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The New Finance Bill: A Mountain of Legislative Paper, a Molehill of Reform
Thursday the President pronounced that "because of this [financial reform] bill the American people will never again be asked to foot the bill for Wall Street's mistakes."
As if to prove him wrong, Goldman Sachs simultaneously announced it had struck a deal with federal prosecutors to pay $550 million to settle federal claims it misled investors - a sum representing a mere 15 days profit for the firm based on its 2009 earnings. Goldman's share price immediately jumped 4.3 percent, and the Street proclaimed its chair and CEO, Lloyd ("Goldman is doing God's work") Blankfein, a winner. Financial analysts rushed to affirm a glowing outlook for Goldman stock.
Blankfein, you may recall, was at the meeting in late 2008 when Tim Geithner and Hank Paulson decided to bail out AIG, and thereby deliver through AIG a $13 billion no-strings-attached taxpayer windfall to Goldman. In a world where money is the measure of everything, Blankfein's power and influence have grown. Presumably, Goldman can expect more windfalls in future years.
Although the financial reform bill may have clipped some of Goldman's wings - its lucrative derivative business may require Goldman to jettison its status as a bank holding company, and the access to the Fed discount window that comes with it - the main point is that the Goldman settlement reveals everything that's weakest about the financial reform bill.
The American people will continue to have to foot the bill for the mistakes of Wall Street's biggest banks because the legislation does nothing to diminish the economic and political power of these giants. It does not cap their size. It does not resurrect the Glass-Steagall Act that once separated commercial (normal) banking from investment (casino) banking. It does not even link the pay of their traders and top executives to long-term performance. In other words, it does nothing to change their basic structure. And for this reason, it gives them an implicit federal insurance policy against failure unavailable to smaller banks - thereby adding to their economic and political power in the future.
The bill contains hortatory language but is precariously weak in the details. The so-called Volcker Rule has been watered down and delayed. Blanche Lincoln's important proposal that derivatives be traded in separate entities which aren't subsidized by commercial deposits has been shrunk and compromised. Customized derivates can remain underground. The consumer protection agency has been lodged in the Fed, whose own consumer division failed miserably to protect consumers last time around.
On every important issue the legislation merely passes on to regulators decisions about how to oversee the big banks and treat them if they're behaving badly. But if history proves one lesson it's that regulators won't and can't. They don't have the resources. They don't have the knowledge. They are staffed by people in their 30s and 40s who are paid a small fraction of what the lawyers working for the banks are paid. Many want and expect better-paying jobs on Wall Street after they leave government, and so are shrink-wrapped in a basic conflict of interest. And the big banks' lawyers and accountants can run circles around them by threatening protracted litigation.
Why do you think Goldman got off so easily from such serious charges of fraud?
Reliance on the discretion of regulators rather than structural changes in the banking system plays directly into the hands of the big banks and their executives and traders who contribute mightily to Democratic and Republican campaigns. The flow of money virtually guarantees that regulatory agencies won't be adequately staffed to enforce the law, that penalties for violations won't be overly onerous, and that all loopholes (what's a "derivative"? what has to be listed on exchanges? exactly how much capital must be on hand for which transactions? How are the various forms of predatory lending to be defined?) will be easily stretched in future years. Wall Street lawyers will have a field day. The profit-for-nothing sector of the economy (law, accounting, finance) will continue to grow buoyantly.
Make no mistake: As long as there's no fundamental change in the structure of Wall Street - as long as the big banks stay as big and are allowed to grow bigger, and have every incentive to invent new financial gimmicks with which to bet other peoples' money - they will remain too big to fail, and too politically powerful to control.
Goldman's share price, as well as those of JP Morgan Chase, Citicorps, Morgan Stanley, and Bank of America, will no doubt soar the basis of the final bill because their future profits are almost guaranteed. The pay of their executives and traders, and of the managers of hedge funds and private-equity funds they deal with, will likewise accelerate. In the short term the economy will benefit, at least to the extent financial entrepreneurship is now the apex of American wealth and innovation. But over the longer term we will be much weaker for it.
Congress has labored mightily to produce a mountain of legislation that can be called financial reform, but it has produced a molehill relative to the wreckage Wall Street wreaked upon the nation.
Robert Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School 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. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, Aftershock: The Next Economy and America’s Future; The Work of Nations; Locked in the Cabinet; Supercapitalism; and his newest, Beyond Outrage. His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
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45 Comments so far
Show AllReich makes a valid point, but what's the big deal?
He needs to wake up and face the fact that ALL LEGISLATION is formulated this way.
