Journalism in the Public Interest

No, Obama Isn’t About to Crack Down on Wall Street

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In President Obama's second term, financial regulation would finally appear to have the leverage.

Wall Street spent zillions on Mitt Romney, who had promised to roll back financial reform, and lost. Elizabeth Warren now sits in the world's greatest deliberative body. With the election behind us, regulators are likely to be less intimidated by the specter of being hauled in front of Congress and yelled at, especially by House Republicans.

Already, the Obama administration has been moving to install tougher regulators than it had in the early part of its tenure. The early first-term financial regulatory heads were either conciliators or place holders. Mary L. Schapiro had to reinvigorate a Securities and Exchange Commission that was demoralized from its failures to catch Bernard L. Madoff and to foresee the financial crisis. Treasury Secretary Timothy F. Geithner had to deal with the 2008 crisis and its aftermath, and sidelined banking accountability. Others — like John G. Walsh, who was the acting comptroller of the currency, and Edward DeMarco, who is the acting director of the Federal Housing Finance Agency — have been perceived by reformers as active roadblocks.

The second-generation appointees, like the Consumer Financial Protection Bureau's Richard Cordray and the new comptroller of the currency, Thomas J. Curry, actually evince a desire to regulate.

What's more, the pace of regulation should accelerate. Regulators have been slow-walking the Dodd-Frank overhaul. Only a third of the rules have been finalized — and worse, a third haven't even been proposed, according to the law firm Davis Polk & Wardwell. And it got only worse as we approached the election, because nothing is more abominable to Washington regulators than to become an election issue. If a decision could be ducked or a rule delayed, they did it. At that pace, financial reform would have been completed sometime in the second term of the Sasha Obama administration.

Surely, reformers can now ride in and save the day, right?

Alas, no. While the rule making will speed up, the core problems with the financial system and its regulators are deeper than personnel and sadly impervious to which party occupies the White House. They are bipartisan and structural.

The examples of bipartisan cowardice and ineptitude are legion, but one of the most telling involves a particularly dispiriting disappointment of Ms. Schapiro's tenure at the S.E.C.: the failure to figure out a solution for money market funds, which are able to mask their risk under the current rules. It was a shared fumble, with a Democratic commissioner joining Republicans in proposing more study of the topic in order to issue a report calling for more study.

The structural issues go deeper. The Commodity Futures Trading Commission and the Securities and Exchange Commission still exist as two separate agencies, a huge missed opportunity for Dodd-Frank and one borne of politics. The C.F.T.C. is protected (and bashed) by the Senate Agriculture Committee, the S.E.C. by the Senate Banking Committee. Merging the agencies would mean that one of those committees would lose power, so forget about that. Gary Gensler, the head of the commodities commission, has been tough, but has been limited by his agency's paltry resources. And, anyway, these agencies are still run by commissions, not single heads, and they rely on Congress for their financing. It's little surprise that such a structure creates plodding impotence.

"One of the biggest weaknesses of Dodd Frank is that we failed to look long and hard at true independence of regulators," a frustrated and regretful Senate staff member, who worked on the legislation, told me the other day.

This failure plays out in almost comical ways. The market for credit default swaps, a common derivative, is unified in the business world, but its regulation is split between the C.F.T.C. and the S.E.C. The solution was to let the C.F.T.C. oversee swap indexes of 10 or more components, with the S.E.C. regulating trades in single company swaps and — get this — indexes with up to nine components. In the real world, traders go long (or short) indexes of credit default swaps and hedge with the individual names or vice versa. So, how's that supposed to be overseen? When one agency looks over one half of the trade, the other regulators are mandated to close their eyes, put their hands over their ears and say, "La la la la la la la"? Don't worry: The regulators are hard at work jury-rigging a fix as I write this.

Or take the Volcker Rule, one of the most prominent symbols of the financial overhaul. The rule, which was intended to prevent banks from speculating with money backed by taxpayers, still has not been finalized almost two and a half years after Dodd Frank passed. It's the subject of multiple-agency negotiations, which are going about as well as that phrase would suggest. Representative Barney Frank, Democrat of Massachusetts, had called on the regulators to finish up by Labor Day. That came and went. Senators Carl Levin, Democrat of Michigan, and Jeff Merkley, Democrat of Oregon, the authors of the provision, fired off a letter a few weeks ago, urging the regulators to finish their work.

