Editor’s Note: The following is an excerpt from Robert Scheer’s The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street. This excerpt first appeared on The Progressive Book Reader. 

The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street

by Robert Scheer

Government regulation of the market economy arose during the New Deal out of a desire to save capitalism rather than destroy it. Whether it was child labor in dark coal mines, the exploitation of racially segregated human beings to pick cotton, or the unfathomable devastation of the Great Depression, the brutal creativity of the pure profit motive has always posed a stark challenge to our belief that we are moral creatures. The modern bureaucratic governments of the developed world were built, unconsciously, as a bulwark, something big enough to occasionally stand up to the power of uncontrolled market forces, much as a referee must show the yellow card to a young headstrong athlete. So what kind of ref would Obama prove to be? While it is far too early to establish his legacy, so far he seems to be the kind that talks a better game than he calls.

At the time of the Cooper Union speech, when the candidate’s main opponent in the Democratic primary was the wife of the Democratic president who had signed off on radical deregulation of those free markets, Obama was heeding some economic experts who early on had disassociated themselves from the policy of President Clinton. His most prominent business adviser was Warren Buffett, who as early as 2002 had condemned OTC derivatives as “financial weapons of mass destruction.”

Later, after the Illinois senator defeated Hillary Clinton, almost all of the old Bill Clinton economic team, only slightly chastened by the collapse of their bubble, would, astonishingly, come to dominate Obama’s campaign and future administration. But at that moment, in March 2008, while still neck and neck with Senator Clinton in the race for the Democratic nomination, Obama’s remarks were an explicit denunciation of Clinton’s Rubinomics. The key to Rubinomics, really just a series of gifts to Wall Street elites, was the radical deregulation of the financial markets that this former Goldman Sachs executive pushed as Clinton’s Treasury secretary.

Rubin himself, by then one of the top three leaders of Citigroup, the company that had most benefitted from the 1990s deregulation binge and that subsequently would be disgraced by the greed it turned loose, also had spoken at Cooper Union — three months earlier, back in January 2008. At that point, Rubin was advising the Hillary Clinton campaign and was spoken of as a possible vice presidential candidate, and he offered only blithe optimism of what he defined as the noncrisis we were experiencing. Coverage by CNN and Fortune magazine was headlined “Robert Rubin: What Meltdown?” with the subhead, “In a talk on Wednesday, the Citigroup director said the current financial upheaval is just cyclical. And none of the blame that there was to assign went to Wall Street.”

The extent to which Rubin, despite his reputation as an economic wise man, was out of touch with the emerging reality was revealed in journalist Katie Benner’s report:

A lending catastrophe has consumed homeowners, mortgage companies, and the financial system, but Robert Rubin, Citigroup’s director and executive committee chair, doesn’t seem particularly alarmed.

He told a small crowd at Manhattan’s Cooper Union for the Advancement of Science and Art Wednesday that the problems now roiling the markets and forcing the Federal Reserve into a defensive posture are “all part of a cycle of periodic excess leading to periodic disruption,” and that we are not in fact on the verge of a financial meltdown. And the economic problems that he did acknowledge were blamed on just about everyone but the major US financial players.

Rubin said part of the problem is that we need a “more educated electorate” to hold politicians accountable.

Rubin’s remarks were bizarrely out of touch with a financial world that was already in freefall. In his own speech three months later, Obama was anything but glib, as he spoke movingly of the pain from loss of jobs and homes that already had occurred and warned correctly that it would get a lot worse. He also was uncharacteristically blunt about where the blame for the economy’s collapse should be placed. It is repeated here at some length, for it could serve as the theme for this book and provides a yardstick by which to measure the new president’s subsequent course of action:

This loss has not happened by accident. It’s because of decisions made in boardrooms, on trading floors, and in Washington. Under Republican and Democratic administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices. We let the special interests put their thumbs on the economic scales.

The result has been a distorted market that creates bubbles instead of steady, sustainable growth, a market that favors Wall Street over Main Street but ends up hurting both. Nor is this trend new. The concentrations of economic power — and the failures of our political system to protect the American economy from its worst excesses — have been a staple of our past, most famously in the 1920s, when such excesses ultimately plunged the country into the Great Depression. That is when government stepped in to create a series of regulatory structures — from the FDIC to the Glass-Steagall Act — to serve as a corrective to protect the American people and American business.

Instead of reasonable changes in regulation that protected the public interest while acknowledging the changes in trading and other aspects of doing business in a high-tech trading world, the reversal of the regulatory protections of Glass-Steagall took steps to wreck the economy rather than improve it. Unfortunately, Obama would end up turning to the very people who in the Clinton administration had led the fight to repeal the New Deal regulations. But back then, in his speech, he took the proper measure of their folly:

Unfortunately, instead of establishing a 21st century regulatory framework, we simply dismantled the old one — aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight. In doing so, we encouraged a winner take all, anything goes environment that helped foster devastating dislocations in our economy.

Deregulation of the telecommunications sector, for example, fostered competition but also contributed to massive over-investment. Partial deregulation of the electricity sector enabled market manipulation. Companies like Enron and WorldCom took advantage of the new regulatory environment to push the envelope, pump up earnings, disguise losses, and otherwise engage in accounting fraud to make their profits look better — a practice that led investors to question the balance sheet of all companies, and severely damaged invisible hand at work. Instead, it was the hand of industry lobbyists tilting the playing field in Washington, an accounting industry that had developed powerful conflicts of interest, and a financial sector that fueled over-investment.

A decade later, we have deregulated the financial services sector, and we face another crisis . . . When subprime mortgage lending took a reckless and unsustainable turn, a patchwork of regulators was unable or unwilling to protect the American people.

One of the mysteries is why Obama’s early vision on these matters did not inform his actions as president. A tip-off to the answer might be that the lobbying forces — the power of that massive wealth to control politics which Obama in his speech referred to as “the $300 million lobbying effort that drove deregulation” — did not stop functioning with the election of Barack Obama to the presidency, and that to some degree, even a politician who read the danger signs so well could succumb to the very forces that he had earlier decried.

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Robert Scheer, former national affairs correspondent and columnist for the Los Angeles Times, is the Editor-in-Chief of the Webby Award-winning Internet magazine Truthdig and a professor at the University of Southern California’s Annenberg School for Communication and Journalism. Scheer also is a co-host of the syndicated weekly radio program “Left, Right and Center” on KCRW, the National Public Radio affiliate in Santa Monica, CA. He is the author, most recently, of The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America. He lives in Los Angeles.

From the book The Great American Stick-Up: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street, by Robert Scheer. Excerpted by arrangement with Nation Books, a member of the Perseus Books Group. Copyright © 2010.