Less Kabuki, More Reform

Does the president get it yet on financial reform?

Or is his tougher stance toward the bankers part of a kabuki performed for the public while real reform is compromised away backstage?

The politics around the battle for a Consumer Financial Protection Agency are thick with intrigue and shifting positions.

A separate agency is a crucial aspect of any reform because the present regulators have done such a dismal job of protecting consumers’ interests.

We have every right to be suspicious of the president and the Democrats, based on their timidity in fighting for stronger regulation and holding accountable those responsible for the crisis.

The latest cause for doubts stems from the unsavory spectacle of Democrats and Republicans falling over themselves to reassure Wall Street that they are the bankers’ best bet to represent the interests of the financial industry.

Meanwhile, the president appears be jawboning the key Senate author of reform, Chris Dodd. A long-time recipient of Wall Street largesse, Dodd was facing a tough reelection campaign, based on some of his more unsavory dealings with Wall Street. In the midst of that campaign last November, he came out with a tough reform proposal, including an independent Consumer Financial Protection Agency.

But as his campaign looked increasingly hopeless, Dodd decided to retire. Since then he’s been signaling that he wants to back off the independent consumer agency.  President Obama met with Dodd last month and insisted that the independent agency is “non-negotiable.”

President Obama has his own changing political calculations. He originally supported a milder version of bank reform passed by the House. After the Democrats lost Ted Kennedy’s Massachusetts Senate seat several weeks ago, the president all of a sudden decided to haul out his lone financial adviser who has advocated breaking up big banks, former Fed chief Paul Volcker. (Previously Obama had been ignoring him, letting a cast of Wall Street insiders run his handling of the banking crisis.)

Obama, with Volcker by his side, voiced support for breaking up the largest big banks as well as placing some new limits for some of the banks’ riskier activities.

Earlier this week at a Senate hearing, Dodd aimed unusual criticism at the president, questioning the timing of his announcement, labeling the president’s embrace of Volcker’s ideas “transparently political.”

Dodd didn’t stop there: he suggested that the president’s proposals to get tough on the big banks threatened the process of crafting a reform proposal that would get bipartisan support.

Key Republicans have already indicated what that would mean – no independent consumer financial protection agency, for one thing.

The Democrats are caught: The bankers who fund their campaigns are demanding watered-down reform that will ensure business as usual. Angry voters are demanding robust regulation and accountability.

The president has to demonstrate that his embrace of Volcker’s ideas isn’t just a gimmick. He’s got to flesh his proposals out with details and fight for them in public and not compromise them away in the back rooms.

Contact the president and let him know what you think. Let your senator know, too, that you’re tired of political theater. It’s past time for real reform.

Urgent Challenges, Modest Responses

The good thing about President Obama’s state of the union speech is that he acknowledged the public’s anger over the financial crisis.

The bad thing is that he appears to reject it. “Look,” he said. “I’m not interested in punishing banks.”

As expected, the president put the rhetorical focus on jobs and the economy in his state of the union. But the actual proposals, a combination of tax cuts and subsidies were relatively modest. But the combination of his proposed freeze on most discretionary spending and continuing Republican opposition make the possibility of dramatic improvement in jobs and the economy unlikely. The speech didn’t contain the kind of dramatic response that 18 percent real unemployment and a continuing foreclosure crisis demand.

President Obama insisted he would veto any financial reform that wasn’t real. But he didn’t spell out what that might mean. Does that mean he’ll veto financial reform that doesn’t contain a Consumer Financial Protection Agency or meaningful derivatives regulation? The president didn’t say. He also didn’t pledge to fight for any specific reforms in Congress. The only specific he mentioned was his proposed bank fee to recoup costs of the bailouts.

President Obama blames his legislative frustrations on his own inability to fully explain his policies. But the president who has repeatedly promised no more business as usual remains afraid to tap into, and act on, the public’s honest passion for real change.

