Obama's Economic Misfits Finally Get It

Now they tell us.

On Monday, two men with considerable responsibility for enabling the banking meltdown confronted the error of their ways. Not directly, of course, for accountability is hardly the mark of either Lawrence Summers, the top White House economic adviser, or Treasury Secretary Timothy Geithner.

Their careers have long been fueled by error. Summers was one of the leading prophets of radical financial deregulation in the Clinton administration. And Geithner, as head of the New York Fed, looked the other way during Wall Street's collapse and then responded by opening wide the spigot of taxpayer dollars to resuscitate Citigroup and AIG.

What they wrote this week in a joint Op-Ed article in The Washington Post is a condemnation of the Wall Street shenanigans they once abetted and celebrated. I hope their apparent sudden conversion to common sense indicates the seriousness of the banking regulation plan that President Obama will present to Congress today.

"Over the past two years, we have faced the most severe financial crisis since the Great Depression," they wrote, placing the blame squarely where it belongs, on the unregulated derivatives markets they once gushed over. "The current financial crisis had many causes ... in the widespread use of poorly understood financial instruments, in shortsightedness and excessive leverage at financial institutions. But it was also the product of basic failures in financial supervision and regulation."

What irony that Summers, who as Bill Clinton's treasury secretary pushed through legislation guaranteeing "legal certainty for Swap Agreements" and banning the regulation of securitized mortgage debt, should now admit that "securitization led to an erosion of lending standards, resulting in market failure that fed the housing boom and deepened the housing bust."

According to Summers and Geithner, the Obama plan to be revealed today promises that all derivatives dealers will be "subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse."

If such language is ever passed into law, I hope that Brooksley Born is in the gallery and gets the standing ovation she deserves. That's the woman who, when she headed the Commodity Futures Trading Commission, warned that the derivatives market needed to be regulated. Summers and his predecessor as treasury secretary, Robert Rubin, destroyed Born's career because she dared to accurately predict today's crisis.

But better late than never, although it's a shame that Obama's economic whiz kids are only now getting serious about cracking down on Wall Street hustlers after first guaranteeing their toxic paper with trillions of taxpayer dollars. Nor should we assume that the Obama plan will not be subverted by the financial industry lobbyists, whose enormous campaign treasure chest, now financed by taxpayers, allows them to slice and dice congressional voting blocs the way they did subprime mortgages.

Already there's a joker in the deck of the Obama proposal in that it relies heavily on the Federal Reserve, which on the regional level is fully controlled by the very financial industry firms that it is expected to monitor. Summers and Geithner write that "all large, interconnected firms whose failure could threaten the stability of the system will be subject to consolidated supervision by the Federal Reserve." Like we never heard that one before.

Because of bad deregulation laws, those large, interconnected firms were allowed to grow to the point where their failure indeed threatened "the stability of the system." What we need to do is return to the basic principle of the New Deal-era Glass-Steagall Act (which Clinton reversed) that broke up "too big to fail" financial conglomerates because, by definition, when such companies threaten to fail, we taxpayers are left picking up the tab.

It was depressing that the president told The Wall Street Journal on Tuesday that he favors "a relatively light touch when it comes to the government ... in terms of financial regulation." And that "[w]e had a regulatory system that was outdated that did not encompass the non-bank sector."

Nonsense. We had a regulatory system inherited from Franklin Roosevelt's New Deal that for 60 years sustained a wall between the traditional heavily regulated banks and the non-bank hustlers on Wall Street who should have never been allowed to play their funny money games with people's savings and home mortgages. That wall was torn down by President Clinton at the behest of Wall Street lobbyists and now must be restored if there is to be true reform. The reforms presented by Obama are an important start, but I worry they do not face up to the reality that financial conglomerates too big to fail are too big to be allowed to exist.

Comments

[iridium53]

How do you figure they "get it?"

The proposed regulations don't restore the Glass-Steagall II regulations.

Instead the proposed regulations are lacking in any principles at all. They shifte everything over to regulators - the same regulators that did nothing before - and will leave us vulnerable to the vagaries of the changing philosophy of different administrations.

Obama's "team" is late with regulation - it took them a long time to get to this.. And, what they've proposed is worse than useless. It is a BIG LIE misdirection that seems to be an answer but simply is not.

Obama, once again, shows that he has no basic principles and offers no leadership.
He's a great speaker - and, apparently, that's it.

The way to counteract the BIG LIE approach is the truth. Banks wrote this legislation. We need leadership that breaks these institutions up so that we return to the relative stability provided by the Banking Act of 1933 and other good regulation. But, Obama's "team" is too busy "servicing" the bankers to allow that to happen.

Very disappointing.

