As part of the response to the financial meltdown of the past year, the Obama administration proposed, among other things, a Consumer Financial Protection Agency. The proposed CFPA would have had sweeping powers to regulate the financial services industry, excepting the insurance industry. Excepting the insurance industry is questionable, but much worse was to come. In the legislative process, the proposal has gradually been eviscerated. Last week, a very important restriction on consumer banking was removed from the bill by Barney Frank, chair of the House Committee on Financial Services: a requirement that the banks offer "plain vanilla" mortgages that could be straightforwardly evaluated and compared. Astonishingly, Treasury Secretary Timothy Geithner, whose own department wrote the provision, commented: "The chairman’s proposals, which I’ve had a chance to read quickly, provide a better balance of choice and protection."
James Kwak of The Baseline Scenario, writes in e-mail, shocked:
The most shocking thing is what Geithner said about the change - he said it made the bill better. Remember, the plain-vanilla requirement is something that came from the draft legislation that he sent to Congress. […] nothing, I repeat nothing, explains his cheering on the elimination of something he asked for. He should have complained about it, if for no other reason than to combat the mounting suspicion that he has no backbone.I think it likely Geithner's backbone has been broken. In economics and finance, the Obama administration is starting to resemble the Reagan and Bush II administrations in the way it destroys reputations: Geithner will have no credibility by the time he leaves office. Think of the way Lyndon Baines Johnson broke Humphrey.1 Think of what Reagan did to Stockman. This is court politics, the way power has been deployed in aristocracies throughout history. I'm suspecting Summers and Emanuel of doing the dirty work. Summers in particular strikes me as a better-educated male version of Sarah Palin, and, like Palin, I think he loves to break people, but he would not have broken Geithner without Obama's support.
Stepping back a bit, I think the Johnson administration provides a useful parallel to the Obama administration. Johnson expanded social democratic programs in the USA at the cost of giving the Senate hawks Vietnam, prompting a friend of the Raven to christen Johnson's coalition the "socialist warmongers." It was a devil's bargain leading to millions of deaths,2 and the reactionary side of the coalition betrayed the social democratic side as soon as it could, leading to the Nixon and, especially, Reagan administrations.
In this case, Obama seems to be paying for his social democratic programs with giveaways to the financial services industry, the health care industry, and the warmongers of our time. This, I belive, is his devil's bargain. Health reform is being undermined even before it passes, with the most likely Senate bill hard on the middle class. Since the House bill is already a reasonable compromise, it's likely that the result will be a bill with a mandate that will fall hard on the lower-income half of middle income people.
Johnson, in supporting Vietnam, lost the Presidency. His party lost power to the reactionaries who began to undercut his programs. With his deals with the financiers, and especially the Senate insurance mandate, Obama, it seems to me, may lose the Obama Democrats, who were once the Reagan Democrats: the working men (they are mostly men) who want a square deal. The Democrats may never get them back.
1. Robert Caro, The Years of Lyndon Johnson: Master of the Senate. Google Books.
2. Foucault said that every expansion of the power of the state to control everyday life ("biopower") in Europe was marked by both positive and negative aspects. I haven't read that essay in 20 years, have even forgotten the title, but I suspect it would bear review in this context.
[minor edits on the night of & day after publication for clarity & to correct links]