Obama, Gorbi and Fannie Mae


During his visit to Berlin, Barak Obama came across as a foreign policy “realist.” Much of his foreign policy design remains vague, but his readiness for equitable trans-Atlantic cooperation seems genuine – it’s dictated by the self-interest of the United States in midst of a massive strategic and economic and financial crisis.
By Michael Liebig

When I watched Barak Obama delivering his speech in Berlin on July 24, to an enthusiatic crowd of 200.000, I was reminded of Mikhail Gorbachev visisting then still divided Germany in 1989. At that time, enthusiastic crowds in East and West Germany shouted: “Gorbi, Gorbi!”. At that time, no one, not even the the best experts, knew exactly what Gorbachev was up to, but everyone knew with certainty that he meant change. After his Berlin address we still don’t know very much about what Obama is really up to, but we do know that, if he will be elected US president next November, there will be change in America.

His performance in Berlin has once more shown that Obama, the son of an immigrant African father, is both a decent and a very professional politician. Only hate-driven political obscurantists would deny that. In some ways, Obama resembles Bill Clinton, even though Hillary Clinton will probably never forgive Obama for having defeated her in the primaries.

In Berlin, Obama skillfully managed to deliver one speech to two very different audiences: one in Europe and one in the United States. He used the images of the 1948 Berlin Airlift and the 1989 Fall of the Wall, presenting himself as “a proud citizen of the United States, and a fellow citizen of the world.” Of course, the primary target audience was in America. And, I should add here that it would be a most interesting question to find out how many Americans were among the crowd of 200.000 in Berlin. My guess would be that there were very many Americans at Berlin’s Victory Column on July 24. After all, there are 100.000 civilian American residents in Germany, another 100.000 US military personnel (family members included) are stationed here in US bases. (Obama did not forget to emphasize that “the American bases [in Germany] built in the last century still help to defend the security of this continent”).

Obama’s tour to Afghanistan, the Middle/Near East and Europe was designed to demonstrate his competence in foreign affairs. And there were no significant glitches. He listened to his hosts and did not confuse the names of countries, political personalities or historical events. But there were no really significant new foreign policy initiatives. The one exception being his proclaiming a 16-months time frame for the withdrawal of the bulk of US troops from Iraq, which was immediately endorsed by Iraqi Prime Minister Maliki in an interview with Der Spiegel.

Competence in foreign affairs is important for an American presidential canidate, but the American voters are not very much concerned about foreign policy and in the presidential election campaign foreign policy is a secondary issue. At the center of the campaign is the massive economic and financial crisis in the United States.

While Obama was on tour

The day of Obama’s Berlin address, the Dow Jones stock market index in New York fell by 2.4% inmidst of yet another round of multi-billion write-offs among leading US banks. On the day before, the House of Representatives had passed what is de facto one of the biggest bailout schemes in financial history. During the past weeks, there has been growing concern, including by former Federal Reserve board member William Poole, that the two mortgage giants Fannie Mae and Freddie Mac might become insolvent. The two mortgage institutions are privately owned, but “government-sponsored entities” (GSEs) and have an estimated $5.000 billion (!) in US mortages on their books.

Now, Congress has authorized the US Treasury to provide a) an unlimited credit line to Fannie Mae and Freddie Mac, and b) to buy unlimited stocks of the two GSEs, the value of which has crashed by 70% during past 12 months. What this may imply is indicated by the fact that the Congressional package also includes raising of the US federal debt ceiling by $800 billion (!) – from $9,800 billion to $10,600 billion.

The unprecedented action by the Treasury and Congress had become inevitable because the crisis of Fannie Mae and Freddie Mac is a potential trigger for a systemic, chain-reaction crisis in the financial system. It is estimated that half of the $5,000 billion mortgages on the books of Fannie Mae and Freddie Mac have been “transformed” into “mortgage-backed securities” (MBS), which in turn have been sold off to other financial institutions. Doubts about the value of these ABS could trigger a self-feeding selloff dynamic threatening the very foundations of the US financial system – and the US dollar. Moreover, an estimated 40% of the Fannie Mae and Freddie Mac MBS have been bought by foreigners – not only private financial institutions, but governmental institutions, notably in Japan, China, other Asian and Arab countries. Thus, the US government and Congress had to act quickly: The credit worthiness of the United States itself – it’s financial system and the US dollar – was at stake. No wonder that the main stream media have remained rather vague on this hair-raising fact, and instead have focussed their coverage on direct financial support and loan garantees for endangered US homeowners, which are also part of the Congressional packge.

