The politics of Matt Tabbi’s big con

Aside from racism, the most important source of political power for the far right in the United States is apathy and despair. The same political forces that murdered people for registering to vote in Mississippi just a few decades back and that are still desperately working on voter suppression tactics today also work hard to convince “the wrong kind of voters” that there is no purpose in voting, it’s all a fraud, voting doesn’t change anything - only suckers turn out to vote, both parties are the same crooks. That’s the message that people like Matt Taibbi, knowingly or not, sell to the public often with grossly deceptive arguments. In his latest article, Taibbi makes the argument that the Democrats followed the same “financial bailout” policies as Republicans of rewarding the connected Wall Street banks and neglecting Main Street.  Since the facts don’t support this argument, he displays an awesome set of rhetorical tricks. Consider how he misrepresents the Democrats Small Business Lending Fund:

Moreover, instead of using the bailout money as promised – to jump-start the economy – Wall Street used the funds to make the economy more dangerous. […]

Other banks found more creative uses for bailout money. In October 2010, Obama signed a new bailout bill creating a program called the Small Business Lending Fund, in which firms with fewer than $10 billion in assets could apply to share in a pool of $4 billion in public money. As it turned out, however, about a third of the 332 companies that took part in the program used at least some of the money to repay their original TARP loans. Small banks that still owed TARP money essentially took out cheaper loans from the government to repay their more expensive TARP loans – a move that conveniently exempted them from the limits on executive bonuses mandated by the bailout.

The Small Business Lending fund was part of a jobs act sponsored by Barney Frank and a number of the most progressive Democrats in Congress to  provide low cost loans to small banks and community investment funds for the purpose of making loans to small business. For example, one of the recipients of SBLF funds is the Federation of Appalachian Housing Enterprises which has doubled its small business lending since getting money from the SBLF.  Here’s an interesting note from them on green housing for poor people. Another recipient was the Chicago based IFF which builds low income housing. The micro-finance Opportunity Fund of Northern California also got some SBLF money.

And a substantial majority of SBLF participants — more than 60 percent— have now increased their small business lending by 10 percent or more. In dollars, community bank participants increased their small business lending by $3.4 billion and CDLFs increased their small business lending by $86.8 million. [Treasury

It’s certainly possible that some of the small banks that got this money used it for executive bonuses or worse - just like people sometimes cheat on Federal programs for disaster recovery or to feed the poor.  And, of course, the right always argue that we should punish poor people or victims of hurricanes because someone has cheated. But consider how Taibbi has presented this program as a hoax and a fraud and how he has placed it in a context so that he can give the impression it was used to bail out Wall Street. The Taibbi method is to take a kernel of truth and then use it to sell his main proposition: Democrats suck, there is no point in voting, they are all crooks.

Using small-business funds to pay down their own debts, parking huge amounts of cash at the Fed in the midst of a stalled economy – it’s all just evidence of what most Americans know instinctively: that the bailouts didn’t result in much new business lending.

The truth is that much of the bailout money was misdirected - especially the first tranche of $350 billion that Hank Paulson and GW Bush handed out to their friends on Wall Street. But there was a stark difference when the Democrats came into office in 2009 and that difference has been very important in the lives of millions of people.  The most glaring example of that is the use of bailout money by Treasury Secretary Geithner to rescue the auto companies and save millions of jobs. Taibbi’s article never mentions this - the biggest use of TARP funds by the Obama administration is not mentioned even once. The resolution mechanism of the Dodd-Frank financial reform bill is also left unmentioned by Taibbi.  This bill allows the government “resolve” failures in huge non-bank financial companies like AIG or CitiGroup (which owns Citibank and other non-bank businesses) the way the FDIC resolves failing banks. That is, the government can step in and wind the business down in an orderly manner, making shareholders and bondholders bear the cost of business failure. The government now, thanks to the Democrats, can even “claw back” five years worth of salary and bonus from the executives of such companies. This legal method was not available in 2007/2008. Taibbi’s readers will not learn about this because - well because Democrats suck and are the same as Republicans, you know.

Hey, the Democrats suck, all politicians are the same, there is no point in voting - let’s let the mobilized far right, the evangelical right, the Tea Party dominate electoral politics because it doesn’t make any difference! That’s the message that makes David Koch happy.

We should be arguing for expansion of programs like the SBLF and for more public funding to direct investment away from Wall Street’s casino economy. We should be trying to win the House back for Democrats so that people like Darryl Issa and John Boehner are not able to protect their Wall Street sponsors from market forces. We should be pushing for expansion of co-op business, for fairer taxes that don’t penalize work, for a democratized economy that is closer to Thomas Jefferson’s ideal than to the Tea Party theory that working people should grovel to the rich. But we can’t do any of that if we allow people like Taibbi to succeed in their campaign of witless and deceptive indignation.

Originally Posted on 7 January, 2013
Minor edits Feb 2014