Friday, October 7, 2011

When Demagogues Fail

When demagogues fail, they scapegoat.

Today Barack Obama has abandoned any pretense of providing leadership. He has abrogated the authority of the presidency and shifted into the classically demagogic scapegoating mode.

Peter Wehner offers a concise description of our demagogue-in-chief: “In the president’s press conference today, there were several things that stood out. Obama continued his compulsive need to blame others for his problems. He continued to make transparently untrue claims (such as implying that ‘every independent economist’ agrees with his second stimulus package and insisting that the Solyndra decision was ‘made on the merits’). He continued to portray himself as a man of incomparable political virtues and his opponents as selfish, uncooperative partisans.”

Listening to Obama recently you would never know that he had been president for the past 33 months. You would never guess that he had enacted and implemented his program during the first two years of his presidency.

You would know that his policies have failed.  For all their promise, they failed to revive the American economy and financial system. More than that, you would know that Barack Obama has failed to revive America’s flagging spirits.

The president who trafficked in hope has brought despair. Now he does not even pretend that he has succeeded. He is more involved with finding out who caused him to fail.

Yet, Obama takes no responsibility for the state of union. When he recognizes how bad things are he blames someone else. And he tells us that the solution to our problem is punishing those who are responsible.

It should not be surprising coming from a long time parishioner of Jeremiah Wright’s church, but Obama is blaming it all on Congressional Republicans and rich Wall Street bankers.

If Obama’s policies were fair and just, and if they failed, then the fault must lie with an insidious cabal that has conspired to subvert them.

Thus, the rich, corporate interests, and Wall Street bankers, supported by Tea Party Republicans, are at fault. They must be punished. Only by punishing the rich will the country regain its moral footing.

People may agree or disagree with whether any bankers should have been punished for their mismanagement of the financial system. But, how many really believe that throwing them in jail will revive the jobs market?

We can all agree that the salaries of corporate executives are grossly out of whack when compared to the salaries of their employees.

And yet, those who see the solution to our problems in confiscating the wealth of corporate executives ought to reflect on the fact that hundreds of billions of dollars divided 300 million ways does not produce a lot of wealth. It is not going to pay off your student loans.

They might also reflect on the fact that the value of anyone’s fortune is dependent on how the market values his assets. Remember how much wealth vanished in the market collapses of 2000 and 2008. If you start confiscating wealth you might find that it produces a market crash. A market crash will make a lot of people a lot less wealthy. In the meantime the tab on student loans and mortgages will remain constant.

As the scapegoating process is taking hold, it never seems to refer to Silicon Valley billionaires. Most of them are much richer than Wall Street bankers. Most of them have a net worth that is grossly disproportionate to what they pay their employees. And yet, no one seems to care if Bill Gates and his cohorts shelter their fortunes from taxation, thus, from the government coffers.

Isn’t it much easier to scapegoat the bankers? But while they clearly bear some responsibility for the current financial crisis, it is not fair to see them as solely responsible. What about the role played by government regulators and agencies like Fannie Mae?

You can blame corporate chieftains for making too much money, but if you are looking for a job, these are the people who are most likely to hire you. And if they are being attacked and regulated by the government, will that make them more or less likely to want to hire you?

Finally, it’s easy to scapegoat Wall Street bankers, for a simple reason: past history has told us that it is easy to scapegoat a small group whose power and success is disproportionate to its numbers. Of course, demagogues looking for scapegoats often start by looking at Jews. 

By now, everyone has heard the anti-Semitic rants coming from the protesters who are occupying Wall Street. Amazingly enough, America’s enhanced sensitivity to ethnic stereotyping and racism has not been mobilized against the the current protest movement.

While the mainstream media was quick to see racism in the Tea Party, even when it was not there, they remain blissfully unaware of the anti-Semitism that seems endemic to the Wall Street occupation.

When we are dealing with demagogues, we should not expect rational thought. Demagogues manipulate emotion; they stir up passion; they exploit human misery.

They have only one goal in mind: to retain their own power.

Exercising power is not the same as exercising leadership. America should have known that Barack Obama would have been more comfortable with the former and incapable of the latter.

For a time Obama pretended to lead. Now, as Michael Barone explains, he is not even pretending.

Unfortunately, leaderless nations suffer a loss of morale. Americans are in a foul mood. They are pessimistic about their future and they are trying to find out what to do about it. They tend to blame all politicians equally, but the truth remains: the national mood reflects the failure of presidential leadership.

Blaming it on Congress is pure scapegoating. If the man in charge abrogates his leadership role there is very little that Congress can do.

Imagine that you are on a ship that is being engulfed by a storm. The captain gathers everyone together and starts hectoring everyone about whose fault it is that the ship is taking on water. 

If that is the best the captain can do, your hope for the future is going to decline. You are going to become demoralized and will start thinking about replacing the captain.

A captain who would rather place blame than guide the ship through the storm is telling you that he does not know what to do. Even though he is in over his head, he does not know it. He does not fear that the ship will sink as much as he fears that someone else will come along and know how to do the job.

If someone else can do the job, then that can only mean that he has failed. Demagogues never admit to failure. They scapegoat.


JP said...

