Is Robert Rubin pushing Obama to go easy on Wall Street?
Rolling Stone's Matt Taibbi argues in a new article, "Obama's Big Sellout," that President Obama's advisors are undermining his campaign promises for change by forcing him to do the bidding of Wall Street.
Obama's most powerful advisors are reportedly under the sway of former Treasury Secretary Robert Rubin, who has many acolytes sprinkled throughout the administration. Taibbi essentially argues that these advisors are Rubin's puppets. Other advisors, progressives who want to protect the little guy and fundamentally change how Washington works, have been marginalized.
Before getting into an analysis of Taibbi's claims, it is worth pointing out that his writing has turned Taibbi into something of a media star. And Taibbi makes no claim of being neutral in his analysis. Appearing on CNN on Monday, Taibbi argued that he is under no obligation to be even-handed when it comes to describing Wall Street's various crimes and misdemeanors.
And in the interest of disclosure, I appeared with Taibbi on a radio program in July -- a few days after his work about Goldman Sachs Group (GS) hit the media. Earlier that month, he had referred to Goldman as a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," a quote that has been repeated by critics of Wall Street ever since.
Facts Are Stubborn Things
Unfortunately for Taibbi, facts are stubborn things. And Taibbi's latest article is full of factual errors. In general, many of those errors appear to have been made in the interest of "proving" that the only Obama advisors with power are the ones who former Treasury Secretary Robert Rubin controls. The American Prospect details at least 15 factual errors along those lines.
Taibbi bends facts to fit his story line and he is guilty of using exaggerated language -- for example, he refers to Rubin, a Yale Law School graduate, as the author of "colossally stupid decisions." This may make his writing interesting to read but it also makes me wonder whether he is trying to get at the truth or just trying to make reality more interesting than it actually is.
Even so, there is some truth to Taibbi's claim about Wall Street's influence in Washington. Bankers have made $5 billion in campaign contributions and lobbying fees to Washington in the last decade. And Wall Street is striving mightily to defang Congressional efforts to pass meaningful financial reform. Moreover, I don't believe that the shape of that financial reform will solve the problem (here are six reform principles that would).
Tough Decisions in a Difficult Environment
I don't agree with Taibbi that Obama is a Wall Street sell-out. Taibbi's claim that Rubin's influence on Obama led to the Citigroup (C) bailout strikes me as exaggerated -- particularly considering that the TARP, which gave Citi $45 billion, and the $300 billion guarantee of Citi's assets happened in 2008, before Obama took the oath of office. And it turns out that these Citi bailouts are not costing taxpayers as much as expected, assuming Citi terminates that guarantee along with repaying its $20 billion in TARP money.
But this is a relatively minor point. Obama is trying to balance powerful competing demands. He has to deal with the world as it is, not the way his critics, such as Taibbi, would like it to be. And so Obama decided to preserve the financial industry (by continuing the TARP) instead of letting it and the rest of the economy collapse.
It's not over though -- Wall Street really is going to be paying itself some enormous bonuses this year and that is going to create rage on Main Street. And Taibbi's exaggerated articles might help channel that rage into some imaginative conspiracy theories.
Obama could help to counter this rage by pushing a serious investigative effort to get detailed facts about what really caused the financial crisis. In the absence of such facts, Taibbi's theories satisfy a public hunger. But Obama should not make policy based on that. In order to fight the real power that Wall Street represents, he needs to present the evidence of Wall Street's flawed conduct to the American people and use that as the basis for financial reform.
Until Obama can overwhelm the public with facts, conspiracy theoreticians like Taibbi will get more attention than they deserve.
Peter Cohan is a management consultant, Babson professor and author of nine books, includingCapital Rising (due in June 2010). Follow him on Twitter. He owns Citigroup shares, but has no financial interest in the other securities mentioned.