Wall Street’s President: It’s great to see rage directed at the right targets.

Nov 22, 2011

The Occupy Wall Street movement offers a vivid response to America’s corporation-induced decline. In a country where anger and resentment determine politics, it’s great to see rage directed at the right targets for a change. To make this country fit for people—rather than just rich people—we must combine three approaches:

1. Educating the public on the issues.
2. Protest and direct action.
3. Electoral strategy.

On that third point, didn’t we elect a guy a few years ago who was supposed to bring about positive change? I was one of those who supported Barack Obama for president, and he’s been in office long enough for us to judge his record. The best way to do that is to consider his actions on two key issues: the 2010 budget negotiations and Wall Street reform.

I wrote about the first subject here and here. To re-cap the budget drama, Obama spent months posturing, and then let the Republicans dictate horrendous terms. Before the final agreement, the president offered a “grand bargain” combining deep cuts in Social Security and Medicare with small tax increases on the rich. The only thing that prevented that deal was the GOP’s pathological opposition to tax increases on the rich. The budget law that did pass was no better. Republicans have wanted to gut Social Security and Medicare for as long as those programs have existed. If Obama’s record is any guide, he’ll eventually grant them that wish without demanding the tax increases he claimed to want.

Speaking of things the president claimed to want, he stated many times that cleaning up the mess on Wall Street was a top priority. The financial crash of 2007-08 occurred because banks gambled with bogus securities and fake insurance, leaving taxpayers holding the bag. (Here is more on that story.) Similar scams were to blame for the 1929 stock-market crash that triggered the Great Depression. In 1933, a newly inaugurated Democratic president named Franklin Roosevelt went to work on banking reform, with the help of a Congress controlled by Democrats. The result was the Glass-Steagall Act of 1933. Among its many provisions, the act created a distinction between banks and investment houses, and forbad the former from engaging in the kind of risky gambles that triggered the ’29 free-fall.

For 66 years, Glass-Steagall prevented a financial meltdown. The only major banking crisis during that time was the Savings & Loan collapse and bailout, which started in 1985. That was just three years after President Ronald Reagan and Congress specifically exempted Savings & Loans from the Glass-Steagall rules. In 1999, President Bill Clinton and a Republican-controlled Congress ignored that inconvenient fact and eliminated the Glass-Steagall restrictions on other financial institutions.

So, here is the box score.

Glass-Steagall regulations: 66 years, 0 collapses
After eliminating Glass-Steagall for Savings & Loans: 3 years, 1 major collapse (in S&Ls)
After eliminating Glass-Steagall entirely: 8 years, 1 fucking enormous collapse

It is difficult to imagine another case in which the problem and the solution are so obvious. On January 21, 2010, the president came out in favor of a new, weaker version of Glass-Steagall. It was proposed by his advisor Paul Volcker, the former chair of the Federal Reserve Board.

At a press conference surrounded by his economic team, Obama said:

“We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers . . . And we cannot accept a system in which shareholders make money on these operations if the bank wins, but taxpayers foot the bill if the bank loses.”

The president asked Congress to enact “the Volcker rule” and criticized moneyed interests for sending “an army of industry lobbyists” to Washington to oppose reforms. “If these folks want a fight, it’s a fight I’m ready to have,” he added. It was a spirited performance, though cynics charged that the president was merely trying to rally his party’s electoral base two days after low Democratic turnout allowed a Republican to win the late Ted Kennedy’s Senate seat.

The Volcker rule fell far short of Glass-Steagall, but it was a step in the right direction. In the spring of 2010, some insurgent Democratic Senators managed to include it in the financial-reform bill, despite the opposition of top Senate Democrats.

The details of what happened next were uncovered by journalist Matt Taibbi. While the bill was in conference committee,[i] a shadowy figure appeared at backroom meetings. Taibbi reported that this fellow “acted almost like a liaison to the financial industry, pushing for Wall Street-friendly changes on everything from bailouts . . . to high-risk investments.” In the end, he persuaded enough wavering Democrats on the conference committee to saddle the Volcker rule with devastating amendments that make it “difficult, if not impossible, to enforce.” (The Republicans didn’t require any persuading.) The bill that passed was not even a semblance of Glass-Steagall. The consequences will be dire. “See you at the next financial crisis,” Taibbi wrote.[ii]

Who was the mysterious Wall Street hit man who shot the Volcker rule full of holes? His name is Timothy Geithner. You may know him as President Obama’s treasury secretary. That’s right: the president endorsed a weakened version of an essential reform and, when it looked like it might actually pass, he sent his treasury secretary to wreck it.

Obama’s deceitful gambit was worse than doing nothing, because he repeatedly claimed that the new law would prevent future economic meltdowns. When the next crash comes—caused by the same factors as the last one—corporate media will lie and blame it on too much regulation by that “left-winger” Obama. For proof, they will cite the president’s hollow speeches touting the financial-reform law.

Despite differences of rhetoric, the president and Republican leaders accept Wall Street’s plan to march the country back to the nineteenth century. Neither Obama nor the 2012 Republican presidential nominee will do anything to prevent the coming crisis (and resulting bank bailouts). Both candidates will place key government programs, including Social Security and Medicare, on the chopping block.

Many of the policies Obama advocated in the 2008 campaign—and in subsequent speeches—are beneficial for the country. We just need a third party to enact them.

More sources of information:

Danny Schechter’s reports on Occupy Wall Street:

The Green Party:

Amy Goodman interviews Matt Taibbi about Goldman Sachs and the bank bailouts:

Kevin Baker’s accurate 2009 prediction about the Obama presidency:

[i]When the House and Senate pass different versions of a bill, high-ranking members from both houses of Congress and both parties meet in conference committee to resolve the differences and create a single bill.

[ii]Matt Taibbi, “Wall Street’s Big Win,” Rolling Stone, August 19, 2010.