Somebody spilled the beans and told the truth about the financial reform bill being debated in Congress. Yet most media still ignore it.
Rather than being the targets of this bill, Wall Street financiers will be rewarded by it. As the chairman of Goldman Sachs, Lloyd Blankfein, told a Senate subcommittee, "The biggest beneficiary of reform is Wall Street itself."
By guaranteeing that creditors of big firms will get paid, the measure drives business into the arms of the very companies who supposedly are targeted by the bill. So why does President Obama instead want us to believe the legislation is our revenge against Wall Street, a chance to get our money back after so many bailouts?
Simple. Bailouts are the most unpopular topic in the country, so the quickest way to pass another big-government bill is to label it "anti-bailout," even when it's the opposite.
Obama says this bill will end bailouts. Opponents say it will perpetuate bailouts. Then they call each other liars.
The key is that they use different definitions. Obama claims that so long as taxpayer money doesn't go directly to a company or to its shareholders, it's not a bailout. But he considers it okay to send billions to pay off that company's creditors--who typically are big companies and Wall Street firms. To the rest of us, paying a company's debts IS the bailout, as we've already seen happen multiple times.
Obama also pretends that it's not government money. Bankers would be ordered by the new law to pay into the new guarantee fund; but by refusing to label the fees as a tax, Obama seeks to justify his claim that it's not taxpayer money. Of course, the banks will charge higher fees to us customers to recoup this amount. What really stinks is that the issuance of federal guarantees is discretionary, meaning political friends can be rewarded while political enemies are shut out.
The recent deletion of the $50-billion figure attached to that guarantee fund is a popular political move, but doesn't fix the problem. The secret is that the $50-billion was pre-funding that could serve as a political ceiling on the amount of bailout money (although not a legal limitation) and now the political barrier has been lifted. As the New York Times reported last month, "The Obama administration does not support the $50 billion fund, partly out of concern that more money may be needed if one or more big financial firms ever collapse and that creating a fund could make it difficult to authorize more money."
"Authorize MORE money" to pay bank debts? This directly contradicts the way the plan is being sold. But political hype has focused so heavily on condemning the banks that the proposed solution escapes the scrutiny it deserves.
Obama's tough talk against Wall Street draws headlines. But when whipping boy Goldman Sachs says they like the proposed punishment, they're not being masochists. They understand that they're getting a government guarantee so they and their friends--as creditors--won't suffer losses when a business partner goes under. Plus anyone doing business with the Wall Street big boys knows they won't take a loss thanks to the proposed law. The big boys will get more business thanks to that assurance and protection.
While excoriating Wall Street with his words, Obama is blowing secret kisses to them with his bailout proposal.
A new addition to the bill seeks political cover by stating creditors should eventually have to repay any bailout funds that exceed what they would have received in a bankruptcy of the financial firm. But it's impossible to tell how a bankruptcy might have turned out, since the bailout skirts the entire bankruptcy process.
The financial reform bill has plenty of other dangerous flaws, but the bailout issue attracts the most attention. The selling of the bill promises to echo the pattern used to pass Obamacare; only after it's too late do key provisions get scrutiny.
Nobody should forget that the supporters of the financial reform measure are mostly the same members of Congress who supported the original bailouts, making their current criticism of bankers ring hollow.
A well-known ad campaign for a former firm, E. F. Hutton, bragged that "When EF Hutton talks, people listen." Today, when the CEO of Goldman Sachs now admits, "The biggest beneficiary of reform is Wall Street itself," his statement should not be ignored. It's a dramatic sign that this bill is being sold under false pretenses.
But Wall Street is about money, not adoration. They benefited from the original bailouts, which means more to them than the criticism. They invested $15-million in Obama's campaign--and plenty more in congressional campaigns. Now they're willing to take a public bashing from their friends so long as they're rewarded with what counts. And that's the bottom line.
This is an updated version of an article originally appearing at The Foundry.