By the afternoon of 19 January 2010, President Barak Obama’s honeymoon had come to an end. Massachusetts, which hadn’t elected a Republican senator since 1972, decided to rebel. Big time.

Thousands of young, middle-aged and older people formed anti-big government groups under the rubric of the Tea Party. Using the anti-establishment symbolism of the Boston Tea Party of December 1773, they rallied voters throughout the state. The result: Scott Brown, a good looking, conservative boy-next-door, born in 1959 and a neophyte in national politics, staged one of the biggest electoral upsets in recent times.

In a 43-point swing away from the Democrats, Brown was given a resounding thumbs up. It was the worst defeat for a Democrat in recent times. Tens of thousands of people who had earlier voted for the Democrats, were worried about US debt and government profligacy, and had had enough.

The daggers are out for Obama. With the Republicans now having 41 Senate seats out of 100, the Democrats have lost their ‘super-majority’ — the three-fifths needed to bring out a vote of closure or guillotine, and to end a filibuster. Every key legislative bill can now face Republican filibustering; and huge amounts of bi-partisan accommodation will be needed to pass bills in the Congress. This is particularly true of Obama’s healthcare reforms bill — difficult to pass in the best of times, but which may now be fought to the bitter end. Remember what happened to William Jefferson Clinton in his first term with heathcare reforms? That can happen to Obama as well.

Massachusetts may be the beginning. There could be others to follow, when 16 US senators among the Democrats come up for re-election. Most are expecting dangerous times at the hustings.

Today, the US Main Street sentiments are so anti-government, that even good news doesn’t count for much. Nobody cares that the economy grew by 5.7 per cent (annualised) in Q4 2009, after 2.2 per cent in Q3. The voters see non-farm unemployment at 9.7 per cent in January 2010 — higher than what it has been since June 1983, which was almost 27 years ago. They see still more job losses; rising home loan foreclosures; and pain in Main Street at a time when the Wall Street ‘fat cats’ are giving themselves huge bonuses.

That’s why, despite earning solid profits, JP Morgan Chase’s bonus of $9.7 billion to its investment bankers was slammed by the press. As was Morgan Stanley’s, which had the gall to reward bonuses in spite of its first loss in 74 years. And Goldman Sach’ significantly lower bonus pool. To the US, these exemplified uncontrolled Wall Street greed. That bankers could pocket huge bonuses when Main Street is witnessing high unemployment and rising home loan foreclosures has infuriated the nation.

And Obama flew his fuse. Twice. First, on 14 January 2010, when he proposed a fee to tax the bigger banks — $90 billion on the larger banks over 10 years, averaging $9 billion per year. The tax is limited to the larger banks and financial institutions (with over $50 billion in assets), and will go toward defraying the Troubled Assets Relief Program cost of $700 billion — taxpayers’ money that was used to shore up the financial system during the crisis.

When bankers started squealing, Obama hit hard: ““We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair... What I say is this: Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities — including by rolling back bonuses.”

The second blow came on 21 January 2010, when Obama threatened to bring back variants of the old Glass-Steagall Act, which had remained in force between 1933 and November 1999. According to Obama and his new advisor, Paul Volcker, the ex-Chairman of the US Federal Reserve, proprietary trading, hedge funds and private equity funds were the reasons for the US banking collapse in 2007-08. Thus, these should be sequestered from deposit-taking activities — to ensure that any failure in high risk financial ventures do not seriously affect the safety of the depositors’ funds. So, Obama wants to prevent banks (or financial institutions that own banks) from owning, investing in or sponsoring hedge funds or private equity funds. He also wants to debar proprietary trading operations to raise bank profits.

The $90 billion tax will probably go through. The Glass-Steagall-like stuff probably won’t. But be prepared for a hurt, worried an angry US railing against ‘fat cats’ and big-government. For Democrats losing some more seats. And for Obama having a tough time selling his presidency to the people. For many reasons, an angry America favours the Republicans. Obama must heed this.

 
 

Published: Business World, March 2010