The Five Families of the Corporate Mafia have captured the policy making process. They and their "lobbyists" write the legislation and direct it from proposal to implementation - they own the place.
In the Orwellian Doublespeak, anytime we hear: "reform" or "way forward" it means the exact opposite
Can you imagine if lawyers today had to draw up a modern bill of rights.... who would be able to say they understand it? ...but lawyers who would get jobs from that very angle.
socialist sez: "ALL legislation is formulated this way" ... "they write the legislation" ... " 'reform' means the exact opposite"
***
Way to kick off the comments, sir.
Just wanted to repeat those truths; you've preempted anything I might have added.
Although all legislation is formulated this way, this bankster bill and the Obamacare bill are the proverbial 900 pound gorillas that, in terms of cost, breadth and duration of impact will dwarf all other legislation to the extent that they will assure that there is no money to fund any domestic programs, no matter how enlightened or beneficial any of those domestic programs might be.
In summary, the bankster bill and Obamacare alone will turn the US into a third world nation.
Your math may be correct but how long into the billing cycle did you allow for the old " sucker punch " of higher taxation but no representation on your medical? I'm thinking it'll take ten yrs max for citizens to do the math; then what, poultices?
There's no "reform" whatsoever without prison time for the bank robbers and their accomplices who stole the wealth of several generations.
When criminals are rewarded for their lawbreaking and the victims are punished the rule of law is dead, the thievery will continue and anarchy will ensue.
There's a tangible link between the unpunished constitutional crimes of the past five presidential administrations and the burglary epidemic on Wall Street.
Until the rule of law is reestablished "reform" will merely be a punch line at Wall Street cocktail parties.
Cygnus- Here! Here! The true continental divide is not in Colorado but in the court system of the United States. Under the guise of fairness and justice the wealthy own the court system. Yes, " reform " will be a joke at Wall Street cocktail parties and one can only hope the caterers are anarchists.
Ditto!!
Enactments of Congress have become increasingly divorced from any goal of utilitarianism (the greatest good for the greatest number) or any other universally defensible basis for justice. Certainly the law never has been anywhere synonymous with justice, but in functional and healthy societies there would be some balance of rules for the common good with rules that merely serve the elites. In the US new laws simply express the wishes and prerogatives of the powerful and the politically connected, i.e, the elites, and nothing more. In such circumstances, it may be desirable to promote a philosophy and system of justice completely separate from the existing laws on the books. The difficulty is that since there is no concrete and established means for determining agreement upon, enforcing, or even broadly communicating such a set of rules or system of justice, any developing system will be unstable, fragile, and fraught with uncertainties and ambiguities.
Increasingly divorced from any goal of utilitarianism, and increasingly married to marketing tricks that make things palatable to the public at large. Increasingly politicians hire advertising agencies to "package" them and their work, and this so called financial reform is one instance. Obama has already been making the news and talk show circuit about it.
You've got that right.
KIVALS: If the world survives global warming, being drenched in armaments, and the substitution of faux banking for real/sound economies... then one such as your son, who has no doubt benefited from hearing you discuss the contrasts and similarities between American capitalism and its hybrid in China, will be well-positioned to be among those "designers of what is to come next." There are no accidents! The soul chooses its birth channel. And your offspring has come into a fascinating one, as it represents the congruence of two once quite-apart worlds.
Thank you for your carefully analyzed posts.
How very kind of you. However, I cannot allow my son, who is an extraordinary student at his age, to see such words as he already has very large ambitions and a more than adequate ego that I do not want to feed and turn into a monster.
By the way, thank you for your many insightful and thought-provoking comments.
Goldman CEO Lloyd Blofeld (Ernst's younger brother) is pleased with this reform package. Lloyd to O-man:"...is the 'package' delivered yet?" O-man,"yessireebob"."Well done,good & faithful servant".
I listened to EJ Dionne the liberal columnist on NPR today trying to defend this farce of a bill. He said and I'll need to paraphrase him here. The bill was the only kind that could be expected out of "our" democracy today. What a joke! Had he been honest he would have said, it's the only kind of bill we'd get out of our CRONY CAPITALIST system today and the Corporatist Gov't that fell-ates it regularly. Instead, Mr. Dionne legitimatized this joke and moved on.
I'm surprised he didn't say something to the tune of:
"Don't allow perfect be the enemy of good" as many Obamabots love to chant.
The Obama agenda is clear. Pass laws that do more harm than good. Declare them as a "triumph for Obama." Blame all deficiencies and failures on Congress. Repeat.