Now, it would be good if regulators were assiduously working to radically simplify the rule, which is a bloated monstrosity filled with loopholes and exemptions. But they aren't. Instead, they're squabbling over petty turf issues.

In "Bleak House," Dickens wrote of a legal case: "This scarecrow of a suit has, in course of time, become so complicated that no man alive knows what it means." Today, he would set the novel in Congress. Dodd Frank is so sweeping in scope yet so picayune in application that it will be close to impossible for the public to tell whether it's making a difference.

No second term can alter that.

clarence swinney

Nov. 14, 2012, 1:01 p.m.

GREAT RECORD ever see one again?
GDP—rose from 6300 to 11,600
NATIONAL INCOME-5,000 to 8,000 Billion—took 20 years to grow 2500B before Clinton
JOBS CREATED—over 22 million—record by far
AVERAGE WEEKLY HOURS WORKED—never hit 35.0—hit that  mark 4 times in 80’s
UNEMPLOYMENT—from 7.2% down down down to 3.9%
WELFARE TO WORK—11,533,710 on federal roll in 1996 and 3,880,321 in 2007.
MINIMUM WAGE—$4.25 to $5.15
MINORITIES—did exceedingly well
HOME OWNERSHIP—hit all time high
DEFICIT—290 Billion to whoopee a SURPLUS
DEBT——+28%—-300% increase over prior12 years
FEDERAL SPENDING—+28%—-80% under Reagan- who da true conservative?
DOW JONES AVERAGE—3,500 to 11,800  all it’s history to get to 3500 and Clinton zooms it
NASDAQ—700 to 5,000—-all of it’s history to get to 700 and Clinton zooms it
VALUES INDEXES—almost all bad went down—good went up in zoom zoom zoom
FOREIGN AFFAIRS—Peace on Earth good will toward each other—-Mark of a true Christian—what has Bush done to Peace on Earth?
POPULARITY—-highest poll ratings  in history during peacetime in  AFRICA, ASIA AND EUROPE even 98.5% in Moscow—left office with highest gallup rating since it was started in 1920’s.
STAND UP FOR JUSTICE—evil conservatives spent $110,000,000 on hearings and investigations and caught—- ONE—- very evil man who took a few plane rides to events.
BOW YOUR HEADS—Thank you God for sending us a man of Bill Clinton’s character, intelligence, knowledge of governance, ability to face up to crises without whimpering and a great leader of the world.

The ‘improvements’ of D-F and Wall St reform in general are DESIGNED to have little, if any effect.  As an example, consider one story I heard during the production of a documentary film on Bear Stearns from a legislative director for the Insurance Commissioner of one of the 50 states:

The Insur Commissioners of all 50 states got together and created a national template for the regulation of CDS as insurance products on a state-by-state basis.  After the language to effectuate this was inserted into D-F, he got a call Xmas week (while everyone was on vacation), 3 months before D-F was passed, and was told by a contact at the CFTC that all of the language had been stricken from the bill; and it was eventually passed without it.

This is happening every day, to every effort to rein in Wall Street; and its all by design.  While Wall St banks are erasing the rules that should be in bills like D-F, while pantload politicians like Barney Frank still crow about how they ‘took on Wall St’; it raises Cognitive Dissonance to an astronomical level, and its a disgrace.

There are two persistent, pervasive problems I see, here.

The first is that, for all the fire for change (or lack thereof), you generally don’t want to mess with the people who keep the lights on.  Hence, power companies and banks historically get pretty much free reign.  Try running a billion-dollar campaign without backing from major banks.  Try winning when Saudi Arabia can double fuel prices and blame you.

The second is that American politicians are enamored with the idea of impartial expertise, and the White House (and most state government seats) has historically been very diligent in appointing regulators in the form of corporate bigwigs.  We select FDA heads from the executive suites of Monsanto and Pfizer and trust that everything we ingest is perfectly safe.  Likewise, the SEC and Treasury get appointed from the big banks.  I imagine the argument runs something like, “who would you rather we appoint?  Commies?”