Obama's 'Hostage' Crisis

Tonight’s state of the union speech will be the least important of President Barack Obama's political career. No doubt it will be a dazzling performance, as the president pivots from pugilistic to professorial, from left to right. We know the president comes through with the rhetoric in the clutch. But the true test of his presidency is no longer what he says he will do or how he says it.

The test is whether Obama and his team wage a credible and effective fight for financial reform and economy recovery for Main Street, with the same vigor and urgency they threw into the Wall Street bailout. That will take more than a speech or even a series of speeches. It will take a real self-critical assessment of the president's strategy up til now and a tough, savvy and sustained political battle plan in the face of significant obstacles.

Both have been lacking in the president's approach so far. That’s the real pivot he needs to make now, and it has only partly to do with oratorical skills.

Obama’s credibility is suffering because he and his team keep suggesting that they have overseen a recovery that most people aren’t enjoying. They helped engineer a bailout that they say was absolutely necessary that helped the financial sector but left out the rest of us. Obama and his team don’t have credibility because they’re working Capitol Hill as hard as they can, not to create jobs for millions of out of work Americans, but to save the job of one of the few Americans who could have helped forestall both the financial crisis and the Wall Street –friendly bailout but didn’t, Ben Bernanke, head of the Federal Reserve.

Sen. Tom Harkin summed up what many people are feeling in reacting to comments from Tim Geithner, Obama’s treasury secretary who had warned that the stock market would tumble if Bernanke were not confirmed.

Geithner was just acting as a messenger boy for Wall Street, Harkin suggested. “How long will our economic policy be held hostage to Wall Street who threaten us that there’ll be total collapse if we don’t do everything they want?  Wall Street wants Bernanke,” Harkin said. “They’re sending all these signals there’ll be this total collapse if he’s not approved. You know, I’m tired of being held hostage by Wall Street.”

Wall Street doesn’t like key planks of the president’s financial reform plan, like the Consumer Financial Protection Agency and his recently announced plan to separate some of the largest bank’s risky business from its more traditional functions. The Senate’s banking committee chair, Christopher Dodd has signaled he’s ready to surrender on the consumer protection agency. Will the president announce tonight how he and his team plan to win that fight when congressional leaders are giving up? Or will the president treat the consumer protection agency and bank size as just details that should be left up to Congress, as he did in the battle over crucial aspects of health care reform?

A different kind of hostage crisis helped bring down a previous Democratic president. All Jimmy Carter had to grapple with were a bunch of Iranian revolutionaries holding 53 Americans in an embassy in Tehran. President Obama’s challenge is much tougher – 250 million people and our entire political process held hostage by some of the world’s wealthiest corporations and individuals. Carter’s hands were tied. Are Obama’s?

Fed Up: Down With Bernanke

President Obama can’t credibly rail against Wall Street fat cats while fighting for their chief enabler.

Here’s all you need to know right now to decipher the confusing messages from the White House and the Democratic leadership:

Ignore the faux populist rhetoric and keep your eyes on the contentious U.S. Senate vote on confirmation of Ben Bernanke to a second term as chair of the Federal Reserve.

If Obama and Democrats want to show they now “get it” on why people are so angry over the mishandling of the bailout and the economy, they should dump Bernanke without delay.

But the White House and Democratic leadership, including senators Harry Reid and Chris Dodd, continue to strongly support Bernanke. Other Democratic senators, like Russ Feingold, Bernie Sanders and Barbara Boxer, as well as Republicans such as senators Richard Shelby and John McCain, oppose him.

The prime reason Bernanke deserves to be dumped is that he is not a reformer or strong regulator during a time of reform and increased regulation. The crisis hasn’t caused him to reconsider. Bernanke even opposes a key plank in President Obama’s reform proposal – the Consumer Financial Protection Agency.

