Wall Street Is Still Out of Control -- Obama Should Call for Glass-Steagall and a Breakup of Big Banks 26OCT11

WELL written piece advocating bringing back Glass-Steagall and breaking up the big banks before they really destroy our economy and nation.
Next week President Obama travels to Wall Street where he'll demand -- in light of the Street's continuing antics since the bailout, as well as its role in watering-down the Volcker rule -- that the Glass-Steagall Act be resurrected and big banks be broken up.
I'm kidding. But it would be a smart move -- politically and economically.
Politically smart because Mitt Romney is almost sure to be the Republican nominee, and Romney is the poster child for the pump-and-dump mentality that's infected the financial industry and continues to jeopardize the American economy.
Romney was CEO of Bain & Company -- a private-equity fund that bought up companies, fired employees to save money and boost performance, and then resold the firms at a nice markups.
Romney also epitomizes the pump-and-dump culture of America's super rich. To take one example, he recently purchased a $3 million mansion in La Jolla, California (in addition to his other homes) that he's razing in order build a brand new one.
What better way for Obama to distinguish himself from Romney than to condemn Wall Street's antics since the bailout, and call for real reform?
Economically it would be smart for Obama to go after the Street right now because the Street's lobbying muscle has reduced the Dodd-Frank financial reform law to a pale reflection of its former self. Dodd-Frank is rife with so many loopholes and exemptions that the largest Wall Street banks -- larger by far then they were before the bailout -- are back to many of their old tricks.
It's impossible to know, for example, the exposure of the Street to European banks in danger of going under. To stay afloat, Europe's banks will be forced to sell mountains of assets - among them, derivatives originating on the Street -- and may have to renege on or delay some repayments on loans from Wall Street banks.
The Street says it's not worried because these assets are insured. But remember AIG? The fact Morgan Stanley and other big U.S. banks are taking a beating in the market suggests investors don't believe the Street. This itself proves financial reform hasn't gone far enough.
If you want more evidence, consider the fancy footwork by Bank of America in recent days. Hit by a credit downgrade last month, BofA just moved its riskiest derivatives from its Merrill Lynch unit to a retail subsidiary flush with insured deposits. That unit has a higher credit rating because the Federal Deposit Insurance Corporation (that is, you and me and other taxpayers) are backing the deposits. Result: BofA improves its bottom line at the expense of American taxpayers.
Wasn't this supposed to be illegal? Keeping risky assets away from insured deposits had been a key principle of U.S. regulation for decades before the repeal of Glass-Steagall.
The so-called "Volcker rule" was supposed to remedy that. But under pressure of Wall Street's lobbyists, the rule -- as officially proposed last week -- has morphed into almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.
It would have been far simpler simply to ban proprietary trading from the jump. Why should banks ever be permitted to use peoples' bank deposits - insured by the federal government - to place risky bets on the banks' own behalf? Bring back Glass-Steagall.
True, Glass-Steagall wouldn't have prevented the fall of Lehman Brothers or the squeeze on other investment banks in 2007 and 2008. That's why it's also necessary to break up the big banks.
In the wake of the bailout, the biggest banks are bigger than ever. Twenty years ago the ten largest banks on the Street held 10 percent of America's total bank assets. Now they hold over 70 percent. And the biggest four have a larger market share than ever -- so large, in fact, they've almost surely been colluding. How else to explain their apparent coordination on charging debit card fees?
The banks aren't even fulfilling their fiduciary duties to investors. Last summer, after Groupon selected Goldman Sachs, Morgan Stanley, and Credit Suisse to underwrite its initial public offering, the trio valued it at a generous $30 billion. Subsequent accounting and disclosure problems showed this estimate to be absurdly high. Did the banks care? Not a wit. The higher the valuation, the fatter their fees.
Just last week Citigroup settled charges (without admitting or denying guilt) that it defrauded investors by selling them a package of mortgage-backed securities rife with mortgages it knew were likely to default, but didn't disclose the hazard. It then bet against the package for its own benefit -- earning fees of $34 million and net profits of at least $126 million. So what's Citi paying to settle this outrage? A mere $285 million. Its CEO at time (Charles Prince) doesn't pay a dime.
I doubt the president will be condemning the Street's antics, or calling for a resurrection of Glass-Steagall and a breakup of the biggest banks. Democrats are still too dependent on the Street's campaign money.
