by Oliver Stone
The International Labour Organization reported that between 2003 and 2007, executive managers’ pay increased by 45 percent in real terms while that of the average executive grew by 15 percent and that of the average worker by only 3 percent. In 2003, executive managers in the top fifteen U.S. firms earned 300 times as much as the average American worker. By 2007, that number was up to more than 500 times.223
Bush cut the top tax rates on income, on capital gains, which were mostly stock profits, and on dividends, which typically fell from 39.6 percent to 15 percent. The 36 percent marginal tax rate on the richest Americans was the lowest it had been in over eighty years and a far cry from the 91 percent under Eisenhower. But few hedge fund or private equity managers paid the 36 percent rate. Treating their earnings as capital gains, they paid at an average rate of 17 percent. The situation got so bad that billionaires, including Bill Gates and Warren Buffett, publicly decried the “inequality gap.” Buffett, the third richest man in the world, noted that he was taxed at 17.7 percent on his taxable income while his secretary was taxed at 30 percent of hers.224 Estate taxes, which only the top 2 percent paid, had also been slashed.
Meanwhile, the minimum wage stagnated at $5.15 an hour from 1997 to 2007. In 2007, at the other end of the scale, some 2 million U.S. households were worth between $10 million and $100 million and thousands were worth more than that amount.
Labor Secretary Elaine Chao was the most openly antilabor occupant of that office in more than a hundred years. She effectively dismantled the Occupational Safety and Health Administration and the Mine Safety and Health Administration. Unions were put under unprecedented scrutiny by Department of Labor agents, while employers were allowed to flout regulations with impunity. As a result, union membership plummeted to record lows, as barely 12 percent of the workforce was represented at the end of the Bush presidency, most of whom were government workers.
Global inequality was even more extreme. A December 2006 report by economists in the United States, Canada, Great Britain, and Finland found that the richest 1 percent owned 40 percent of global wealth and the top 10 percent owned 85 percent, while the poorest 50 percent struggled to survive with only 1 percent. Per capita wealth ranged, in 2000, from $180,837 in Japan and $143,727 in the United States to $1,100 in India and $180 in the Democratic Republic of Congo. By 2008, the net worth of the world’s richest 1,100 people—its billionaires—was approximately double that of the poorest 2.5 billion people.225 Some analysts estimated that the world’s richest 300 people had more wealth than the poorest 3 billion.
Despite the wildly erroneous perceptions of the American people, U.S. foreign aid was doing little to rectify this situation. In fact, according to the OECD, U.S. development aid in 2008 totaled less than .2 percent of gross domestic product, the lowest among twenty-two advanced industrial nations, which averaged .47 percent. Sweden gave at more than five times the rate the United States did, with Luxembourg, Norway, Denmark, and the Netherlands not far behind. Even Ireland gave at more than three times the U.S. rate.226
During Bush’s tenure, administration officials and their allies on Wall Street and conservative groups like the American Enterprise Institute sang the praises of unregulated financial markets, which they trusted to generate economic abundance and private fortunes. They turned a blind eye to financial shenanigans and unbridled speculation as the national debt skyrocketed from $5.7 trillion at the end of the Clinton administration to over $10 trillion by the time Bush left office.227
Economic conditions declined precipitously with the downturn that began in December 2007. Income and wealth plummeted, and poverty registered a sharp increase. Harvard economist Lawrence Katz put the situation succinctly when he stated, “For the typical American family, the 2000s have been a disaster.”228 Even before the collapse of 2008, the Bush years had produced the lowest jobs and income growth in the postwar period.
