Protecting Wall Street interests

April 22 2009 - The Obama administration continues to muddle through, in its handling of extensive problems in the financial system - - despite the fact that the gravity of the situation calls for rapid and decisive action.  It demonstrates the hollowness of the promise of change that the president made during the election campaign last year.

Evidently, the presence of power structures and longstanding liaison between Wall Street and government has made it difficult to implement changes in policy.  Those of us who have studied Machiavelli’s writings were, of course, never convinced that words about change would be translated into action.

Of course, oligarchic power structures prevail in many countries and the US is hardly unique in this respect.  Just to take an example, in France the liaison between the state bureaucracy and the corporate world is very close.

Normally, in a deep crisis, such as the present one, the oligarchy is forced to make adjustments and take a hit, though there may be squabbling among different factions about which one pays the highest price.  Indeed, this has been the outcome of previous crises in other countries.

But in the United States there is unwillingness among the elites who caused the problems to admit responsibility, pay the costs and accept constraints on their behaviour.  And, the government is an accomplice in this scheme.

Generally, the role of the media is to explain to the masses what the elites think is good for them.  And in the past, the US media have done a fine job of obfuscating how power is exercised and wealth is distributed in society.

You absolutely do not need state ownership or censorship of the media to exercise influence.  That happens in North Korea.  In the west, subtle and clever methods replace crude ones.  As the world-renowned MIT linguistics expert, Noam Chomsky, notes: “The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum”.

But the problem in America is that the depth of the crisis has laid bare the nature of the relationship between Wall Street and the state.  Obviously, this wasn’t previously hidden entirely from view.  However, during the good times it was hardly the focus of much attention.

Now, on closer examination, it is clear that there has been a decades-long entente and collaboration between people in government and moneyed interests.  Officials moved with ease between positions in the bureaucracy and high finance.  The regulators had become co-opted by the regulated, adopting a similar world view that what was good for Wall Street was also good for America.

So only the naïve think that given the egregious errors committed by the money men, they would be tossed out and their companies restructured by the government.  The world does not work that way.  The power structures that prevailed previously are still in place.

It could be said that the bankers are even more powerful today than they were in the past in influencing decisions.  The Obama administration is trying to implement a solution to the financial crisis that is favourable to the banks, at the expense of taxpayers and the economy as a whole.

There is an unwillingness to rapidly resolve the situation by playing tough with shareholders and managers, restructuring, resizing and re-launching the damaged firms as new entities.  Instead, they have opted for nurturing the companies back to health over a long period.

But, frankly, the economy cannot afford to wait for an extended period until the banks are in a position of capital adequacy, have gained the confidence of the business community and can extend credit in a normal way.   The economic recovery is fragile and the so-called ‘green shoots” could turn distinctly brown if the government does not take effective action in establishing normalcy in the banking system.

What are the goals?  Is it to save the individual banks or the financial system and the economy?  From the evidence, it looks very much like the former objective is being pursued.  And as we have said previously, by refusing to break up the behemoths into smaller units and by using the kid-glove carte blanche approach, they are guaranteeing the occurrence of problems in the future when these “too big to fail” entities get into trouble again and have to be saved from failing once more.

The media have had a tough time trying to protect the elite from criticism.  According to free-market ideology, they should condemn the current practice of privatisation of gains and socialisation of losses that benefits elite groups.  The spectacle of the errant rich being bailed out by taxpayer funds while lower echelons are fired without ceremony has had damaging effects on the American dream.

The divisions in American society are growing.  According to the American dream, anybody can rise above their lowly status and succeed through their own efforts.  But this is being challenged by evidence that the system is rigged.  And the dream could dissipate even faster if economic growth remains subpar after the recession ends.

So it is important for the elites to get growth going as soon and as fast as possible.  But their current policies of trying to protect Wall Street interests may be compromising that goal.