Should Obama Demagogue The Fannie/Freddie Bailouts?
September 11, 2008, 12:50 AM
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With Obama falling behind McCain in betting on InTrade.net for the first time this year, David Kane suggests that Obama should break with elite consensus and denounce the bailout of Fannie Mae and Freddie Mac:

Most of the good and great think that this bailout is absolutely necessary. I don’t think it is and, moreover, the politics of the issue line up nicely for Obama. Imagine that he said something along these lines:

For too long President Bush and the Republicans in Congress, led by Senator McCain, have put the interests of the rich and powerful ahead of the interests of working Americans. For too long, Bush and McCain have sought to comfort the rich, have tried to help Wall Street instead of Main Street. Our current recession was caused by the failed economic policies of Bush and McCain.

Yet, this week, they have gone a bailout too far. They propose to spend hundreds of billions of dollars bailing out their rich friends on Wall Street and in China. They want you, working Americans, to back up the promises made by Fannie Mae and Freddie Mac.

But why should we? Why should regular Americans like you and me be on the hook for their failed policies? Why should our tax dollars go to Wall Street Banks and International Sovereign Wealth Funds? They invested stupidly. They should face the consequences of their mistakes.

When you make a mistake, does the federal government bail you out? No. Why should we bail them out? McCain and Bush want to send your money to China and to Wall Street.

A lot of recent Bush Administration actions are designed to kick the can down the road until January 20, 2009, when the troubles of the economy become somebody else`s problems. For Obama, however, the sooner the economic collapse arrives, the more likely he will be elected in 2008 and re-elected during a recovering economy in 2012.

In thinking about the politics, one analogy might be to FDR. Roosevelt ran in 1932 on a platform of balancing the budget. During the four month long interregnum, he behaved irresponsibly, refusing Hoover`s offers to work together on the economic crisis. This created a fear that he would be a bad president, leading to the bank-run crisis of the week leading up to his Inauguration on March 4, 1933, the lowest point of the Depression.

As he must have planned, however, FDR used the drama of the crisis he had created through his own inactivity to raise the tension to an unbearable point. So, when he finally stepped on stage on March 4th, and instantly deployed his rhetorical mastery, he appeared to be a savior. Fear switched to hope and loyalty instantly. (And the history books have all been written to blame the irrelevant Hoover, not the incoming FDR, for the bank runs of early March 1933.)

Of course, the Depression lingered under FDR for another seven or eight years, but the way he had framed it as proof of the failings of capitalism allowed him to pass a lot of liberal legislation, such as Social Security.

On the other hand, Obama`s economic ideology is one that largely assumes that the main economic problem is not a lack of prosperity, but too much inequality. Obamanomics presumes the capitalist system will generate huge prosperity, at least at the high end, so that the rich can be milked for the benefit of the non-rich (defined as an income of no more than $250k per year, which is, not surprisingly, almost exactly the most money the Obamas ever earned in a year before they got rich in 2005). The higher taxes on the rich would go to cut taxes a little for the others, and, especially, go for salaries of social service workers, his core constituency.

Obama is, in large part, a believer in Chicagonomics—not the U. of Chicago`s house brand of economics, but the City of Chicago`s brand as practiced under the Daley Dynasty. The Daleys aren`t socialists. They are true believers in the capability of corporate capitalism to pile up huge amounts of money, a portion of which they can siphon off, through taxes and shadier means, to pay off their friends and supporters in road-building contracts and in salaries and grants to social service workers to oversee the dysfunctions of the vast underclass.

And it more or less works. Chicago isn`t Detroit. The Daleys try not to kill the goose that lays their golden eggs, at least not too quickly. During periods of non-Daley rule since 1945, the parasites would freelance (e.g., each building inspector would have his hand out), driving businesses out of Chicago. But during periods of Daley hereditary monarchical rule, the Daleys would provide corporations with one-stop shopping for all their payoff needs, so businesses could plan their budgets accurately.

Of course, Chicagonomics works better for a single city with big advantages in an installed base of companies, magnificent buildings and lakefront, and crucial transport nodes than it does for a whole country.

Moreover, we are now realizing that some of this prosperity that Obama hoped to tap was a house of cards.

Personally, I think the way to win in 2008 would be to run against the Bush-McCain grand strategy of Invade the World, Invite the World, In Hock to the World. (By the way, how`s that working out for you?) But that`s too simplistic for the ever-so-sophisticated Obama.