This bill kowtows to Wall Street exactly the same way the health care "reform" bill Congress spent soooo long passing was strictly intended to satisfy the demands of Big Insurance and Pharma, and Obama has similarly demanded nothing else. Can anyone point out a single thing the Obama administration is doing that differs in the slightest degree to what the Bush-Cheney crime gang did? Of course not.
But we can count on liberals everywhere to vote the bastard right back into office, since they'll continue refusing to consider, or even bother finding out about, third party possibilities. They'll scold and preach against anyone running to the left of Dems the way they've done over and over, guaranteeing nothing but more and more of the same shit. Then they'll carp and squawk about how "disappointed" they are with Obama and the Dem's capitulations to the Republican agenda, from perpetual wars (Iran's in their sights now) to Wall Street thievery to wrecked health care masquerading as reform to environmental catastrophes that go rewarded, never punished, to deepening unemployment and worsening recession blurring into depression, and the liberals won't learn a fucking thing.
If we don't get off this Democratic/Republican roller coaster we're all going to collide head on with irreversible disaster. Probably we already have.
Ephraim: You are so right on. I am sick and tired of voting for the lessor of two evils (DemocRats!). The effing R's are so totally fascist it is vile. They are all vile. This sham of a "democracy" they let us vote BFD! Until there's term limits what is the point? Follow the money has become the way. Why is it that the Prez has term limits and not the rest of the scum?
How this cheesehead swells with contrarian pride... who was the only Dem to vote against the bill? The pride of Packerland.... Russ Feingold.
Another example of how the voters were duped.
Ok, I get it: so the financial reform bill is like the healthcare reform bill. All window dressing, like Obama himself.
The very sad thing about these two bills is that Republicans take out any meaningful reforms and then they don't vote for them anyway.
JMALH,
Do you honestly believe this is all the fault of the Republicans?
Chelsea
Hugo Chavez on the financial reform bill; " I smell sulphur in the air, do you smell the sulphur, too? " The democrats smell of sulphur as much as the republicans, yes?
Did you even follow what happened?
What happened was a BIG NO to: 1) the Voulker Rule 2) No answer to To Big To Fail 3) watered down derivitive trading regulation 4) audit the Fed was cut back to be a one-time shot 5) ETC. Yes, I paid attention and the Republicrats got more money Wall Street after the bill went thru Conference: House/Senate. My comment was meant to mean 2-3 things: the devil of whom Chavez speaks has fingerprints on this, the devil is in the details which are weak and the devil made me do it which will be their campaign slogan. The Conngress is such a lost cause because our reps are mostly millionaires who won't piss off their wealthy benefactors by passing strict regulation, fair taxes, etc etc. Same ol' shit, different guys!!!
NO surprise here
Another fake, scam reform ( NOT) bill just like the health care deform bill.
Obummer would do anything to please his corporate masters.
jspkim,
Hi! It's nice seeing you here on CD.
Indeed you're correct about Obummer.
ChelseaC
Hi Chelsea, even obots on HP are running out of excuses for O.
This piece of legislation should be called the National Financial Blow Job Bill. Americans, get ready for surprising pain in your temperomandibular joints.
Trylon
You know, I remember when here on common dreams there was no edit section. You know how there is a part on top where you read what you wrote, but to edit you have to go down, to the section underneath that. IF, you forget and type into the top, reading section, what you wrote is automatically deleted. THIS SUCKS.
I JUST WROTE A REALLY GOOD PIECE AND DID JUST THAT. I wonder what freakin purpose this serves....
I don't have all the time in the world to sit here and write. Wish I did. But.....damn it!
Never use a web-based application as a word processor. Compose your remarks in an application on your computer, spell check, then copy-paste into CD.
Watered some of my garden so.. here, I'll try again...
I know some of you have come to this conclusion a long time ago... (but I'd like to mention that I am trying to reach those that normally don't pay attention. Like how I handed a copy of Amy's show, the "Food Bubble" to a 20something todya, driving into the gas station, with his father in tow). that the uber rich do not have loyalty to any one country... just making gobs and gobs of money. They will invest in 3rd world counties, sure. Thus, globalization. So, where does that leave the average person, world over? NO WHERE. We have no power. Not that we ever had that much. But for instance, I was listening to Michael Parenti today on TUC radio... great stuff... and did anyone listen to Amy today? The Matt Taibi stuff about how the bankers manipulated the wheat market and cause the food prices world wide to go up 80%.. thus food riots and hungry people.
There you have it... We here on the lowly plain have got to stop this... some how. This is nuts. I think we are already at the point of being between a rock and a hard place. THat would be
CLIMATE CHANGE AND PEAK OIL....