He may nod reassuringly in the direction of Main Street but he’s an insider of the Wall Street elite whose prevailing philosophy is a combination of “What’s good for Wall Street is good for the U.S.A” and “There’s a sucker born every minute.”

Some observers credit Bernanke with keeping the country from slipping into another Great Depression.

The country managed to avoid an economic fiasco on the scale of the depression. But why should Bernanke get the credit?

Everything the Fed does is cloaked in a secrecy and doublespeak that mocks the president’s promise of the most transparent administration in history.

What we know for sure about the Fed’s response is that it shoveled cash and cheap credit in the direction of its favored Wall Street targets. Bernanke and the Fed have resisted disclosure of any facts and figures about what they did. When the details do emerge, they smell fishy.

For example, Reuters reported on emails that were obtained through subpoena by Rep. Darrell Issa, R-California, who is investigating the role of the Fed in the AIG bailout.

What Reuters found was that the Fed, under Bernanke’s direction, along with the SEC, wanted to protect the details of the AIG bailout with a level of secrecy usually reserved for matters of national security.  In the emails, Bernanke’s staff ridicules the clamor for more public disclosure about the bailout.

At issue are payments the Fed made to firms that carried insurance with AIG on bed bets those firms had made on investments. Those firms, called counterparties, included the likes of Goldman Sachs. The Fed paid off AIG's counterparties 100 cents on the dollar on their bad bets: extremely unusual with companies in such deep distress relying on the kindness of taxpayers not to take some losses.

Just what do Bernanke and the Fed have to hide? Whose interests are being protected?  We need to get to the bottom of those questions, not reward those keeping us from the answers to them.

Even if Bernanke did get credit for his role in the bailout, that wouldn’t be enough reason to confirm him for another term. He missed the housing bubble before the meltdown and has shown no indication he would recognize another bubble when it occurs. He has also misread the impact of the economic stimulus.

In addition, the Fed under Bernanke's watch failed at on one of its cores missions – reducing unemployment. Bernanke is more afraid of increasing inflation than he is of increasing unemployment. It’s time for the Fed to shed its cloak of secrecy and elitism and push for an economy that benefits everybody, not just Wall Street. That transformation will be challenging; Bernanke has shown he’s not the kind of leader for these times.

Obama’s treasury secretary, Tim Geithner, is trying out the old scare tactics, threatening that the markets will fall if Bernanke loses his job. But these are the same kinds of scare tactics that a previous administration used on Congress to forestall debate in its haste to push a poorly considered bailout scheme. We may have expected such tactics from the Bush Administration, but President Obama set higher standards for his administration. Now is the time for him to live up to them.

Contact the president and let him know what you think. Let your senator know too.

Barack Obama, Meet Gray Davis

The Massachusetts Massacre rocked the D.C. establishment. But when it comes to political earthquakes, there’s no place like California. A look back at the Golden State’s electricity crisis, when a cautious governor let the state’s taxpayers bear the financial brunt of deregulation and was later ousted, suggests that last Tuesday’s vote was merely a foreshock of what lies ahead unless President Obama and congressional Democrats step up.

Nine years ago, Wall Street energy traders took advantage of California’s newly deregulated electricity market to do what Wall Street always does. By gaming the system, buying and selling electricity contracts multiple times, sending power out of state and ultimately shutting down their power plants to create blackouts, the speculators drove the price of electricity through the roof, until the state’s utilities collapsed and the California economy seized up. It was a massive windfall for Wall Street.

Although deregulation had been signed into law by Republican Governor Pete Wilson, it didn’t take full effect for several years. By the time deregulation proved to be the disaster myself and other consumer advocates predicted it would be, the Governor of California was Gray Davis, a moderate Democrat who was on the short list of contenders for the Presidency in 2004.

Then the lights went off – in middle of January, when consumption in California is at its lowest of the year. The energy industry said its plants were down for maintenance. The Bush Administration blamed California for not building enough power plants. But anyone not on the industry’s payroll or blinded by worship of the free market could figure out that California was being scammed, big time, by an artificial shortage.

