It is inconceivable that when Barack Obama ran for the Presidency he could imagine that his very act of giving up his Senate seat to accept that honor would serve to undermine his Presidency. At first, the arrest of Illinois Governor Rod Blagojevich for attempting to sell Obama's Senate seat among other corrupt acts, seemed like a bit of comic relief after a long, hard election year. But the Blago effect is now poisoning the Obama Presidency, like some "toxic" substance. How else can one understand the succession of faltering Presidential nominations and the resistance by Republicans of the President's stimulus package and seeming willingness to go partisan at the very beginning of what should have been a honeymoon period during the new Administration's first 100 days and a more cooperative spirit which was the currency of both campaigns during the Presidential race.
Gov. Blagojevich stoked the fires of public disgust with high level corruption in politics and the abuse of political privilege. That is why ethical and tax problems for several nominees cost them their nominations. The first was Commerce Secretary nominee, Gov. Bill Richardson (D-NM). Then Treasury Secretary nominee Tim Geithner ran into a lot of heat for failure to pay some taxes while he worked for the IMF. The Senators held their noses and begrudgingly approved him because the President backed him up. But when another leading Obama supporter, former Senator Tom Dashle had his own tax lapses and ties to lobbyists were exposed, he ran into a buzz saw response, even from his former Senators and despite his reputation as a really nice guy. Another nominee for a less than cabinet position then dropped out due to a tax lapse of less that $1,000 on a housekeeper's social security taxes. What seemed to be happening is like the opposite political psychology of what governed the handling of the banks and insurance companies. The devastating effect on the market of the failure of the Treasury of Federal Reserve to save Lehmann Brothers, then led to a situation where the banks could not be denied a bailout. In this case, pushing the Geithner nomination through the Senate, led to a psychology where no other tax transgressor could be allowed through the door.
But public concern with abuse of public power was even more fueled by skepticism over the seeming failure of the TARP. Some $350 million in TARP funds to the banks did not serve to stimulate bank loans to the public. Instead, the banks decided to take the funds and hand out huge bonuses to executives. Then the Bernard Madoff scandal erupted, at $50 billion, the most enormous financial scandal in human history wiping out the investments and pension funds of thousands and thousands of investors both small and large.
So why did the Republicans decide to dig in in opposing the Stimulus Package and not offering one vote in favor in the House? Because they could. Public opinion, while desperately wanting a rescue package, were by now skeptical of the content and the honesty of the content. Was it just pork? Was it spending? Did it stimulate jobs in an economy that is hemorrhaging jobs? Republicans sensed that they might be on the side of public opinion. Now, with the announcement of the Obama Administration's new Financial Program, by the very Treasury Secretary whose tax problems were overlooked because he was the best person to handle the financial crisis, the reaction from Wall Street was immediately to sell stock. The plan, it turns out was too vague, too incomplete and too inconclusive, leaving major elements in doubt. In particular, a proposal for a Bad Bank to soak up the toxic assets was given a euphemistic name and it's mechanism of a public/private nature was left open ended. The essential issue of how the toxic assets could be valued was not resolved clearly by the plan. But it is a lack of trust, that goes back to the Blagojevich scandal and the growing lack of public confidence in public officials and government-business collusion to cheat the public that fed the easy criticism. It is also the daily bad economic news that opens the door to populist politics based on an assumption of irrational public opinion. One must be aware that it was exactly this cocktail of economic distress and populist politics that led to the growth of unsavory political ideologies, movements and regimes in Europe of the 1930s and which the US escaped only due to the statesmanship of FDR.
The President himself is still hugely popular. He is America's Golden Boy. But his administration is not doing as well. We hope that the difficulties and slip-ups of the administration's early days will not presage its future success.
Post-script: After the above was written, we have more fallout from the Blago effect: the announcement of Republican Judd Gregg (or is it Gregg Judd, I can't remember?) quizzically deciding to drop out of his nomination as Obama's Secretary of Commerce. Could it be that he wet his finger, put it in the wind and decided it was blowing in a different direction in terms of bipartisan government in America?