good that Barack Obama is an agile basketball player because on
financial regulatory reform he's having to straddle an ever widening
chasm between his words and his deeds.
said: "Millions of Americans who have worked hard and behaved
responsibility have seen their life dreams eroded by the
irresponsibility of others and by the failure of their government to
provide adequate oversight. Our entire economy has been undermined by
"Over the past two
decades, we have seen, time and again, cycles of precipitous booms and
busts. In each case, millions of people have had their lives profoundly
disrupted by developments in the financial system, most severely in our
Strong words, even
though he didn't include "corporate crime, fraud and abuse" to replace
the euphemism "irresponsibility." One would think that his 88 page
reform proposal to Congress would be up to his words. Instead he
provides Washington aspirins for Wall Street brain cancer.
anemic nature of these reforms ostensibly designed to prevent or deter
another big bust on Wall Street and its hostage grip on the nation's
savings and investments immediately drew the ire of well-regarded
Joe Nocera of the
New York Times wrote the "the Obama plan is little more than an attempt
to stick some new regulatory fingers into a very leaky financial dam
rather than rebuild the dam itself." Nocera asserts that the reforms do
not "attempt to diminish the use" of the customized type of derivatives
which trillions of risky dollars generated "enormous damage to the
financial system" ala A.I.G's collapse. He notes President Roosevelt's
far more fundamental reforms, included the Glass-Steagall Act, which
"separated banking from investment." It prevented a lot of banking
mischief until Clinton, his Treasury Secretary Robert Rubin and
Citigroup got Glass-Steagall repealed in 1999. Obama is not proposing
to re-instate this critical safeguard. Nocera said, firms "will have to
put up a little more capital, and deal with a little more oversight,
but....in all likelihood, [it will] "be back to business as usual."
business reporter, Gretchen Morgenson, ripped into the Obama plan in
the Sunday New York Times for doing too little to eliminate systemic
risks posed by financial firms that are "too big to fail." "Rather than
propose ways to shrink these companies and the risks they pose, the
Geithner plan argues instead for enhanced regulatory oversight of the
behemoths." She implies that taxpayers will be on the hook for even
greater bailouts in the future.
measure to prevent the "too big to fail" bailouts was suggested by none
other than Obama's current economic advisor, former Federal Reserve
Chairman, Paul Volcker. Speaking in China, no less, Volcker recently
said the Federal government could simply prevent these big banks from
trading for their own accounts. But Obama is not listening to Volcker
these days. Instead Treasury Secretary Timothy Geithner and White House
advisor, Larry Summers, who played important roles in the past decade
facilitating the enormous speculation on Wall Street, have got Obama's
The President's plan omits, (1)
strong antitrust enforcement, (2) tough corporate crime prosecution,
and (3) more authority for shareholders, who own their companies, to
control their hired bosses. The plan should have included giving
shareholders the decisive power to set executive compensation-the
perverse compensation incentives helped push companies to wild
The reform plan's
defaults go on and on. There are no mechanisms to encourage millions of
investors to band together in Financial Consumer Associations. In 1985
then Cong. Chuck Schumer (Dem. NY) introduced such an amendment to the
savings and loans bailout legislation. It did not pass.
about sub-prime mortgage securities? Banks would be required to retain
just a five percent stake before handing them off to other syndicates.
This hardly is enough to induce prudence by banks selling these
mortgages to impecunious home buyers.
does propose a new financial consumer regulatory agency. But unless he
appoints someone, as chair, like tough-minded Harvard Law Professor,
Elizabeth Warren, who advanced the idea, the regulated financial firms
will, as usual, take over the agency.
Washington Post's Steven Pearlstein, derided the Obama proposals for
not being "grounded, first and foremost, in a thorough and independent
analysis of how the crisis was allowed to develop and what regulators
did and didn't do to prevent it...." He was disappointed by the lack of
controls over "hedge funds, private-equity funds or structured
strengthen the fiduciary duties to investors by stock brokers. But he
did not give these defrauded investors any better civil action rights
in court beyond what they were left with by the hand-tying securities
law passed in 1995.
So now it is up to
Congress and its hordes of banking and insurance lobbyists. Good luck,
savers and investors. Unless that is, you're doing your business with
credit union cooperatives which don't gamble with your money.
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