Remember how, back when taxpayers were being asked to fork over hundreds of billions of dollars to bail out Wall Street, we were told it was essential to saving Main Street?
Well, in just a few months, we've gone from saving the banks in order to save the economy to just saving the banks. It's the opposite of mission creep.
In announcing his proposed "overhaul of the financial regulatory system," President Obama said, "Financial institutions have an obligation to themselves and to the public to manage risks carefully. And as president, I have a responsibility to ensure that our financial system works for the economy as a whole."
But parsing through his 85-page plan, it's not clear how these reforms will ensure that our financial system works for the economy as a whole.
"The Obama plan," writes Joe Nocera in the New York Times, "is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself." For Obama's plan to have any lasting value, says Nocera, "he is going to have to make some bankers mad."
We are already hearing the usual whining from the financial industry about too much regulation and the dampening of incentives. And we are already seeing a concerted push from the banking lobby to kneecap the newly proposed Consumer Financial Protection Agency. But, all in all, there is little there to make bankers mad.
I don't expect there will be too many on Wall Street unhappy with the massive loophole the new plan leaves by calling for so-called plain vanilla derivatives to be traded on an exchange but allowing customized derivatives -- which were at the heart of the financial meltdown -- to remain largely unregulated. This is very good news for the wheelers and dealers who helped turn Wall Street into a casino.
The larger problem continues to be the administration's habit of conflating the health of the Wall Street economy with the health of the real economy -- when, in fact, the two economies have become decoupled. The Dow may be up 30 percent since March, but the numbers that matter most to everyday Americans continue to tell a very different tale.
Unemployment, the single most important statistic when it comes to taking the temperature of the real economy, is at a 26-year high. Yes, the number of people filing continuing claims last week dropped for the first time since January, but the number of new people seeking unemployment benefits rose -- as did the number of people receiving benefits under the emergency federal program that extended benefits beyond the 26-week program offered by most states. All told, over 9 million people are getting some form of unemployment compensation. And most economists are expecting unemployment to continue to rise, hitting 10 percent -- some even say 11 percent -- by 2010.
Another indication of the troubled state of the real economy is the record high credit card default rates reported in May. The numbers are staggering. Bank of America's default rate hit 12.5 percent -- up from 10.4 percent in April. Citigroup wrote off over 1-out-of-10 of its credit card loans last month. American Express did the same. If the numbers stay around these levels, credit card issuers stand to lose over $70 billion this year. And it's worth noting that a number of the biggest banks are reporting default rates higher than the "worst-case scenario" numbers from the Treasury's recent stress tests. Tim Geithner's team might need to come up with some new terms: "worst-case -- and this time we really mean it -- scenario"; "even worse than worst-case scenario"; "can't imagine a worse case -- and believe us we tried -- scenario".
On the housing front, in May foreclosures dipped 6 percent from April -- but the 321,480 homes lost was still the third-highest total on record. May was the third consecutive month with over 300,000 foreclosed properties -- the first time that's happened since RealtyTrac began tracking foreclosure numbers. Nevada, California, and Florida were the hardest hit states. In Nevada, one out of every 64 homes received a foreclosure filing last month. Nationwide, one out of every 398 homes received a foreclosure note. That's a whole lot of people looking for some place to live.
And lending -- the increase of which was supposedly the primary reason for the bank bailout -- is also down. "If the banks aren't lending money," Jeffrey Rosen, deputy chairman of Lazard told me, "the economy can't get going." But, according to the Treasury's latest report on lending by the top 21 recipients of government money, consumer and commercial lending fell 7 percent in April -- with nearly 75 percent of the banks reporting a decline in loan originations.
Despite this gloomy picture of the real economy, the administration prefers to focus on the rising sense of consumer confidence -- even though this confidence hasn't translated to greater consumer spending.
"Everyone feels mildly better about where the economy is going," is how Joe Biden put it earlier this week. Perhaps the vice president needs to get out more. There are 9 million out-of-work workers, thousands of former credit card holders, and 321,480 newly homeless homeowners (and their families) who might say otherwise.
So the economic bubble continues to be deflated, but the rhetorical bubble is being pumped with plenty of hot air. Maybe we could use one of the many green shoots the administration is marveling at to pop it.
If the Wall Street economy is ever going to be recoupled with the real economy, we'll have to start by recoupling rhetoric with reality.
Follow Arianna Huffington on Twitter: www.twitter.com/ariannahuff
Make derivatives illegal. Make trading in derivatives illegal.
I have yet to see anyone say this in the MSM or on Huffpost....but me.
The Golden Rule of Politics, rules our system currently: He who supplies the gold makes the rules. Giant corporations and special interest groups supply the "gold" for Congress through campaign contribtuions. As a result, their lobbyists literally write the legislation that is supposed to be regulating their industries . The fox gets to guard the henhouse every time.
If taxpayers supplied the gold-- and also searched for, and elected, pragmatic honest dedicated problem solvers -- then taxpayers could make the rules. Right now our system insures that we give the power to people who only will solve their own special interest group's problems.
Congress can't put the interests of the public over money. How could they be re-elected if they don't have the funds? They would end up being one-term junior members of Congress, controlled by the senior members. Honest dedication to public service is severely punished. here
We elect members of Congress with an albatross around thier necks-- the problem of how to finance their future campaigns. We've been expecting them to ignore the albatross. Let's take it off of their necks, so that we can elect people who are problem solvers, rather than continuing to elect fund raisers who are loyal only to their sources of funds.