That's too bad. You don't have to be an occupier of Wall Street to conclude the Street is still out of control. And that's dangerous for all of us.

America Needs a President Who Will Confront the Financial Industry's Hegemony Over Our Lives 14JUL11

THANK YOU SHEILA BAIR, we are already missing you! You are quite a lady for sure!!!!
No one in a position of authority in our government today seems to understand fully the threat to American institutions and ideals represented by the untrammeled clout the financial industry now holds permeating the halls of government through the power of influence and money. We are barreling toward a destabilizing schism in our society where one interest group, the finance world and its allies, are running the nation to their own economic benefit, oblivious of the pain and loss being endured by their fellow citizens on the Main Streets of our towns and villages and the neighborhoods and tenements of our cities
Our president, whose objectives are certainly sincere, has surrounded himself with men whose formation and ties run deep into the culture of Wall Street -- be it his Chief of Staff William Daley, formerly Midwest Chairman of JPMorgan Chase; Treasury Secretary Timothy Geithner, Former Chair of the New York Fed, or Gary Gensler, Chairman of the Commodity Futures Trading Commission and former Goldman Sachs partner -- while consulting freely with Warren Buffet, that champion of and investor in Goldman Sachs. In many ways very little has changed from the previous administration when the Treasury and virtually all government agencies responsible for financial oversight were in some manner beholden to Wall Street houses and banks, and when the crunch came in September 2008 it was their "club" members who were bailed, while the rest of the country sank into a miasma of recession and unemployment. As Sheila Bair was quoted in the New York Times Magazine saying to Joe Nocera: "You know, Wall Street barely missed a beat with their bonuses. Isn't that ridiculous?"
Nor has their been a serious effort made by prosecutors in the Obama administration and its agencies to hold individuals responsible nor to claw-back the billions of dollars paid out as bonuses for phony profits that were booked by creating and marketing fundamentally flawed financial instruments such as the now notorious C.D.O.'s. The Justice Department opted for a policy known as 'deferred prosecutions'. The guidelines left open a possibility other than guilty or not guilty, giving leniency all too often if companies investigated and reported their own wrongdoing. In return the government would enter agreements to delay or cancel prosecution if companies promised to change their behavior -- in other words, no punishment and little assurance that it wouldn't happen again.
Yet there was one player in government, that progressively rare breed, a moderate republican appointee holdover from the Bush Administration, who fought tooth and nail against the clubhouse fraternity that had taken over the fiscal soul of the nation. She was unflinching in defending the interests of the nation's citizens, becoming an equal opportunity irritant to Democrat and Republican alike. And she knew what she was talking about.
I personally have had the good fortune of hearing her speak at an Aspen Ideas Festival event just over a week ago. She was lucid, forthright, without hyperbole conveying a sense of reasoned indignation felt by too many of us, at the unfairness of the present structure. Where we, as citizens seem unable through our elected officials to stem the influence, the systematic 'heads I win, tails you lose' construct of our financial institutions and their growing impact on the functioning of our society.
Upon her retirement as Chairman of the FDIC (Federal Deposit Insurance Corporation) this July 8th Sheila Bair received this accolade from the Wall Street Journal's Deborah Salomon: "Sheila Bair, who is stepping down as Chairman of the Federal Deposit Insurance Corp. this week, leaves behind an agency transformed from a sleepy bank overseer into a financial regulatory powerhouse focused on preventing another financial crisis." The article goes on to report that at her last FDIC meeting the agency finalized a rule allowing the government to recover compensation from executives responsible for a financial firm's collapse. Only someone with the gumption of Bair could have achieved such a result given the opposition massed against her.
In an in-depth article by Joe Nocera, Nocera writes that Bair began sounding the alarm about the dangers posed by the explosive growth of subprime mortgage rates in June 2006. At the time, "Bair insisted that she and her agency have a seat at the table and fought Henry Paulson and Timothy Geithner, the President of the New York Federal Reserve, as they tried to cobble together solutions that would keep the financial world from going off a cliff: She and the F.D.I.C. managed a number of huge failing institutions during the crisis including Indy Mac, Wachovia, and Washington Mutual."
