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 Why Obama Must Take On Wall StreetPosted on Jan 28, 2010By Robert Reich This essay is taken from Robert Reich’s blog at robertreich.org. It has been more than a year since all hell broke loose on Wall Street and, remarkably, almost nothing has been done to prevent all hell from breaking loose again. In fact, close your eyes and you could be back in the wilds of 2007. Bankers are still making wild bets, still devising new derivatives, still piling on debt. The big banks have access to money almost as cheaply as in 2007, courtesy of the Fed, so bank profits are up and bonuses as generous as at the height of the boom. The only difference is that now the Street’s biggest banks know they are “too big to fail” and will be bailed out by taxpayers if they get into trouble – which means they have every incentive to make even riskier bets. And, of course, American taxpayers are out some $120 billion, while millions have lost their homes, jobs and savings. All could be forgiven if the House and Senate committees with responsibility for coming up with new regulations were about to come down hard on the Street and if the Obama administration were pushing them to. But nothing of the sort is happening. Yes, the White House has indicated interest in charging banks for the cost of the bailout, but this is not real reform; it’s just making up for some of the direct costs of cleaning up the mess. Advertisement The bill that has already emerged from the House is hardly encouraging. Dubbed the “Wall Street Reform and Consumer Protection Act,” it effectively guarantees future Wall Street bail-outs. The bill authorizes Fed banks to provide up to $4,000 billion in emergency funding the next time the Street crashes. That is more than twice what the Fed pumped into financial markets last year. The bill also enables the government, in a banking crisis, to back financial firms’ debts—a wonderful insurance policy if you are a bondholder. To be sure, the bill authorizes the Fed and Treasury to spend these funds only when “there is at least a 99 percent likelihood that all funds and interest will be paid back,” but predictions about pending economic disasters can be conveniently flexible, especially when it comes to bailing out the Street. If this were not enough, the House bill creates regulatory loopholes big enough for bankers to drive their Ferraris through. Consider derivatives. Last year, as taxpayers threw money at the Street, congressional leaders promised to put derivative trading on public exchanges. The prices of derivatives could be disclosed and margin requirements imposed, making it more likely that traders would make good on their bets. Yet the House bill exempts nearly half the $600,000 billion of outstanding derivatives trades. The bill also allows—but, notably, does not require—regulators to “prohibit any incentive-based payment arrangement.” This makes fat bonuses the norm unless a regulator has reason to prevent them. And as we witnessed last year, bank regulators tend not to disturb the status quo. The House bill does not even make an attempt to unravel the conflict of interest that led credit ratings agencies to turn a blind eye to the risks the Street was taking on. To its credit, the House bill does create a Consumer Financial Protection Agency to protect borrowers from predatory lending. Banking regulators have authority to protect consumers but failed to do so, so consolidating these powers in a new agency makes some sense. But Senate Republicans are dead set against it, and Mr. Dodd’s new willingness to compromise may well doom it in that chamber. What is truly remarkable is what Congress and the administration have shown no interest in doing. Large numbers of Americans have lost their homes to bank foreclosures or are in danger of doing so. Yet American bankruptcy law does not allow homeowners to declare bankruptcy and have their mortgages reorganized. If it did, homeowners would have more bargaining power to renegotiate with banks. But neither Congress nor the administration has pushed to change the bankruptcy laws. Wall Street opposes such change and was instrumental in narrowing the scope of personal bankruptcy in the first place. Nor have lawmakers shown any enthusiasm for resurrecting the wall that used to exist between commercial and investment banking. The Glass-Steagall Act, passed in the wake of the Great Crash of 1929, separated the two after it became obvious that commercial deposits needed to be insured by government and kept distinct from the betting parlor of investment banking. But Wall Street forced Congress to take down the wall in 1999, enabling financial supermarkets such as Citigroup to use their deposits to make all sorts of bets. Even Obama adviser and former Fed chief Paul Volcker has argued that the two functions should be separated again. Nor is anyone talking seriously about using antitrust laws to break up the biggest banks—the traditional tonic for any capitalist entity that is “too big to fail.” Five