‘Peril’ blasts president’s ties to Wall Street

By Chuck Leddy
Globe Correspondent / April 13, 2010

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Robert Kuttner, cofounder of the American Prospect magazine, pulls no punches in his attack on President Obama for cozying up to Wall Street.

Kuttner’s narrative, filled with little-publicized details about sweetheart deals given to banks by an accommodating federal government, reads like an indictment drawn up by an indignant, pugnacious prosecutor. Kuttner does take off the gloves long enough to ask: “Isn’t this account too harsh on Obama?’’ Probably not.

“A Presidency in Peril’’ shows that Kuttner profoundly understands our complex financial system and how that system uses politics to get what it wants. And what Wall Street wants and has gotten, says Kuttner, is for the government to bail it out while not making any structural changes. “Bankers were pleased to take the taxpayer money,’’ Kuttner writes, “but fiercely resisted changing their [failed] business models.’’

On page after page, Kuttner justifies his criticism of Obama for neglecting the deep structural problems in our financial system. He highlights the many former Wall Street insiders whom Obama selected for his economic team. “Instead of making a radical break with Wall Street, [Obama] delivered a startling continuity’’ of ongoing bailouts and indifference to structural reforms. Kuttner concludes that “the perception that Obama is closer to Wall Street than Main Street is more than an image problem, it’s reality.’’

A prosecutorial Kuttner makes a strong case that Obama has “left largely intact the doctrine’’ that some financial institutions are “too big to fail.’’ Indeed, big banks have gotten bigger and can now take risks with a safety net provided by the taxpayer. While gains remain privatized, losses can be socialized by means of bailouts. There’s also been no restoration of “the Glass-Steagall wall between commercial banking and more speculative activities’’ like trading derivatives. Kuttner also charges that the administration has taken “no meaningful meas ures to reform the corruption of credit rating agencies.’’ He justifiably fears that the government will simply clean up the mess of 2008, and the banks will rewind to the bubble days of 2007.

What Kuttner does better than anyone who’s written about the financial collapse is to illuminate the dark intersections between finance and politics. For example, he offers a blow-by-blow account of the government’s bailout of Citigroup. Kuttner describes how Robert Rubin, Treasury secretary in the Clinton administration, as chairman of Citi’s executive committee “became a relentless force prodding the bank to pursue ever greater risks’’ that ultimately imploded. Rubin would later use his unmatched government connections to rescue his employer, as the government handed Citi $20 billion in capital and over $300 billion in guarantees for toxic assets. As Kuttner sums it up: “As a financial strategist, Robert Rubin had proven worse than useless. . . . But as a political fixer, Rubin was pure gold.’’

Again and again, Kuttner uses historical examples (especially President Franklin D. Roosevelt) to argue that government can do more to regulate and restructure a failed financial system. Obama had, and still has, other options that might better protect Main Street interests. Kuttner suggests that Obama get new economic advisers less cozy with Wall Street and acknowledge the realities of class conflict in the United States. Readers will be hard pressed to find a more scathing, detailed, or convincing case against Obama’s accommodation of Wall Street. Kuttner is that rare progressive who’s part tireless policy wonk and part barroom brawler. If Kuttner is right about Washington’s hands-off approach to Wall Street, and his book convinces me that he is, Obama might benefit from a few lessons in populist pugnacity.

Chuck Leddy is a freelance writer in Dorchester.

A PRESIDENCY IN PERIL: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle to Control Our Economic Future By Robert Kuttner

Chelsea Green, 332 pp., $25