Is Wall Street Hegemony The Biggest Danger Facing American Families?

I bet there's an anniversary coming up tomorrow that not many people are preparing to commemorate, let alone celebrate. A year ago tomorrow was the day Lehman Brothers officially collapsed, triggering "a global financial panic that slashed thousands of points off the Dow, eliminated trillions of dollars in American wealth and ushered in the most massive government intervention into the economy since the New Deal." It was part of the culmination of decades of conservative economic policies based on selfishness, greed and the kind of reactionary opportunism based on a carefully cultivated out of balance power structure. It was worse than an onslaught to preserve the status quo; it was an all out jihad of reactionary class war against American working families. And as Eamon Javers at the Politico pointed out yesterday Wall Street barely took out the time for a deep breath before they were at it again.

[A]s 2009 rolls on, it’s almost as if nothing happened. Lavish bonuses are back, the financial industry is showing a renewed appetite for risk, and exotic new securities are being dreamed up by financial innovators-- just like the ones that contributed to the collapse in the first place.

Even some at AIG-- the company that became the emblem of excess for its massive bonuses-- act like nothing has changed. New CEO Robert Benmosche recently showed off his palatial estate on the Adriatic Sea in Croatia-- the one with 12 bathrooms, Italian tiles, an 18th century French tapestry, and a well-stocked wine cellar. (“Every bathroom is like a piece of art,” he told Reuters. “Women go wild when they walk in here.”)



Meanwhile in Washington, President Barack Obama proposed a series of financial industry reforms that are working their way through Congress-- but slowly, as Obama has focused far more effort on a public push for health reform. So far at least, not a single new law has been put on the books to prevent another crisis.

Today Obama is in NY making the case that his administration's actions have prevented the Depression that years of conservative economic blundering and plundering had us heading for. Joseph Stiglitz, who points out that the "too-big-to-fail banks have become even bigger," doesn't think much is fixed at all but Deborah Solomon had the official government position all neatly mapped out last week in the Wall Street Journal when she wrote that "Government efforts to funnel hundreds of billions of dollars into the U.S. economy appear to be helping the U.S. climb out of the worst recession in decades... The U.S. economy is beginning to show signs of improvement, with many economists asserting the worst is past and data pointing to stronger-than-expected growth."

Much of the stimulus spending is just beginning to trickle through the economy, with spending expected to peak sometime later this year or in early 2010. The government has funneled about $60 billion of the $288 billion in promised tax cuts to U.S. households, while about $84 billion of the $499 billion in spending has been paid. About $200 billion has been promised to certain projects, such as infrastructure and energy projects.

Economists say the money out the door-- combined with the expectation of additional funds flowing soon-- is fueling growth above where it would have been without any government action.

Many forecasters say stimulus spending is adding two to three percentage points to economic growth in the second and third quarters, when measured at an annual rate. The impact in the second quarter, calculated by analyzing how the extra funds flowing into the economy boost consumption, investment and spending, helped slow the rate of decline and will lay the groundwork for positive growth in the third quarter-- something that seemed almost implausible just a few months ago. Some economists say the 1% contraction in the second quarter would have been far worse, possibly as much as 3.2%, if not for the stimulus.

For the third quarter, economists at Goldman Sachs & Co. predict the U.S. economy will grow by 3.3%. "Without that extra stimulus, we would be somewhere around zero," said Jan Hatzius, chief U.S. economist for Goldman.

There's a huge amount of work that remains to be done and the direction the health care debate has gone-- a direction utterly controlled by big money corporate dictates-- does not bode well for financial reforms. Keep in mind, only one sector has spent more money on wooing the federal government than Health Care-- the Financial sector. Since 1998 the Medical-Industrial Complex has spent $3,551,518,019 on lobbying and, since 1990, another $850,921,048 on direct, though thinly disguised, bribes to members of Congress. Meanwhile, the FIRE (Finance, Insurance & Real Estate) Sector has lobbied to the tune of $3,696,087,299 and tossed in another $2,278,589,678 in direct legalistically sanctioned bribes to the folks responsible for making the rules. Please note the differences between millions of dollars in bribes and billions of dollars in bribes.

And keep in mind that a thoroughly reactionary and utterly corporate-oriented Supreme Court is about to usher in an even worse era of unbridled corruption. Watch John McCain and Russ Feingold talking about this threat. The threat is real and it's a threat that goes right to the heart of average American working families whose government is being gamed by the wealthiest and most powerful of entrenched corporate interests. The story in yesterday's USAToday emphasizing what conservative economics has done to the average family makes crucial reading.