With traffic signals dark and businesses shutting down, we called upon Governor Davis to send in the National Guard, seize control of the power plants, and turn the juice back on.

Davis didn’t know what to do. Deregulation wasn’t his idea, but it melted down on his watch. We later heard that representatives of the California Public Utilities Commission and some of the state’s utility companies had privately urged him to use the power of eminent domain to take over the plants. But Davis declined.

Instead, he brought in Wall Street advisors from firms like the Blackstone Group to guide him. At that point, the state’s utility companies had run out of money to pay for electricity. The energy companies refused to generate any more electricity unless the state of California – the taxpayers – stepped in. The Wall Street rating agencies piled on, threatening to downgrade the state’s credit rating if Sacramento didn’t agree. It was “blackout blackmail,” but Davis’s Wall Street advisors convinced him that it was the only solution, and he capitulated.

California borrowed tens of billions of dollars to pay the energy companies their vastly inflated prices for electricity. Our electricity bills will reflect that debt for another 20 years. Meanwhile, Wall Street firms reaped billions of dollars – from the phony crisis, and from the bonds that were floated to pay for it.

The lights came back on. But California voters never forgot how Gray Davis handled the confrontation between Wall Street and Main Street. And when an action figure from the movies gave them an opportunity, they terminated Davis’s political career.

Similar forces were at work in the Massachusetts election. Bay State voters were simply the first in 2010 to have the opportunity to express their dismay at how Washington has handled the financial crash that Wall Street engineered.

Like Davis, President Obama wasn’t even on the scene when Congress and federal regulators dismantled the Depression era safeguards that protected us against a speculation-driven collapse. But when confronted with an unprecedented crisis, President Obama, like Governor Davis, choked.

Instead of using every measure of his presidential authority to stop the speculation, punish the perpetrators, reform the financial system and relieve struggling Americans, Obama brought in a cadre of Wall Street players whose advice was, not surprisingly, to spend trillions of taxpayer dollars to bail out the banks, credit card companies and hedge funds, and let Wall Street go back to business as usual with barely a slap on the wrist. The hundreds of millions of Americans who didn’t qualify for a federal bailout were left empty-handed.

Like Davis, Obama will have a couple of years to turn this political and personal debacle around.

Putting a cap on the interest rates we pay to borrow our own money from banks and credit card firms would help millions of consumers weather the coming months and get the economy going again.  Replacing Geithner, Summers and others who used to work for the industry with a few Nobel Laureates like Joseph Stiglitz who warned of the coming collapse would be good for the White House, now trapped in its own pro-Wall Street bubble. Last week, Obama proposed breaking up the too-big-to-fail banks, which would prevent more reckless speculation and future crash/bailouts. But Americans now wonder if the President will follow his words with deeds, or surrender to the industry lobbyists without a fight, as he did before.

Whether Obama will find the courage that eluded Gray Davis remains to be seen.

Finding Opportunity Among Democrats' Troubles

It’s the bankers, stupid!

President Obama, fresh from a stinging defeat in Massachusetts, came out swinging Thursday against the banks, promising a return to the spirit of Glass-Steagall.

The rhetoric was strong but the details were a little vague. It sounds like he’s suggesting limiting the size of banks as well as their ability to gamble with taxpayer backing. You can be sure the finance lobby will fight to block whatever new initiative the president offers.

Obama’s rhetoric is a year late but does provide opportunity nonetheless. The key thing is that Obama and the Democrats’ problems put real financial reform back on the table.

The debate over breaking up the banks has been fraught with fear-mongering and propaganda: supporters of the big banks argue business won’t have the resources to make big deals. Even smart people say dumb things in the debate, as Dean Baker points out. Broken-up banks will still be huge by any standard, just not quite so capable of taking the entire economy with them when they crash.