giant Wall Street banks now dominate U.S. finance. If it was in the public’s interest to break up giant oil companies and railroads a century ago, and the mammoth telephone company AT&T, it is not unreasonable to break up the almost infinitely extensive tangles of Citigroup, Bank of America, JPMorgan Chase, Goldman Sachs and Morgan Stanley. No one has offered a clear reason why giant banks are important to the U.S. economy. Logic and experience suggests the reverse. What happened to all the tough talk from Congress and the White House early last year? Why is the financial reform agenda so small, and so late? Part of the answer is that the American public has moved on. A major tenet of U.S. politics is that if politicians wait long enough, public attention wanders. With the financial crisis appearing to be over, the public is more concerned about jobs. Another 85,000 jobs were lost in December, bringing total losses since the recession began in December 2007 to over 7 million. One out of six Americans is unemployed or underemployed. Yet if the president and Congress wanted to, they could help Americans understand the link between widespread job losses and the irresponsibility on Wall Street that plunged America into the Great Recession. They could make tough financial reform part of the answer to sustainable job growth over the long term. True, financial regulation does not make a powerful bumper sticker. Few Americans know what the denizens of Wall Street do all day. Even fewer know or care about collateralized debt obligations or credit default swaps. To the extent Americans have been paying attention to the details of any public policy, it has been the healthcare reform bill. But that only begs the question of why financial reform has not been higher on the agenda of the president and Democratic leaders. A larger explanation, I am afraid, is the grip Wall Street has over the American political process. The Street is where the money is and money buys campaign commercials on television. Wall Street firms and executives have been uniquely generous to both parties, emerging as one of the largest benefactors of the Democrats. Between November 2008 and November 2009, Wall Street doled out $42 million to lawmakers, mostly to members of the House and Senate banking committees and House and Senate leaders. In the first three quarters of 2009, the industry spent $344 million on lobbying—making the Street one of the major powerhouses in the nation’s capital. Money is powerful. Talk is cheap. Mr. Obama recently called the top bankers “fat cats,” and the bankers insisted they were shocked—shocked!—to learn how intransigent their lobbyists had been in opposing financial reform. The bankers even claimed a “disconnect” between their intentions and their lobbyists’ actions. This was all for the cameras, of course. But the widening gulf between Wall Street and Main Street—a big bail-out for the former, unemployment checks for the latter; high profits and giant bonuses for the former, job and wage losses for the latter; buoyant expectations of the former, deep anxiety and cynicism by the latter; ever fancier estates for denizens of the former, mortgage foreclosures for the rest—is dangerous. Americans went ballistic early last summer when AIG executives got big bonuses after taxpayers had bailed them out. They will not be happy when Wall Street hands out billions in bonuses very soon. Angry populism lurks just beneath the surface of two-party politics in America. Just listen to Sarah Palin or her counterparts on American talk radio and yell television. Over the long term, the political stakes in reforming Wall Street are as high as the economic. Robert Reich is professor of public policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written 12 books, including “The Work of Nations,” “Locked in the Cabinet,” and his most recent book, “Supercapitalism.” His “Marketplace” commentaries can be found on publicradio.com and iTunes.  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Bank of America Lied to Homeowners and Rewarded Foreclosures, Ex-Employees Say
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By omygodnotagain, February 2, 2010 at 11:57 pm Link to this comment
mark and liti bludot are right, Obama is a front man, a great orator, who says what people want to hear, then does something different. He is the front man for the financial, military, and industrial oligarchies that REALLY run this country
Report thisBy drbhelthi, February 2, 2010 at 2:39 am Link to this comment
Remarkable.
All the rationalizations of why Mr. Hussein Obama
does not do whatever - -.
They overlook his campaign promises.
They overlook the protocol to which he agreed when
the machine agreed to “install” him as “president.”
They overlook the eugenics programs proposed and
financed by the J.D.Rockefeller empire, which
Hitler/NAZIs attempted to implement and which are
now underway in all colonies of the USA oil moguls,
more recently Haiti. The plan includes Iran, as we
see the build-up surrounding Iran.
