How does one even begin to unwind the bullsh*t here?
Let’s start with the one thing they got right, imo, and that’s the bit announcing that now that Obama’s political team has gotten nervous over JippyMo’s (h/t Richard Kline) risk branch losing somewhere in the neighborhood of $5 billion, and they needed to pay more attention to it, even though his economic team had been…paying attention to it (Ooops!)…but he’d look like a fool since…it was his team that created Dodd-Frank. Or something; they weren’t quite sure. So it followed that…Populist Campaign Obama would need to ensure that the Volcker Rule part of the law would need to be made ‘as strong as possible’ on the campaign trail . Got it? Never mind, no one else will, either.
Now if you understand, as most of us here do, that at every step of the way during attempts to regulate the financial industry since 2008, this Obama WH blocked every meaningful amendment until under pressure from the left and sane economists, Obama permitted a watered down version of the Volcker Rule to become law. It was a convenient dodge and misdirection, given that none of the rules on derivatives trading or hedging written into it; we were told that regulators would decide the Final Rules…sometime down the road, which has been…two years. Here’s a review; days after the CFTC signed off on the changes demanded by the banks, Ben Bernanke suggested that there be an additional two years to finalize them and put them into effect since the rules were so complex. Gotta love Ben’s dedication to bank balance sheets.
But in the video you heard the two WSJ reporters make a weak attempt to be even-handed, but cravenly falling into supply-side Truthiness to maintain that ‘the only reason small businesses can’t borrow to build their businesses is over-regulation’. Never mind that none of the Bush or Obama bailouts, nor the insane access the Big Banks have had to the Fed’s Discount Window since 2008 (overnight or otherwise) came with any strings that they…er…increase their lending to either smaller banks, state governments or those highly touted and cynically celebrated ‘Small Businesses’ or ‘Innovative Start-ups’ that really fucking needed the funds.
And yes, existing regulations often negatively impact actual small businesses, but that’s not what ‘Republicans’ are really concerned with; nor it appears…is the Obama White House except when he is campaigning as the Champion of the 99%. Yes, there are apparently some investigations opening up re: the London Whale’s losses, but to believe that JPM might receive much more than a financial slap on the wrist would be ignoring the historical precedents from this administration’s regulatory bodies over the past several years.
The issue they mentioned concerning how ridiculous Obama the Populist would look campaigning as a Regulatory Lion as he wondered ‘if the Wall Street Reform he signed into law was ‘as effective as they’d wanted it to be’ was hilarious on its face. And that’s the crux of it, imo: The most sweeping financial regulatory law passed since the Great Depression was exactly as toothless as they wanted it to be, and will continue to be, even with some cosmetic tweaks by the Fed, the CFTC and the White House.
Allow me to skip over the blather about ‘…voters being torn between…’ yada, yada. The voters haven’t a clue what it’s all about, I’m afraid; it’s just a misunderstood red/blue talking point, and discounts the ample evidence that a healthy financial system is utterly dependent on clear rules of the road, and prosecutions of law-breaking in order for investors to have faith and trust in the system.
As to the point that ‘no one knows whether or not the Volcker Rule would have prevented the massive losses by JPM, the answer is an Empty Set; let’s take a look:
Please remember that Obama’s financial advisors, his Secretary of the Treasury, his Fed Chief, have been aiding and abetting the TBTF banks since his inauguration, and their profits had been skyrocketing, while regular Americans were experiencing economic conditions and unemployment numbers some say are even worse than the Great Depression. Add to that the fact that opaque derivatives sales and swaps have actually increased since 2008 to the point where many economists say that there are toxic derivatives amounting to over $700 trillion dollars (not unreasonable ig the total amount of derivatives is $1.2 quadrillion (one thousand trillion) globally. And when things get a bit sticky in the financial markets, Ben does a bit of financial easing, allowing the banks to hold even more capital to speculate with, not to lend to entities that could use it to help grow the economy again.
And what of his Attorney General? Why no prosecutions? Ah…Boyer and Schweizer have a few hints about that…:
“Despite his populist posturing, the president has failed to pin a single top finance exec on criminal charges since the economic collapse. Are the banks too big to jail—or is Washington’s revolving door to blame?”