[namops]

An execellent factual piece that doesn't excuse or apologize. It puts some of the blame where it rightfully belongs and offers a solution instead of trying to dumb us down with empty slogans and rhetoric such as "blah-blah­-blah.....­.hope." President Clinton got the "banking meltdown ball rolling" by severely weakening the Glass Steagall Act. President Obama is taking a huge risk in
putting Geithner and Summers to head the finding of a "fix" to a situation that they enabled but now hypocritically condemn. Finally, kudos to Brooksley born. This woman is the type of Democrat I as a Republican wish there were more of today. Greenspan, Rubin and Levitt, what a difference today would be had you three actually just taken a few minutes to consider "regulation of derivatives" instead of concentrating on undermining and destroying Born's career and reputation don't you think? You three idiots dropped the ball bigtime on that one. Of course you bozos don't care I'm sure as you're all still wealthy I'm sure. Obama worshippers you all are going to definitely get your "change" that was promised during campaign time. Whether you will actually LIKE these changes is certainly not a given.

[Quixotic1]

The Glass-Steagall act did two main things. 1. It separated commercial from investing banking... and 2. it created the FDIC. These two functions are two sides of the same coin. If you're going to put the federal government on the line, you had better make sure banks are not involving themselves in risky investments and conflicts of interest.... otherwise when things go bad, as they inevitably will, guess who gets left holding the bag. When the financial industry was finally successful in repealing Glass-Steagall (with a little help from their not so civic minded friends in high places, of course), a bit of legislation they had in their crosshairs for many years, you'll notice that they only did away with the part regulating banking practices but left intact the part that puts you and me on the line (i.e., the FDIC). How convenient. I would say the drafters of Glass-Steagall showed a great deal of foresight but this isn't exactly rocket science. If you allow banks to be run like casinos at the same time you unconditionally insure them for losses what do you expect might happen?

[marignymitch]

Obama doesn't get it and Geithner and Summers don't get it either, Mr Scheer. They're covering their ashes with manufactured contrition. Their constituency remains the financial casino industry.

[BannedNBoston]

It is all for nothing if the FED is not audited.
HR 1207

Audit the Fed - Blog - OpenCongress
Upcoming Audit The Fed Rally's in front of every Fed building ... ning.com/e­vents/audi­t-the-fed-­melt-the ... has added an "Audit The Fed" Campaign. ...www.opencongress.org/articles/view/953-Audit-the-Fed

[jekyll]

You miss one important point. There are looking to give sweeping powers of oversight (regulation) to the Federal Reserve. How the hell can anyone support this atrocity??? The FED created the housing bubble/stock bubble with its easy credit and lowering of interest rates to 46 year lows. Also...Bernanke's OWN regulators in the summer of 2007 said that the "minor" downturn in the real estate market would be completely corrected by December of 2007. So I ask again....how the hell can anyone support giving the FED more powers?

[illusionpainter]

I believe any change when I see it and if I do see it I'll go get my eyes checked.....

[veracity]

Excellent, hard-hitting commentary again, Mr. Scheer....

Too bad the editors of HuffingtonPost don't realize that the future of THE ENTIRE "Democratic" PARTY is riding on the success of the much vaunted "Economic Recovery" -

... a recovery that was STRANGLED in birth (stillborn, even) by President Obama helping his banksters "economics team" (multi-millionaires all: Robert Rubin, Lawrence Summers, Rahm Emanuel) handing out TEN TRILLION DOLLARS to the Citi/BoA/C­hase/Goldm­an-Sachs/N­YMellon (et al) big bankers.

(With Pres. Obama having dished out ten-billion dollars to the banksters, the money for GENUINE economic recovery - production, industry, loan write-downs, etc. - much less the $2 Trillion needed for Public Option health care, is simply NO LONGER ON THE TABLE.)

It's too bad HuffPost considers glitz, fluff & entertainment more important than the looming destruction of the US economy (and "Democratic" Party with it) - there's Pulitzer Prizes to be won getting to the roots of the Neo-Con destruction of the US Economy (and especially NAMING NAMES),
but HuffPost is now FOLLOWING in the footsteps of SLATE & SALON, who in turn FOLLOWED the footsteps of the NY Times & WashPost & LA Times (etc.) in PRETENDING to be "liberal," progressive, and objective, but were really just more corporate profiteers at heart.

