Next week President Obama travels to Wall Street where he'll demand -- in light of the Street's continuing antics since the bailout, as well as its role in watering-down the Volcker rule -- that the Glass-Steagall Act be resurrected and big banks be broken up.
I'm kidding. But it would be a smart move -- politically and economically.
Politically smart because Mitt Romney is almost sure to be the Republican nominee, and Romney is the poster child for the pump-and-dump mentality that's infected the financial industry and continues to jeopardize the American economy.
Romney was CEO of Bain & Company -- a private-equity fund that bought up companies, fired employees to save money and boost performance, and then resold the firms at a nice markups.
Romney also epitomizes the pump-and-dump culture of America's super rich. To take one example, he recently purchased a $3 million mansion in La Jolla, California (in addition to his other homes) that he's razing in order build a brand new one.
What better way for Obama to distinguish himself from Romney than to condemn Wall Street's antics since the bailout, and call for real reform?
Economically it would be smart for Obama to go after the Street right now because the Street's lobbying muscle has reduced the Dodd-Frank financial reform law to a pale reflection of its former self. Dodd-Frank is rife with so many loopholes and exemptions that the largest Wall Street banks -- larger by far then they were before the bailout -- are back to many of their old tricks.
It's impossible to know, for example, the exposure of the Street to European banks in danger of going under. To stay afloat, Europe's banks will be forced to sell mountains of assets - among them, derivatives originating on the Street -- and may have to renege on or delay some repayments on loans from Wall Street banks.
The Street says it's not worried because these assets are insured. But remember AIG? The fact Morgan Stanley and other big U.S. banks are taking a beating in the market suggests investors don't believe the Street. This itself proves financial reform hasn't gone far enough.
If you want more evidence, consider the fancy footwork by Bank of America in recent days. Hit by a credit downgrade last month, BofA just moved its riskiest derivatives from its Merrill Lynch unit to a retail subsidiary flush with insured deposits. That unit has a higher credit rating because the Federal Deposit Insurance Corporation (that is, you and me and other taxpayers) are backing the deposits. Result: BofA improves its bottom line at the expense of American taxpayers.
Wasn't this supposed to be illegal? Keeping risky assets away from insured deposits had been a key principle of U.S. regulation for decades before the repeal of Glass-Steagall.
The so-called "Volcker rule" was supposed to remedy that. But under pressure of Wall Street's lobbyists, the rule -- as officially proposed last week -- has morphed into almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.
It would have been far simpler simply to ban proprietary trading from the jump. Why should banks ever be permitted to use peoples' bank deposits - insured by the federal government - to place risky bets on the banks' own behalf? Bring back Glass-Steagall.
True, Glass-Steagall wouldn't have prevented the fall of Lehman Brothers or the squeeze on other investment banks in 2007 and 2008. That's why it's also necessary to break up the big banks.
In the wake of the bailout, the biggest banks are bigger than ever. Twenty years ago the ten largest banks on the Street held 10 percent of America's total bank assets. Now they hold over 70 percent. And the biggest four have a larger market share than ever -- so large, in fact, they've almost surely been colluding. How else to explain their apparent coordination on charging debit card fees?
The banks aren't even fulfilling their fiduciary duties to investors. Last summer, after Groupon selected Goldman Sachs, Morgan Stanley, and Credit Suisse to underwrite its initial public offering, the trio valued it at a generous $30 billion. Subsequent accounting and disclosure problems showed this estimate to be absurdly high. Did the banks care? Not a wit. The higher the valuation, the fatter their fees.
Just last week Citigroup settled charges (without admitting or denying guilt) that it defrauded investors by selling them a package of mortgage-backed securities rife with mortgages it knew were likely to default, but didn't disclose the hazard. It then bet against the package for its own benefit -- earning fees of $34 million and net profits of at least $126 million. So what's Citi paying to settle this outrage? A mere $285 million. Its CEO at time (Charles Prince) doesn't pay a dime.
I doubt the president will be condemning the Street's antics, or calling for a resurrection of Glass-Steagall and a breakup of the biggest banks. Democrats are still too dependent on the Street's campaign money.
That's too bad. You don't have to be an occupier of Wall Street to conclude the Street is still out of control. And that's dangerous for all of us.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
> Twenty years ago the ten largest banks on the Street held 10
> percent of America's total bank assets. Now they hold over 70 percent.