By late 2009, over 40 million Americans were living in poverty. In 1988, 26 percent of Americans told Gallup pollsters that the country was divided between haves and have-nots, with 59 percent identifying themselves as haves and only 17 percent as have-nots. When Pew asked that same question in the summer of 2007, 48 percent responded that the country was so divided, with 45 percent considering themselves haves and 34 percent have-nots.229
The United States had become a plutocracy with almost a quarter of income going to the top 1 percent and the richest one-tenth of 1 percent earning as much as the poorest 120 million. Former Secretary of Labor Robert Reich identified the new plutocrats: “With the exception of a few entrepreneurs like Bill Gates, they’re top executives of big corporations and Wall Street, hedge-fund managers, and private equity managers.”230
By November 2008, it was clear to most Americans that Bush-Cheney foreign and domestic policies had been an unmitigated disaster. A CBS News/New York Times poll placed Bush’s final approval rating at 22 percent, down from 90 percent following the 9/11 attack. Cheney’s stood at an abysmal 13 percent.231
Americans hungered for change. They were fed up with the United States’ wars, tired of runaway defense spending, concerned about assaults on constitutional rights, angry over policies that favored the very wealthy, and worried about the deepening economic collapse. But few people realized how powerful the beneficiaries of the United States’ military-industrial complex and national security state had become and how fiercely they would resist any challenge to their rule. They would soon find out the hard way.
Chapter 14
OBAMA:
Managing a Wounded Empire
“We are an attractive empire, the one everyone wants to join,” crowed neocon Max Boot in the aftermath of 9/11.1 But now, after two long and disastrous wars, trillions of dollars in military spending, a network of more than 1,000 foreign military bases, torture and abuse of prisoners on several continents, assault on both international law and the U.S. Constitution, a near economic collapse, drone attacks killing alleged terrorists and civilians alike, disparities between rich and poor unheard of in an advanced industrial country, appallingly low test scores for students, government surveillance on an unprecedented scale, collapsing infrastructure, domestic uprisings on both the Left and the Right, and an international reputation left in tatters, the U.S. empire does not look all that attractive.
George W. Bush, who canceled his 2011 speaking engagement in Switzerland to avoid massive protests and the risk of being indicted as a war criminal, and his empire-friendly advisors bear a lot of responsibility for this sorry state of affairs. They saddled Barack Obama and the American people with an incredible mess. Obama confided to one of his closest aides: “I’m inheriting a world that could blow up any minute in a half dozen ways . . .”2
The country Obama inherited was indeed in shambles, but Obama took a bad situation and, in certain ways, made it worse. Swept into office on a wave of popular euphoria, he mesmerized supporters throughout the campaign with his exhilarating rhetoric, surpassing intelligence, inspiring biography, commitment to defending civil liberties, rejection of unilateralism, and strong opposition to the Iraq War—qualities that made him seem the antithesis of Bush. The election of Barack Hussein Obama, the child of a black Kenyan father and a white Kansan mother, who was raised in Indonesia as well as Hawaii and went on to graduate from Columbia and become president of the Harvard Law Review, felt like a kind of expiation for the sins of a nation whose reputation had been sullied, as we have shown throughout this book, by racism, imperialism, militarism, nuclearism, environmental degradation, and unbridled avarice. The suffering caused by misguided U.S. policies had been immense. For many, Obama’s election offered redemption. It attested to the other side of America and its place in history, a side marked by idealism, egalitarianism, constitutionalism, republicanism, humanism, environmentalism, and the embrace of freedom and democracy as universal principles. Progressives hoped Obama would become the heir to a tradition represented by Franklin Roosevelt and Henry Wallace and by the post–Cuban Missile Cr
isis John F. Kennedy.
Flanked by endorsers including Caroline Kennedy and Ted Kennedy (second and third from left, respectively), Barack Obama addresses supporters during a rally in Hartford, Connecticut, in February 2008. The youthful candidate’s soaring rhetoric on the campaign trail inspired lofty expectations. But for progressives hoping he would become the heir to a tradition represented by Franklin Roosevelt, Henry Wallace, and the post–Cuban Missile Crisis John F. Kennedy, Obama’s first three years in office were sorely disappointing.