There’s another aspect to this, though, that’s even more infuriating.  Possibly as a result of these two long-term policies, we’ve developed a situation where these companies are regulated, but—apparently—not subject to the rule of law.  If I borrowed more than I could afford to pay back and lied to get it, I’d be in prison for fraud.  When a bank does the same thing with a few extra zeroes at the end of the amount, they pay a nominal fine.  If a restaurant serves customers spoiled food, the health department shuts them down and they’re the defendants of many civil lawsuits, whereas a food company issues a recall.

And then there’s the OCC, which, as we’ve seen over the years, is a government agency that deflects investigation into banks.  Just in case anybody gets any ideas of righting the ship, I guess.

Please accept it and stop writing about it.  Only an individual like Elizabeth Warren offers the strength of conviction and courage President Obama never had during this term and will not have in the next.  Just hope that Elizabeth Warren, and the very few others like her, stays strong as a Junior Senator and starts breaking the dumb rules of traditional self-imposed silence in the midst of more recklessness Obama will engage in over the next four years.  The next four years will be as stressful for the middle and working class folks as they would have been under Romney.  And, of course, the poor don’t exist.

@clarence swinney

Yes, hail Bill Clinton. The man who went corporate to win and swung the party corporate.

The man who fulfilled the Republican dream of regulation.

Who was on Bill Clinton’s economic team again?? What did they stand for again?

How’s that globalization been? It was the Republican Party that came to the rescue of Bill Clinton’s NAFTA and GATT was it not? Essentially establishing the global powerhouses known as the transnational mega-corporations. Even more power in the hands of the finance sector and the bankers.

In other words, he was already adopting and pushing Conservative economic philosophy.

A bunch of statistics without context mean nothing. He did preside over tech and stock market bubbles lest we forget.

This massive transfer of wealth upwards was led by the political right no doubt, but Democrats, Clinton especially, did their share.

This is the saddest thing about ‘liberals’ today. They have their blinders on and like the other side, refuse to look at their own leaders for what they are. You wonder why there is no accountability in America anymore.

The Republicans are pretty awful, but they’ve managed to drag the ever meek Democrats to the right. It’s easy to look like the good guy, when the other other guy has gone batty. I mean you have to show and do even less, not to mention all the things that setup allows you to get away with. Supporters turn into rationalizations or silence as the bar is continually lowered.

There has been a grand failure of the elites across the board, especially the so called liberals. A corporate intellectual capture across the board (media, govt, universities, you name it). Perhaps they should read Chris Hedge’s book, The Death of the Liberal Class” which is a precise description of liberals today.

Or the book from decades long Republican, Mike Lofgren: The Party Is Over: How Republicans Went Crazy, Democrats Became Useless, and the Middle Class Got Shafted

Don’t worry about Clinton, his embrace of the corporate state helped created a very lucrative stepping stone of a presidency.

“Clinton’s 2nd term, the term to which people refer when they talk about “Bill Clinton’s economy”, took place during the period of time in which the “beneficial” effects of Alan Greenspan’s first great liquidity pumping came to fruition. (Books have been written about this. I suggest Greenspan’s Bubbles: The Age Of Ignorance At The Federal Reserve). While Democrat politicians love to point to Bill Clinton’s economic record, the truth is that the prosperity we saw during Clinton’s 2nd term can be largely attributed to Greenspan’s Fed.

A nutshell economics lesson: Following the 1991 recession, Greenspan’s Fed pushed down the Fed Funds Rate (the rate at which the Fed loans to banks) to near-historic lows and kept them there for the better part of the decade. The FFR had been lower before (as you can see in the following chart prior to 1965); however, Greenspan’s Fed pumped fiat currency (more likely to pool in speculative markets) whereas Fed presidents prior to 1965 lent gold-backed currency (less likely to pool in speculative markets). As you can see from the red trendline on the chart, Greenspan’s Fed Funds Rate was far below where the FFR had been for the majority of time after August 15, 1971, the date on which the dollar was decoupled from gold. The FFR during the 1990’s wasn’t as low as it was during the 2000’s (those low rates helped lead us to this economic depression), but it was low enough to help inflate a then-historic speculative bubble (dot-coms and technology in general) and juice the economy, which highly benefited the legacy of one William Jefferson Clinton.

