Wall Street Reform Aims To Bring Back The “Wild Old Days”

Even after years of Republican’s bashing the Obama Administration for its economic policies, the official stats indicate that good times are just around the corner.

Yet, Fortune Magazine asks, “If the U.S. economy is so good, why do we feel so bad?” CNN went further, reporting, “When it comes to the U.S. economy, the glass just went from half full to half empty.”

At the start of the year, economists were optimistic. Perhaps the economy would grow 3% this year, they said, instead of the measly 2% pace it’s been stuck at for the prior three years.

So much for that hopeful thinking! Halfway through the year, forecasts are being slashed.

The latest job creation figures are lower than they were in November. Worker wages have not risen; minority and youth joblessness remain high. 14.2% for young people.

Could it be that despite the hype, we never really recovered from the financial crisis? This is not unusual. As the economic historian John Kenneth Galbraith wrote in his book on the great crash of 1929, “the singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning.”

In one speech that did not get much attention, former Federal Reserve Chairman Ben Bernanke argued that the financial crisis of 2007-2008 was worse than the Great Depression of the 1930s.

The economist Dean Baker called the “recovery” a turkey.

“December (marks) the seventh anniversary of the beginning of the recession brought on by the collapse of the housing bubble. Usually an economy would be fully recovered from the impact of a recession seven years after its onset. Unfortunately, this is not close to being the case now. It would still take another 7 to 8 million jobs to bring the percentage of the population employed back to its pre-recession level.”

In 2011, a national Commission on the causes of the financial and economic crisis in the United States released the Financial Crisis Inquiry Report. Among its findings was that that the crisis was avoidable, and was not a simple result of flaws in the economy. I wrote a detailed foreword to the report in an edition published Cosimo Press (2011). Earlier I wrote three books, and made two films—In Debt We Trust and Plunder—about the origins of the crisis, and the role massive corporate fraud played in triggering it.

The legislative response to the crisis was the passage of a highly compromised reform act called Dodd-Frank, named after its Senate and House sponsors, Chris Dodd and Barney Frank. The passage of the omnibus act went through a partisan buzzsaw with the Financial Services industry working overtime to dilute new rules and regulations.

It was reported that the industry, writ large, funded 35 lobbyists for each member of Congress to first try to kill the bill, and failing that, to weaken it. There was intense debate over its consumer protection aspects while some calmer heads on Wall Street recognized that new rules could stabilize their profit takings.

Now that the Republicans are taking over Congress, they are making a new run at the bill. Significantly, some in the industry prefer some regulatory framework (with all its loopholes) and are not enthusiastic about dumping the law. The Republicans had a surprise when, even as a majority, they failed to dislodge it.

Reuters reported: “Republicans in the U.S. House of Representatives failed on Wednesday to round up enough votes for a bill scaling back various financial reforms, a surprising defeat in an area conservatives hoped to prioritize this year.

…Supporters fell six votes short of what was needed to send the legislation to the U.S. Senate. The proposal was among the first votes House lawmakers took after returning to Washington this week.”

Writes former IMF official Simon Johnson: “The House Republican rhetoric will be ‘technical fixes’ and ‘job creation.’ But the reality is that they are determined to strip away all meaningful restrictions imposed on Citigroup, JP Morgan Chase, and other megabanks – and to roll-back Dodd-Frank as far as possible, until it becomes meaningless or they are finally able to repeal it completely.”

The Repugs are not the only enemies of the bill. Simon Johnson’s partner, James Kwak, has written in detail on the website, Baseline Scenario, about what’s called “regulatory capture” the process in which regulators do the bidding of the industry they are supposed to regulate.

He cites an investigation by ProPublica and NPR’s This American Life illustrat(ing) the culture of deference, risk aversion, and general sucking-upitude among New York Fed bank examiners that effectively resulted in the capture of regulators by the banks they were supposed to be regulating. As David Beim wrote in a confidential report about the New York Fed, the core problem was “what the culture expected of people and what the culture induced people to do.”

Writing in the New York Times, financial columnist Gretchen Morgenson reports,the latest attack “would chip away at key parts of Dodd Frank. But the bigger implications of this campaign is how these efforts serve to limit the Fed’s freedom in implementing monetary policy.”

It’s also important to remember what Matt Taibbi wrote some years back: “Democrats have helped weaken the reform bill. ….Dodd-Frank is groaning on its deathbed. The giant reform bill turned out to be like the fish reeled in by Hemingway’s Old Man – no sooner caught than set upon by sharks that strip it to nothing long before it ever reaches the shore. …. With the Quislingian covert assistance of Democrats, both in Congress and in the White House, those bills could pass through the House and the Senate with little or no debate, with simple floor votes – by a process usually reserved for things like the renaming of post offices or a nonbinding resolution celebrating Amelia Earhart’s birthday.

“The fate of Dodd-Frank over the past two years is an object lesson in the government’s inability to institute even the simplest and most obvious reforms, especially if those reforms happen to clash with powerful financial interests. From the moment it was signed into law, lobbyists and lawyers have fought regulators over every line in the rulemaking process. Congressmen and presidents may be able to get a law passed once in a while – but they can no longer make sure it stays passed.”

And why is that? You win the modern financial-regulation game by filing the most motions, attending the most hearings, giving the most money to the most politicians and, above all, by keeping at it, day after day, year after fiscal year, until stealing is legal again.

“It’s like a scorched-earth policy,” says Michael Greenberger, a former regulator who was heavily involved with the drafting of Dodd-Frank. It requires constant combat. And it never, ever ends.”

The Wall Street crooks can’t wait for the unregulated “wild old days” to come back, even if that could lead to another crash.

News Dissector Danny Schechter writes about financial inequality. His latest book on the subject is The Crime of Our Time that lead to his film Plunder. Comments to dissector@mediachannel.org,

Leave a comment