However, it appears that the oil moguls are waiting
til after the MOSSAD pulls off a repeat of 9-11
during the canadian olympics. The MOSSAD 9-11
during the canadian olympics will be blamed on
Moslems, and misused to unite canadian security with
the NAZI family Bush Homeland Security. The plan is
to misuse it as a springboard into Iran.
The genuine Americans among the CIA and FBI and US
military might get their act together, and deliver a
product on the side of honesty and truth, for a
change.
Which naive persons will try to rationalize why Mr.
Hussein Obama did not prevent the upcoming repeat of
9-11 at the canadian olympics?
Drawing conclusions and predicting from well-
Report thisestablished patterns is not quite reading tea
leaves. It is the method that commanders have
historically used to win battles and wars. Making
excuses wins no battles. The western world is in a
battle for continued existence. Not only the USA.
By rolmike, February 1, 2010 at 5:59 pm Link to this comment
Why ought someone who surrounded himself with the wolves
Report thiswho killed the lambs and drank their blood suddenly want
to reign them in? It seems the hope dope is still about
the land.
By http://MoneyedPoliticians.net, February 1, 2010 at 4:22 pm Link to this comment
Is Dodd actually going to retire, go go to work for the financial industry? If the latter don’t count on him passing a meaningful law.
Report thisBy Mary Morton, February 1, 2010 at 1:00 pm Link to this comment
(Unregistered commenter)
There can only be one explanation for inaction on Obama’s part and that is that his wife and children’s existence are threatened. Were it only his life, he might become a martyr, but he won’t sacrifice his family.
Report thisBy Litl Bludot, February 1, 2010 at 6:00 am Link to this comment
ofersince72
you’re welcome.
The last Nation issue had essays full of rationals for letting Obama be innocent
of what he’s actually presiding over. It’s as if the editors, K. VanderH. in
particular, have voluntarily committed intellectual suicide. I have lived awhile, and read a bit of history in my time,
but I’ve never seen this sort of mass intellectual suicide before. Perhaps it
happened in Germany when the Nazis we’re coming to power. The intelligencia either recognized the poisonous ideology, resisted, were killed, or fled:, or they rationalized, equivocated and ignored reality until it was too late. Afterwards, they were able to find themselves innocent of complicity in the atrocities.
Only now, we’re facing complete devastation, not of just our intellectual and cultural worlds, but the very physical world in which we and all other life depend.
At the very last moment for change to have any chance of saving us from planetary genocide, a fake is elected as that agent of change. Then, when its crystal clear from his actions that he is the opposite of change, not enough of the intellectual class of this country or the world have the capacity to admit it to themselves.
It’s as if these prominent defenders of intellectual truth and freedom have all of a
Report thissuddenly been possessed by corporate apologists and PR hacks.
They still look like who they were, but no longer have the same minds. Reich,
Scheer, and the rest are keeping Obama safe from blame, while he continues to
destroy what’s left of the rational world along with his corporate masters, and
the fake opposition, the Democratic party.. This is a very dire situation.
There are those who are frantically trying to make the others see. i.e. Hedges. But he and the others are being ignored by policy makers and the media, most of it, anyway.
By ofersince72, January 31, 2010 at 3:35 pm Link to this comment
my comment is that i am so glad i don’t have
Report thistoo….others have articulated my thoughts much
better than i could….THANK YOU MARK, LILBLU
AND THE OTHERS.
By wildflower, January 31, 2010 at 12:18 pm Link to this comment
Re Robert Reich: “Nor have lawmakers shown any enthusiasm for resurrecting the wall that used to exist between commercial and investment banking. The Glass-Steagall Act. . . separated the two after it became obvious that commercial deposits needed to be insured by government and kept distinct from the betting parlor of investment banking.”
Some lawmakers have noted the need and taken responsible steps:
In December, Senator John McCain, Republican of Arizona, and Senator Maria Cantwell, Democrat of Washington, jointly introduced a bill that would bring back Glass-Steagall and force commercial banks to split off their lucrative, but risky, investment banking operations from their government-insured depository banking business. The bill was gaining traction in the Senate, racking up several co-sponsors. Still, it had yet to be attached to the larger financial regulatory bill set to be debated in the coming months.
http://dealbook.blogs.nytimes.com/2010/01/22/yearning-for-glass-steagall-on-capitol-hill/?scp=1&sq=mccain cantwell&st=cse
Report thisBy Vic Anderson, January 30, 2010 at 12:52 pm Link to this comment
(Unregistered commenter)
Time to call a human a human (you and me); and a Corp.‘s a Corp.‘s: (Obama,
Report thisDEMs, miserepublicans and the Supines, et al)! Bro’ , can you spare a damn?
