The Great American Credit Catastrophe

The 911 of the Middle Class is the consumer credit debacle. It is the gift that keeps on giving. The reality is that the housing crisis is just one piece of this really big, ugly mess. It seems to me that our President MUST call for immediate reform and take action through executive order. Call me politically naïve, but we need action. Unemployment continues to hover close to 10%, and higher in badly hit areas. Interest paid by the banks on savings ranges from less than 1% to maybe 2.5% on a good day. The consumer credit card companies, though regulated now sort of, ran naked through the streets jacking up everyone’s interest rates to over 15 to 30%. Yes they have to notify the poor, irresponsible slobs now before they do things, but the banks still get to burn kerosene in the town square with no permits. And we haven’t even gotten to the health insurance yahoos that have four more years for their trickery. Oh Nelly, bar the door! It’s the Wild West again as the cattle are corralled – only this time it’s the American people being herded to ruin by the giddy-up bankers and health insurance companies, not just the mortgage guys.
People are getting sick from worry. Their backs hurt, their necks are out, and they are grinding their pearly whites. Few sleep well at night. Pharmaceutical sales are up. The banks we saved are savaging us. They are bulldozing the Middle Class under mountains of debt. People are losing their homes, divorces are up, businesses are closing, and unemployment is rampant. The consumer credit world and their FICO scores are broken. They are based on a world that no longer exists. In two short years, many consumers have watched their scores collapse under an avalanche of debt. The FICO scores were calibrated for a different time when consumer credit cards were not the only source of money available, mortgages were not under water, and unemployment was not soaring. If we are ever to unwind this situation, these algorithms must be reset. Otherwise the banks will never lend again. The Middle Class needs a do-over, just like the banks got.
Yes sir, Obama stood up against the broad sweeping foreclosure legislation, and Bank of America seized the moment halting foreclosures nationwide. But we’re all holding our breath waiting for the other shoe to fall as even Progressive strategist Mike Lux gens up the netroots to re-engage with the President and Congress. It is inconceivable that people have not taken to streets in protest over their lost pensions, and the absence of any kind of interest bearing bank account — except on consumer credit cards. In fact, this week Robert Sheer wrote brilliantly about Obama’s “No Banker Left Behind” — while every normal person has been thrown under the bank bus. How did we allow the bail-out of every financial institution, while abandoning the common folk? Why are Democrats — whether conservative, moderate or netroots – not able to channel this collective anger, rage and disappointment other than to take aim at one another? Given the data, there is no way out for the once resilient Middle Class without a do-over. Instead of “No Banker Left Behind” let us heal the Middle Class by fixing the credit industry; restricting the health care industry now, not in four years; and making those banks lend the money we gave them and not hide behind FICO scores. All of the Democrats are writing, but no one is demanding change now. The Tea Party has successfully harnessed the anger and rage, but has no plan. Frankly, they are just another distraction taking our attention away from the gravity of the problems.
Mr. President, come back to us as Mike Lux laments. We need you. We, in the Middle Class, are living this nightmare everyday of our lives. Figure it out, and get the Middle Class out from under. The numbers do not lie. This is our emergency, our call to action, our 911. Friends and neighbors are collapsing from the stress when they can ill afford it. Unemployment is not going away. Consumer debt is skyrocketing. Mr. Obama, Americans are not being frivolous and irresponsible as Dr. Summers would like you to believe. They are boxed in with no escape hatch. Consider enacting a nationwide job core like the WPA, putting the banks on real notice, corralling those nasty health insurance folks, redoing the credit industry, and loosening up cash. No one is sleeping at night. People are nervous and cannot see a future.
Please, inspire us again, show emotion, get messy, and let the wrinkles show. Mr. President raise your voice in outrage. Give us voice. Come back to us. The time is now.
This was originally published on the Huffington Post earlier today.
See the pearltree below for the references for this article.
US Economy

The Real Deficit Is Jobs!