You put the bankers in jail because they committed massive fraud, up and down the line.

Alternatively, you can ban them from any involvement in the financial system. I don't care. Just get them out of there. Timmy and Bernake, too.

Goldman (Spengler) knew that the entire structure was a catastrophe, which is why he bailed. It was a massive fraudulent mispriced mess.

And the people running the show should have known better. And they are still running the show.

And we are still heading toward the waterfall.

Only now we've completely infested the entire sovereign bond market.

So it's not scapegoating as much as it is that the people who are in charge are apparently failing to take the appropriate measures to avoid the abyss.

David Foster said...

"everyone has heard the anti-Semitic rants coming from the protesters who are occupying Wall Street"...not surprising, I guess...scapegoating movements seem inevitably to sooner or later (usually sooner) focus on Jews.

Do you have any links on such rants, images of signs, etc?

Stuart Schneiderman said...

Politically, the administration is scapegoating a small group of people. I would not be opposed to prosecuting the bankers, but I believe that the responsibility must be shared more equally. What about the regulators and the ratings agencies and Fannie Mae and some members of Congress?

Agreed, it was a fraud... but it was not merely the bankers who were responsible. And if we are going to get ourselves out of it, we need people who know how it functions.

I agree with you that we are still heading for a waterfall, but I don't think that jailing the bankers is going to change that very much. Keep in mind that the banking system is now much more regulated than it was before, which limits what the bankers can do to fix it or save it.

Stuart Schneiderman said...

Here's one anti-Semitic rant:

Stuart Schneiderman said...

Here's another anti-Semitic rant:

Soviet of Washington said...

The bankers wouldn't have had the opportunity without having ignorant/corrupt politicians (e.g. - Dodd, Frank, Phil Gramm...a bipartisan list) and bureaucrats (Raines, Johnson, Gorelick...more Democrat heavy) along for the ride. Until we see some accountability at the political end, I'm with Stuart that we haven't solved anything.

Stuart Schneiderman said...

James Taranto offers a transcript of one of the anti-Semitic rants on Best of the Web today.

It's the first YOutube video I linked: "Almost all the bankers and hedge-fund managers on Wall Street are Jewish. There is a conspiracy in this country in which Jews control the media, finances--if you Google, Google 'Wall Street Jews.' Google 'Jewish billionaires.' Google 'Jews in the Federal Reserve Bank.' The Jews, who represent 2% of the population--it's similar to Russia, the oligarchs and the plutocrats--a small ethnic minority, they have pooled their money together, amassed their money, to take control of America's finances. I ask the Russian people to Google 'Jewish billionaires' in this country. You'll find out that half the billionaires in this country are Jewish."--Occupy Wall Street protester in YouTube video, Oct. 3, 2011

David Foster said...

Some of it was fraud...some of it was the agency problem, as in a mortgage officer whose measurements were based on loan volume and resaleability of those loans, but were disconnected from eventual repayment...much of it was intellectual arrogance involving excessive credence in oversimplified mathematic models. Basically, PhDs with IQs of 140, working with MBAs with IQs of 130, made lending mistakes that would have not have been made by old-line loan officers with IQs of 110.

Stuart Schneiderman said...

How much of it was bureaucrats and regulators forcing the banks to make loans that they knew would never be repaid?

How much of it was bureaucrats and regulators changing the rules so that anyone could qualify for a loan?

JP said...

The fraud went the entire way from the top to the bottom. Lots of borrowers lied about how much money they made to get the liar loans.

At this point, though the ball's in Europe's court. Now we wait to see if we get a Creditanstalt event that finally takes down the entire international finance system. Hopefully not.

Wall Street has been a value transfer (as opposed to value creation) operation since the insanity took off in 1995 and we really went off the rails, with extensive credit creation without anything to back it up. No one up there right now has the faintest idea how to solve the problem and no one wants to flush out the fraud. The game's over.

Obama didn't know what he was doing when he got elected and he doesn't know what he's doing now, so things are going to get worse.

@David: " Basically, PhDs with IQs of 140, working with MBAs with IQs of 130, made lending mistakes that would have not have been made by old-line loan officers with IQs of 110."

Plus, they were paid to not understand the implications. Rather, they were paid to sell the product.

David Foster said...

The senior executives of the companies were paid to understand the implications, as were many lower-level executives: divisional heads, risk management officers, etc...unfortunately, it was too easy for them to believe the models rather than digging in and coming up with unpleasant conclusions.

It is very difficult to go against the herd, and even more difficult when the herd has stated reasons for your behavior that are at least superficially coherent.

JP said...


"It is very difficult to go against the herd, and even more difficult when the herd has stated reasons for your behavior that are at least superficially coherent."

Well, mania, panics, and crashes have been part and parcel of Western economies for generations. It's common sense that is always ignored, because This Time Is Different.

When you are operating a financial firm, you best have some understanding of financial history, particularly the problems that have always existed with easy credit. These executives just ignored history and went full bore "risk on".

"Financial innovation" usually isn't.

And creating complex financial instruments often means that something will eventually go wrong. In our case, spectacularly wrong.

I'm not exactly complaining. I did well in 2008. I am always entertained by a good financial implosion.