Another way of looking at Greenspan’s first great liquidity pumping is to look at the sudden drop in the personal savings rate during the late 1990’s. Nearly a decade of record-low post-gold-decoupling Fed Funds Rates lead to abnormally low savings rates, which enticed people to spend more money, much of it on the technology (and technology stocks) created by the speculative-driven tech market. The wealth effect of major market bubbles intensified this spending trend, which made the economy—and Bill Clinton—look good.

And how much did the tech speculation benefit the economy? During Clinton’s 2nd term, the NASDAQ alone “created” nearly $2 trillion in new wealth and made tens of thousands of Americans instant millionaires. The trickle-down effect was immense, and millions of Americans were lifted out of poverty. (Clinton’s 2nd term is a testament to the benefits of trickle-down economics.) Bill Clinton wasn’t responsible for all that wealth creation.”

It was a bubble of wealth built on hot air.

The seeds of the current economic chaos were planted in those years, in which Wall Street lobbyists were given everything they wanted in the way of radical deregulation, and hence was born the madcap world of credit swaps and other unregulated derivatives.

The result was a Clinton bubble, which saw the rise of a new superrich class that vastly skewed income distribution in favor of what was termed the “working rich” by Emmanuel Saez, who deservedly just won the top prize for young economists, the American Economic Association’s John Bates Clark Medal. Members of the “working rich” are well represented in the top 1 percent of income “earners,” who, according to a study by Saez, “captured about half of the overall economic growth over the period 1993-2006.” The record is clear that from the first year of the Clinton reign, the new class of superrich, including many Wall Streeters, benefited as much as the other 99 percent of the nation’s population did from the policies that Clinton put in place and George W. Bush accelerated.

But go ahead, stick to the dreamy vision of Clinton. It’s always hard to question oneself and admit that maybe they were wrong. There goes that accountability thing again. Much easier to stick to the story and the myth of Clinton.

Hey, it’s ONLY the other guy that’s responsible for this mess, right?

Just because Romney lost the auction, er, election-extravaganza, doesn’t mean Wall Street lost.  Far from it.  The elites weren’t going to let Romney emerge as the victor in any case.  He would provoke too much public opposition.  Obama’s the Trojan horse.  In 2008 Obama was recruited and vetted through “the hidden primary of the ruling class” and promoted as a populist because that’s what sells in the personality-centered-spectacle of quadrennial campaigns.  He has shown that a faux-progressive can effectively pacify the Democratic Partisans, liberals, and pseudo-progressives.  You haven’t heard any outrage from the Democratic base even though Obama has continued and intensified the Bush-Cheney policies which were supposedly so objectionable just a few years ago.

Some worthwhile books on the modern Democratic party and the rightwing, neoliberal, authoritarian corporatist in the WH:
Paul Street’s Barack Obama and the Future of American Politics; also see his “The Empire’s New Clothes”
Glenn Greenwald’s With Liberty and Justice for Some
Roger Hodge’s The Mendacity of Hope
Tariq Ali’s The Obama Syndrome
Lance Selfa’s The Democrats: A Critical History (updated edition)

Also check out Greenwald’s blog at the guardian and Paul Street’s columns at

Street is essential reading to understand Obama.  For example, see Paul Street’s columns on the Violin Model: )

As for Obama’s allegiance to Big Finance and Big Capital:

Obama’s Big Sellout: The President has Packed His Economic Team with Wall Street Insiders

The “Global Crises of Capitalism”; Whose Crises, Who Profits?

The Two Faces of a Police State: Sheltering Tax Evaders, Financial Swindlers and Money Launderers while Policing the Citizens

Excellent piece, but one thing is missing - bringing the level of urgency down to the level of all Americans. Most people either do not understand the implications of this situation for the middle class and the country at large, or find it too technical/boring to follow. The pressure needs to be ramped up - on Obama, Liz Warren and others capable of making a difference, and articles like this have an important role to play. But they must be more accessible to people who are not paying attention yet, as incredible as that may seem.

clarence swiney

Nov. 15, 2012, 9:08 a.m.