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
The real deficit is jobs. That is one more of those things that everyone can see in front of their faces, but we’re told it isn’t what it is. There aren’t enough jobs, and we’re being told this is our fault because we wanted pensions and good wages and vacations and respect and dignity and please, sir, just a little slice of the pie.
In case you haven’t noticed, the world’s economy is suddenly undergoing a classic “Shock Doctrine”-style, coordinated propaganda attack. The wealthy and powerful, having insisted that countries cut their taxes and run up debt, now insist that the middle class and poor must work harder, have their pensions reduced, sell off (to them) their publicly-held resources, and take other “austerity” steps to pay off the debt that these lazy, parasitic peasants dared to run up.
The excuse is that “the markets” will “lose confidence” in us. Apparently we aren’t working the salt mines hard enough. “The markets” — that’s the crowd who got in trouble and insisted that the world would end unless we immediately handed over to them all the rest of the money in the world — will “lose confidence” in our ability to work the mines hard enough, and will cut us off, unless we cut our pensions, sell off (to them) our resources, and promise never to be lazy and make demands for better wages, pensions, workplace safety, and do it now.
The real deficit is jobs.
History teaches that the way out of an economic slowdown is to invest in infrastructure, education and modernizing manufacturing.
Slactivist said it best the other day,

This calls to mind an old story:

But knowing their hypocrisy, he said unto them, “Why are you putting me to the test? Bring me a dime and let me see it.”
And they brought one. Then he said to them, “Whose head is this — FDR’s or Herbert Hoover’s?”
They answered, “Roosevelt’s.”
And he said unto them, “Right. So shut up. Have you morons already forgotten the 20th Century? When the choice is between imitating what worked and what really, really didn’t work, why are you pretending it’s terribly complicated?”
And after that, no one dared to ask him any question.

I’m not an economist, but we’ve got five applicants for every single job opening. If you tell me that the best response to that situation is to lay off hundreds of thousands of teachers, I will not accept that this means that you’re smarter and more expert than I am. I will instead conclude — regardless of your prestige or position or years of study — that you’re a moral imbecile.

According to the Labor Department,

By the end of 2009, the jobless rate stood at 10.0 percent and the number of unemployed persons at 15.3 million. Among the unemployed, 4 in 10 (6.1 million) had been jobless for 27 weeks or more, by far the highest proportion of long-term unemployment on record, with data back to 1948.

That’s right, it was the policies of austerity that created a depression, and the policies of job-creation, infrastructure investment and taxing the wealthy to pay for it that got us out. But that was back when We, the People were still in charge.
In other news:
Number Of Millionaires Grew Amid Recession.

The rich grew richer last year, even as the world endured the worst recession in decades.

Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion, Income Concentration in 2007 Was at Highest Level Since 1928, New Analysis Shows,

Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.
During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.

Top 1% Increased Their Share of Wealth in Financial Crisis,

According to his analysis, the top 1% held 34.6% of all national wealth in 2007. By Dec. 31, 2009, they held 35.6%.
Meanwhile, share of national wealth held by the bottom 90% fell to 25% from 27%.

Corporate Wealth Share Rises for Top-Income Americans

In 2003 the top 1 percent of households owned 57.5 percent of corporate wealth, up from 53.4 percent the year before, according to a Congressional Budget Office analysis of the latest income tax data.
. . . For every group below the top 1 percent, shares of corporate wealth have declined since 1991.
. . . Long-term capital gains were taxed at 28 percent until 1997, and at 20 percent until 2003, when rates were cut to 15 percent. The top rate on dividends was cut to 15 percent from 35 percent that year.

See if you can make the connection. They want us to cut back our pensions, cut our wages, sell off our resources and work harder, to pay back the money that was borrowed and handed to them.
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NEW WALL STREET BAILOUT TOTAL $4.6 TRILLION IN FEDERAL FUNDS DISBURSED

The Center for Media and Democracy is the SourceWatch people. I worked on the Election Protection Wiki with them last year, helping fight Republican voter suppression leading uop to the election.
I have been helping out a bit with their new project, which was announced today:

CMD RELEASES NEW WALL STREET BAILOUT TOTAL
$4.6 TRILLION IN FEDERAL FUNDS DISBURSED
New Tally Focuses on Expansive Role of Federal Reserve