By Ben Leet, January 29, 2010 at 4:46 pm Link to this comment
(Unregistered commenter)
In 1970 financial corporation debt was 10% of GDP, in 2007 it was 116% of GDP (from Flow of Funds Accounts, Fed. Reserve, quoted from The Great Financial Crisis, Foster and Magdoff, Monthly Review Press). Finance is a symptom of an economy out of balance. Finance has been the top sector of profits since 1989. The rewards or remuneration favor the very top one percent, they earned 23.5% of the national income in 2007, vs. 20.3% for the bottom 60% (see Univ. of California professor Emmanuel Saez, Striking It Richer, August 2009 Update, and State of Working America 2006/2007, page 79). We need to tax high incomes over $400,000 at a 90% marginal income tax rate as we did 1942 to 1962, or 70% as in 1962 to 1983. This would shift the national income distribution ratios to the 1976 ratios, and double the incomes of the bottom 60% of workers. DOUBLE THE INCOMES OF 60% of the workforce. High taxes on super-high incomes and a jobs program - that’s one obvious solution. See http://benL8.blogspot.com for full essay. Thanks Robert Reich.
Report thisBy gerard, January 29, 2010 at 4:03 pm Link to this comment
Regarding previous post:
Google: Utah Citizens Grassroots Democracy
Report thisBy gerard, January 29, 2010 at 3:30 pm Link to this comment
Speaking of “taking on Wall Street” some of you may have seen previous posts from me regarding citizens “challenging unlimited corporate contributions” to political campaigns. My proposal, in a nutshell, is formation of nationwide grassroots organization CAFE (Citizens Advocating Fair Elections) who would ONLY sponsor and support candidates and issues that REFUSE to accept corporate money, using a mantra like WE WILL NOT BE BOUGHT, (more details if requested) and basing entire campaign on “freedom from corporate power,” etc.
Report thisI was delighted to hear on Amy Goodman today that such a campaign is already underway simultaneously in Utah. Remember Tim DeChristopher who bid on a large piece of Utah to save it from environmental destruction?
His efforts with others have resulted in The Citizens’ Candidate program, a progressive coalition attempting to unseat the Blue Dog Dem Jim Matheson. They are advertising on Craigs List for a “Courageous Congressperson” with out to corporate interests. Program: stopping catastrophic climate change, providing health care to all Americans, equal rights to LGBT etc. 16 people have applied, narrowed down to 5 who will be interviewed at Salt Lake public library by 7 activists from various key problem issues.
It’s a surprise beginning!
By SoTexGuy, January 29, 2010 at 9:24 am Link to this comment
If Mr. Reich is correct in his assessment of how strong a grip Wall Street and the banking industry currently has on the reins of our government (and I suspect he is) then what exactly is all the hub-ub over the recent SCOTUS ruling allowing direct Corporate participation in funding and promoting candidates?
It seems a reasonable expectation that if that ruling stands unimpeded by Congress then in future we at least could know for sure who the corporate shills are without bringing out the tea leaves.
Have a great day.
Report thisBy msgmi, January 29, 2010 at 8:11 am Link to this comment
(Unregistered commenter)
Wall Street remains the epicenter of profiteering where valuations have taken a back seat and Main Street has become irrelevant. While hubris on Wall Street continues to be pervasive, Capitol Hill, as usual, talks the talk and refuses to do the walk. A sad state of affairs as government and big business are headed in opposite direction of Main Street needs. Signs of an implosion are getting very ominous as Capitol Hill has lost its compass.
Report thisBy Donald Nygaard, January 29, 2010 at 7:57 am Link to this comment
Thank you Robert Reich for your thoughtful exploration of the need for Wall Street reform (let’s broaden that to all financial markets, please).
