Barack, the Magic Loan Officer

            During the most recent presidential campaign, the eventual winner—a relatively unknown and very junior senator from Illinois—was the subject of a fairly serious commentary entitled, “Obama, the Magic Negro.”  Carried by the Los Angeles Times in its March 19, 2007 edition, the piece by David Ehrenstein waxed philosophical about the subconscious allure of the half-black candidate, Barack Obama, to white voters.  Here was a man, Ehrenstein argued, in whom white Americans could satisfyingly place their old fears, prejudices and guilt; an idealist who was unthreatening, if not compelling, because he was only part-black. 

            It didn’t take long before some who were not so awestruck by the magic decided to ridicule the early dark horse candidate and this supposed “magical” nature and appeal.  Most infamous was a musical parody by political satirist Paul Shanklin mere weeks after the Ehrenstein piece.  The white Shanklin—doing his best to sound like the black activist Al Sharpton—mocked the theme of the Obama racial magic in a jingle entitled “Barack, the Magic Negro” (set to the old music of the Peter, Paul and Mary classic “Puff, the Magic Dragon.”) Shanklin’s song was immediately aired by Rush Limbaugh on his radio show, and in a strange way served as a key moment in the Illinois senator’s moving from relative obscurity to a household name.

            Indeed, the theme of Obama being a “magical” candidate due, in part, to the almost-mystical nature of his makeup was turned to his advantage as the campaign progressed.  Free from the shortcomings, prejudices and misconceptions of any one racial group, here was a man who could embody everyone’s hopes and aspirations.  “Yes, We Can!” overcame racial and ethnic boundaries, and even some old political ones.  The presidential candidate’s own eloquence, high-sounding idealism and mellifluous deliveries were more than just a stark contrast to a current president who had trouble putting together a complete sentence.  They were nothing less than magic to enough voters yearning for hope and change that Obama was propelled into the presidency.

            As president, Obama has sought regularly to keep the old magic alive.  The trouble is, he simply does not seem to realize that neither the idealistic policy goals he utters nor the fading novelty of his being the first non-white president will cut it. Some say it is because some of his detractors during the campaign were right, and that Obama was too untested as a policymaker and too starry-eyed to be successful once in office.  Others suggest darker forces at work within Obama, whom they claim is less naïve than he is a narcissist who, in the end, is most concerned about being the center of attention so that everyone else is able to see his wisdom and greatness.

            Recently, the president has taken to a public browbeating of the banking industry, as he tries to cajole it into loaning the economy—and its consumers and businesses—back to health.  At the elementary level of politics, this and similar efforts are to be expected.  For the first time during his presidency, Obama’s disapproval rating has exceeded his approval numbers.  This is chiefly due to the economy’s continuing woes; ones which, at least for Main Street, are still getting worse.  With the masses growing more restless, the president is thus compelled to bombard us with more in the way of speeches, public stunts and the rest as he tries to burnish his image. (On the subject of stunts, even some sympathetic to the president were left almost speechless by Obama’s recent White House symposium on creating jobs.  The president seemed to think that putting together something resembling a collegiate academic exercise on the subject of employment was going to change the economic facts on the ground that are discouraging if not prohibiting new hiring.)

            Indeed, on no other subject does the president seem as clueless as he does on economics.  As much as any other American, he epitomizes what President John Adams had in mind when he said that, “All the perplexities, confusion and distress in America arise, not from defects in the Constitution or confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.” Listening to Obama rail against greed and fat cat bankers, you would think that only this “…want of honor or virtue…” stands in the way of America’s economic recovery.  Yet the trouble is much deeper than that; and Obama is either too ignorant to know it, or too much of a narcissist to care.

            Many have discussed the idiocy behind the president’s current strange effort to turn himself into the “Loan Officer in Chief.”  Even those who would be unable to articulate the simple facts of how our fractional reserve system operates (which I described in Understanding the Game) nevertheless intuitively realize that too much lending got us into this mess.  A naïve president—and, perhaps, one also a bit nervous now over his magic being tarnished per the polls—seemingly does not.  He seems to think that because it is he insisting that the banking industry reopen the credit spigots, all will be well if the fat cats simply obey, and embrace the magic.  Who cares if such a thing would violate the laws of mathematics, common sense, nature itself and—now—the federal government’s own recent edicts?

