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Change?

Godfrey Hodgson
2 December 2008

A single word was Barack Obama's ringing slogan as he set out on the long march to the White House. The key appointments he has made as the world waits for him to take the controls of the American government into his hands promise, in key areas, continuity more than change.

Godfrey Hodgson was director of the Reuters' Foundation Programme at Oxford University, and before that the Observer's correspondent in the United States and foreign editor of the Independent.

His books include The World Turned Right Side Up: a history of the conservative ascendancy in America (Houghton Mifflin, 1996); (Houghton Mifflin, 2000); a

The Gentleman from New York: Senator Daniel Patrick Moynihan
(Houghton Mifflin, 2000);

More Equal Than Others: America from Nixon to the New Century (Princeton University Press, 2006)

A Great and Godly Adventure: The Pilgrims and the Myth of the First Thanksgiving
(PublicAffairs, 2007)

Among Godfrey Hodgson's recent openDemocracy articles on American politics:

"The United States election: time for ‘change'" (10 January 2008)

"America's change election: reality or mirage?" (11 February 2008)

"The lost election year" (15 May 2008)

"Barack Obama's political tour" (28 July 2008)

"Welcome to the party: American convention follies" (18 August 2008)

"America's foreign-policy election" (28 August 2008)

"Metapolitics: America's election faultline" (18 September 2008)

"The week that democracy won" (29 September 2008)

"America's economy election" (3 November 2008)

"Yes, he can!" (6 November 2008)

"Let Obama be Obama" (17 November 2008)

Hillary Clinton as secretary of state does not augur dramatic policy innovations.  She may have visited eighty countries. But she did so as the wife of the last president but one.

If the master-key to putting American foreign policy into forward gear is a careful but decisive change in policy towards Israel and the Palestinians, the senator from New York is hardly the best person to do that.

If the world was waiting for Obama to show how, with his experience of Kenya and Indonesia, he could understand the rage of the powerless, Hillary Clinton is an odd choice.

The transition process has been handed to John Podesta, one of the ablest members of Bill Clinton's White House staff. It is a further indication of how, instead of bringing in new blood, he is reassembling a team from the losers of 2000. One or two high-profile jobs will go to Republicans. But almost two-thirds of the names announced so far, it has been calculated, come from the Clinton administration. Some served under Republican administrations, including the disastrous administration Obama is about to replace.

It is true that the old criteria for "diversity" will be respected. Appropriate numbers of "minorities" (defined as being African-Americans, Hispanics - and the 50%-plus of the population who are women) will receive appointments. But the great majority of the American people - who do not live in the Washington, New York, Chicago or Boston conurbations, who are not millionaire professionals and executives, and who certainly did not attend elite graduate schools - will be massively under-represented as before.

The appointment of Susan Rice, an African-American woman, as ambassador to the United Nations is to be welcomed. Rice has shown an informed commitment to Africa, in particular. But the national security adviser will be a former US marine general, James L Jones, who supported John McCain in the election. A Vietnam veteran and former supreme Nato commander, Jones is a director of Boeing.

The new secretary of defence will be...the old secretary of defence. Robert M Gates was a career CIA officer who served under both Bush presidents and has personal ties with the Bush family through his time as the head of the Bush school at Texas A & M university.  

The limits of expertise

In the absolutely vital field of financial and economic reform, change is even less obvious. The prizes have gone, not just to veterans of the Clinton and Bush years, but to representatives of the very institutions and values that allowed the crisis to happen.

Timothy F Geithner, Obama's choice for secretary of the treasury, is a high achiever who wins high praise. He comes from a classic upper-class New England background. He lived abroad as a child not, like Obama, because his mother was married to an Indonesian, but because his father was an official of the Ford Foundation.

Geithner is a protegé of both Clinton's successive treasury secretaries, Robert Rubin and Lawrence Summers. He worked in the Bush and Clinton administrations. His appointment is scarcely a guarantee of bold new ideas and new values.

Nor is he alone. Robert Rubin and Laurence Summers, also in line for high influence on the Obama administration, are yesterday's men, or rather the men of the day before yesterday.

Rubin is universally admired for his brains and his charm. He was also part of the coterie of deregulators who laid the foundations for the sub prime and toxic securities catastrophe. Rubin has been described as "joined at the hip" with the former Fed chairman, Alan Greenspan, himself the protegé and close friend of the far-right novelist Ayn Rand.  As late as 2005 Rubin praised the "innovation" of securitising sub-prime mortgages.

Rubin was involved in the creation of Citicorp by the merger of Travelers insurance, Smith Barney stockbrokers and investment bank Salomon Brothers with Citibank to form Citicorp. In the Clinton administration Rubin pushed through repeal of the Glass-Steagall Act, the New Deal legislation banning mergers between commercial and investment banks, thus breaking one of the chief protections against reckless investing by the commercial banks that handle ordinary citizens' accounts and the more rococo derivative securities.

As for Summers, close friend and holiday companion of Britain's prime minister Gordon Brown, he achieved the near impossible by being in effect forced out of the presidency of Harvard, the innermost citadel of the American political and business establishment.  He made not one but a series of ridiculous mistakes of judgment.

He allowed it to appear that he believed in the intellectual inferiority of women to men. He behaved with crass insensitivity, to put it mildly, in the case of Cornel West, an African-American professor of distinction who returned from Harvard to Princeton in high dudgeon after being dressed down by Summers in what appeared, and not only to West, a racist manner. He even defended a Harvard academic who was involved in dodgy investments with Russian oligarchs.

