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Cabinet picks don't represent change

(Last updated: 11/30/08 7:28pm)

It seems like an eon ago that President-elect Barack Obama, that mighty vanquisher of the “same old Washington,” was merely an upstart junior senator, taking on the Clinton political juggernaut. The choice back then was clear — a vote for Obama was a vote for the future, whereas support for Sen. Hillary Clinton, D-N.Y., was a vote for the past.

Pavan Vangipuram

Throughout his campaign, Obama cast himself as the modern candidate: Young and unencumbered by decades of political baggage. His whole campaign pivoted around that one word: Change. An Obama presidency was seen as tantamount to revolution, a thorough shake-up of the Washington elite: A “whole new politics.”

Then came the financial crisis. Whether by force of circumstance or by design, the few concrete proposals outlined in Obama’s primary campaign are now being reconsidered or jettisoned. It turns out there will be no repeal of Bush-era tax breaks, at least not in Obama’s first term, and his Cabinet lineup is a slightly updated roster from 10 years ago. Clinton’s appointment to the State Department was merely a concise symbol for the shape Obama’s Cabinet is taking. In fact, nearly all of the names which are floating almost — Rahm Emanuel, Lawrence Summers and Timothy Geithner — are veterans of the Clinton administration. They, in large part, were the architects of the financial deregulation which in hindsight caused our present situation.

Geithner served as a treasury undersecretary in the final years of the Clinton administration and as president of the New York Federal Reserve since 2003. He has been named treasury secretary under the new Obama administration. As the president of the New York Fed, he oversaw and encouraged the inflation of real estate and derivatives that predicated our banks’ insolvency. In all those years he offered only a few half-hearted warnings about the dangers inherent in our financial system and those were isolated cries in the ensuing storm of deregulation. When Geithner had the power to cool our markets before they overheated, he instead chose to pour on the gasoline.

Much later, he organized the fire sale of Bear Stearns and multistage bailout of AIG, which continues to this day. Geithner also has been a key participant in the massive gift recently bestowed to Citicorp, the gargantuan conglomerate, which he ironically had a dominant hand in creating.

Summers, the head of Obama’s National Economic Council, is another Clintonite (serving as his last Treasury secretary) and another architect of the legal framework that allowed our banks to gamble so recklessly. The Financial Services Modernization Act, passed at his behest, eliminated prior restrictions on mergers and, incredibly, forbade government oversight into any of the new financial instruments (credit default swaps and so forth). More than anything else it was a lack of transparency that allowed the current fraud to continue for as long as it had — transparency that Summers worked actively for decades against.

The salient factor for all of these appointees is not that their experience is dealing with financial crises, but instead their experience in causing them. Having entrenched themselves in the Washington-Wall Street power structure during two administrations they are inextricably connected with our current banking structure. After loosening market regulations, many of them went on to leadership positions in banks and hedge funds. By allowing these insiders lofty positions in his administration, Obama has given the financial sector a visible indication that their interests shall not be ignored.

But what of the public interest? Despite lofty rhetoric in his radio address to create 2.5 million jobs, the specific policies put forth (for example, the total absorption of Citigroup’s debt) have been geared almost exclusively toward the financial sector. In essence, they are a continuation of Bush and Paulson’s bailout efforts.

There is wisdom, of course, in assembling a team with experience, even if it is of a very dubious sort. Geithner, Summers and company know our markets intimately, having dictated policy for the better part of two decades. But it is disconcerting to see Obama’s economic Cabinet populated entirely by Wall Street insiders with deep connections to past administrations. One would have been heartened by even one nomination of a private academic, unconnected with the current establishment. As it is, we shall have to watch passively as “change we can believe in” quickly transforms into “more of the same.”

Pavan Vangipuram is a State News columnist and a chemical engineering senior. Reach him at vangipu1@msu.edu.

Originally Published: 11/30/08 7:09pm