Obama's Potemkin Summit

As Barack Obama headed off to London last week the American media painted a gloomy picture for the prospects of the summit of leaders of the G-20 nations and fretted over the difficult task ahead for the charismatic but inexperienced young American president. Anarchist riots would draw thousands of violent protesters to disrupt the conference. France's President Sarkozy was threatening a summit walk-out if he didn't get his regulatory scheme endorsed. Gordon Brown of the U.K. was being blamed for the "Anglo-Saxon" policies that brought down the global financial system. And Germany's Merkel stood ready to throw a wrench in the summit machinery by eschewing the stimulus mania that has gripped the U.S. and Britain. Comparisons to the disastrous London Economic Conference of 1933 were in the air, all in an effort to lower expectations for President Obama should the summit end in rancor and division.

Lo and behold, the summit ended with a "surprise" joint communique heralding a breakthrough that defied all the pundits--at least that was the message Obama's water carriers in the media delivered. ABCNews Online called the agreement an "historic step to jump start the global economy...a turning point," although the network acknowledged there was "no guarantee" of success. United Press International's Martin Sieff called Obama a "big winner," but then worried that whatever Obama won might not be of any use.

So what was Obama's big win? According to Sieff, he "agreed to Sarkozy and Merkel's demands to put pressure on nations that have long prospered as tax havens to reveal at last full details of the fortunes hidden away in their vaults and accounting records." That's like calling a guy who caves in to his ex-wife's demands for a rich alimony settlement a "big winner." In the event, this tax haven sop is vague and toothless and thankfully won't lead anywhere.

Obama's other "win," according to U.S. press accounts, is the agreement to create a global financial super regulator, the Financial Stability Board, a body that would consist of central bankers from the G20 countries, the IMF and the EU and the U.S. The FSB would extend “regulation and oversight to all systemically important financial institutions, instruments, and markets…[including] systemically important hedge funds” and in theory gives Europe a means of stifling our economic freedom. Dick Morris refers to this as no less than a surrender of U.S. financial sovereignty, but I'm not so sure. For one thing, we long ago surrendered national control over our economic fate when we agreed to export the bulk of our debt to China and other creditors and have made things worse of late by trashing our own currency. For another, Britain has rejected the latest regulatory regime proposed by Europe and without the U.K. on board we won't play ball.

The only agreement of substance to have emerged from the G20 was a trillion dollar bailout of the bankrupt central European countries through the IMF. That is a lot of money compared to the debt owed Western Europe by central Europe, but by the new American standard of government spending it is a pittance. This summit "accomplishment" was probably hashed out weeks in advance by the central bankers and finance ministers and can hardly be termed a breakthrough.

Thanks to the slavish and unquestioning U.S. media Obama and his friends in Europe have pulled off a Potemkin summit, that is, one which from a distance appears to have real weight and substance but which on close examination is but a facade built on a foundation of hype and invented tensions with the flimsy materials of communiques, sound bites, pretty pictures and an adoring media. It seems to have worked its magic in the short term--the announcement that Obama and company saved the global financial system lifted the markets immediately and significantly.

The fact is that the one thing the summit did not do is to address the underlying causes of the global financial crisis. Not a single toxic asset was bought or sold or removed from the balance sheets of the West's banks. No grand plan was discussed or announced to deal with the risks of global asset deflation, a looming inflationary recession, protectionism or currency stabilization. The grandees of the G20 pretended to fight the next war while the current battle rages on.

As for Obama, he may have done no real harm in Europe, but we did learn a few things about him. First, by agreeing, even vaguely, to a global regulatory scheme he showed he is unwilling to stand up for American values of economic liberty and sovereignty. Second, his vaunted oratorical skills won him few if any concessions, in particular from Germany. The United States wanted Germany to agree to massive spending to stimulate its own domestic demand and thus curb its exports, and Germany wouldn't budge. Finally, Obama's attempts to gain European troop commitments to Afghanistan failed, with Europe agreeing to deploy a meager 5000 non-combat troops temporarily.

At first blush, it seems that Obama was at the center of the action at the G20, negotiating complex agreements and bringing the other leaders to his side. Look a little closer and it appears that the opposite is true. Obama's charms persuaded no one. He gave up a lot and got little in return.

George Bush's problem was being perceived as a unilateralist cowboy. Obama will do everything he can to prove to the world he is no George Bush. If Barack Obama isn't careful he'll quickly become something far more dangerous--a laughingstock.