The Wall Street trap

In appointing these men with once high but now bedraggled reputations, Obama is to some extent a victim of the closed world of Wall Street. The "masters of the universe", as Tom Wolfe called them, are overwhelmingly recruited from once elite institutions. They are now exposed as exponents of reckless practices and devotees of intellectually discredited dogmas. They earn ridiculously large incomes, not so much because they are greedy but because they are fiercely competitive. Money, as one of them once memorably said, "is the way we keep score".

Their institutions are secretive and arrogant and so are they. They do not often condescend to take an interest in the affairs of anything so banal as manufacturing. Rather they occupy themselves in the more entertaining, and profitable, work of devising and trading new financial "instruments". They are as fashion-fixated in financial matters as any celebrity with the couturier or the hairdresser.

The toxic farce of the sub-prime derivatives was all too clearly foreshadowed by the 1998 collapse of Long Term Capital Management, an elite hedge-fund started by a former boss of Salamon Brothers, John Meriwether. Among the staff were brilliant mathematicians and the cleverest bond-traders from Salomon Brothers. It boasted of its recruitment to the board of two Nobel laureates in economics, Myron Scholes and Robert C Merton. Bright stars of the economics departments of Harvard, Stanford and Chicago universities were implicated in one way or another in a ziggurat of intellectual hubris and error. LCTM used ultra-sophisticated mathematical models to conduct arbitrage in the bond market and got it spectacularly wrong.

Those of us who are not mathematical geniuses and have not been privy to the secrets of the universe can be forgiven if we don't understand all the ins-and-outs of what at a less supra-lunar level would have been judged a common fraud.

All the usual things went amiss. The economic theorists and genius mathematicians didn't anticipate that Russian government bonds would default. They seem not to have appreciated that their models must refer to the surd-like unpredictability of a messy world. Scholes and his girl friend were caught exchanging imprudent emails about tax avoidance. Henry Paulson, George W Bush's treasury secretary, made a cameo appearance as a corporate raider.

LTCM, with some $125 billion of investments leveraged on less than $5 billion of capital, would have gone bust. All was not lost, however. So large a fund, with such well-connected owners, could not be allowed to fail. Or so, before Geithner and Paulson decided differently about Lehman Brothers, thus initiating a worsening of the crisis, it was then assumed. The Federal Reserve stepped in and organised a bailout. Wall Street heaved a sigh of relief, until the next time clever fellows thought up a wheeze that could not go wrong.

LCTM served a warning that Wall Street, the apex of the American economic system, had been captured by a class elite of old buddies embarrassingly reminiscent of the City of London in the bad old days. A decade later, the same mistakes, the same culture and many of the same firms were involved in the sub-prime debacle and specifically in the marketing of worthless mortgage loans as sophisticated derivatives, shovelled out with plausible salesmanship to most of the world's biggest banks.

The elite vacuum

Why has Barack Obama, the apostle of change and the prophet of hope, turned to the same old crowd who steered the ship on to the rocks? It is not, we can be sure, because he is insincere in wanting change. He may have been over-impressed by the reputations of the masters of the universe, though he is anything but naïve. There are, however, two systemic reasons why he had little alternative to inviting the world's most gilded poachers to become his gamekeepers.

The first is that Wall Street's operations have become so esoteric, and Wall Street firms are so secretive, that it would be hard to find many outsiders capable of getting quickly up to speed in what has gone wrong, let alone on what to do about it. Moreover, those that could do so (men, for example, like the liberal Nobel prize laureate and New York Times columnist Paul Krugman, or billionaire trader turned Wall Street critic George Soros) would find the street closed by a wall of silence, envy and evasion.

More important, perhaps, is the atrophy in the United States of the tradition and the profession of public service. Since the Kennedy administration and arguably since Franklin D Roosevelt and long before, presidents have preferred to govern, not through career civil servants, but through officials recruited for their loyalty and especially through their own presidential-election campaigns

There is much less of a permanent government in America than in comparably successful democracies. "Civil service" in America is used to describe the lower grades of the bureaucracy. American mandarins are known as "dollar-a-year men", meaning lawyers and bankers are so well-off that they do not need to stoop to accepting a salary, though in practice they rarely hand the salary over to charity.

This is often presented (by Americans) as an advantage. Not for the land of the free, conservatives in particular boast, a grovelling herd of timid bureaucrats. Instead, presidents can draw on a pool of men who have gone in and out of government, taking time out from the public service from time to time to refresh their personal wealth and recharge their self-esteem by serving as chairmen of boards and chief executives of corporations, especially those that can use their experience in Washington contacts to bring in government contracts.

The disadvantage of this system, that gave the nation the splendid talents of the likes of Donald Rumsfeld, Dick Cheney and Henry Paulson, duly admired by the media, is that there is no permanent corps of public servants with the independence, expertise and morale to take on the business world when it has flagrantly let the nation down.

On the contrary, the top several layers of the executive branch of government too frequently go to men (and a few women) who bring to the most responsible jobs in Washington at the very least split loyalties and all too often a rancorous contempt for the whole concept of democratic government.

This is not something that can be changed overnight, and certainly not in the middle of a crisis which may be deeper and longer-lasting than has yet been understood. But it will be a tragedy if Barack Obama does not follow FDR in at the very least taking some measures to reverse the contempt for government that was one of the central themes of the conservative ascendancy that has done the country and the world so much harm.  

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