudsters. In the State of the Union, Obama promised "to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans."

Sounds good, right? Only the administration reportedly just reached a draft settlement with major banks over their corrupt and illegal practices that plunged at least 1 million people into foreclosure--and the deal is, bluntly, a sellout.

Five of the biggest U.S. banks are involved--Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial. Investigators from the Department of Housing and Urban Development and other agencies uncovered evidence of wrongdoing on a huge scale, from the use of fraudulent or faulty documentation during foreclosure processing to bilking the federal government out of billions in inflated reimbursements.

But the banksters have been pressing hard to limit any financial penalties or requirements that they help the homeowners they swindled--and according to media reports, they got their way. The settlement reportedly applies to only a minority of homeowners in trouble on their mortgages--and it would shield the banks from future efforts to make them pay.

The $25 billion total price tag on the settlement may have awed the press, but it's laughably low, say housing advocates. According to social justice advocates Van Jones and George Goehl, the banks should have to pay a minimum of $300 billion to reduce loan amounts for homeowners in trouble or compensate families who were foreclosed on illegally.

If Obama really wanted to confront the ongoing foreclosure crisis, he could push for the banks to be forced to write down the value of every "underwater" mortgage where owners owe more than their homes are worth. According to one report sponsored by a coalition of liberal advocacy groups, this would "pump $71 billion per year into the economy, create more than 1 million jobs annually and save families $6,500 per year on mortgage payments."

Wall Street could easily afford such a measure--U.S. banks are sitting on a cash hoard of $1.64 trillion, and bonuses and compensation are back to pre-recession levels and higher at the biggest financial firms.

But the Obama White House isn't really interested in making the banks pay for the disaster they caused--and so we get another administration initiative touted as a dramatic effort to help working people, which turns out to be nothing of the sort.

THE GAP between rhetoric and reality isn't unique to Obama. Conservative journalist and political operative David Frum rightly identified the same dynamic the last time a Democrat occupied the White House:

Since 1994, [Bill] Clinton has offered the Democratic Party a devilish bargain: Accept and defend policies you hate (welfare reform, the Defense of Marriage Act), condone and excuse crimes (perjury, campaign finance abuses), and I'll deliver you the executive branch of government... He has assuaged the left by continually proposing bold new programs--the expansion of Medicare to 55 year olds, a national day-care program, the reversal of welfare reform, the hooking up of the Internet to every classroom...And he has placated the right by dropping every one of these programs as soon as he proposed it. Clinton makes speeches, [Treasury Secretary Robert] Rubin and [Federal Reserve Chair Alan] Greenspan make policy, the left gets words, the right gets deeds.

The Democrats' say-one-thing-and-do-another deception is inevitable in a party whose popular support depends on claiming to stand up for working people, but whose role in the American two-party system is to defend the interests of Corporate America and the ruling elite.

Any lingering doubts about that role can be dispelled with a look at who's giving Obama money to run for president again.

In 2008, Obama won the corporate money race against Republican John McCain, particularly when it came to contributions from Wall Street banks and financial firms. Once the GOP nomination is decided this year, Wall Street might shift behind the Republicans. But in the early stages of the campaign, Obama had raised twice as much from the finance industry as any Republican, despite all the wild rhetoric about his "class war" against the bankers.

Obama is the leader of one of the two mainstream parties that make up a bipartisan political establishment. That establishment has a left and a right wing, and so Obama's positions and policies at any point will likely be to the left of the Republicans. But people who only look at that difference miss the forest for the trees--they ignore the much greater areas of agreement between the two parties, whether about the necessity of austerity policies or the defense of U.S. imperial interests or the need for repressive laws to limit dissent.

Our movements can't place any hopes in the Democrats, whether they are promising half steps forward--or taking half or whole steps backward. We should fight for what we believe in--and to do that, we need to remain independent of both capitalist parties in the U.S. political system.