Yet rather than repudiating the policies of Bush and his predecessors, Obama has perpetuated them. Rather than diminishing the influence of Wall Street and the major corporations in U.S. life, Obama has given them latitude to continue most of their predatory practices. Rather than restoring the civil liberties that Bush had eviscerated and limiting the executive powers that Bush usurped after 9/11, Obama, with few exceptions, has tightened the grip of the domestic security/surveillance apparatus, stifling civil liberties and the right to dissent.
In the brilliant 1939 film Mr. Smith Goes to Washington, director Frank Capra spends the first eleven minutes exposing a nefarious web of power, intrigue, and clandestine deal making to reveal the hidden world that the naive and idealistic Jefferson Smith will encounter when he tries to change the ways of Washington. Barack Obama would confront a similar nest of entrenched interests. But Obama was much more savvy and, apparently, more cynical than Smith. By knowingly surrounding himself with establishment insiders as domestic and foreign policy advisors, he preemptively closed the door on the kind of bold innovations and breaks with the past that his campaign had promised.
Having betrayed his earlier promises and become the first presidential candidate to turn down public campaign financing in the general election, Obama turned to Wall Street funders with deep pockets, like Goldman Sachs, Citigroup, JPMorgan Chase, Skadden Arps, and Morgan Stanley. Also high on the list of Obama contributors were General Electric and other defense contractors. And the pharmaceuticals industry—Big Pharma—reversed years of supporting Republicans, contributing more than three times as much to Obama as to McCain.3
Obama’s grassroots supporters largely overlooked these disturbing facts. Progressives projected onto him their own hopes and expectations, conservatives their worst fears. Both were mistaken. He ran a centrist campaign, advancing safely pragmatic policy initiatives. He consistently championed the middle class. The working class and the poor—black, Hispanic, Asian, Native American and white—seemed an afterthought as Obama battled Hillary Clinton and then John McCain. Instead of seizing the opportunity to explain how the decline of manufacturing and other structural factors at the heart of a dysfunctional corporate- and Wall Street–dominated system had exacerbated the problems for all poor people and especially African Americans, he hectored poor blacks for not taking more “personal responsibility.” He positioned himself to the left of Clinton by trumpeting his opposition to the Iraq War, which she had voted to support, but to the right of George Bush on Afghanistan, a position his supporters conveniently ignored. And his Senate vote for the Foreign Intelligence Surveillance Act, which gave legal immunity to telecommunications companies complicit in Bush’s wiretapping, should have signaled that he might be unwilling to relinquish some of the powers that Bush and Cheney had appropriated.
The biggest winner under Obama was Wall Street. After wrecking the economy with speculative innovations, including credit-default swaps and collateralized debt obligations, bankers came begging for bailouts. Not surprisingly, Obama’s economic advisors—almost all disciples of Bill Clinton’s Treasury secretary Robert Rubin—were more than happy to assist with a $700 billion financial bailout program. Rubin, who had been systematically cultivating Obama since 2005, had cochaired Goldman Sachs prior to his stint at Treasury, where he had masterminded two of the policies that helped precipitate the financial crisis his protégés would now handle: the deregulation of the derivatives market and the 1999 repeal of the Glass-Steagall Act, which had separated investment banking from commercial banking. Having done Wall Street’s dirty work at Treasury, he was rewarded with a top job at Citigroup, where he received $126 million over the next eight years. The New York Times reported in late November 2008, “as Barack Obama fills out his economic team, a virtual Rubin constellation is taking shape.” Rubin’s Treasury chief of staff and fellow Citigroup exec Michael Froman was in charge of putting this team together. The two top positions went to Rubin protégés Timothy Geithner, the New York Fed chief, whom Obama named as Treasury Secretary, and Lawrence Summers, whom he named senior White House economic advisor. Geithner had worked under Rubin at Treasury and Summers had been Treasury Secretary at the time Glass-Steagall was repealed. Like Rubin, Summers, an avowed deregulator, had also cashed in on his service to Wall Street, earning $5.2 million working one day a week for the D. E. Shaw hedge fund in 2008, while raking in another $2.7 million in speaking fees, much coming from Wall Street firms. Goldman Sachs paid him $135,000 for one speech alone, which investigative journalist Glenn Greenwald aptly called an “advanced bribe.”4 In light of how much Wall Street was going to profit from the Geithner-Summers stewardship of the economy, Goldman Sachs and the other “banksters” got off cheap. Obama tapped Rubin protégé Peter Orszag as budget director. According to the Times, “Geithner, Summers and Orszag have all been followers of the economic formula that came to be called Rubinomics: balanced budgets, free trade and financial deregulation.” The lower echelons of economic decision making were also populated by Rubin allies. The glaring exceptions were Christine Romer, chair of the Council of Economic Advisors, and Jared Bernstein, Biden’s chief economic policy advisor. The two of them fought unsuccessfully, during their brief tenures, against some of the Rubinites’ neoliberal initiatives.