Okay, somebody please help me understand this:
“Yet the House bill exempts nearly half the $600,000 billion of outstanding derivatives trades.”
By my reading, that’s $600 trillion. I’m betting that represents more than the total money supply in the whole world, maybe even more than the total of actual wealth in the world. Assuming there’s a ray of truth in that bet, how is it in the best interest of the majority of people to have so much “value” traded in the markets? And, to whom?
It seems to me that what we have is churn in the markets with the stated purpose of managing risk, but more likely the purpose of creating opportunities to take a percentage of the action.
I await some clear thinking from the commentators. Let’s not play air guitar. Only serious discussion is welcome. I’m trying to understand what’s really happening. Then, perhaps, we can move this forum to one of action, not back-and-forth ad nauseum.
Thanks.
Report thisBy bozh, January 29, 2010 at 7:03 am Link to this comment
(Unregistered commenter)
If i wld be found correct that bankers-banking is an integral part of the system, this wld mean that no prez can significantly change the practice of banking without emending the system and which rests on US constitution or set of laws.
I also evaluate that WH knows this. I am not sure how many americans know that banking stands on set of laws and not on any prez’s wish, command, complaint, etc.
It has been proclaimed many times that US is governed by laws and not by any person!
Report thisI may be right judging by the fact that no journalist dare touch the system.tnx
By Litl Bludot, January 29, 2010 at 6:49 am Link to this comment
glider,
yes, there seems to be a mass hypnosis in effect, which does not admit a reality
that is counter to this inherently destructive, specie suicidal, planet destroying ideology of
global corporate capitalism. The MSM, and even the supposed alternative media, is self censoring in such an effortless way,
that I can’t really understand it other than in those terms. The situation
resembles a mass insanity, with a suicidal outcome, in which some of us, for some reason, are able to observe the
pathology and its obvious outcome.
I am at a loss to explain it otherwise, and your conclusion: ” f***ed up situation”,
Report thisis right on.
By Ouroborus, January 29, 2010 at 5:14 am Link to this comment
The power of the people at the top depends on the
Report thisobedience of those below. Howard Zinn
By drbhelthi, January 29, 2010 at 3:18 am Link to this comment
And in addition, qualifying the non-Americans and
Americans to be placed on presidential assassination
lists requires time and effort.
http://truthalliance.net/Archive/tabid/67/articleTyp
e/ArticleView/articleId/4481/Default.aspx
After all, there are only 24 hrs in a day, and not
Report thiseveryone can be trusted with the administrative
authority of the US presidency, which the family
Bush magnanimously, illegally extended beyond the US
Constitution, in order to disregard the obviously
bribed or stupid (perhaps both) congressional
membership.
By drbhelthi, January 29, 2010 at 2:58 am Link to this comment
Mr. Hussein Obama “take on Wall Street” ?
A marvelous fantasy thought.
Why would he “take on” the entity that helped
put him into office, to which he is delivering
servitude, and which entity tools around with
the weapons industry that supports the US military?
The US presidential entourage is too busy organizing military plans for expanding the genocide conducted in various sovereign nations that have never had plans to attack the USofA. Which genocide was most recently extended to Haiti, with its billions of barrels of oil reserves waiting to be tapped by ????, once the Obama presidency has permitted their acquisition, and repopulated the citizenry with US military personnel, CIA and Blackwater-Ex murderous puppetry.
Meanwhile, the only self-alleged “nation” that has
Report thisattacked the USofA (see USS Liverty & USS Cole)
receives a daily stipend of 11
million US dollars, annually billions of dollars
worth of gratuitous weaponry sales. Obviously, the
US Congress is rewarding the leadership of Israel
for their attacks on the USofA, strengthening the
tendency to repeat the same, with relative impunity.
One concludes that the US Congress is paying israeli
leadership to launch more attacks on the USofA and
whomever else its leadership selects. With support
of the US Congress - - .
