News & Views from 465 California Street

Bailing Out Democracy

Clint Reilly

The challenge for Barack Obama on the eve of his inauguration is whether our democratic institutions will rescue capitalism or follow our financial institutions into decline.

The classical Athenian architecture of the New York Stock Exchange, with its soaring Corinthian columns, was designed to reassure us that our money is safe.

The style is replicated in banks and financial districts across the country to symbolize the durability and strength of America’s impregnable financial system.

Unfortunately, the ruins of Wall Street now remind us of the decaying temples of modern Greece, with toppled columns and crumbling statues of the Gods.

The trillions lost in our banking system meltdown reveal the dirty little secret etched in the sewers of Wall Street: short-term bonuses for bankers are more important than long term investments.

Ironically, this same Greek classicism is the signature style of government buildings across the country – a parallel statement about the enduring integrity of our democratic institutions.

Nowhere is this architectural statement more pervasive than in Washington DC, where the grandeur of the Capitol, Supreme Court and White House proclaim the preeminence of democracy.

With the inauguration of President Obama, our nation has the chance to make a new beginning. And we must if our country is to continue to grow and thrive economically.

The question is: will Washington suffer the same fate as Wall Street or will President Obama reclaim the Federal Government’s vital role as arbiter, protector and enforcer of the common good.

Will we save capitalism or succumb to its temptations?

President Obama has already promised an $800 billion package of tax cuts and spending to revive the economy. But it will take more than money.

First, he must recreate a national consensus that we need a powerful, populist federal government. Only a strong, activist government can regulate the private sector, monitor the financial system, handcuff lobbyists and counter the special interests.

The steady weakening of government regulatory power since Ronald Reagan became president in 1981 and the blind belief in the global hegemony of free market capitalism have proven to be historic miscalculations.

Without denying his profound influence on the times, Reagan’s reactionary policies are now being discredited by the verdict of history.

Second, Obama must expose the hypocrisy of phony business “leaders” who have relentlessly opposed social spending for the American people, yet gladly accept government bailouts when their businesses lose billions. Obama must bury the idea that unregulated free-enterprise capitalism automatically promotes the public interest.

Third, the new President must reawaken the character traits that brought our country success and create public policies that incentivize those qualities. Hard work, thrift, saving for a rainy day, compassion for others, self-improvement through education, personal responsibility, and innovation were once hallmarks of our national character. In recent decades, these virtues have been replaced by greed, selfishness, excessive compensation, and rampant materialism.

Fourth, as long as huge corporate campaign contributions are allowed to strangle reform legislation at every level of government, we will have gridlock. The need to reform the country is so great that special interest money can no longer be permitted to dominate our politics.

No president has been better positioned than Barack Obama to move on lobbyists and special interest money. He refused contributions from both and got elected to the most powerful office on the planet.

If our democracy is not to become an empty Acropolis, we must all rally to help President Obama deliver the change he promised.

Comments (9)

  • Is it possible that B.O. read your column today before giving his big speech? I sure seem to recognize a lot of these themes in the words he spoke on the Capitol steps today.

    Posted by: Scotty Powell | January 20th, 2009 at 5:45 pm

  • Clint:

    All well and good that Obama refused (campaign) contributions from lobbyists and special interests (individuals and groups), but what about the funds contributed by foreign nationals (a la Clinton) , impermissible under current election laws? Where’s the accountability here?

    Also, although not “campaign” money, Citibank executives (expecting nothing in return), have “contributed” $8 million to the Obama Inauguration bash.

    His hands are clean, it’s the hired hands accepting these tokens who sully the perception. Right?

    San Jose, CA

    Posted by: Verne | January 20th, 2009 at 5:46 pm

  • Dear Mr. Reilly,

    I saw your column in the Mercury news this morning and must admit I envy your capability however earned to print your own views on our economy and the nurturing of Democracy. Many of us ordinary citizens would love such an avenue to be heard.

    I agree with many of your ideas and values, but like many positions and recommendations we hear today from various pundits and politicians, I find two problems with your article. I feel compelled to point them out.

    Specificity. First, your ideas about new government directions lack specific recommendations.

    Cause and Effect. Second, you do not make clear that actions and new programs should be more focused on causes rather than effects. Thus far, the Obama people seem to be giving priority to economic effects. Such programs will not likely give rise to long-term benefits.

