As much as I like Obama and all that he appears to stand for, I am not sure I like the Wall Street insiders he is palling around with.
As much as I like Obama and all that he appears to stand for, I am not sure I like the Wall Street insiders he is palling around with. I was particularly alarmed when Lawrence Summers was on the short list of candidates for Secretary of the Treasury. I was going to go into detail why Summers isn't the right guy for the job, but a quick search of Kos postings reveals a pretty vocal group in opposition. Let me just simply say that the fact that Summers, along with Greenspan, Arthur Levitt and Robert Rubin were the principal guys who drummed down Brooskley Born when she tried to institute some regulatory control over OTC derivatives back in 1997.
In 1997, the Commodity Futures Trading Commission, a federal agency that regulates options and futures trading, began exploring derivatives regulation. The commission, then led by a lawyer named Brooksley E. Born, invited comments about how best to oversee certain derivatives.
And they all stood up to her to insure that no new regulations would be forthcoming.
"All of the forces in the system were arrayed against it," he said. "The industry certainly didn’t want any increase in these requirements. There was no potential for mobilizing public opinion."
Mr. Greenberger asserts that the political climate would have been different had Mr. Rubin called for regulation.
In early 1998, Mr. Rubin’s deputy, Lawrence H. Summers, called Ms. Born and chastised her for taking steps he said would lead to a financial crisis, according to Mr. Greenberger. Mr. Summers said he could not recall the conversation but agreed with Mr. Greenspan and Mr. Rubin that Ms. Born’s proposal was "highly problematic."
On April 21, 1998, senior federal financial regulators convened in a wood-paneled conference room at the Treasury to discuss Ms. Born’s proposal. Mr. Rubin and Mr. Greenspan implored her to reconsider, according to both Mr. Greenberger and Mr. Levitt.
Ms. Born pushed ahead. On June 5, 1998, Mr. Greenspan, Mr. Rubin and Mr. Levitt called on Congress to prevent Ms. Born from acting until more senior regulators developed their own recommendations. Mr. Levitt says he now regrets that decision. Mr. Greenspan and Mr. Rubin were "joined at the hip on this," he said. "They were certainly very fiercely opposed to this and persuaded me that this would cause chaos."
Taking Hard New Look at a Greenspan Legacy
So today we find that Obama's Treasury candidates include Robert Rubin, Lawrence Summers as well as Fed insider Tim Geithner. Looking to his Transition Economic Team we find more Wall Steet insiders including Paul Volker (former Chariman of the Fed), Robert Rubin (Chairman of Citigroup), Roger Ferguson (former Vice Chairman of the Fed), William Donaldson (former Chairman of Donaldson, Lufkin & Jenrette) and William Dailey (Midwest Chairman of JP Morgan Chase).
Now who you going to turn to when the economy is on fire? You would think the bankers, right? I am not so sure. Are these guys going to be motivated to impose meaningful regulation on themselves and their buddies?
If the first stage of the Troubled Assets Recovery Program is any indication, regulation and transparency does not seem to be a high priority.
First, we have William Greider's article in The Nation that recounts the tricky valuation associated with the Treasury department's $125 million capital injection into nine banks.
The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.
Paulson's Swindle Revealed
Then we have the question about terms of the bailout administration contracts being redacted.
The U.S. Treasury Department has decided against publicly releasing key details of the contract it awarded Bank of New York Mellon to keep the books for the government’s purchase of toxic securities. In a publicly released copy of the contract, the Treasury blacked out how much it will pay the bank for its role in the government's $700 billion taxpayer-funded bailout.
The Washington Post first briefly noticed the redactions. Meanwhile, Bailoutsleuth, a site created by Mavericks owner Mark Cuban, has been tracking the redactions and flagging more examples.
Why are Docs From the Bailout Being Redacted?
And now we have learned that the Fed is refusing to identify recipients of emergency loans.
Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.
Fed Defies Transparency Aim in Refusal to Disclose (Update2)
But wait, you say. These are all wrongs of the current administration. Maybe so, but it is the same Wall Street boys club that are doing these deals with the Fed, who are also represented throughout Obama's economic team.
So who you gonna call? I'll concede that you probably need some Wall Street insiders, but do they have to all be the captains of capital? How about bringing in someone who has sounded the alarm in the past? Why don't we start with Brooksley Born, the lawyer from the Commodities Futures Trading Commission? She was the one who was originally shot down when she raised a red flag about this problem a decade ago.
Brooksley E. Born - Retired Partner
How about including the original reformer, Ralph Nader? Regardless of whether you consider him to be a hopeless political spoiler or not, he has been on the side of the public against corporate abuses, especially including Wall Street for decades.
The derivatives markets of today have become a high stakes casino of unimaginable magnitude. Wall Street's bets have gone bad, and now the whole financial system is in peril. In a best-case scenario, it appears, the taxpayers will be required to rescue the system from itself. This is why Warren Buffett labeled derivatives "weapons of financial mass destruction."
The Derivatives Game
Would activist, investor George Soros fit in this crowd? It seems he has the right credentials and the correct attitude to address the issues at hand.
Financier, philanthropist and political activist George Soros told an MIT audience Tuesday that the current financial crisis underscored the need for regulation, even while he warned of the pitfalls of regulation and insisted on the impossibility of predicting the economic future.
Soros, whose new book is titled "The New Paradigm for Financial Markets," criticized former Federal Reserve Chairman Alan Greenspan for keeping interest rates "too low for too long" and, more fundamentally, for holding fast to the idea that it was better to "pick up the pieces" rather than impose regulations on the market.
Soros says crisis underscores need for regulation
And finally, how about including some people who have studied the problem and focused on regulatory issues as well as issues related to globalization, an integral part of the equation.
Dean Baker, co-director of the Center for Economic Policy Research, is the author of The United States Since 1980" (Cambridge University Press); Social Security: The Phony Crisis (with Mark Weisbrot); "The Benefits of Full Employment" (with Jared Bernstein); "Getting Prices Right: The Battle Over the Consumer Price Index;" and "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer."
He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in economics from the University of Michigan.
Politico Arena Profile: Dean Baker
Richard P. Appelbaum, Ph.D., is Professor of Sociology and Global and International Studies at the University of California at Santa Barbara. He currently serves as Director of the M.A. Program in Global & International Studies (www.global.ucsb.edu/magis), and serves on the Executive Committee of the Center for Nanotechnology in Society (www.cns.ucsb.edu). He is also Co-Director of the Center for Global Studies in the Institute for Social, Behavioral, and Economic Research. He has previously served as chair of the Sociology Department, and was founder and Acting Director of the UCSB Global & International Studies Program.
He received his B.A. from Columbia University, M.P.A. from Princeton University's Woodrow Wilson School of Public and International Affairs, and Ph.D. from the University of Chicago.
UCSB Bio: Richard P. Appelbaum, PH.D.
Benton E. Gup - Noted Author on Banking Regulation
So I guess the bottom line here is not to kick the Wall Street insiders out of the room. They are very smart people and have a lot to contribute. I just think it is necessary to bring some contrasting opinions to the table to keep the discussion and the deals honest.