President, or pawn?
The Washington Post, June 15, 2011
Is Barack Obama a president or a pawn?
And is there any difference nowadays?
Seeing how narrow the boundaries of debate have become on the biggest issues facing the country makes the question unavoidable.
On the central near-term economic issue—jobs—Paul Krugman has trenchantly described the "learned helplessness" gripping the White House. As a result we hear only timid ideas that can't make a real dent. Ditto on the long-term debt, where we're asked to choose between a Republican plan that would add $5.4 trillion in red ink over the next decade and a Democratic plan that would add $7 trillion.
But the phenomenon goes far beyond jobs and debt. On the issues of bank capital and Afghanistan, both of which will be the targets of momentous decisions in the weeks ahead, the options being debated seem just as inexplicably narrow and out of touch.
Take bank capital first—specifically, the amount of capital large banks are required to hold as a buffer against loss. Inadequate capital at "systemically important" financial institutions was the main reason the housing meltdown led to epic taxpayer bailouts. Yet higher capital rules are being fought by big bankers, because such rules threaten their ability to pay themselves outrageous bonuses (which get goosed when they can show higher returns on a smaller sliver of equity).
That's not what the big bankers say, of course; they claim their real concern is that higher capital rules will hurt their ability to lend and support economic growth. But outside of bank-funded studies that conveniently support this point of view, there's little evidence that this is the case. Why would we listen (again) to the self-interested pleas of the same folks that helped tank the economy even as they got rich, escaped prosecution, and passed the bill to the rest of us?
Yet the big banks have already won. The new international Basel accords ask banks to hold capital equal to 7 percent of their assets. "If it's for banks that lend to businesses and families in their communities, 7 percent is more than enough," says Robert Wilmers, chairman and chief executive of M&T Bank, a big regional bank based in Buffalo. "But if it's for banks allowed to engage in risky and speculative trading"—which our megabanks remain free to do—"its impossible to come up with the right level of capital because you don't know what the dimensions of the trading are."
Right now the Federal Reserve Board is talking about an extra 3 percent for the biggest banks, lifting total capital to 10 percent. But prudent Switzerland is requiring 19 percent. Why is 10 percent the outer limit of American debate? Wouldn't 20 percent make us twice as safe next time casino capitalism runs amok?
Or take Afghanistan, where 100,000 U.S. troops will run through upward of $150 billion this year chasing what the CIA guesses are 30 to 100 members of al-Qaeda. No one supporting this decade-old war can define what "success" really means.
Yet the troop withdrawal options the president will review starting this week range from 3,000 on the low side to perhaps 20,000 on the high. How can the "boldest" withdrawal option leave us with more troops in Afghanistan than Obama inherited?
Why are the boundaries of debate so narrow?
On Afghanistan the answer is easy but almost never discussed: We don't have a draft. Does anyone doubt that if this war weren't being fought by "other people's children," more aggressive plans to end it would be on the table? Instead, even post-Osama, the president remains boxed in by the slim range of options his military leaders present. Obama chafes at his choices, but he hasn't truly challenged them (perhaps for fear of the fallout if top generals publicly balked).
On banking, another set of powerful insiders still holds sway. At one level this is astonishing. President Bush's Treasury secretary was the man who as Goldman's chief executive led the charge for lower capital standards for investment banks. The current Treasury secretary let the housing and financial crisis build while big banks were under his supervision as head of the New York Fed. As Gretchen Morgenson and Joshua Rosner point out in their important new book, "Reckless Endangerment," men who were on the payroll of profiteering housing giant Fannie Mae are still at the center of power—including former Fannie board member Bill Daley, now White House chief of staff; and former Fannie government affairs chief Thomas Donilon, now the president's national security adviser.
When the voices at the table are so deeply invested in the institutions and habits of mind that brought the economy low, or that have made Afghanistan a quagmire, how likely is it that the options they present to a president will really change things? Sadly it's already a cliché (dating from Jeb Bush's presiding over the Florida recount) to note that when we see such cozy arrangements in developing countries, we call them "banana republics."
A president's power to shape events are more limited than we generally think. But a president's power to shape the boundaries of debate are limited only by his imagination and by his appetite for political risk. From the looks of it, Barack Obama has plenty of imagination. So if he chooses not to challenge these boundaries, he's a prisoner not only of entrenched forces arrayed behind the status quo; he's a pawn, ultimately, of his own ambition.