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Back in the Obama years, Democratic partisans had a contemptuous slogan for leftist critics of the president. People who insisted that the president could and should be doing more were adherents of the "Green Lantern Theory" of the presidency, after the comic book where someone in possession of a particular ring can do anything, limited only by their imagination and will. By this view, the presidency is an inherently weak office and leftists who think putting a more progressive person in the White House will make a big difference by itself are naive and foolish.
Ezra Klein follows this line of argument in a new piece at Vox, attacking what he calls "epiphany politics," exemplified in differing strains by Democratic candidates like Bernie Sanders or Joe Biden who argue they will be able to break through congressional gridlock. Just look at Obama, who "passed more and more consequential domestic legislation than any president since Lyndon Johnson. But it was a fraction of what he promised, and the bills that did pass were shot through with compromises and concessions," Klein writes. "He promised hope and change, but not enough changed, and that robbed the activists he inspired of hope."
Now, passing anything at all through Congress is always a challenge. But critics of Green Lanternism drastically understate the freedom of action that Obama had, especially in his early presidency. He had a huge opportunity to transform the United States into a better place and chose not to do so.
This reality is revealed clearly in A Crisis Wasted, a book by Obama fundraiser Reed Hundt, who also worked on the transition from 2008-9. Hundt was personally present for many of the key decisions and interviewed many of the key players later for the book.
To begin, Obama's first and most important decision actually happened before the presidential election, when he allowed President George W. Bush's then-Treasury Secretary, Hank Paulson, to define the priorities of the bank bailout. As the financial crisis gathered strength in 2008, Bush was largely checked out from daily governance, and Paulson took control. He wanted desperately to restore the pre-crisis status quo — saving the banks while forestalling any serious challenge to to their profitability or political power. This approach ruled out any root-and-branch reform.
But as Wall Street needed bigger and bigger infusions of government cash and credit to keep from collapsing, the bailout became a gigantic scandal, and Paulson felt he needed political cover. His own party would not support him, and Democrats had control of the House, so he turned to the Democratic presidential nominee (who was widely expected to win) for support. Obama gave this willingly, and whipped votes for Paulson's $700-billion blank check used to bail out the banks. Paulson's first bill was so outrageously lax that it failed in the House, but after the markets tanked, a second version that had slightly more oversight and homeowner assistance but was basically similar did pass.
The argument from the Obama camp was that it would have been irresponsible to force Paulson to tack conditions on to the bailout, even though he absolutely could have done so, since it was Democrats providing most of the votes. "We could have forced more mortgage relief. We could have imposed tighter conditions on dividends and executive compensation," Obama economic adviser Austan Goolsbee told Hundt, but Obama didn't want to be seen as exploiting the disaster.
In reality, it was a hideously irresponsible not to do so. The crisis put Wall Street in a desperately supplicant position, providing a brief golden opportunity to crack their stranglehold over the federal government. But by quickly restoring the gigantic profits of the banks, Obama preserved the tendrils of corruption that to this day reach throughout Congress, kept the financial system bloated and crisis-prone, and ensured the later Dodd-Frank financial reform would be pitifully inadequate. And by characterizing the crisis as a natural disaster-esque event instead of the product of Wall Street greed and crime, Obama made himself a heat shield for banker swindlers, burning away much of his political support — and opening up space for Donald Trump to later claim the mantle of populist crusader.
Once Obama had chosen the Paulson route, his second-greatest mistake, the foreclosure crisis, followed naturally. House Democrats had included a sweeping provision enabling homeowner assistance in the bailout — but left the details to the next president, who they figured would be a Democrat and hence trustworthy to use his authority to actually help homeowners. They figured wrong.
Obama assigned homeowner assistance to his Treasury Secretary Tim Geithner, who turned homeowner assistance into another backdoor bank bailout. As Carolyn Sissoko explains in great detail, even after the financial sector had been stabilized, the banks still had huge volumes of worthless mortgage bonds on their books. Geither chose to use mortgage policy to stealthily move these losses from banks to homeowners and the government. There were two primary strategies. First, Geithner pushed Obama to renege on a promise to support allowing homeowners to write down the value of their primary mortgage to the home's assessed value. Then he refused to allow principal reductions of mortgages in his homeowner assistance program. Either of these would have allowed homeowners to write off hundreds of billions in bad debt, and hence blown a hole in bank balance sheets. Because Obama had ruled out a drastic restructuring of Wall Street, this couldn't be allowed.
