NEW YORK, NEW YORK: President Bush has finally heard those of us who have been railing for financial reform, and putting Wall Street under what the Jamaicans once called "Heavy Manners," a set of rules and regulations aimed at trying to stabilize the volatile markets and curb avaricious banks who have managed in less than a decade to bring a house of cards down upon themselves and the rest of us.
Suddenly in the run-up to April Fools day, and in rapid order, the ‘Lions of Legislation’ on the Hill, and the warring candidates on the campaign trail have discovered that the financial system is on the verge of collapse.
"Do something" is the mantra, as a flurry of new "plans" displace old ones, all aimed at fixing "the mess." The LA Times reports: "congressional Democrats are turning up the heat on the White House and Republicans in Congress to respond more aggressively to the mortgage crisis when lawmakers return next week from their spring recess."
In response, despite its obsession with surges and bombing Iraq back to its idea of "normalcy," the White House says it now feels our pain and has decided to act. Well, at least, to let former Goldman Sachs CEO Hank Paulson, now our Treasury Secretary, (in the tradition of former Goldman Sachs exec Robert Rubin who followed the same career path) impose yet another new pacification plan.
Paulson’s has studied the crisis, studied it deeply, and realized the culpability of the brokers and the banks in engineering the disaster. His solution: kick the ball over to The Federal Reserve Bank. He’s enlisting the Fed foxes to guard a Wall Street chicken coop at risk from a dangerous form of bird flu. (The technical term is ‘greeditis" enabled by regulatory arthritis.)
He knows that most Americans-and most of the media — think the Fed is a neutral government agency with a public interest mandate. They think it has the expertise and the power to swoop down and save us from our misery despite the fact that eights months of rate cuts and capital "injections" have failed to stem the contagion of collapse.
The New York Times pictures the exercise clinically in positive terms as a police raid, sort of like a SWAT team.
"WASHINGTON – The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.
The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades."
Sorry to disabuse the newspaper of record and anyone who believes this formulation but the Fed Is a private agency with no Constitutional authority run by bankers for bankers. It is a privately owned central banking system. Bankers sit on its many boards. The banks in turn get to borrow money at rates the Fed sets, and tack on interest and fees for loans. The Bank is there to do their bidding, and save them from themselves. When they run into trouble, they are often bailed out.
Bankers pressed for the Fed’s formation in a secretive if not deceptive manner: As one historical account explains: "On Sunday, December 23, 1913, two days before Christmas, while most of Congress was on vacation, President Woodrow Wilson signed the Federal Reserve Act into law. Wilson would later express profound regret over his decision, stating: "I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world – no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.
In fact, in its most recent "unprecedented" intervention to save Bear Stearns with monies leant to JP MorganChase through the NY Fed, it turned out that the President of JPM, Jay Dimon, sat on its board. It also appears that it was JP Morgan Chase really that had to be saved because it was so "entangled" with Bear. If you think this was a conflict of interest, think again. Self-interest seems to be their only interest.
Anyone who has looked carefully at the plan knows the odds of it working are nil. The Washington Post explained that it "could require congressional action stretching over several years and would not help the economy out of its current credit crisis." Adds the Wall Street Journal: "If all the changes get made, they would represent a complete reworking of the U.S. regulatory system for finance. Such an outcome would likely take years and would also require major compromises from an increasingly partisan Congress. The proposal, obtained by The Wall Street Journal, is likely to trigger messy feuds over turf at a time when confidence is what’s needed."
This is one more effort to appear to at least be doing something, as the blog Naked Capitalism explains:
"There is less here than meets the eye, and what is here is guaranteed not to be implemented during the remaining months of the Bush presidency. And that of course is precisely the point of this exercise. Appear to be doing something and dump the mess in the lap of your successor.
To the details—Remember where we are: we’ve had years of misguided confidence that investment banks could be left to their own devices, that the wonders of the originate-and-distribute model meant Things Were Different This Time. Specifically, the powers that be believed that risks were so widely spread and diversified that the financial system was now much more resistant to systemic shocks. We’ve seen what a crock that idea was."
It is just possible that Bush’s successor—Obama or Clinton-will see through this charade although Hillary has already proposed a Blue Ribbon type commission with former Fed Chairman Alan Greenspan and others whose policies led to the crisis. (Her campaign manager Maggie Williams has now been linked to a defunct mortgage company making subprime loans.)
John McCain has not only admitted he knows nothing about economics, but has advisors whose free market theology seems to be to the right of Paulson and the Fed’s Ben Bernanke who some conservatives fear are already meddling too much in the economy. His key advisor, former Texas Senator Phil Gramm, a Democrat Turned Republican shilled for predatory lenders for years, even denouncing a housing activist as a "terrorist."
Obama also has a sub-prime link through his Finance Chairman Penny Pritzger who ran a Chicago bank that imploded and owes the government and depositors hundreds of millions. Nevertheless, economics writer Robert Kuttner feels Obama’s ideas, spelled out in a speech last week, are evolving in a progressive direction.
"The speech also showed real understanding and subtlety in grasping how financial "innovation" had outrun regulation, as well as a historical sense of the abuses of the 1920s repeating themselves. Obama is one of the few mainstream leaders — Barney Frank is another — calling for capital requirements to be extended to every category of financial institution that creates credit. This is exactly what’s needed to prevent the next meltdown, but if it were put to a vote now, it would be rejected by legislators from both parties because they are still in thrall to market fundamentalism and Wall Street. That’s where presidential leadership comes in."
The only candidate challenging the Fed directly has been Congressman Ron Paul, who has been more of a maverick than McCain who loves that title.
It may be too late to wait until next year for real reform which is why this issue must be taken up aggressively by social change activists, not just partisans and pols. And now! Economists like Noriel Roubini who predicted the meltdown says: "It’s time to face the truth-the U.S. economy is no longer merely battling a touch of the flu; it’s now in the early stages of a painful and persistent bout of pneumonia."
Unfortunately, our media will not be any feistier or honest in challenging the government’s economic chicanery than they have been on its war talk.
Leave it to satire to get at the truth. The Onion put the financial press in its place with a story "reporting" how the reporting has been largely undecipherable:
"JPMorgan Chase Acquires Bear Stearns In Tedious-To-Read News Article"
The paper that calls itself "America’s Finest News Source" skewered most of the coverage on Bear Stearns because it was written in "obscure legal jargon that can only be described in the most mind-numbingly dense and unreadable way" by readers who "saw its value depreciate almost as quickly as readers’ interest in this story. "
They blasted the coverage for "bogging down the news for anyone who might be remotely interested in grasping what the fuck is going on. "
I couldn’t say it better myself.
News Dissector Danny Schechter edits Mediachannel.org. His film IN DEBT WE TRUST (InDebtWetrust.com) forecast the crisis. His book "WE ARE SCREWED" is looking for a gutsy publisher. Comments to [email protected]. You can watch Schechter confront a CNBC reporter on You Tube: http://www.youtube.com/watch?v=XDkAeB0sn54