By Pam Martens: August 20, 2013
The Man Who Promised Change We Can Believe In
The White House issued a statement yesterday on the
President’s meeting with the federal agencies that regulate Wall Street.
Curiously, the phrase used to describe the agencies was “independent
regulators.” The President’s Deputy Press Secretary, Josh Earnest, held a
press briefing with reporters yesterday, taking questions on the
meeting. In that briefing, Earnest referred to the regulators as
“independent” seven times.
If the President now finds it necessary to attempt to
brainwash the American public through endless repetition of the word
“independent” to shore up sagging public doubt that there are any real
cops on the beat when it comes to policing Wall Street, he has no one to
blame but himself.
When President Obama appointed Mary Jo White to head the
Securities and Exchange Commission (SEC), Jack Lew for U.S. Treasury
Secretary, and has floated the idea for weeks that Larry Summers could
become Chairman of the Federal Reserve, he critically undermined the
already low disregard the public holds toward Wall Street’s regulators.
White came to the SEC in April from the Wall Street
legal powerhouse, Debevoise & Plimpton. She wasn’t just any lawyer
there; she chaired the Litigation Department where she led a team of
more than 200 lawyers defending Wall Street’s too-big-to-fail banks. It
was understood that in most of the ongoing cases against the largest
Wall Street firms, White would have to recuse herself at the SEC. Can
you really call that an “independent” regulator?
Lew came to the U.S. Treasury from Citigroup – the bank
that had received the largest taxpayer bailout assistance of any bank in
the 2008 Wall Street crash. On his way out the door, Lew accepted a
$940,000 bonus from the insolvent bank, which was paid with taxpayer
money. Lew was Chief Operating Officer of the division that brought down
the bank. According to public records, on January 14 of this year, just
four days after Lew was nominated for Treasury Secretary, Citigroup
completed a mortgage refinancing for Lew, lowering his mortgage rate to
3.625 percent for a 30-year mortgage of $610,000. At the same time,
Citigroup provided Lew a $200,000 home equity loan at an unstated amount
of interest.
Another issue for Lew in his confirmation hearing was
his employment contract with Citigroup. It provided a bonus guarantee
based on the specific requirement that he leave the bank for a “high
level position with the United States government or regulatory body.”
Lew succeeded in meeting that outcome. As U.S. Treasury Secretary, Lew
Chairs the Financial Stability Oversight Council (F-SOC) which plays a
key role in overseeing too-big-to-fail banks. Lew was in attendance at
the President’s meeting yesterday with the “independent” regulators.
Summers, of course, would round out the team of
not-so-independent regulators if he were appointed by the President to
lead the Federal Reserve. Summers was one of the key individuals that
pushed for the deregulation of Wall Street in the Clinton
administration. Summers is also currently on the payroll of Citigroup as
a consultant at an undisclosed amount of compensation.
The idea of infusing the concept of “independent
regulator” may also have something to do with the recent charges that
big Wall Street firms effectively control the London Metal Exchange and
its rules committee as they simultaneously go about keeping aluminum off
the market in metal warehouses that the Federal Reserve gave them carte
blanche to own.
Or possibly it’s the revelations of a big bank cartel
controlling the setting of Libor interest rates that impacted trillions
of dollars in interest rate futures trading, swaps, student loans and
mortgages while the not-so-independent British Bankers Association set
at the helm.
The President may well have other things on his mind in
calling the high profile meeting. One of those is that members of his
own party think the Dodd-Frank reform legislation is a bust and are pushing to restore the Glass-Steagall Act,
separating Wall Street casinos from banks holding insured deposits.
There are now two separate pieces of legislation in the Senate and House
calling for the restoration of this depression era investor protection
act.
There is also that pesky problem that real experts on
the financial markets are increasingly testifying before Congress on
just how dangerous Wall Street remains to the health of the U.S.
economy, despite Dodd-Frank. The President may be worrying about his
legacy if Wall Street crashes again.
At a June 26 hearing before the House Financial Services
Committee, Thomas Hoenig, former President of the Federal Reserve Bank
of Kansas City and now Vice Chair of the FDIC, stated that the biggest
banks are “woefully undercapitalized.” He said the U.S. has a “very
vulnerable financial system.” Hoenig also believes Dodd-Frank is a
failure and he is strongly advocating the restoration of the
Glass-Steagall Act.
Hoenig told the Committee that “The largest eight U.S.
global systemically important financial institutions in tandem hold $10
trillion of assets under GAAP accounting, or the equivalent of
two-thirds of U.S. GDP, and $16 trillion of assets when including the
gross fair value of derivatives, which is the equivalent of 100 percent
of GDP.”
At the same hearing, Richard Fisher, President of the
Federal Reserve Bank of Dallas, said “I don’t think we have prevented
taxpayer bailouts by Dodd-Frank.” Fisher said the legislation “enmeshes
us in hyper bureaucracy.” According to studies, less than 40 percent of
the rules required under Dodd-Frank have been enacted.
One of the most important of those rules is the Volcker
Rule which would prevent Wall Street firms from engaging in proprietary
trading, i.e., gambling with its own capital to make profits for the
house, and frequently using inside information to make those gambles –
effectively a flawlessly honed wealth transfer system.
As the regulators delay in formalizing that rule, what
the public has learned is that the real danger is not that Wall Street
continues to gamble with its own money but that, as we learned from the
JPMorgan London Whale episode, its not-so-independent regulators are allowing Wall Street to gamble with the insured deposits of ordinary folks and lose $6.2 billion along the way.
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