Earlier this week, the inspector general for the Troubled Asset
Relief Program, a k a, the bank bailout fund, released his report on
the 2008 rescue of the American International Group, the insurer. The
gist of the report is that government officials made no serious attempt
to extract concessions from bankers, even though these bankers received
huge benefits from the rescue. And more than money was lost. By making
what was in effect a multibillion-dollar gift to Wall Street, policy
makers undermined their own credibility - and put the broader economy
at risk.
Ten years ago, the Republican-controlled Congress - egged on by
that champion deregulator, former Texas Sen. Phil Gramm - passed
legislation that arguably did more to plunge the United States into
our crippling great recession than anything else: It repealed the
Great Depression era's Glass-Steagall Act.
Then on Nov. 12, 1999, an acquiescent Democratic president, Bill
Clinton, signed the repeal into law.
What's up with Barack Obama? The candidate
for change once promised to take on the powerful banking interests but
is now doing their bidding. Finally, a leading Democrat, in this case
Senate Banking Committee Chairman Chris Dodd, has a good idea for
monitoring the Wall Street fat cats who all but destroyed the American
economy, and the Obama administration condemns it.
It was a startling admission from one of the architects of the modern financial system. John Reed, who with Sandy Weill created Citigroup, said the merger was a mistake. What's more, Reed went on to say that the repeal of the Glass-Steagall Act,
which was needed to make the merger legal, was also a mistake.
When it comes to understanding the real economy and the struggles of
ordinary Americans, Senator Bernie Sanders always seems to be ahead of
the curve and fighting like hell for Congress to show leadership and be
responsive.
The Obama administration promised to reform the financial system and
make it safe for the rest of us, but recent Congressional action is more
likely to reset the fuse for another explosive calamity. The time bomb
in this case is that arcane financial instrument known as
derivatives--the hedging devices that the big banks sell to investors,
corporations and other banks to reduce risk or evade the requirements to
hold adequate capital on their books.
President
Obama will go to Asia next week and has promised to say something about
the exchange rate between the Chinese yuan and the U.S. dollar.
Today marks the 10-year anniversary of the passage of the repeal of the
1933 Glass-Steagall Act and related legislation. It is an anniversary
worth noting for what it teaches us about forestalling financial
crises, the consequences of maniacal deregulation, and the
out-of-control political power of the megafinancial institutions.
Wall Street
is doing to America what private equity firms did to Simmons Bedding and many
other productive companies. Taking control with borrowed money, stripping
assets, slashing jobs and cashing out.
Taxpayer bailouts saved Wall
Street from choking on its own greed. Now, as the Wall Street Journal reports,
"Major U.S. banks and securities firms are on pace to pay their employees about
$140 billion this year -- a record high."
Remember those Republican boasts that they would turn health care
into President Obama's Waterloo? Well, exit polls suggest that to the
extent that health care was an issue in Tuesday's elections, it worked
in Democrats' favor. But while health care won't be Mr. Obama's
Waterloo, economic policy is starting to look like his Anzio.