    Effects. The effects of bad economic policies are unemployment, high foreclosure rates, falling per capita incomes and inflation. Bailing out failed business, reducing personal income taxes, and cash stimulus programs, are all reactions to effects and are little long-term help. Since this is still underway and dominates the rhetoric, I am not really sure that Obama actually gets it.

    Causes. The major source or causes of the theses effects are.

    1. Lack of regulation on mortgage funding. The effect of this includes the collapse of real estate values and available credit.

    2. An unfettered free market as taught by economists. The effect of this has been a massive decline in domestic manufacturing resulting in a loss of higher paying jobs and a huge negative current account. The negative current account has been covered mainly by private debt thus increasing inflation.

    3. A military industrial complex of extraordinary size and associated unnecessary wars. The effects of this heavily contributes to federal deficits, drains the economy, increases inflation, and transfers R&D funds to less worthy programs.

    Actions to correct the causes.

    Making domestic manufacturing industry more competitive in a global economy.

    1. Government programs to subsidize and encourage automation.

    2. Government programs for financial incentives on domestic labor vs. foreign labor and movements towards reactions of outsourcing and the like.

    3. Lower corporate tax rates for domestic manufacturing by 75% or more.

    4. Massive alternative energy program thus stabilizing the cost of energy

    5. Massive mass transit programs thus lowering the cost of transportation

    6. Eliminate the cost of healthcare for all domestic manufacturing via national healthcare. Stabilize the currency and real estate values. Balance the federal budget.

    7. Increase personal tax rates. (If you are interested, I can prove to you that increasing personal income tax rates will not harm the economy.)

    9. Cut military budget by 1/2 or more.

    10. Create a gradually (over 10 years) increasing tax on gasoline

    11. Require a substantial down payment (20%) and reasonable income to loan ratios to qualify for new mortgage money. Outlaw mortgage derivatives

    12. Increase federal funding of basic research

    The above will of course not happen. The U.S. economy will continue to decline.


    James C

    Posted by: James C. | January 20th, 2009 at 5:47 pm

  • A+ for your MercNews columns.. both content and style.
    (yes, I was a teacher in my last life.) As a recently retired RR in
    the financial field, I tried to incorporate your values along with
    some humor and info in my book. I now write for Active Over 50 and would like to possibly quote you. Certainly would like to be on your team. E.P.

    Posted by: E.P. | January 20th, 2009 at 5:49 pm

  • I feel like Obama is the right man at the right time in history. No, he’s not going to turn things around by himself, but he certainly seems capable of inspiring millions of Americans (and non-Americans) to do the work of renewing the country. Your lessons and prescriptions are well said and well taken.

    Posted by: Trellis | January 20th, 2009 at 5:51 pm

  • Compliments to you for publishing the piece you did in the Mercury yesterday.

    Your third point resonated strongest with me in regards to the need for our country to return back to the virtues that made us once the envy of the world. I would argue there are some distinct parallels with this idea and our commercial real estate industry throughout many of the Bay Area’s markets. The last 2 years have seen rampant speculation, over valuations, and new construction our markets cannot unfortunately support. We are at a time, at least in Silicon Valley, where we need to return back to the “blocking and tackling basics” that once made both real estate advisers and owners alike an honest profit.

    Posted by: Mike S. | January 21st, 2009 at 11:43 am

  • The recent article about Obama not receiving aid from
    special interests was beyond belief. SEIU spent or donated millions
    of dollars worth of labor to walk, call, etc. Also, do you think the
    trial lawyers sat this one out? Heard of bundling. Etc.? Need I go
    on? I am not against group input, mind you, but don’t declare that
    Obama relied solely on 200.00 donations. Absurd. Also, get over the
    lack of regulation. This is empirically blind. Jim

    Posted by: Jim | January 21st, 2009 at 11:45 am

  • Government is the answer. A “strong” central government. The stronger the better.
    We should abolish all states and states rights. States rights, what an outdated premise that is. Property rights? Get rid of those also. Clint, I suggest you donate your vast fortune to the government as soon as possible. You then can work hard for the common good.

    Posted by: Andy | January 24th, 2009 at 8:35 pm

  • What a perfectly marvelous piece! I have been waiting for investment in our infrastructure for years and years it seems. What could be more important than publicly investing in something that helps our economy, builds jobs, attacks global warming, rehabilitates crumbling cities, and gives us all a better quality of life, enabling access for us all to places of national beauty and pride.

    Karita Hummer
    San Jose, CA

    Posted by: Karita Hummer | January 27th, 2009 at 2:55 pm

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