Break up the banks or nationalize them.
I am so sick of this crap !
1) Obama cannot lose politically with a push for Glass-Steagall. Whether or not it gets passed this year, he can say that he tried to limit Wall Street.
2) We need to raise the issue of an ammendment to the Constitution to define that only people, not corporations as having freedom of speech. Win or lose this year, the issue will be popular with voters.
And the taxed enough already Beck followers should be pushing harder to end or rein in the Federal Reserve, the private bank with a government name that monetizes the debt and rewards bad bankster behavior.
Never happen. Major media prefer to fan flames of difference and opposition because it makes more exciting headlines. The "Money Party" uses divide and conquer effectively.
ONE CAUSE --ONE FIGHT--ONE AMERICA
Corruption is tearing our country apart and laughing at us all the way to the bank.
Until EVERYONE starts talking and blogging and marching for Campaign Reform we are just spinning our wheels discussing anything that might challenge the special interests
http://ampÂÂedstatus.ÂoÂrg/excluÂsiÂve-analÂysiÂs-of-fÂinanÂcial-ÂterroÂrismÂ-in-amÂeriÂca-overÂ-1Â-millionÂ-Âdeaths-anÂÂnually-62-ÂÂmillion-pÂeÂople-witÂh-Âzero-neÂt-wÂorth-aÂs-thÂe-ecoÂnomicÂ-eliÂte-makÂe-oÂff-withÂ-4Â6-trilliÂoÂn/#rules
Why we can't ignore inequality
http://wwwÂÂ.slate.coÂmÂ/id/2266Â02Â5/entryÂ/22Â66026/
It’s a long read but well worth it.
I am a fan. This question remains after reading the article:
The situations that you correctly outline, aren't they caused by twenty to thirty years of policy mismanagement or a real lack of grasp, including among the economists? My plumber who came to fix the faucet (he owned three SUVs) loved Greenspan in the late nineties. By eighties the Wall Street had taken over already, seriously changed polices and government regulations, and no one cared. I agree that things need to corrected along the lines that you outline but the fact remains that this is coming after the collapse. Wall Street needs regulation but we need more effort elsewhere to get this country humming again. How about business innovation and enterprenuership that can create immediate jobs, outlining an economic system and governance structure bringing about entire new lines of service and businesses through sciences, research, manufacturing, services, etc. in the US.
If record profits and capital stores are not enough, what could possibly make you think that more profits and more money will somehow turn the faucets on? Theoretically it makes sense that if you make it easier for them, that will mathematically turn into some function of more jobs and wealth for Americans. Practically, we have obviously passed any point on the curve where any benefit to business will cause the private sector to create the jobs that are necessary.
So we will need more government investment done in a way that it aids the 99%. But our elected rulers seem to vote another way when matters actually come to the floor for a vote...
Most of us knew what would happen in 1998................nobody would listen !
I agree with Dr. Reich, today !
When proposals like yours are put forward to him, it is like talking to a wall.
It's way past time to give up on Obama.
Most of us who supported him are now looking for a third party alternative.
A third party alternative might push your proposal; Obama has had three years and all he's established is three more years of George W Bush.
No "Change You Can Believe In", just "Double-Down on the Status Quo".
Check out Buddy Roemer. Is running for the Republican nomination, but is really the only person at this point talking ANY sense. Refusing PAC money, is blasting both Repubs, Dems, and the system itself as being corrupt, and also blasting these Free Trade agreements that have offshored all the jobs we once had here in America.
It is widely reported that most elections are simply decided by who receives & spends the most money. That is an Auction, not an Election!
Glass-Steagall will be re-enacted. But only after the next crash, it seems. It is sad that Clinton put his name at the bottom of the repeal, passed by a Republican Congress.
Clinton did his own damage to the middle and lower classes, championing the trade agreements that removed jobs and strangled the US manufacturing base. We were all to become "service" and tech workers. Yeh.
It is unclear who is in the drivers seat. Was this a shakedown by the politicians to get more cash from the contributors(you better give us more cash, or we're going to shut down your business), or is Congress in fact acting in good faith, but was subverted by monied interests.
Either way, the solution is to enact serious campaign finance reform measures to reduce the effect of money on the elections of our trusted leaders.