Today, the Real Economy Project of the Center for Media and Democracy (CMD) released an assessment of the total cost to taxpayers of the Wall Street bailout. CMD concludes that multiple federal agencies have disbursed $4.6 trillion dollars in supporting the financial sector since the meltdown in 2007-2008. Of that, $2 trillion is still outstanding.
CMD’s assessment demonstrates that the Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans amounting to $3.8 trillion. Little information has been disclosed about what collateral taxpayers have received in return for these loans. CMD also concludes that the bailout is far from over as the government has active programs authorized to cost up to $2.9 trillion and still has $2 trillion in outstanding investments and loans.
Learn more about the 35 programs included in our tally by visiting our Total Wall Street Bailout Cost Table, which contains links to pages on each bailout program with details including the current balance sheet for each program.
“While the Treasury Department is patting itself on the back for recouping Troubled Asset Relief Program (TARP) funds and allegedly making money off of its aid to Citigroup, our accounting shows that these programs were a relatively small portion of the federal funds that have gone out the door in support of the financial sector. Far more has been done to aid Wall Street through the back door of the Federal Reserve than through the front door of Congressional appropriations,” said Mary Bottari, Director of CMD’s Real Economy Project.
“The tally shows that more scrutiny needs to be given by policymakers and the media to the role of the Federal Reserve especially as the Fed has accounted for the vast majority of the bailout funds, yet provides far less disclosure and is far less directly accountable than the Treasury,” said Conor Kenny, the researcher who collected the data on the bailout.
CMD has presented its work in a table that shows: funds disbursed, maximum funds that were at-risk at the height of the bailout, and actual funds still outstanding for each program. CMD is also making available a Financial Crisis Tracker, a widget for the table that can be downloaded to websites to get up-to-date numbers on the financial crisis and the bailout. The Wall Street Bailout table will be updated monthly and will be a tremendous resource for reporters and the public alike.
WALL STREET BAILOUT COST TABLE can be accessed here.
KEY FINDINGS can be accessed here.
FINANCIAL CRISIS TRACKER can be accessed here.

Low Interest Rates Are A Tax On People Who Don’t Take Risks

Low interest rates are a tax on people who save money. And they are a subsidy for the big banks. They are just one more Wall Street bailout.
Holding interest rates as low as they are causes hardship for many. It makes savers look for higher returns. Retired people who were lucky enough to put money away can’t afford to get by. It causes people to take risks like putting money in the stock market, where it can be lost. It makes people susceptible to scams.
But the consequences can be a lot worse than that. Read this: Public Pensions Are Adding Risk to Raise Returns

But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.
“In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”
. . . Most have been assuming their investments will pay 8 percent a year on average, over the long term. This is based on an assumption that stocks will pay 9.5 percent on average, and bonds will pay about 5.75 percent, in roughly a 60-40 mix.

They assume 8%? Who is kidding who? Everybody knows this is not realistic, but they are allowed to keep the assumption on the books.

“Nobody wants to adjust the rate, because liabilities would explode,” said Trent May, chief investment officer of Wyoming’s state pension fund.

This is the same thing as allowing banks to not “mark to market” their mortgage portfolios. Everyone knows the banks are insolvent, but they are allowed to keep from writing down these toxic assets. Or the government buys them up from the ones with political influence…
Just HOW bad is the problem?

Colorado has been assuming its investments will earn 8.5 percent annually, on average, and on that basis it reported a $17.9 billion shortfall in its most recent annual report.
But the state also disclosed what would happen if it lowered its investment assumption just half a percentage point, to 8 percent. … the plan’s shortfall would actually jump to $21.4 billion.

So they are reporting a $17.9 billion shortfall if the assumption is a fantasy 8.5% return. If they lower that to a still-fantasy 8% assumption they would have to report a $21.4 billion shortfall.
So just how bad would it be if they reported an honest assumption?
We are not out of the financial crisis until all of the accounts are honest and transparent.

Who Is Really “Anti-Business”?

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
In the Bloomberg story today, Obama Doesn’t ‘Begrudge’ Bonuses for Blankfein, Dimon, President Obama, spoke up about the huge Wall Street bonuses handed out this year,

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”

Free-market system? These huge bonuses are for the Wall Street robber-barons that caused the financial collapse, took taxpayer dollars to prop up their fortunes, and get free money from the Federal Reserve with which to “trade” — speculate, gamble, call it what you want. Meanwhile they spend hundreds of millions of dollars “lobbying” (bribery) to fight any kind of financial reforms or consumer protections from enactment, and to make sure that no such think as a “free market” with honest competition never threatens their dominance of business and government.
So why is the President talking like this [note: see update below], at a time when so many Americans are out of work, losing their homes, and falling into poverty? Because he doesn’t want to be perceived as “anti-business.” From the story,

Obama sought to combat perceptions that his administration is anti-business and trumpeted the influence corporate leaders have had on his economic policies. He plans to reiterate that message when he speaks to the Business Roundtable, which represents the heads of many of the biggest U.S. companies, on Feb. 24 in Washington.