Of particular significance was Bair's belief in market discipline where, according to Nocera, she found herself at variance with Obama's Treasury Department, meaning she held that shareholders and debt holders should take losses ahead of depositors and taxpayers. "She was tough-minded and straight-forward." And as she would be quoted, "Our job is to protect bank customers, not banks."
She fought for increasing the capital requirements for banks in the face of banks who lobbied strenuously against her. Lower capital requirements allow for more risk, ergo larger bonuses. She fought against the United States' adoption of the bank boondoggle called Basel II which would have lowered bank capital requirements and worse, self selection of risk models thereby significantly exposing the system to even greater bank failures. Nocera would declare "I've long believed her opposition to Basel II has been a hugely underappreciated factor in helping to save the financial system when the crisis came."
And on it went. Geithner, in full Wall Street mode, wanted the F.D.I.C. to guarantee all debt issued by bank-holding companies (such as JPMorgan Chase, Goldman Sachs, Morgan Stanley). Sheila Bair said NO!
To Bair, her fight with the Treasury and the federal Reserve was ultimately about the bondholders. According to Bair "They did not want to impose losses on bondholders and we did...there is no insurance premium on bondholders... For the little guy on Main Street who has bank deposits, we charge the banks a premium for that, and it gets passed along to the customer. We don't have the same thing for bondholders, they're supposed to take losses."
And, most tellingly, she was clear in her displeasure that the government, by acting as if it was no one's fault, placed no responsibility where it should have been placed. For the many of us who have been wondering the same thing, what a breath of fresh air.
She has a stalwart fighter for mortgage modifications that would truly help homeowners. As Nocera explains that "what particularly galls her is that the Treasury under both Paulson and Geithner has been willing to take all sorts of criticism to help the banks. But it has been utterly unwilling to take any political heat to help homeowners."
All the while the Dodd-Frank Bill meant to prevent the too big to fail syndrome from ever rearing its head again, thereby making the largest banks accountable for their actions, is being lobbied into impotence by the financial brotherhood.
Here we have Sheila Bair, Kansas transplant to Washington, taking on the behemoths of the financial world, dogged in her defiance, "We always saw ourselves as the champion of the little guy. The other regulators never saw a bank closure, because that was our role. We were the ones that saw people losing their jobs when we had to shut down a little bank. They never understood the unfairness of the way little banks were treated versus the big banks...I've always thought that it was really important for everybody to have to play by the same set of rules."
Given the financial crisis in which our nation finds itself -- given the access and the power of the financial intuitions' hold, enabling them to play events to come to their own advantage -- would it not be better to have one of our own in the White House who understands the game? Who is on our side, and by virtue of her position and knowledge can stare down all the entreaties for special treatment because she inherently understands that this nation cannot flourish, nor overcome the obstacles that lie ahead and maintain its dignity if we do not all together play by the same set of rules?
Sheila Bair may not know it yet, but we need not only her kind, we need her to become our president. Her persona, her values, her experience would be a rare and welcome gift to the nation!

ELIZABETH WARREN AND GOLIATH from SOJO 11FEB10

I had a most instructive conversation this week with Elizabeth Warren, the Harvard economist who is also the Chair of the TARP Congressional Oversight Panel. Warren has a way of cutting through the jargon and confusion of many economists and of this economic crisis -- right to the moral core of the issues at stake. I knew her for her keen insights, but I didn’t know she was from, as she puts it, a “mixed marriage from Oklahoma” -- Baptist and Methodist -- and that she is a former Methodist Sunday school teacher. In the interview I did with her for Sojourners, her moral and even theological comments were as impressive as her economic analysis of our present crisis. She said the battle for financial regulatory reform is like the battle between David and Goliath. (You can read the interview in the April issue of Sojourners magazine, which comes out in early March.)
Warren’s narrative of the U.S. economy, and the banking industry in particular, was very clarifying. For most of U.S. history, our country went through repeated periods of boom and bust, with all the consequences of those cycles. But after the Great Depression, a number of new financial regulations -- rules for the road -- were put into place that were designed to protect average Americans in particular from the continued abuses of the big banks and the often terrible results in bad times for ordinary people. Two important examples were the FDIC (Federal Deposit Insurance Corporation) to protect people’s savings and the Glass Steagall Act of 1933 to prevent banks from speculating with depositors' money. And the new rules worked for several decades, creating both prosperity and security for many American families and an emerging middle class. But starting in 1980, the rules were first watered down and gradually removed, and banks were free again to engage in both the abusive and very risky speculative behavior that helped to bring on the Great Depression, and resulted again in the current Great Recession.