Let's make corporate campaign contributions illegal. Let's have all Congressional and presidential campaigns paid for solely by taxpayers. It would end up being a zillion times cheaper than this.
However if things carry on as they are doing there won't be many taxpayers left ... you can only pay taxes if you have a job.
As regards congress Obama is like a pork pie at a Jewish wedding..... it hard for people in power to accept radical change ..... when they have the power to oppose it.
JC
It’s the “buddy system,” that’s in play big time.
It really is all about “club members.”
They’re the ones that really make out. Everyone else is beyond the pale, and of little concern.
I truly wish it wasn’t so, but seeing what’s going on is unequivocally obvious, that the special interests are clearly being favored.
Housing & Construction... down
Leasure & Travel ... down. Airlines in a heap of hurt, theme parks belly up.
Manufacturing ... down and headed to zero
State/County/City government .... down and headed lower
Financial .... down and probably will shrink to 1/4th size as it was before the scammers took over
Retail ... down with many stores closing due to lack of customers. It will get worse with inflation outstripping salaries.
What is left?
Federal Government ... will soon be forced to choose between hyperinflation & reining in spending
Military ... same as Fedral government
Medical .... 17% of the economy which can no longer be afforded. As manufacturing jobs with health insurance are eliminated in Michign, Blue Cross is raising rates on elderly by 31 to 46%.
Agricultural & mining ... will do well for the soon to be Chinese owners of US land & business
Education ... Soon to drop as states cut funding and graduates see no jobs at the end of the graduation rainbow
The manufacturing sector created tangible wealth which trickled down to other sectors that need customers including Medical, housing, retail, travel & leasure, government. Wall Street created phoney wealth based on a huge ponzi sceme that is now ending as China stops buying US securities. We need balanced trade enforced with tariffs.
Meanwhile I have to get ready for the upcoming war with Iran. No doubt the demonstartors in Teheran will be part of the propaganda pitch. Obama will make "Democracy" flow from the barrel of agun. No doubt trhere are former Shah supporters in LA itching for the opportunity to be back in charge again even if it is as the puppet.
The devil is in the details and there aren't any.
energy(oil) price. Nowadays nobody seems to admit or understand the
connection like it was done back then.
the purchasing power has been transfered to to half a dozen oilexporters
and as long they manipulate the oilprice there will be no recovery in the US
or in europe.
Big shame that one of the main culprits is Norway (member of Nato and socalled
ally of the US). In october 2008 the norvegian oil minister declared that there will
be no reduction of the oilproduction of 2.3 mbd . Production in May2009: 1,79 mbd!!
Those missing barrels are having a huge impact on the markets.
My proposal: get some of the drones from Afghanistan transferred to the Northsea
to clean up the place from the real criminals who are the underlining cause of this
misery.
We did this to ourselves. End of story
http://www.sacbee.com/1232/rich_media/1698037.html
Even before this current economic crisis, employment has been a major issue no thanks to labor arbitraging on the part of greedy businesses of every size and kind.
By all indications, employment is going to get much worse, I suspect up to 15% in some states until we put a stop to labor arbitraging and impose tariffs. And please don't give me the BS tariffs don't work. They do. How do you think the U.S. became an economic powerhouse in the 19th century and into the 20th century, by off shoring? [chuckles...]
Main street is not grown up enough to accept health care reform (Joe the plumbers and Jane the soccer moms call it communism) or higher gas taxes (which would benefit all).
We don't legalize and tax pot because...I don't know why.
We are in Iraq instead of protecting our southern border.
We don't allow gay marriage, which would allow for marriage license fees and would allow gays to settle down and feel like citizens (good for the economy).
Main street had this coming. Wall Street is laughing all the way to the (their) bank.
Main Streeters are the ones who say things like "Universal Healthcare Is Commie!!!!!"
The American public are their own worst enemy.
as sensitive as I am to the Prez...trying to steer the USS Health Care and the USS Bailout with all the congressmen (and their well-heeled minions] grabbing for the wheels, I am just as baffled that:
1) he has no option open to him [such as an issuance of an Executive Order] for 100% healthcare coverage for all Americans, and ...
2) he has no option open to him to have dangerous derivatives (or bad bank practices in general) outlawed outright.
He should be able to sign into law his own orders; thereby prompting Congress to vett the issues (and vote if they see fit) to DENY the orders.
They would have to fight AGAINST GOOD IDEAS rather than...just DETERING them.
DO I think all law should be conceived this way? No, of course not, but it should be an option.
I have made my opinion on derivatives known on Huffington Post and I have also told my Congressman, Paul Kanjorski. The solution is simple, MAKE DERIVATIVES ILLEGAL. MAKE TRADING IN DERIVATIVES ILLEGAL.
We cannot afford to ignore common sense. Derivatives are NONSENSE.
Just do it with one, simple, bill from the House Financial Services Subcommittee...which my Congressman, Paul Kanjorski, Chairs.
The trouble, as you all know, is that the con artists in the financial community are still able to get away with conning the public. If the SEC had been given the funds to protect investors ( instead of the money going to pay for wars ) the SEC could have done a better job.
Call Congressman Kanjorski, D., PA. at 1 800 222 2346 (if you live in PA. ) or 1 202 225 6511 and tell him derivatives should be made illegal.