Runaway Wall Street

It is instructional that only one of the three tax-challenged Obama appointees has survived public scorn to retain a high position in the new administration. Oddly enough, it is Treasury Secretary Timothy Geithner, the man who will collect our taxes, whose career has not been stunted by his failure to pay them.

What makes Geithner so special? The answer, provided by everyone from the president to the media pundits, is that his services are indispensable because he has the expertise in regulating markets needed to preside over the most massive government intervention in the economy. Are they kidding?

Both in his years in the Clinton treasury and as chair of the New York Federal Reserve Bank, Geithner has been paving the way for a runaway Wall Street. Nor has he changed his ways, as was evidenced once again last week with his appointment of Mark Peterson, a Goldman Sachs vice president and lobbyist, to be his top aide. Peterson had lobbied strenuously for precisely the deregulation that the Obama administration now concedes needs reversing. It was confirmation that Goldman Sachs runs the Treasury Department-no matter which party is in power.

Last October the New York Times ran a devastating story entitled "The Guys from 'Government Sachs,'" spotlighting the many Goldman Sachs alums operating under the firm's former head, Henry Paulson, after he was named Treasury Secretary. The problem is that Geithner, whom Obama appointed as Paulson's replacement, was totally enmeshed in Paulson's handout to Wall Street while chair of the New York Fed. In that capacity, Geithner was intimately involved in the highly questionable negotiations to bail out AIG, in which Goldman had a $20 billion partnership at risk.

Goldman Sachs CEO Lloyd C. Blankfein was present for those rushed and highly guarded weekend meetings which resulted in an initial $85 billion bailout for AIG, and has since grown to $122 billion. As the Times reported, "Mr. Paulson helped select a director form Goldman's own board to lead AIG." That decision to save AIG came after the New York Fed, led by Geithner, summarily spurned requests to save Goldman competitor Lehman Brothers. While he opposed Lehman's attempt to reconstitute as a bank holding company and therefore obtain federal financing, he later supported a similar request by Goldman Sachs.

Another major player in those machinations was Robert Rubin, who headed Goldman Sachs before becoming treasury secretary under Clinton and who pushed for the radical deregulation that is at the center of the banking crisis. Geithner was a protege of Rubin's in that effort, as was Lawrence Summers, who went on to be Clinton's treasury secretary after Rubin moved on to head Citigroup. Regrettably, Summers is now the key White House economics adviser.

Rubin, Geithner and Summers are hell-bent on denying the responsibility of their deregulation initiatives for the economic crisis. But the reality is that the merger of investment and commercial banks with insurance companies and stock brokers was illegal before the approval of their legislation, which reversed the Glass-Steagall Act passed under Franklin Delano Roosevelt. So, too, the newfangled financial instruments exempted from any government regulation, thanks to the Commodity Futures Modernization Act that Summers got Clinton to sign into law a month before he left office.

The reversal of Glass-Steagall unleashed the robber barons, as was freely conceded by Goldman CEO Blankfein in an interview he gave to the New York Times in June of 2007. "If you take an historical perspective," Blankfein said, gloating back then about the vast expansion of Goldman Sachs, "We've come full circle, because that is exactly what the Rothchilds or J.P. Morgan the banker were doing in their heyday. What caused an aberration was the Glass-Steagall Act."

The "aberration" being the sensible regulation of Wall Street to prevent another depression, which now seems dangerously close at hand. Since Glass-Steagall was repealed in 1999, Goldman Sachs experienced a 265 percent growth in its balance sheet, totaling $1 trillion in 2007.

What we need is an honest accounting of how we got into this mess, beginning with an investigation of the role of Goldman Sachs as the most insidious Wall Street player. But we are not likely to get that from an administration populated by Goldman's Washington allies.

On Tuesday, the new Attorney General Eric Holder assured Wall Street that "We're not going to go out on any witch hunts." But what if the once-celebrated financial wizards, still allowed to dominate our economic policies, are indeed wicked witches?