[veracity]

Thom Hartmann & Dr. Michael Hudson - latest update on the $10 TRILLION _giveaways_ to the Big Banks - in the past 12 months, alone, the most recent chunks ENTRELY from the OBAMA White House and DEMOCRAT Congress -
http://www.onepennysheet.com./?p=21560
YouTube direct link: http://www.youtube.com/watch?v=lY0hUBBSXOo

Mr. Scheer's previous op-ed: "Rubin & Summers, along with Greenspan, Phil Gramm, and Jim Leach, THE FIVE MEN _MOST RESPONSIBLE_ for THIS economic crisis" (NOT President Reagan!):
http://www.huffingtonpost.com/robert-scheer/reagan-didnt-do-it_b_210675.html

Mr. Scheer documents THREE TRILLION of those "Giveaways"
http://www.huffingtonpost.com/robert-scheer/in-for-a-penny-in-for-298_b_181571.html

Economist Ravi Batra (who correctly predicted the September 2008 market meltdown) concurrs with Mr. Scheer's assessment that Greenspan was party to massive economic Fraud:
"GREENSPAN's FRAUD" -
http://www.amazon.com/Greenspans-Fraud-Decades-Policies-Undermined/dp/1403968594

[watchTVgetSTUPID]

Business as usual. Apparently Obama was reading a script written by Geithner and Summers. The lie that Summers inserted was the laws put in place during the Great Depression could not protect the economy from the modernized banking system. The truth is Summers was the one who actively pushed to eliminate FDR's Glass Stiegal Act that did protect us for decades.

Now they are trying to eliminate the Savings and Loan Associations. Why? Because they are very solevant and have their own Deposit Insurance Funds. Geithner is afraid when Banks continue to fail and the FDIC runs out of money later this year, depositors will transfer their accounts to S&Ls and Credit Unions.

Obama is trying to cut off all escape routes the working people have to protect their money from the coming Wall Street financial panic.

[Jannsmoor]

These reforms may be a start but they are really just a teensie start.
If you are paying any attention at all to the looting of America's middle class, you should by now understand there are at least six reforms that need to be undertaken.
1. The 5 former investment banks and AIG need to be put into receivorship and broken up. By keeping them too big to fail, we are growing them into to big to save, which means catastrophic collapse the next time, and history teaches there will be a next time.
2. Every person who was involved at those institutions and everyone above them needs to be fired. A message to the financial sector. We may have to bail them out, but no more corporate welfare.
3. The rating agencies need some stiff punishment. They sold us out for money.
4. Credit Default Swaps need to be treated like the insurance product they are. That means reserves.
5. Owner occupied home mortgages need to be taken out of the hands of Wall Street gamblers. This is the single biggest asset most Americans will ever own. It should not be a gambling chit for greedy market speculators. Fannie Mae and Freddie Mac can take them over.
6. How about a middle class bailout? Owner occupied home mortgages need to be lowered to 3%. That will save the middle class and free up enough capital to jump start America's economy.

[Stevealmi]

Last time I checked the hedge fund managers are still unregulated, still paying the lower tax rate they so do not deserve, and the commodities markets are being leveraged at the expense of the general public which has to purchase the goods. What changed?

[gmr]

Excellent summation. Obama is not a populist. He's as much a supporter of the Wall street elitists as Clinton. Remember, he's not going to tamper with NAFTA and considered the 'buy American' legislation to be sending a bad message. He will pretend to empathize with those who are 'bitter' about loosing their jobs to outsourcing and illegal immigrants, but will in the end do what is best for those who can afford the $1000 a plate dinners. It's just like Clinton who could feel the pain for those on the bottom, but would only take advice from those representing the top one percent.

[larry278]

Obama thinks that he's a 21st century, new & improved FDR & that he is going to save American capitalism from itself as FDR did from from 1934 till he died. LOL, I'm too old & crippled to roll on the floor. Besides, I've got asthma, COPD & some allergies which leave me SOB, short of breath. But, yes, I'm the other kind of sob. Moms was a real bitch. I'm fully entitled to the name. My ex's will tell you that.

[1088]

By the time the Congress and Senate get their grubby hands on this bill, there won't be any regulations at all, because they all are bought and paid for, then the President will be blame as always.

[mjc]

Once again we have Obama either not understanding what happened in the securities meltdown or not willing to look the problem square on. Summers and Geithner are his chosen handmaidens and they have failed previously, before BO, and are now once again pretending that they have the answer to the financial problems of this country. If they remain in their posts nothing will change and it will certainly bring Obama down.

[Avery Castille]

I agree

[elbzee]

I disagree. I think he's publicly holding their feet to the fire to fix what they buggered up!

[racetoinfinity]

You echo my concerns almost precisely. I also want to see the ratings agencies completely decoupled from the very firms whose "products" they are supposed to rate completely free from influence. This is not old news. This is what MUST be done - a return to separating commercial banks from investment banks (as you say, reinstating the Glass-Steagall act. I'm not optimistic about that, but I'll wait and see today.