Hardly a day goes by without President Obama blaming our economic woes on the "failed policies of the past." He 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 (allegedly) prevent the financial shocks of credit bubbles and real estate booms. Ever-watchful of deceptive mortgage lenders, he will hold them and all other greedy plutocrats accountable for their financial shenanigans.
In truth, the policies of the past engendered regulations that were ignored, unimplemented, unenforced, and, more recently, applied against the wrong people. This travesty was compounded by politicians, regulators, and DOJ lawyers who failed as well. They failed miserably, yet suffered no consequences. Only the people whom regulations were supposed to protect suffered. But this time, as he campaigns for reelection, Mr. Obama tells us, incessantly, he has our back.
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 and proceeding to its near bankruptcy in 2008. This was around the time when candidate Obama began blaming President Bush for the financial crisis. Obama went on to form an economic team led by people who helped create the crisis — economic geniuses such as Rubin protégésLawrence Summers and Timothy Geithner. As Washington Postwriter 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.”
As an attorney, Obama represented "affordable housing" slumlords, one of whom evicted 15 poor families from their apartments in the dead of a subzero Chicago winter, two months after turning off their heat and water.
What qualified Obama to assemble a team that would, supposedly, stick it to Wall Street? As the Washington Examiner discovered in its 'The Obama You Don't Know” exposé, it was also during the Clinton years that Obama developed his knowledge of real estate and finance. In the early 1990s, heleft 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 subzero Chicago winter, two months after turning off their heat and water. This 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 principal government official responsible for regulating Citigroup. After years of doing nothing to deter the antics that almost bankrupted that firm, he helped forge a deal (with Treasury Secretary Henry Paulson, another Rubin colleague) that stuck it to taxpayers: 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 2001 throughDecember 2007. At least the Bush administration suspected the coming crisis.
Maybe the regulators thought that Christopher Dodd and Barney Frank,the nation's top Wall Street watchdogs, would actually bark. But this fatuous duo 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 a share and $9.00 a share, respectively (down from $60 and $67, 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 a share.
For his signature Wall Street reform law, president Obama turned to Messrs Dodd and Frank, entrusting the two who didn't prevent the last crisis with preventing 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.
While 8 million private sector jobs have been lost, inane regulators still hold theirs, further rewarded with raises and promotions brought by the flood of new Dodd-Frank regulations.
Obama brays at the Bush trickle-down policies, but the benefits of Dodd-Frank 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 high salaries to protect supposedly powerless investors, bank account holders, and consumers from the wrongdoings of banks and financial institutions. Yet the latter have, in the main, gone unharmed, and so have the regulators. While 8 million private sector jobs have been lost, inane regulators still hold theirs, further rewarded with raises and promotions brought by the flood of new Dodd-Frank regulations.
If the bailout wasn’t reward enough for risky Wall Street practices, immunity from prosecution will 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, even the imaginary crimes that regulators like to invent. Instead of the stereotypical wolves of Wall Street, Eric Holder has chosen to go after the likes of a Connecticut women who allegedly conducted a gifting table Ponzi Scheme, and a Nevada group accused of trying to 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 employeeswith 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 (which received over $150 billion in taxpayer bailout money) now exceed $109 million. Those fees are paid by — again, wait for it — the taxpayers.
The banking oligarchy is doing quite well under President Obama. So too is his ever-expanding regulatory leviathan. The rest of us are left to 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. Obama, of course, demands still 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 deal with Wall Street. Perhaps his supporters believe that, with his brilliant legal mind, he will find enough laws to do so. After all, he got the slumlord off with a $50 fine.