Dan Mitchell of Cato on CNCB ranted Obama runaway spending is like a run away train.
Dan is totally wrong. Spending is under best control in decades.
Major steps have been taken to control spending.
Obama Efficient Government Spending Programs and the Budget Control Act
produces $1500 Billion in savings in discretionary spending 2013 through 2022.
The reductions will shrink non-defense discretionary spending to the lowest level on record as a share of GDP, since 1962.
  The Obama record will be to increase total spending by 2% to 8% from Bush last budget to his last budget in first term. He budgeted to spend 3800 in fiscal 2013 and if so that will be only 280B over Bush last budget. clarence swinney—part info from policy

clarence swinney

Nov. 15, 2012, 9:10 a.m.

Reagan + 80% Bush + 90%

I voted for Obama, based on his Act I performance, declining “hope.” I have no expectation of some serious “change.” The 2008 candidate whom I thought was another FDR turned out to be another Hoover.

I voted for Obama because the specter of a President Romney and worse, a VP Ryan,  was more than I could bear.

I am proud only of the fact that I continue to vote, election after election.

clarence swinney

Nov. 15, 2012, 12:10 p.m.

Kaiser Family Foundation poll finds just 33% support repealing the LAW.
It is law of the land. Changes will be made to improve but repeal=no Mitto.
For decades, polls showed, consistently, that 70% wanted
to stop rapid rise in health care costs.

Imagine a sudden trend:  The public becomes tired, finally, of watching the guy they just voted for and maybe worked for, bolts to the other side and embraces their policies over yours.  Aren’t Democrats sick of that YET?!  This guy is about to sell his constituency over the waterfall without a barrel by adopting Republican Ryan’s austerity plan, after making repeated noises he will NOT allow Bush’s tax cuts to come back to life—-Really?  This liar has led us down this path before.  Watch the negotiations, which Obama, led by his masters’ insistence via the media, throw in the towel and adopt Paul Ryan as his bill-writer.

The Democratic Party, and the Republican Party, need to be dismantled by disengagment.  If we leave them, they will go.  If they have no constituents left, they cease to exist.  That’s the only path left open to us.  Kill both parties.  Reregister en masse to independents.  Organize an honest progressive party and a libertarian one, neither of which adopt their predecessors’ funding apparatus, to take their places, with principles that actually mean something, hell, everything to them, organize to elect enough of them to change the duopoly’s anti-third party laws they have instituted across the country to kill all competition to their bipartisan lies and, once dismantled, with the aid of public pressure, at least from all those blue states, their two parties can be allowed to come into existence everywhere, even in the state that has by law BANNED third parties, i.e., no party BUT the two lying parties (Georgia), and bring this country back to political honesty with honest policies serving the public with principles intact.

That should have been, Bill Clinton…The man who fulfilled the Republican dream of DEregulation.

Marvin Van Horn

Nov. 16, 2012, 6:46 a.m.

From my perspective, I am more than happy to see Senator Carl Levin be frustrated by the slow pace on the Volcker Rule.  These guys pass such complex 1000s of page legislation, and then turn it over to the bureaucrats to work out the details, so they get what they deserve! 

On the other hand, Carl and his FATCANATIC friends launched FATCA on the world, and that is stream rolling along without any Congressional oversight to see what they have wrought with this one.  Even Propublica can not be bothered to write about it.  So, that one is happening without any Carl Levin frustration or need to write letters.  In fact he is smiling as the world protests.

However, Congressman Reichart in Washington is wondering what’s up? Read this on his web site. “Rep. Reichert Demands Answers on FATCA Implementation from IRS Commissioner”

What’s FATCA?  If you ask that, then you haven’t been paying attention, but why would you, as it was buried in the 2010 Hire Act, and not reported in the US media.  Canadians are beginning to understand.

Jesse Eisinger

About The Trade

In this column, co-published with New York Times' DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at .(JavaScript must be enabled to view this email address)