She explained how credit card and mortgage application forms used to be only a page or two and were both clear and understandable to the average person -- even allowing people to easily compare and contrast the deals offered. But now, as all of us know, these forms have expanded to 30 pages or more with lots of complications, hard to comprehend provisions, and “fine print” that cleverly hides a long list or traps, tricks, and a myriad of both exploitive arrangements and outright abuses that greatly benefit banks at the expense of borrowers and card holders. In clear moral terms, Warren described the current behavior of our biggest banks as deliberately deceiving, entrapping, and cheating unsuspecting customers into very precarious and ultimately disastrous financial positions. And with no more rules of the road, the banks were leading their customers into the financial ditch. An economic crisis has been the result with massive suffering and pain for millions of Americans.
We are now living in a “lawless” economic environment, according to Warren, where our biggest banks have become our most dangerous predators -- and with no protections for the rest of us against the “law of the jungle,” as she puts it. The consequences for our economy, our culture, our families, and even our souls have been disastrous. This is not the way we should want to live, Warren says, and it is creating a world which we should not want our children to grow up in. She makes the urgent case for reform with the compelling analysis of a top economist, the family values of a grandmother, and the moral arguments of a person of faith. The sins of the financial world have become both a moral, and even religious, issue from the perspective of the Methodist tradition “which still shapes me.”
Warren is the “mother” of the idea for a new Consumer Financial Protection Agency (CFPA),which is in the current financial reform bill recently passed by the House of Representatives, and is now slowly making its way through the U.S. Senate. But the big banks are aggressively fighting back, trying to prevent their own regulation only one year after the financial meltdown for which they were in large part responsible. There seems to be no remorse, let alone repentance, from the big banks -- only record new profits enabled by their taxpayer-funded bailouts, and enormous bonuses to the executives who made the very decisions that brought the economic system down on the heads and hearts of so many Americans. The biggest banks in America are giving shame a bad name.
Why are new rules, regulations, and protections necessary? Because of the human condition, the realities of human nature, and a biblically orthodox understanding of human sinfulness. Yes, the reasons we need the protections offered by a Consumer Financial Protection Agency are as theological as economic. And it is amazing to me how many of those who oppose any regulation of Wall Street also claim to be religious conservatives. They subscribe to what I label in my new book, Rediscovering Values: On Wall Street, Main Street, and Your Street — A Moral Compass for the New Economy, “the myth of the sinless market.” I am a conservative Christian too, conservative enough to have a healthy appreciation for human sins, human failings, and fallen-ness, and after witnessing the behavior of America’s biggest banks during this economic crisis, an old theological term called human depravity. It is simply bad theology to trust large corporations not to pollute our waters, poison our air, or cheat their unsuspecting customers. They have to be prevented from doing so for the sake of the common good. Good financial and economic rules reflect, not only good economics, but also good theology. And the free market fundamentalism of Wall Street’s defenders is, among other things, bad theology.
But as Elizabeth Warren, a good Methodist, warns, the banks are trying everything they can think of to kill financial reform. And we must not let them do that. In the name of a fairer economy, of family values, of moral values, and of sound biblical theology, the faith community must now make itself heard on the urgent issue of financial regulatory reform. We must hold our biggest banks accountable to the common good. So let our Senators not just hear from the bankers, but now also from pastors who see what such abusive banking behavior has done to their families and parishioners, to devastated communities with shuttered houses, to the prison of debt that more Americans find themselves in. People of faith across the land must now tell their elected representatives that we will be “watching and praying” to see what they will do about necessary financial reform. We don’t have the money in our financial coffers that the banks do to finance their political campaigns, but we do have our voice and our votes which will be turned against them if they vote against the best interests of our people and for the greed of the bankers. Jesus said it well -- choose this day who you will serve, God or Mammon (Money). Let’s now put that choice to our Senators, who need to hear from us this next week while they are in their district offices during the Presidents' Day recess. Critical decisions are being made for or against critical financial reform right now.
Jim Wallis' interview with Elizabeth Warren will be featured in the April issue of Sojourners magazine