Meanwhile a Senate filibuster blocked the President’s great nominee, Craig Becker, from serving on the National Labor Relations Board. So the Labor Board remains non-functional. The filibuster kept workers from being fairly represented, and the Board itself from having a tie-breaking vote so they can resolve labor disputes so the “free market” can function as it should, with workers able to bargain for better wages, benefits and working conditions.
These two stories this week present quite a contrast, and send mixed and demoralizing signals to the country. President Obama doesn’t want to “appear” to be “anti-business.” Meanwhile giant, monopolistic corporations and Wall Street are chewing up Main Street and keeping smaller businesses from competing, while their lobbyists keep the legislature from getting anything done at all.
Let’s talk about this “anti-business” label and how it is used.
I wrote a post the other day titled, Tax Cuts HURT Small And Medium Businesses, championing small and medium businesses in their struggle to survive against the giant monopolistic corporations that are crushing them. Summary: struggling businesses don’t pay taxes, so tax cuts only give more ammunition to the giants that are crushing them. In the comments at one of the places it was posted I was accused to being “anti-business.”
Apparently championing small and medium businesses – America’s job-creating, innovative engine – is “anti-business.” If you look around, being anything but a servant to Wall Street and the giant monopolistic corporations earns you the label, “anti-business.”
The Power Of Words
This got me thinking about the ways this label, “anti-business,” gets used. It is always used by corporate/conservative types, against anyone who questions the power of Wall Street and the giant monopolistic corporations that are strangling smaller businesses, workers and democracy.
The President nominates a great candidate for the Labor Board, then worries that he is perceived as “anti-business.” Labels like “anti-business” are powerful accusations and come from very, very powerful people. (Like this or this.)
Last year, in the post Misuse Of The Words Protectionism And Trade Is Making Us Poorer I wrote,

Language has tremendous power. People like George Lakoff and Drew Westin, who study the use of language in political discussion, say that our choice of words has the power to actually affect the “wiring” or neuron circuits that our brains use to think.
The corporate marketers and political persuaders have certainly learned the power of language to influence us. It has even gotten to the point where “neuromarketing” uses MRI and EEG to study how our brains react to certain stimuli so they can be used to market and persuade.
In politics I think that we have even reached a point where we give words more power and importance even than the ideas the words represent. In the Bush years we learned that the persuaders believed they could “create their own reality.”
[. . .] words are used as weapons by professionals who wish to distract us from things that are in front of our own faces.

So how do we fight this? One way is to recognize our own power as citizens in a democracy. In America the people – Main Street – are supposed to be in charge of things, and the purpose of business and finance is supposed to be to serve our interests and needs, not the other way around. Why else would We, the People have set this system up, anyway? So we need to internalize this understanding, and believe in it. We are supposed to be in charge. We, the People are supposed to be telling businesses how they are supposed to operate, setting the rules and regulations, defining the playing field on which they operate. We need to have a sense that it is improper for businesses to be involved at all in the decision-making about the rules under which businesses operate. It must be this way because business interests will always, always try to tilt the rules against the free market and in their own favor, giving them advantages over other businesses.
This isn’t about being “anti-business” at all, it is about being in favor of a level playing field, where the innovative small and medium companies have a fair chance to compete. It is the giant monopolistic corporations that are “anti-business.”
Believe it.
Update – Greg Sargent looked at the transcript and has a more nuanced interpretation.

Did Bush Leave Us Bankrupt, Corrupt, Ungovernable?

From Open Left
When you sell the farm, the farm’s gone.

Is it already too late for America? I’m starting to think that the anti-tax, anti-government conservative movement that started in the mid-70s, elected Reagan and led to the terrible Bush Presidency may have effectively destroyed the country, leaving it bankrupt, corrupt,ungovernable, ruled by a wealthy elite — and we’re only now just starting to realize it. To cover tax cuts we stopped maintaining the infrastructure and started borrowing. To satisfy their hatred of government we increasingly stripped away rule of law, regulation, and belief in one-person-one-vote. We are seeing the consequences of all of that coming back to roost now.