Americans' household income last year took the sharpest drop since the government began keeping records in 1947, the Census Bureau reported Thursday.

Median household income sank 3.6% to $50,303, after adjusting for inflation, during the first full year of the recession.

Income tumbled to its lowest dollar level since 1997-- a decade's worth of gains wiped out in one year — and things will get worse before they get better, says Sheldon Danziger of the Population Studies Center at the University of Michigan.

"2009 is going to be dreadful," he says. He predicts income will drop at least 5% this year because of rising unemployment in the recession's second year.

This is what Americans need to be angry about, not Sarah Palin's make-believe death panels or Joe Wilson's problem with understanding that the Confederacy lost the Civil War and that most of the country has moved on. Republican working families and Democratic working families really do have the same enemy. "Wall Street" isn't a bad name to call it either.




UPDATE: Obama's Speech Calls For A Better Regulatory System For Wall Street

Here are the most relevant bits, none of which the far right extremists seem to like very much:

Unfortunately, there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them. They do so not just at their own peril, but at our nation’s. So I want them to hear my words: We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

That’s why we need strong rules of the road to guard against the kind of systemic risks we have seen. And we have a responsibility to write and enforce these rules to protect consumers of financial products, taxpayers, and our economy as a whole. Yes, they must be developed in a way that does not stifle innovation and enterprise. And we want to work with the financial industry to achieve that end. But the old ways that led to this crisis cannot stand. And to the extent that some have so readily returned to them underscores the need for change and change now. History cannot be allowed to repeat itself.

Instead, we are calling on the financial industry to join us in a constructive effort to update the rules and regulatory structure to meet the challenges of this new century. That is what my administration seeks to do. We have sought ideas and input from industry leaders, policy experts, academics, consumer advocates, and the broader public. And we’ve worked closely with leaders in the Senate and House, including Senators Chris Dodd and Richard Shelby, and Congressman Barney Frank, who are now working to pass regulatory reform through Congress.

Taken together, we are proposing the most ambitious overhaul of the financial system since the Great Depression. But I want to emphasize that these reforms are rooted in a simple principle: we ought to set clear rules of the road that promote transparency and accountability. That’s how we’ll make certain that markets foster responsibility, not recklessness, and reward those who compete honestly and vigorously within the system, instead of those who try to game the system.

First, we’re proposing new rules to protect consumers and a new Consumer Financial Protection Agency to enforce those rules. This crisis was not just the result of decisions made by the mightiest of financial firms. It was also the result of decisions made by ordinary Americans to open credit cards and take on mortgages. And while there were many who took out loans they knew they couldn’t afford, there were also millions of Americans who signed contracts they didn’t fully understand offered by lenders who didn’t always tell the truth.

This is in part because there is no single agency charged with making sure it doesn’t happen. That is what we’ll change. The Consumer Financial Protection Agency will have the power to ensure that consumers get information that is clear and concise, and to prevent the worst kinds of abuses. Consumers shouldn’t have to worry about loan contracts designed to be unintelligible, hidden fees attached to their mortgages, and financial penalties-– whether through a credit card or debit card-– that appear without warning on their statements. And responsible lenders, including community banks, doing the right thing shouldn’t have to worry about ruinous competition from unregulated competitors.

Now there are those who are suggesting that somehow this will restrict the choices available to consumers. Nothing could be further from the truth. The lack of clear rules in the past meant we had innovation of the wrong kind: the firm that could make its products look best by doing the best job of hiding the real costs won. For example, we had “teaser” rates on credit cards and mortgages that lured people in and then surprised them with big rate increases. By setting ground rules, we’ll increase the kind of competition that actually provides people better and greater choices, as companies compete to offer the best product, not the one that’s most complex or confusing.

Second, we’ve got to close the loopholes that were at the heart of the crisis. Where there were gaps in the rules, regulators lacked the authority to take action. Where there were overlaps, regulators often lacked accountability for inaction. These weaknesses in oversight engendered systematic, and systemic, abuse.

Under existing rules, some companies can actually shop for the regulator of their choice – and others, like hedge funds, can operate outside of the regulatory system altogether. We’ve seen the development of financial instruments, like derivatives and credit default swaps, without anyone examining the risks or regulating all of the players. And we’ve seen lenders profit by providing loans to borrowers who they knew would never repay, because the lender offloaded the loan and the consequences to someone else. Those who refuse to game the system are at a disadvantage.