Administration insiders were perfectly clear about this decision. There was "$750 billion of negative equity in housing — the amount that mortgages exceeded the value of the houses," Goolsbee told Hundt. "Somebody would have to eat that money. For sure the banks couldn't take $750 billion of losses[.]" The result: something like 10 million people lost their homes.
Finally, there was the undersized stimulus, which administration economist Christy Romer calculated should have been as big as $1.8 trillion, but instead ended up being about $789 billion. Obama apologists like Michael Grunwald (who ghostwrote a Tim Geithner memoir) insist that the administration got as much as could have been gotten through Congress, given moderate Democrats' fears of deficit spending. That might be true, but it's impossible to say, because the White House never even tried to pass anything bigger, despite having 58-42 Senate majority and a similar advantage in the House. When initial economic data about the scale of the collapse turned out to be a drastic underestimate, the administration did not escalate its demands. Nor did they put a proper-sized stimulus before Congress and then point to ensuing market panic and the ongoing economic collapse to bully wimpy Democrats if it failed — which is precisely how the bailout got passed mere months previously.
No doubt this kind of hardball tactic would have been thought "irresponsible" as well. But the insufficient stimulus was a disastrous failure that doomed the economy to ongoing economic stagnation, doomed the Democrats in the 2010 midterms, and delayed the employment recovery so long that Trump is getting all the credit. It is poor leadership to not exert one's authority to the absolute utmost to stop a depression.
The administration also rejected clever proposals to increase the size of the stimulus while keeping its headline price down. It could have refinanced state debt at rock-bottom federal interest rates, thus giving states greater room to spend. It could have created an infrastructure bank, which would have legally allowed 10 dollars in loans for every dollar appropriated. It could have gamed the 10-year budget window by spending (or cutting taxes) and then compensating with tax hikes that would not take effect until years later. But even though Hundt personally proposed a green infrastructure bank to Obama's top economic team, the administration rejected all these on ideological grounds.
Now, Klein is definitely correct to say that the president has little power to pass legislation in times of divided government. A gridlocked, non-functional Congress is now the rule rather than the exception. It will be difficult-to-impossible to pass any legislation through a Republican-controlled Senate, whether that is Medicare-for-All or Amy Klobuchar's agenda. Furthermore, as far as we can tell, the next president will not have a financial crisis to leverage in negotiations.
But the flip side of congressional gridlock is that power has flowed to the presidency over the years. Many of President Obama's failures in the aftermath of the crisis were in the details of how he chose to execute his authorities, especially who he appointed to his cabinet. President Trump has carried out enormously consequential policies outside of Congress — like the Muslim ban, the trade war with China, throwing thousands of people off Medicaid, and the enormous bailout of farmers — through aggressive use of executive orders and by taking up neglected authorities Congress delegated years ago.
Now, those policies are awful, but better ones are readily available. An entire recent issue of The American Prospect was dedicated to unilateral action the president could take immediately — including canceling almost all student debt (which is directly owned by the government), creating a public option for banking, restoring the union rights of home care workers, slashing carbon emissions, and much more.
Would many of these actions be challenged and eventually roadblocked by the conservative Supreme Court? Surely. But to declare defeat before the battle is even fought is exactly how Obama approached his response to the crisis. As Trump shows, the courts move slowly, and you can put them on the back foot with a flurry of executive orders, tweaking the legal justification if one gets shot down.
And since Obama failed to rein in Wall Street, and the Dodd-Frank reform is being shredded under Republican government, another financial crisis of some size is surely coming sooner or later. The next Democratic president must be poised to seize any opportunity. They should be ready to exercise every last scrap of authority to improve the lives of the American people instead of fussing about propriety and appearances, or pretending the world's most powerful office is hemmed in on every side.
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