            I go into far more detail on each of the following points in an upcoming Special Issue of The National Investor.  For now, though, let me point out generally what would be obvious to the president were he not so naïve, or so controlled by the same folks who control every president that he just can’t (or won’t) look for the right answers himself.

            The savagery with which the financial and, then, economic debacles unfolded has of a necessity caused banks to pull in their horns.  It was too lax a system that “helped” everyone get overextended in the first place; and much of this came as a result of policy from Washington.  A debt problem that grew over a couple decades or so will neither go away overnight, nor be solved by more lending.

            The president, employing the politics of envy and class division, has berated the banks for not loaning money to consumers and small businesses after having been kept afloat by the government.  Yet, someone at the Fed forgot to tell him that the first job that the banking industry was tasked with was to keep the system itself—and, indeed, the government—afloat.  Most of those zillions of dollars in Federal Reserve injections and TARP money that the banks have received has gone into the government debt and other securities markets.  This is one of the chief reasons why long-term interest rates have stayed lower than would have been expected otherwise. No matter the president’s rhetoric, the Fed itself will not stand by and allow the main prop for the bond market to be removed, with the economy and banking system still so shaky.

            Some of the very consumers the president claims to be championing aren’t that interested themselves in taking on more debt.  To the contrary, demand for new loans has been steadily declining for many months now.  In what I have elsewhere termed a generational change in attitudes, today’s consumer/investor will be acting more like his or her great grandparents than their parents for some time to come. Even if banks were more willing, Joe Sixpack will make do for a while paying down existing debt and living a bit more simply, thank you.

            Regulators themselves have compelled the banking industry to be somewhat more responsible.  Rather than adding to their risk profiles, banks are using available funds to shore up their capital positions by government edict (including, as I mentioned above, by putting excess monies into the government bond and other fixed-income markets.)  They have dramatically tightened lending standards. This trend will strengthen in the months and years ahead, as many banks remain in serious jeopardy of failure.

            Especially in his urging that the banks make more loans to small businesses, Obama is especially revealed as nothing more than a speechmaker and ignorant activist.  Completely unaddressed by him is the fact that, years ago, the lending industry swung toward one primarily serving the speculative and, in the end, wealth-destroying practice of lending to consumers to create artificial demand for goods and services.  Lending to small businesses has been declining for years as a percentage of the banks’ business, given the incremental gutting of our once-thriving domestic economy.  That type of lending, at least, used to be productive, as it led to more jobs, higher incomes and, thus, more legitimate consumer demand; a demand that was satisfied by higher incomes, rather than by higher debt levels. 

Were his pleas for more small business lending to make any sense as a matter of economics or policy, they would be accompanied by sweeping proposals to reorder our domestic priorities to put Americans and American jobs before either internationalism or the banking industry.  But we have heard nothing of substance; only the occasional speech by Obama rich in ego gratifying flourishes of prose.

            I cannot state too strongly that, as long as Obama remains beholden to (or unquestioning of) the fractional reserve system, he—and America’s middle class and economy—is doomed.  The president has often been compared to the late President John F. Kennedy.  At one point, the latter authorized the printing and distribution of United States Notes; interest-free scrip with which Americans could better see to meeting of their daily needs.  No such suggestion has come from Obama.

            My regular criticism of the president is not that he’s a Democrat.  Not that he’s supposedly a “liberal.”  Not that he’s not all white.  Not that he had little experience in elective office.  It’s chiefly that he is NOT the kind of visionary and reformer he claimed to be.  Were he so—and if he had any idea of what was really going on in the world—he would go well beyond President Kennedy’s relatively modest end-run around the Fed and its fractional reserve system.  He would know that it is a mathematical impossibility to turn the economy around while it is shackled to and choked by the present banking system.  Among other things, he would call for a massive and revolutionary reordering of our entire financial system, perhaps to include a new system of social credit with which to see that Americans’ basic needs for employment and living are met.

Instead of any of this—and to paraphrase the late William Joyce—Obama has chosen to cast his lot with a system that regards man as the tools/possessions of money, rather than vice versa. That he has done so guarantees, in my mind, that this president will be a colossal disappointment and failure, no matter how much he tries to become “Barack, the Magic Loan Officer.”

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