This “excursion” is necessary to put Obama’s Berlin speech into perspective. It would also explain why Obama did not touch economic-financial issues, except vaguely referring “to those left behind in a globalized world.” And, the depth of the economic and financial crisis in the USA brings us back to the Obama-Gorbachev analogy. Even though the Red Army’s defeat in Afghanistan shook the foundations of the Soviet system, it’s collapse was not brought about by geopolitical factors; only insofar as the absurd and unsustainable military spending further devastated an already terminally ill Soviet economy. Gorbachev failed because he lacked a sound program for economic reform and reconstruction and the capacity to implement it. Because he had no way out of the economic crisis, Gorbachev’s charisma eroded and his indisputable will to change fizzled out. One would certainly hope that Obama will evade such a fate.

“Allies who will listen to each other, learn from each other”

One of Germany’s leading political scientists, Thomas Jaeger, said he was disappointed about the fact that Obama did not present “any new initiative or project in respect to trans-Atlantic relations” in his Berlin speech. But, as vague as Obama’s foreign policy views were, he did demonstrate that Europe could “do business with him,” to use Mrs. Thatcher’s words about Gorbachev from 1985. German Foreign Minister Steinmeier said that he and Obama were in agreement on “foreign policy philosophy,” namely “cooperation instead of confrontation” in a “new world situation.” Chancellor Merkel’s view is certainly no different, and the same could probably be said for President Sarkozy and Prime Minister Brown.

In Berlin, Obama came across as the foreign policy “realist,” in spite of his rather emphatic references to Afghanistan, Darfur, Iran, Pakistan or Somalia. Leading foreign policy advisors to Obama are former officials in the Carter and Clinton administrations. Zbigniew Brzezinski, Susan Rice or Tony Lake are or have become “foreign policy realists.” The same, however, can be said about – or at least some of – John McCain’s foreign policy advisors: Brent Scowcroft, Kissinger, George Shultz or even Robert Kagan.

Obviously, Obama could not critizise the current US president while making an address abroad. But he made some self-critical remarks on America’s recent role in the world, which probably were at the limit of what US public opinion would consider tolerable when uttered by an American politician abroad. Obama made convincingly clear that he will keep away from bossy “sole superpower” attitudes and its still fashionable ideological derivative “euro-bashing.” The economic-financial and strategic crisis in the United States dictates close cooperation with Europe, and Germany in particular. The fact that it is not altruism, but hard self-interest which is driving a new directionality for trans-Atlantic cooperation does not diminish its significance.

“The walls between old allies on either side of the Atlantic cannot stand… True partnership and true progress… require allies who will listen to each other, learn from each other and, most of all, trust each other… America has not better partner than Europe… [W]e need a strong European Union that deepens the security and prosperity of this continent, while extending a hand abroad.” These words by Obama do carry weight, in particular when he adds: ”We must reject the Cold War mind-set of the past, and resolve to work with Russia when we can, to stand up for our values when we must, and to seek partnership that extends across this entire continent.”

At the same time, Obama demanded that Germany send more troops and resources to Afghanistan. One can assume that Merkel and Steinmeier have told him that the war in Afghanistan cannot be won by military force, as the Soviets bitterly learned deploying 120,000 troops (three times the size of the NATO force) there. The German troop presence in Afghanistan is highly unpopular in Germany and there will be general elections in 2009. In the German government a consensus seems to have emerged that 1000 more troops will be sent to northern Afghanistan, but that the Bundeswehr deployment there will end in 2010-11. Obama will have to learn that “winning” in Afghanistan means first of all winning the “hearts and minds” of the Afghan people.

In Berlin, Obama used the phrases “sharing the burden” and “shared sacrifice,” adding that “a change in leadership in Washington will not lift this burden.” That “burden sharing” is obviously very much connected to the economic-financial crisis in the USA. Before leaving Berlin for Paris and London, Obama told CNN: ”If we have more NATO troops in Afghanistan, then that’s potentially fewer American troops over the long term, which means we are spending fewer billions of dollars, which means we can invest these billions of dollars in making sure we’re providing tax cuts to middle-class families who are struggling with higher gas prices … that will have an impact on our economy.” So, here we are back to the economy – the real core issue of American politics. The conclusion should be obvious: The Europeans will have to articulate their “agenda” in the realm of economic-financial strategy, and do so in close coordination with the other rising powers on the world scene.

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