Former Democratic strategist David Sirota aptly identified the ways Rubin’s people would mold Obama’s economic strategy: “Bob Rubin, these guys, they’re classic limousine liberals. These are basically people who have made shitloads of money in the speculative economy, but they want to call themselves good Democrats because they’re willing to give a little more to the poor. That’s the model for this Democratic Party: Let the rich do their thing, but give a fraction more to everyone else.”
On November 23, 2008, the Bush administration announced a potential $306 billion bailout of Citigroup, which was facing collapse. Citigroup had recently received $25 billion under the Troubled Asset Relief Plan, which provided a massive bailout to the financial sector. The Times made clear that Geithner played a “crucial role” in the negotiations and that Bush’s Treasury Secretary, Henry Paulson, had worked very closely with Obama’s transition team. Wall Street was so exuberant over the deal that the Dow posted its biggest two-day jump in over twenty years and Citigroup’s stock, which had tumbled in price from $30 to $3.77 in the past year, shot up 66 percent in one day. “If you had any doubts at all about the primacy of Wall Street over Main Street,” former Labor Secretary Robert Reich exclaimed, “your doubts should be laid to rest.” Abundant proof would be forthcoming. The Washington Post reported in early April 2009 that the Treasury Department was bending the law and defying the will of Congress to avoid limiting executive pay: “The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.”5
University of Texas economist James Galbraith lambasted Obama for meekly submitting to the bankers’ demands as if there were no other way to solve the crisis:
. . . one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would h
ave been cleaned up. And the big bankers would have been beaten as a political force.
Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”
The banks threw a party. Reported profits soared, as did bonuses. With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed. . . .6
Former Federal Reserve chairman Paul Volcker advised Obama to take strong action. “Right now,” he said, “when you have your chance, and their breasts are bared, you need to put a spear through the heart of all these guys on Wall Street that for years have been mostly debt merchants.” But rather than stand up to Wall Street, Obama prostrated himself before the CEOs of the thirteen largest banks in March 2009, telling them, “I want to help. I’m not out there to go after you. I’m protecting you. But if I’m going to shield you from public and congressional anger, you have to give me something to work with on these issues of compensation.”7 The bankers paid lip service to voluntary restraint and then proceeded with record bonuses. Thus, unlike the Europeans who limited bankers’ compensation, the Obama administration did not even limit compensation to those whose companies were saved by government bailouts. Obscene profits ensued. The Wall Street Journal reported that total compensation and benefits at Wall Street banks, investment banks, hedge funds, money-management firms, and securities exchanges reached record levels of $128 billion in 2009 and $135 billion in 2010.8 The greatest beneficiaries were the twenty-five top hedge fund managers, whose average earnings jumped from a paltry $570 million in 2006 to a more respectable $1 billion in 2009.9 In 2010, one New York hedge fund manager, John Paulson, pulled in $4.9 billion.