Now, one of the main reasons this crisis could take place is that many agencies and regulators were responsible for oversight of individual financial firms and their subsidiaries, but no one was responsible for protecting the whole system. In other words, regulators were charged with seeing the trees, but not the forest. And even then, some firms that posed a “systemic risk” were not regulated as strongly as others, exploiting loopholes in the system to take on greater risk with less scrutiny. As a result, the failure of one firm threatened the viability of many others. We were facing one of the largest financial crises in history and those responsible for oversight were caught off guard and without the authority to act.

That’s why we’ll create clear accountability and responsibility for regulating large financial firms that pose a systemic risk. While holding the Federal Reserve fully accountable for regulation of the largest, most interconnected firms, we’ll create an oversight council to bring together regulators from across markets to share information, to identify gaps in regulation, and to tackle issues that don’t fit neatly into an organizational chart. We’ll also require these financial firms to meet stronger capital and liquidity requirements and observe greater constraints on their risky behavior. That’s one of the lessons of the past year. The only way to avoid a crisis of this magnitude is to ensure that large firms can’t take risks that threaten our entire financial system, and to make sure they have the resources to weather even the worst of economic storms.

Even as we’ve proposed safeguards to make the failure of large and interconnected firms less likely, we’ve also proposed creating what’s called “resolution authority” in the event that such a failure happens and poses a threat to the stability of the financial system. This is intended to put an end to the idea that some firms are “too big to fail.” For a market to function, those who invest and lend in that market must believe that their money is actually at risk. And the system as a whole isn’t safe until it is safe from the failure of any individual institution.

If a bank approaches insolvency, we have a process through the FDIC that protects depositors and maintains confidence in the banking system. This process was created during the Great Depression when the failure of one bank led to runs on other banks, which in turn threatened the banking system. And it works. Yet we don’t have any kind of process in place to contain the failure of a Lehman Brothers or AIG or any of the largest and most interconnected financial firms in our country.

That’s why, when this crisis began, crucial decisions about what would happen to some of the world’s biggest companies – companies employing tens of thousands of people and holding trillions of dollars in assets-- took place in hurried discussions in the middle of the night. And that’s why we’ve had to rely on taxpayer dollars. The only resolution authority we currently have that would prevent a financial meltdown involved tapping the Federal Reserve or the federal treasury. With so much at stake, we should not be forced to choose between allowing a company to fall into a rapid and chaotic dissolution that threatens the economy and innocent people, or forcing taxpayers to foot the bill. Our plan would put the cost of a firm’s failure on those who own its stock and loaned it money. And if taxpayers ever have to step in again to prevent a second Great Depression, the financial industry will have to pay the taxpayer back-- every cent.

Finally, we need to close the gaps that exist not just within this country but among countries. The United States is leading a coordinated response to promote recovery and to restore prosperity among both the world’s largest economies and the world’s fastest growing economies. At a summit in London in April, leaders agreed to work together in an unprecedented way to spur global demand but also to address the underlying problems that caused such a deep and lasting global recession. This work will continue next week in Pittsburgh when I convene the G20, which has proven to be an effective forum for coordinating policies among key developed and emerging economies and one that I see taking on an important role in the future.

Essential to this effort is reforming what’s broken in the global financial system-- a system that links economies and spreads both rewards and risks. For we know that abuses in financial markets anywhere can have an impact everywhere; and just as gaps in domestic regulation lead to a race to the bottom, so too do gaps in regulation around the world. Instead, we need a global race to the top, including stronger capital standards, as I’ve called for today. As the United States is aggressively reforming our regulatory system, we will be working to ensure that the rest of the world does the same.

A healthy economy in the 21st Century also depends upon our ability to buy and sell goods in markets across the globe. And make no mistake, this administration is committed to pursuing expanded trade and new trade agreements. It is absolutely essential to our economic future. But no trading system will work if we fail to enforce our trade agreements. So when, as happened this weekend, we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism. We do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system.

And just as we have to live up to our responsibilities on trade, we have to live up to our responsibilities on financial reform as well. I have urged leaders in Congress to pass regulatory reform this year and both Congressman Frank and Senator Dodd, who are leading this effort, have made it clear that that’s what they intend to do. Now there will be those who defend the status quo. There will be those who argue we should do less or nothing at all. But to them I’d say only this: do you believe that the absence of sound regulation one year ago was good for the financial system? Do you believe the resulting decline in markets and wealth and employment was good for the economy? Or the American people?