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The Fed as Protector of Bank of America

Obama’s Carnival of Fraud

by NORMAN POLLACK

The big picture is clear, from drone warfare as escalation of sought-after global US military hegemony to the trivialization and evisceration of government’s regulatory functions, all pointing to a business-as-usual continuation of policies and practices going back, regardless of party, at least to Reagan.  In fact, Obama appears to have made a qualitative leap beyond his predecessors on several fronts: developing a more aggressive foreign policy to rekindle a Cold War beginning to diminish in intensity as Russia’s quite moribund socialism already showed evidence of collapse, and in its place the so-called pivot of American forces and geopolitical interest from Europe to Asia, with China in the crosshairs as absolutely essential to justify massive defense expenditures, military alliances and interventions along the periphery, and, in its own right, the isolation and containment of China itself (as in its trade and investment activities in Latin America and Africa); and domestically, the patently helpful assistance via regulation to banking, financial services, defense contractors, health insurance, oil, pharmaceuticals, ad nauseum—regulatory protection, in the guise of the genuine article, to fend off legislation (not in any case forthcoming) and to establish the privileged status actually accorded, both by legislation (e.g., health care) and executive department action (e.g., Interior and deepwater drilling in the Gulf and opening the North Slope).  The Carnival of Fraud has been invaluable, as well, on the third front, the changing character of American society.  The virtue of acquiescence in the destruction of the public sector, and, soon, not far behind, the social safety net, is that a selfless patriotism can be harnessed on behalf of business consolidations to enrich the organizers and insiders in the belief that a steeply hierarchical framework of society, in which each class finds its place, conduces to the general welfare and most probably adheres to God’s plan of just rewards (the rich naturally being more meritorius, and therefore closer to the Divine Being), and also confirms the moral-structural paradigm of trickle-down economics.  We should be, as apparently we are, eternally grateful to Obama for straightening out the social order so that a numerically small elite—a reasonably cohesive upper stratum, with comprehensive representation from the worlds of business, finance, and the military—can guide us on the path of orderly growth through the next, and hopefully last, stage of monopoly capitalism.  Was this always in the cards, nonregulatory regulation, extremes of wealth and poverty, aggressive foreign-policy moves?  But of course, certainly, but not, however, with the surefooted application of liberal rhetoric, the democratic glow now bathing public policy as Obama’s enchanted base looks on.

Nothing proves dissuasive, neither large-scale unemployment (artfully minimized), as the frosting on the cake of extreme inequalities of income, wealth, and power, nor, having Obama’s Good Housekeeping seal of approval, armed drones for targeted assassination, as the murderous vehicle of a foreign policy nominally addressed to counterterrorism but, like its Cold War progenitor, really an alternative path to sustaining US unilateralism in a multipolar world (unilateralism, aka, commercial-financial-military supremacy particularly in ensuring capitalism’s global potency and long-term security), while also, to demonstrate America’s muscularity and firmness of resolve, killing without apology, from the missiles fired, the large number of civilian casualties aptly termed by a depraved mindset “collateral damage.”  To glory in the maldistribution of wealth and the vaporizing of women, children, males of military age (broadly defined by Obama as “combatants” by virtue of being in a geographical area the US designates peremptorily a war zone—even when no declaration of war exists), attendees at funerals for the victims, and first responders who minister to the wounded, is to bring unglory to Old Glory.  This seems obvious, but the devil is in the details, or, in cracking the surface to get down to the details—which Obama, in his  hostility to transparency, seeks to prevent, while, relatedly, covering his back so as to avoid prosecution for war-crimes and, at home, recognition of malfeasance, misfeasance, and dereliction of public duties.

