"Obama should beware the growing anger in America
With each revelation of fat bonuses at AIG, Americans grow increasingly willing to embrace a popular anti-Barack demagogue
Spring has come to Washington DC and, with it, the sickly sweet smell of scandal. "Who knew what and when did they know it?" roared the House Republican leader, John Boehner, last week. At the White House's daily briefing, agitated reporters besieged the press secretary, Robert Gibbs, with similar questions: "Has the president been satisfied that he found out about this in a timely manner?" asked one. "Somebody clearly dropped the ball," sniped another. "Let's be fair, let's be fair," Gibbs pleaded, his usual easygoing air morphing into defensiveness.
The topic of these Watergate-like grillings is not sex or lies, but, rather, Wall Street bonuses. Specifically, the now $218m in awards that the reeling insurance giant AIG, which has already accepted $170bn in US taxpayer aid to keep it afloat, with another $30bn to come, was recently revealed to have paid out to a few hundred of its employees.
In response, an excitable news media and opportunistic members of Congress spent most of last week in a frenzy of assigning blame and stoking public outrage - never mind that plans to award the bonuses had been known for months. The outcry even threatened to topple Obama's treasury secretary, Timothy Geithner, until the president heartily defended him on national TV.
Ultimately, the bonus fury is about much more than a gross payday for a crew of undeserving cretins. In the near-term, it has created a huge and unwelcome distraction for political leaders desperately trying to manage the financial crisis. In the medium term, it threatens to undermine Obama's future flexibility to save the US economy. Above all, it has fuelled a rising populist tide that threatens to swamp Barack Obama's presidency altogether.
The notion that Obama was cavalier about giving taxpayer dollars to corporate villains is potential political cyanide for a president who, as a candidate last year, was viewed by some working-class voters as an aloof academic. "It's a pretty critical moment," says Stan Greenberg, former pollster to Bill Clinton. "Voters are trying to make a judgment about Obama and, to some extent, about the new, mostly Democratic political class now in control of the government. And I think they're trying to decide, 'Whose side are they on?'"
There's no question that the bonuses are sickening, a moral outrage. While some of the benefactors may have done little or nothing wrong, many are known to have worked in the specialised London unit whose creative trading gimmickry effectively ruined the company. Those people are more worthy of jail cells alongside Bernie Madoff ,the loathsome Ponzi king, than new vacation homes.
But with the global economy slowly burning down, the current obsession over this lone injustice - just one of countless others that define and explain the current crisis - has become a destructive force of its own.
Not that this should shock anyone. America has a rich tradition of populism, one that runs from the Great Depression-era "Share Our Wealth" plan of Louisiana Senator Huey Long, to the 1992 and 1996 reform candidacies of Texas billionaire Ross Perot. And a surge in inequality within US society over the past few years has set the stage for the latest populist explosion. Under George W Bush, middle-class workers saw their productivity rise, but not their wages. Meanwhile, healthcare costs soared. The average American CEO now earns almost 350 times the salary of the average American worker. At the same time, Americans watched a slew of political scandals unfold in which business lobbyists literally bought off members of Congress and their aides. Thus, anger towards corporate America and its allies in Congress has increasingly come to shape US politics. Populism may have been as important a factor as the Iraq war in the 2006 Democratic takeover of Congress, as evidenced by the election of corporate-bashing Democratic senators that year in then-Republican states such as Montana, Ohio and Virginia.
"Constituents are sending Congress a clear message: it's torch-and-pitchfork time," says a senior Democratic congressional aide, invoking the image of angry mobs storming Washington. That has members of Congress scrambling for scapegoats. "We need perp walks, CEO scalps, trophies to mount on the wall. The country needs villains to focus its rage on."
The problem is that no magic villain exists whose punishment will neatly mollify Americans who are reeling from job losses, foreclosures and a sense that the middle class was essentially ripped off by a modern plutocracy based in Washington and New York. The inevitable jailing of Bernie Madoff will be just one stitch in a gaping national wound, especially when Madoff's wife is still enjoying a life in a posh Palm Beach, Florida, home.
That means public anger could be directed at Obama and the Democrats who control Congress. For now, however, the good news for Democrats is that no strong opposition leader has emerged to harness that public rage. Republicans have mounted a largely inept assault on the Obama administration, hamstrung by their own corporate ties and, in the case of AIG, the fact that they opposed earlier (Democratic) attempts to limit bonuses for corporations getting federal assistance.
The best way for Obama to avoid being consumed by the public's free-form anger is to put Americans back to work, ensure a rising stock market and, if he can accomplish it, easy access to affordable health care. But the populist threat itself impedes Obama's ability to turn the country around.
That's because such a turnaround will require political capital, a commodity Obama and the Democrats are now haemorrhaging. Many economists believe, for instance, that a proper recovery will require billions more in taxpayer dollars. But the AIG fiasco is sure to leave the Congress gun-shy about supporting more assistance to Wall Street. A pending effort in Congress to impose 90% tax rates on big bonuses at companies that have taken taxpayer dollars could make things worse. It threatens to undermine support in the financial world for nationalisation of America's most dysfunctional banks, a move even the free-market Economist magazine has grudgingly suggested may be necessary. Opponents of nationalisation, after all, argue that management of government-run banks will be subject to illogical political impulses, just like those on display in dozens of blustery congressional speeches, hearings and press conferences on Capitol Hill last week.
Just how much more latitude the public will afford Obama remains to be seen. Greenberg hasn't yet given up hope. "The stakes are high," he says. "People want Obama to succeed. They're just trying to make the judgment about whether he's going to forget the ordinary people who are struggling and having to pay for this bailout."
Those people would do well to remember Obama's words during his address to Congress in February: "[In] a time of crisis, we cannot afford to govern out of anger." Thus far, America's political system has not responded well to his call. With time running out on the effort to save the economy, Washington can't afford the luxury of more cheap scandal politics.
• Michael Crowley is a senior editor at the New Republic magazine"