03/18/2010 05:12 am ET | Updated May 25, 2011

Obama Administration Determined to Usher in New Great Depression

Paul Volcker must feel like he's going crazy. The former Federal Reserve chairman, current chairman of the newly formed Economic Recovery Advisory Board, and the man Austan D. Goolsbee, counselor to President Obama, calls a "giant," "genius," and "great human being," can't get any respect these days.

You see, Volcker has been hounding the Obama White House to prohibit the nation's banks from owning and trading risky securities, the practice that got the "too big to fail" crew intro big trouble in 2008.

The administration is saying no.

Whatever one thinks of Volcker, any amateur historian can see that he's right to want to keep investment banking separate from commercial banking. This was the basic reasoning behind the Glass-Steagall Act of 1933 that mandated the separation of the two types of banking in order to protect the country from risky investments and speculation. This worked splendidly for six decades until 1999 when the Republicans spearheaded the Gramm-Leach-Bliley Act, which was signed into law by former President Clinton.

Totally unsurprisingly, without regulation and the Glass-Steagall wall, a series of financial bubbles began to grow, and repeatedly burst, fattening the wallets of a select few while taxpayers continually bailed out a broken system.

Now, another Democratic leader, President Obama, seems determined to continue the New Deal reversal. What's the reasoning here? The New York Times cites anonymous officials who describe Volcker as an adviser perceived as "standing apart from Wall Street, and critical of its ways," while Treasury Secretary Timothy F. Geithner, and Lawrence H. Summers, chief of the National Economic Council, are seen, "rightly or wrongly, as more sympathetic to the concerns of investment bankers."

Let me clarify some confusion for the Times. This is a "wrongly" philosophy. It's very wrongly. It's so wrongly that it's the exact behavior of deregulation and cronyism that led to the 2008 economic catastrophe, and before that, the dot-com bubble burst, and before that, the savings and loan debacle, along with a myriad of other so-called "unforeseeable freak events of the stock market."

Lawrence Summers knows this is true. He even said it in a very comprehensive speech where he explained that there has been an economic crisis, on average, every three years. That's an outrageous failure rate, and it indicates the need for dramatic reform, Summers argues. Of course, he doesn't go one step further and indict his investment banker buddies as guilty parties in the larger "reform plan."

No need to step on any toes, right, Larry? As if the man who accepted payments for speaking appearances from financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch (with fees ranging from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs) is going to lead the charge to regulate the banking industry.

Summers and Geithner's various connections to the banking industry have been well documented, but what's outrageous is that they are now shooting down Paul Volcker's correct assessment that only a new Glass-Steagall will prevent future economic catastrophe.

Summers and Geithner are so clearly wrong for so clearly the "wrongly" reasons that it's really shocking anyone is taking these two seriously. At least we can take comfort in the knowledge that when the next economic crisis hits in three years (according to Summers' calculations,) our excellent media will hold the economic gurus' feet to the fire. ...Right?

Crossposted from Allison Kilkenny's blog. Also available on Facebook and Twitter.