From 2009 to 2010 Ted Kaufman was the
senator from Delaware. He got his seat by appointment following Joe Biden’s
becoming our Vice President. He also decided not to run for the office when his
term was up which gave him a unique freedom for honesty in how he went about
his work. He was the chair of the oversight hearings on the Justice Department
and the F.B.I.’s pursuit of financial fraud and pushed the Securities and
Exchange Commission, along with Senator Sherrod Brown (D-Ohio) on legislation
to impose a hard cap on the size and debts of our largest banks. You know the
ones that are too big to fail.
His chief of staff, Jeff Connaughton, has
written a book, They Payoff: Why Wall
Street Always Wins. We know that these banks and financial institutions can
and do a lot of damage. We don’t know how, but we’d like to see them brought
under control.
Connaughton has worked in the Senate, in
the Clinton White House, and also as a lobbyist. All of which gives him an
interesting perspective as well. This book I understand gives us the details of
how the incestuous financial sector works. It is about the power of Wall Street
or the corresponding political machinery that keeps them powerful. Simon
Johnson of the Baseline Scenario where I get this information says, the book is
bound to “turn our stomachs.” He burns all the bridges and gives an honest
assessment of what is going on.
The Justice Department won’t prosecute the
financial fraud, the S.E.C. won’t protect regular investors, and the Senate kowtows
to the Treasury and Federal Reserve technocrats.
“The Blob
(it’s really called that) refers to the government entities that regulate the
finance industry – like the banking committee, Treasury Department and S.E.C. –
and the army of Wall Street representatives and lobbyists that continuously
surrounds and permeates them. The Blob moves together. Its members are in
constant contact by e-mail and phone. They dine, drink and take vacations
together. Not surprisingly, they frequently intermarry.”
Connaughton says to break this system we
have to put all members of congress and presidential candidates to the test of
refusing to take campaign contributions from the too big to fail banks. Fat chance.
It is apparent the Republicans are and have
been in bed with these vested interests but Democrats are equally to blame
including the Obama administration who many of us thought might take on these
interests. The latter is a great disappointment to the author.
It doesn’t sound like a fun read or one
that is even hopeful, but it also looks like an important read.
"It is apparent the Republicans are...."
ReplyDeleteYet, most Republicans voted against giving these banks the huge handouts. They are in fact much less "in bed" than the Democrats.
This graphic shows who's in bed with who:
ReplyDeletehttp://www.opensecrets.org/industries/indus.php?ind=F03
But as always, the debate over whether the bailout was right or wrong is the wrong debate. The relevant debate is how we allowed them to get big enough to become existential threats to the entire finncial system and the broader economy.
Politicians cannot make rational or right decisions when a gun is pointed at the head of the economy. Human nature is to pick that path which appears the least painful... any of us would. And yet we are surprised and shocked when this is exactly what occurs.
An interesting take to look at what 'might have been' in an alternate scenario is to look at Iceland -- they didn't bail out their banks, instead they beefed up their social safety net to brace for the consequences and their economy is doing ok now -- of course there are plenty of unsavory results in their situation in the meantime, such as the fact that the stock market lost over 95% of its value virtually overnight, most of which was never recovered (such destruction of capital would have had huge political consequences in this country of course -- imagine millions of Baby Boomers finding their accumulated ife savings virtually worthless)
ReplyDeleteI think the main debate is whether or not to make the leap into major crony capitalism by giving an unnecessary handout.
ReplyDeleteWithout this, these major financial institutions would have gone into conventional bankruptcy, which would have saved hundreds of billions of Federal dollars, allowed them to meet creditors in a reasonable fashion, and likely resulted in major downzizing.
As for Iceland, where you said " they didn't bail out their banks, instead they beefed up their social safety net.."
yes, I would have much rather that $0 went in handouts to the big banks, auto industry etc, and if it had to be spent, spend it on the poor instead.
It wouldn't have saved 'hundreds of billions' in net terms of course -- it would have cost trillions in revenue -- and multiple trillions in market capitalization and household wealth as the monetary contraction and deflation took hold.
ReplyDeleteThere were no 'great' options available at the time of crisis -- a lack of choices typically born of failed policies. It becomes a game of trying to select the 'least bad' option, or, if you're in politics, the least immediately painful.