Hardly a day goes by without president Obama blaming our economic woes on the "failed policies of the past." Incessantly blaming them for the financial crisis he inherited, the president has made Wall Street reform a top priority. In contrast to the George Bush economic delinquency that abandoned Main Street, his policies will stick it to Wall Street. He will prevent the financial shocks of credit bubbles and real estate booms, ever-watchful of deceptive mortgage lenders, while holding greedy plutocrats accountable for their financial shenanigans. As Mr. Obama tells us, also incessantly, he has our back.
But the policies that created the too-big-to-fail banks and the scurrilous practices that collapsed the housing market were enacted in the late 1990s, during the Clinton administration. Treasury Secretary Robert Rubin was responsible for the 1999 reversal of the Glass-Steagall Act, which had previously separated retail and investment banking. Its repeal legalized the formation of today's giant banking conglomerates. Rubin's successor, Lawrence Summers, then gave us the Commodity Futures Modernization Act (CFMA), which exempted derivatives from regulation.
With energy derivatives, Enron went on to perpetrate the largest corporate fraud in history. With collateralized debt obligations, giant banking conglomerates (Bank of America, Citigroup, Goldman Sachs, etc.) went on to become giant contributors to the sub-prime mortgage meltdown. Robert Rubin went on to earn over $126 million at Citigroup for a tenure spanning the company's Enron involvement and "merga-mania" phase to its near bankruptcy in 2008. This was around the time then-candidate Obama began blaming Bush for the financial crisis. Mr. Obama went on to form an economic team led by people who helped create it -- economics geniuses such as Rubin protégés Lawrence Summers and Timothy Geithner. As Washington Post writer Steven Pearlstein put it: “The ultimate irony, of course, is that just as Rubin and Co. at Citi were being bailed out by the Bush administration, President-elect Barack Obama was getting set to announce a new economic team drawn almost entirely from Rubin acolytes.”
What qualified Mr. Obama to assemble a team that would stick it to Wall Street? As the Washington Examiner discovered in it's 'The Obama You Don't Know' expose, it was also during the Clinton years that Obama developed his knowledge of real estate and finance. In the early 1990s, he left the community organizing business for the housing market -- as an attorney representing "affordable housing" slumlords, one of whom evicted 15 poor families from their apartments in the dead of a sub-zero Chicago winter, two months after turning off their heat and water. The experience no doubt proved invaluable when, as president, he led our nation's efforts to recover from "the worst financial disaster since the Depression" -- by selecting and relying on the very people who caused the disaster.
Geithner, who became Obama's treasury secretary, was recruited from the New York Federal Reserve Bank, where, as chairman, he was the principle government official responsible for regulating Citigroup. After years of doing nothing to deter the antics that almost bankrupted Citigroup, he helped forge a deal (with treasury secretary Henry Paulson, another Rubin colleague) that stuck it to taxpayers instead: a $45 billion bailout with an additional $306 billion guarantee against toxic assets.
Unfortunately, Geithner wasn't the only regulator asleep at the switch. All of them were. All of the 18 or so financial regulatory agencies charged with protecting us from Wall Street's sordid schemes failed abysmally. And they did so despite repeated warnings by the Bush administration, from April of 2001 through December of 2007. At least the Bush administration suspected the coming crisis. Our clueless financial regulatory leviathan missed its chance to stick it to Wall Street.
Maybe the regulators thought that Christopher Dodd and Barney Frank, the nation's top Wall Street watchdogs, would do the sticking. But it was the likes of this fatuous duo who thwarted the Bush attempts to rein in Fannie Mae and Freddie Mac. Under their feckless supervision, the capital inadequacies of the two government-backed mortgage giants crippled the housing market. And as homeowners and the real estate industry lost trillions of dollars, Barney Frank took it upon himself to cause further damage. In July 2008, when Fannie Mae and Freddie Mac stock was selling for $10.25/share and $9.00/share (down from $60 and $67, respectively, in January), the ever-vigilant Barney proclaimed, “I think they are in good shape going forward.” How did this ringing endorsement pay off for the many thousands who subsequently scarfed up these stocks? Today, they are selling for about $.25 per share.
For his signature Wall Street reform law, president Obama turned to Messrs Dodd and Frank, the two clowns who could have prevented the current financial calamity, entrusting them to prevent the next one. In a just world, they would have been impeached for the harm caused by their feckless oversight of Fannie Mae and Freddie Mac. But in Obama's world of social justice and economic fairness, they stuck it to us with the Dodd-Frank Wall Street Reform and Consumer Protection Act -- an oppressive 2,300 page regulatory monstrosity that exacerbates the dominance of the "too-big-to-fail" oligopoly, reduces the competitiveness of smaller banks, and passes its immense compliance costs on to consumers. And it exempts from regulation -- wait for it -- Fannie Mae and Freddie Mac.
Mr. Obama brays at the Bush trickle down policies, as he boasts of how his policies will stick it to Wall Street. But Dodd-Frank benefits are illusory, especially to middle America, which remains stuck in the nightmare of Obama's regulatory trickle down: a stagnant economy, horrific unemployment, and the specter of a returning recession. Regulators are paid obscenely lucrative salaries to protect powerless investors, bank account holders and consumers from the wrongdoings of banks and financial institutions. Yet only the latter have been unharmed; and after the loss of eight million private sector jobs, inane regulators hold theirs, further rewarded with raises and promotions brought by the flood of new Dodd-Frank regulations.
If the bailout was not reward enough for risky Wall Street practices, then immunity from meaningful prosecution should make up the difference. After over three years of relentless investigation, Obama's Financial Fraud Enforcement Task Force has not convicted a single Wall Street miscreant of a single crime. Instead of the pernicious, Eric Holder has chosen to go after the likes of Connecticut women who conducted a gifting table Ponzi Scheme and a Nevada group that attempted to fraudulently control Condominium Home Owners Associations. Scrambling to comply with Dodd-Frank regulations, big banks are firing, not high level executives likely to commit widespread fraud, but thousands of low-level employees with jobs far removed from significant transactional crime. For example, Wells Fargo recently fired a 68 year old customer service representative after discovering that he had been convicted of using a fake dime in a Laundromat, in 1963. Meanwhile, the legal fees for lawsuits against executives of Fannie Mae and Freddie Mac (that received over $150 billion in taxpayer bailout money) now exceed $109 million. Those fees are paid by -- wait for it, again -- taxpayers.
The banking oligarchy is doing quite well under president Obama. So too is his ever-expanding regulatory leviathan. The rest of us struggle through the slowest economic recovery since the Great Depression. It is a struggle exacerbated by stifling regulations, unprecedented compliance costs, and the knowledge that none of the people responsible for the financial crisis (certainly corrupt Wall Street executives, but also incompetent politicians and inept regulators) are in jail. All the sticking has been to us. Still, as the election approaches, many believe that Obama is the right man for the job. They fear Mitt Romney, who wants less regulation. Mr. Obama wants more -- especially after the shock that his Dodd-Frank reforms failed to prevent the MF Global and JP Morgan scandals. Evidently, he needs four more years to stick to Wall Street. Perhaps his supporters believe that, with his brilliant legal mind, Mr. Obama will find enough laws to finally get Wall Street off our backs. After all, he got the slumlord off with a $50 fine.