Consider Gretchen Morgenson’s excellent column in the New York Times (Feb. 16, 2013), entitled “Don’t Blink, or You’ll Miss Another Bailout,” which shows the protective arm  the New York Fed threw around Bank of America in the sweetheart deal to limit the bank’s liability in marketing worthless mortgage-backed securities, at the same time seeking to prevent A.I.G. from suing the bank for losses sustained on those securities.  The Fed is famously independent from regulation by the remainder of government—yet hardly independent from the banking community it serves.  The American public still hasn’t learned that regulation is, and was set up to be, unresponsive to the public interest; instead regulatory agencies forge working relations with the bodies to be regulated, a national pattern often duplicated on the state and municipal levels.  Regulation is the path through the revolving door to remunerative employment in the affected business, industry, or sectoral association.  More basic, structurally and ideologically, it has been capitalism’s guardian against its own contradictions and the social unrest it sometimes engenders.  Capitalism minus regulation in America would vividly appear as a naked source of power having direct  control over a compliant State, instead of, as now, power filtered through democratic shibboleths, to the same ends of enrichment and security for business, and the police functions, the better to realize the purposes of the former, for the State.  The gimmickry of power and authority is useful in lulling the citizenry into believing the State, far from being a class-state, actually is there to achieve and maintain the public welfare.  Its cohabitation with business rests on the mutual pleasure of both.

Morgenson writes that bank bailouts “are still going on, if more quietly, through the back door.”  Is this Obama’s responsibility?  Sure.  The Fed’s independence is an artful dodge, providing deniability to the Executive and secrecy so that investigation of its policies and activities, especially with respect to its chief clientage, not the public, but the member banks, will not occur.  Obama’s appointment of Geithner signaled the message to all concerned that banks and the system protecting them enjoyed the status of privileged sanctuaries.  Mega-banks, particularly so, no matter their behavior and practices, because it had become an article of faith in Obama’s White House that banking was the fountainhead of economic growth, juicing as it did the trickle-down framework of wealth accumulation.  Morgenson writes: “That the New York Fed would shower favors on a big financial institution may not surprise.  It has long shielded large banks from assertive regulation and increased capital requirements.” (Italics, mine)  The concept of the “shield,” stated By Gabriel Kolko in Triumph of Conservatism a half-century ago, still has not gained traction, so desperately do we want to think of government as acting on behalf of the public rather than the corporate order. The New York Fed and Bank of America, she continues, struck a “secret deal” last July which “came to light just last week in court filings.”  The “undisclosed settlement” typifies curent practice, similarly, Obama’s own failure to acknowledge civilian casualties from drone attacks or the expansion of naval power and military bases in implementing the Pacific-first strategy, which speaks volumes about the disjunction betwen government and the American people.

What the New York Fed did was to “ thwart another institution’s fraud case against the bank,” and it also “agreed to give away what may be billions of dollars in potential legal claims.”  Regulation is its own negation.  The Fed released B.of A. “from all legal claims arising from losses in some mortgage-backed securities the Fed received when the government bailed out” A.I.G. in 2008.  And, as part of A.I.G.’s case,  the Fed let the bank “off the hook even as A.I.G. was seeking to recover $7 billion in losses on those very mortgage securities.”  The rest, she writes, only “gets better,” i.e., more favors, more obstruction to B. of A. claimants, more razzle-dazzle on the Fed’s part concerning an entity, Maiden Lane II, to deny payments, switches of jurisdiction, “pennies on the dollar” settlements, every trick in the book to provide a shield behind which the bank could receive protection.  Coincidentally, above the article, on the Internet edition, there was a paid advertisement for Obama entitled “Fireside Hangouts,” inviting the reader to a Google location where the president would answer questions.  This sucking up to FDR, whose Fireside Chats were not flimflam, is an example of the emphasis placed on subterfuge and propaganda in the selling of administration policy.  Fraud mortises the structure of banking policy—the legacy of both parties, the Democrats more adept, however, in creating a carnival atmosphere, while the Republicans, stone-deaf to the requirements of international capitalism, merely march forward to the 19th century, which even then knew better.

Norman Pollack is the author of “The Populist Response to Industrial America” (Harvard) and “The Just Polity” (Illinois), Guggenheim Fellow, and professor of history emeritus, Michigan State University.