(In this case, Obama’s , of course)
“”There hasn’t been any serious investigation of any of the large financial entities by the Justice Department, which includes the FBI,” says William Black, an associate professor of economics and law at the University of Missouri, Kansas City, who, as a government regulator in the 1980s, helped clean up the S&L mess. Black, who is a Democrat, notes that the feds dealt with the S&L crisis with harsh justice, bringing more than a thousand prosecutions, and securing a 90 percent conviction rate. The difference between the government’s response to the two crises, Black says, is a matter of will, and priorities. “You need heads on the pike,” he says. “The first President Bush’s orders were to get the most prominent, nastiest frauds, and put their heads on pikes as a demonstration that there’s a new sheriff in town.” [bolds mine throughout]
“Obama delivered heated rhetoric, but his actions signaled different priorities. Had Obama wanted to strike real fear in the hearts of bankers, he might have appointed former special prosecutor Patrick Fitzgerald or some other fire-breather as his attorney general. Instead, he chose Eric Holder, a former Clinton Justice official who, after a career in government, joined the Washington office of Covington & Burling, a top-tier law firm with an elite white-collar defense unit. [snip]
“Putting a Covington partner –he spent nearly a decade at the firm–in charge of Justice may have sent a signal to the financial community, whose marquee names are Covington clients. Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Deutsche Bank are among the institutions that pay for Covington’s legal advice, some of it relating to matters before the Department of Justice. But Holder’s was not the only face at Justice familiar to Covington clients. Lanny Breuer, who had co-chaired the white-collar defense unit at Covington with Holder, was chosen to head the criminal division at Obama’s Justice. Two other Covington lawyers followed Holder into top positions, and Holder’s principal deputy, James Cole, was recruited from Bryan Cave LLP, another white-shoe firm with A-list finance clients. [snip]
“Justice’s defenders point out that prosecuting financial crime is a complicated matter requiring the highly specialized expertise found in the white-collar defense bar.”
(Their entire expose is a must-read, two pages of which chronicle some of the faux investigations and outcomes, plus silly faux ‘cost-of-doing-business’ punishments for actual crimes uncovered.)
New Rule: Keep arcane financial instruments and banking internal risk models so complicated and opaque that regulators and putative investigators can dodge their duties to American taxpayers can cry: “Too complicated to investigate and prosecute!”, then underfund the putative regulatory agencies. It works a treat!
And Obama the Populist? What will we here him say out on the trail? Will he ask Congress to re-enact Glass-Steagal, or reverse the CFMA, knowing the time he might have rammed those through is gone? Nah; he’ll just point out that big bad Romney wants Dodd-Frank repealed, booga-booga
Meanwhile, back at Truthout, here’s Richard Wolff in an interview yesterday with Truthout’s Matt Renner:
RW: JPMorgan’s $2 billion loss just illustrates yet again that so long as we leave tiny groups – boards of directors and major shareholders – in a position to evade, weaken and overturn people’s efforts to regulate and control them, they will do just that, and they will take risks whose consequences we all have to suffer. For banks like JPMorgan, government regulations born of people’s suffering are so many obstacles to overcome to rebuild their profitability. They use their profits to overcome those obstacles. That’s how and why, after the Great Depression ushered in the New Deal, US businesses went to work to undo the New Deal, to evade, weaken and eventually overturn laws like the Glass-Steagall banking regulation, high taxes on business and the rich, etcetera. If all we do now is pass another set of rules and regulations, but leave in place the existing corporate structure of enterprises, we will have ourselves to blame for the fact that another set of rules and regulations will fare no better than the last, and it will land us yet again in a crushing economic crisis that is now dragging us through its fifth year.”
Maybe, since authors here have said that the laws concerning corporate charters need to be totally rethought and redesigned for people, not profit. But a few good regs like separating commercial and investment banking, and some healthy stipulations as to what benefits a well-regulated commodities market should look like, and making sure that the implicit guarantees that the federal will bailout fraudulent banking at the cost of the American taxpayer ends once and for all …would go a long way toward preventing the next Wall Street meltdown after the one that’s comin’ at us soon.
*For those of you making lists about Obama failures, Simon Johnson’s piece here offers more proof about what this administration really thinks about the benefits of Too Big To Fail banks.
** And when your friends tell you that Campaign Obama will make sure to strengthen the Volcker Rule soon…please chuckle, giggle, snort, guffaw…and have some fun over the absurdity of the claim.