By yours truly, January 29, 2010 at 12:30 am Link to this comment
(Unregistered commenter)
Only a populist progressive movement can reverse this fascist takeover. What’s more there’s no time to waste because President Obama & Congress instantly cave before every right-wing demand. As for those who say “forget it, nothing we can do about it, so why try”, please consider what life in America would be like now if the sufragettes had been defeatist, or workers in the thirties, or civil rights and anti-war advocates in the sixties? Yes, it’s true that only six years ago one of the largest gatherings ever failed at preventing the Iraq War, but does this justify our calling it quits? Surely not when perpetual war + global warming + economic collapse = doomsday, and time’s running out. What can we do about it? Rise up en masse and change the world, that’s what. And there is no alernative.
Report thisBy glider, January 28, 2010 at 11:41 pm Link to this comment
Bludot
“increasingly bizarre that the talking heads, like Reich, who have been in the professional/intellectual/governmental upper echelon of the US, can’t see that Obama is a corporate hack masquerading as a public servant”.
Agreed, and I can only think it is because there is no realistic option available beyond this false hope, which is no excuse for such delusions. After, reading Reich’s comments you just wonder what he could be thinking when he hears Obama say “never again will Americans be forced to bailout banks for irresponsible…”. How can it be anything else other than deliberate deception? Our government and media is so bad and so corrupt that this is just normal now. There really is no way out of this f***ed up situation.
Report thisBy samosamo, January 28, 2010 at 10:45 pm Link to this comment
It’s not ‘why he must’ but ‘why he won’t’ take on wall street; they
Report thiswould have him killed within minutes of his trying to do so.
By Litl Bludot, January 28, 2010 at 9:39 pm Link to this comment
It is becoming increasingly bizarre that the talking heads, like Reich, who have
been in the professional/intellectual/governmental upper echelon of the US,
can’t see that Obama is a corporate hack masquerading as a public servant. It’s
not only Reich, but virtually all of the one’s in the MSM and/or supposed
alternative media, like Robert Scheer, still see Obama as a good guy, who
means well, but just can’t seem to get the right strategy. He will eventually,
and then we will see change.
But, what I see is the further strengthening of corporate rule by every new
major policy Obama advocates, whether its war, environmental, economic,
energy, education. He gave away the treasury to the corporations, increased
the spending on war and destruction, and now he wants to make the public pay
for it by freezing the federal budget. This type of governance is something
only Reagan, Bush, Bush jr. could dream about getting away with. Obama’s
done it in the first year in office. He’s the progressive, ostensibly, inacting
corporate takeover policies, but oh, it’s about change we can believe in.
And yet, Reich and Scheer still believe Obama’s innocent of knowing what he is
Report thisactually doing, what the policies he’s pursuing are going to do to the people. I just don’t understand why they
keep giving this guy a character he doesn’t have. He’s a complete fake.
By Mark, January 28, 2010 at 7:27 pm Link to this comment
(Unregistered commenter)
Reich is kidding himself about Obama taking on Wall Street. Either that or he’s kidding us.
Here’s the thing:
Ben Bernanke - the guy who missed the bubble, the guy who bailed out investment banks for the first time in the history of the Fed, the guy who expanded the balance sheet of the Fed by trillions (thereby increasing the national debt) and gave the newly created money to Wall Street, the guy who had the gall to suggest to Congress that the burgeoning Federal deficit would have to be reduced by cutting social security and medicare benefits - just got approved for a second term as Fed chief, AT THE INSISTENCE OF THE WHITEHOUSE, aka Pres. Obama.
Where can you get an ample supply of tar and feathers these days?
Report thisBy gerard, January 28, 2010 at 5:45 pm Link to this comment
Just read this one more time, think of its implications for injustice, and if it doesn’t make you feel sick, you missed the point.
“A larger explanation, I am afraid, is the grip Wall Street has over the American political process. The Street is where the money is and money buys campaign commercials on television. Wall Street firms and executives have been uniquely generous to both parties, emerging as one of the largest benefactors of the Democrats. Between November 2008 and November 2009, Wall Street doled out $42m to lawmakers, mostly to members of the House and Senate banking committees and House and Senate leaders. In the first three quarters of 2009, the industry spent $344m on lobbying – making the Street one of the major powerhouses in the nation’s capital.”
Report this