AND I DON'T UNDERSTAND HOW SOME PEOPLE CAN SEPERATE OUT PEAK OIL FROM THE REST OF OUR MAJOR ISSUES FACING US NOW. EVERY THING IS WOVEN TOGETHER. THE RICH THINK THEY WILL INSOLATE THEMSELVES FROM BOTH. THEY ARE BUIDING UP THERE SUPPLIES( OF MONEY) AND FOOD AND WHAT NOT, LAND, WATER, PROTECTION... PEAK OIL IS HERE AND IT IS ALREADY TAKING IT'S TOLL- THE GULF OF MEXICO, IRAQ AND NEXT THE ARTIC...
Writing is different from rambling. Writing is succinct while rambling is irrelevant, even if the content has merit.
Won't it be amusing to see Obama's fate when he's shown, on a day hopefully not long from now - within this, his first term as Puppet, in graphic detail, what a goddamn liar he is. The American people will never again be asked to foot the bill for Wall Street's mistakes?!?!?!?!?!?!?
Who the fuck does he think he's bullshitting???
Does this statement not display the very contempt for the people which has been at the root of allowing the United States to degenerate into the shithole it is, via Obama's garbage 'health-care reform', this garbage 'financial reform', the escalation of the fascist, fraudulent 'wars' with their obscene squandering of what Tom Engelhardt calls 'the national treasure', and all the rest of the shit that pre-dates Obama - notably, in the last thirty years, the crimes of Reagan, Bush Sr., Clinton and The Boy Hooker?
You will regret those words, Barack. I just hope you're actually in office when it happens. No, indeed, the American people are off the hook, Barack. The very second hell freezes over.
Obama knows he is BSing.
Obama also knows he, Michelle and the kids will all have cushy corporate gigs waiting for them whenever they leave the white house.
This is good news if you are eager to see the collapse of the irreparably corrupt, greedy, murderous and incompetent USA.
I used to worry about the fate of “my” country, but once I realized that the USA is nothing but a giant game of Keep-Away, then I stopped thinking of it as “mine”.
Sadly, for good old Abe Lincoln and for most people, government of the people, by the people, for the people, has perished from the earth. It died in November of 2000 without a word of protest from the “Democrats”.
Now we see President Quisling throwing a lifeline to the greedy pigs on Wall Street.
Actually it’s not a lifeline. It’s an incentive for them to steal even more and bring about a collapse that will put the Dow Jones into triple digits.
Give them enough rope and they will hang themselves.
Economic collapse? Bring it on.
Who can get elected that CD comenters will love??
If this is the only bill we can get out of our democracy today Mr.Dionne - then we have no democracy.
Perhaps the correct term, would be 'corporatism', as Mussolini defined fascism to be.
How far we come. How far we have fallen!
That the system serves only the top few percent is nothing new. What's new is that time's running out, being that perpetual war + global warming + economic collapse = doomsday. Which raises the question as to why, at such a historical moment, we cling to a system that has us so hopelessly mired in the status quo? Whatever the reason, best we let go & STAT. Let go and do what? Rise up en masse and change the world, that's what. And TINA!
Obama claims that these reforms will mean that never again will there need to be a bail out of Wall Street. My view is that of course there will need to be another bailout for Wall Street and soon. Wall Street has no other mechanism to make the money its investors want but to run a ponzi scheme. It has to create a bubble, buy low and sell out before overinflated values collapse. It has to do what Goldman-Sachs did with mortgage securities. buy low-create a bubble-- secretly change positions-sell high to those gullible enough to accept their advice. And finance the buying on margin using the federal reserve discount window. God-- we know their M.O. We just don't know the particular commodity or financial instrument they will use next. What do we demand when the next blow up does happen? An end to the political and professional careers of those who went along with this "reform." Jail time would help to reinforce the point. And end to a private federal reserve. A National banking system that sets credit according to real needs of the economy and its industrial policy. Let's get our ducks in a row so we know what to shoot at when this "reform" fails.
So why is Obama so afraid to follow through?
http://coyotesings.wordpress.com/
Totalitarian
Plutocratic
State-Corporatism
Sucks.
Corp is Borg.
"Banks have done more injury to the morality, prosperity, and wealth of the nation than they will ever do good." -John Adams 1799
If you're not familiar with the following site, you might want to take time and read some of the articles here: http://theeconomiccollapseblog.com/. They address all of the issues which spell disaster for our country and the globe.
Perpetuating the status quo isn't working!