The obstacles to reform remain the same as they have been:

1.) a financial industry with unlimited resources for the fight

2.) politicians squeamish to take on their contributors in that industry, and only too willing to let bankers squiggle out of regulation in the legislative fine print

But Obama and other Democratic leaders have felt the sharp prick of the pitchforks in their rear ends.

They know that the public is aware of their clueless response to the financial crisis, shoveling billions to the titans of finance while failing to stem rising unemployment and foreclosures.

One step Obama didn’t take this morning was to scrap his entire financial team, the engineers of his too-comfy relationship to Wall Street and timid response to the crisis that has afflicted Main Street.

Except for 80-year-old Paul Volcker, the former Fed chief who has been born again as a reformer, they should all be fired.

On Thursday, Obama insisted he wasn’t afraid of a fight with the bankers. Certainly none of his team except Volcker have shown any inclination for doing or saying anything that would upset the bankers, let alone a brawl.

The current Fed chief, Ben Bernanke, is also feeling the chill from Massachusetts. Roll Call  is reporting that his confirmation for another term may be in peril, while The Hill reports that Senate Majority Harry Reid has “serious concerns” about how Bernanke, who has strong backing from Obama, plans to deal with the economy.

Now is the time to hold the president to his word. By all means contact Obama and applaud his tough speech Thursday. Contact your congressperson and senator and remind them that you’re paying attention to the reform battle and aren’t about to be fooled. Check out my open letters to Sens. Boxer and Feinstein for my bottom line on real reform.

We  need to tell the president and Congress that we won’t settle for phony reform that lacks transparency or a piddling tax on banks that represents just a fraction of their revenues. We need to tell them that we won’t settle for legislation alone – we need an antitrust crackdown to break the power of the big banks.

If you need ammunition for your phone calls and emails, here’s a study that shows how the financial industry has managed to thwart meaningful reform so far: it spent $344 million lobbying Congress – just in the first three quarters of 2009!

Meanwhile, Goldman-Sachs announced record profits last year, while it doled a mere $16.2 billion for bonuses.

Time will tell whether Obama is capable of delivering the fight he promised to back up his newfound populist punch. But let’s not give the president, or Congress, any excuse to back off or get distracted. Only relentless jabs from you and others will keep them from getting cozy again with their financial industry cronies.

The question right now is not whether Obama is up for the fight. The question is: can we turn our anger and frustration into a political force?

Stuck in the Fog

One thing is clear: Citigroup executives thought they had a deal with the government to pay back their bailout money so they could pay themselves as much as they wanted.

Then it all started to unravel. The Washington Post disclosed that the IRS granted Citigroup huge tax breaks (meaning billions) as part of the exit strategy the "too big too fail" bank worked out with Treasury officials.

After that the stock market rejected the government and Citigroup’s assessment of the bank’s health and the deal fell through.

Loopholes and Lumps of Coal

While the financial industry got a stocking stuffer, we got stiffed.

House Democrats passed something they called reform and handed  it over to the Senate.

But the bill is laden with loopholes, put there by Blue Dogs and New Democrats doing the bidding of the financial institutions.

Democratic leaders, from President Obama to Rep. Barney Frank have demonstrated that they are at best ineffectual in spearheading efforts to win real reform that puts consumers and taxpayers’ interests first. At worst, they're undermining those efforts.

The resilience shown by the financial industry in blunting efforts at sensible regulation has been nothing short of breathtaking.

Despite these setbacks, the battle may not be lost.

Our "jackass" moment

September 21, 2009

One thing we can all agree on about our president: He chooses his words v-e-r-y carefully.

So I wondered about his choice of language and timing when, on the same day he traveled to Wall Street to deliver the bankers a gentle scolding, he got caught on videotape labeling the rapper Kanye West a “jackass” for his behavior on a televised awards show.

You don’t mess with the president: Kanye West got himself right onto Jay Leno’s couch to perform an apology.