Reagan left us with massive debt and ever-increasing interest payments. Bush left us with $1.3 trillion deficits and a destroyed economy that would force further increases in the borrowing for years – to be blamed on Obama. The “free marketers” gave away our manufacturing base that will take decades and massive capital investment to recover. Obama can try, but it may just be too late to do anything about the borrowing. We need massive investment in jobs and infrastructure, and a national economic/industrial plan. But, with their own Reagan/Bush debt as ammunition, conservative ideologues continue to block every effort at investment to get out of the mess we are in.

The conservatives destroyed the regulatory structure of the government. They removed the inspectors, administrators, regulators and replaced them with corrupt cronies.

The conservatives killed off, contracted out or sold off – “privatized” – so much of our in-common resources and heritage of public structures. Water systems, oil and mineral leases, government functions, elements of the military, etc.

The conservatives destroyed the rule of law, leaving behind public perception of rule by cronyism, favoritism and mob.

The conservatives destroyed public understanding of democracy, leaving behind a one-dollar-one-vote system that their Supreme Court just formalized, along with a corporate media that works to keep people uninformed. And to make matters worse, now the telecoms can argue before Federalist Society judges that their “speech rights” are violated by rules making them carry labor and progressive websites over the internet lines they control. And forget about the idea of them ever letting anti-corporate-rule candidates raise money on “their” internet.

I hate to reference Friedman but this from last week has been sticking in my mind. He says the world is looking at the mess in the US and is turning away from democracy as a result.

[Foreigners] look at America and see a president elected by a solid majority, coming into office riding a wave of optimism, controlling both the House and the Senate. Yet, a year later, he can’t win passage of his top legislative priority: health care.

“Our two-party political system is broken just when everything needs major repair, not minor repair,” said … who is attending the forum. “I am talking about health care, infrastructure, education, energy. We are the ones who need a Marshall Plan now.”

Indeed, speaking of phrases I’ve never heard here before, another goes like this: “Is the ‘Beijing Consensus’ replacing the ‘Washington Consensus?’ ” Washington Consensus is a term coined after the cold war for the free-market, pro-trade and globalization policies promoted by America. … developing countries everywhere are looking “for a recipe for faster growth and greater stability than that offered by the now tattered ‘Washington Consensus’ of open markets, floating currencies and free elections.” And as they do, “there is growing talk about a ‘Beijing Consensus.’”

The Beijing Consensus, … is a “Confucian-Communist-Capitalist” hybrid under the umbrella of a one-party state, with a lot of government guidance, strictly controlled capital markets and an authoritarian decision-making process that is capable of making tough choices and long-term investments, without having to heed daily public polls.

It is too late to recover?

Accountability is a first step. If the current administration would hold the corrupt actors accountable, maybe we could begin to restore governance. And the public would know who to blame for what has happened to us, enabling them to support policies that will get us out of this. But so far they won’t. If they won’t even investigate torture and illegally invading a country why should we expect any accountability for the financial collapse, corrupt government contracts, bribery, embezzlement, corruption and other crimes of the Bush era?

More equitable distribution of the fruits of our economy is another step. Our system worked so much better back when the top tax rate was 90%. The returns from our investment in infrastructure were more widely shared. And back when it took many years to build a fortune businesses had an interdependence with their communities. Executives needed the schools and roads and other public structures functioning well. They needed long-range business and community planning. But just imagine trying to do something about the concentration of wealth today.

So where do we go from here. Is democracy over? Is rule of law a thing of the past? Is predatory monopoly control by the largest corporations the way things are and will be? Does the world now move to governance by a wealthy elite?
Or is the winter and the rain and the snow just getting to me?

What are your thoughts?

Who Is On Main Street’s Side?

Republicans Chase Wall Street Donors

Last week, House Minority Leader John Boehner of Ohio made a pitch to Democratic contributor James Dimon, the chairman and chief executive of J.P. Morgan, over drinks at a Capitol Hill restaurant, according to people familiar with the matter.
Mr. Boehner told Mr. Dimon congressional Republicans had stood up to Mr. Obama’s efforts to curb pay and impose new regulations.

In case it is lost on Tea Party readers, John Boehner, the REPUBLICAN leader, was the one bragging to Wall Street that REPUBLICANS have been blocking efforts to reign in the bonuses and consumer protections.

Understanding The Credit Crisis

Tonite we watched the 2006 documentary movie MAXED OUT. This movie came out two years before the financial collapse and you see it coming every second as you watch people being scammed into taking on more and more debt, and the tricks that are played on them, the fees, the lies, the bush complicity, the lobbyists…
And now that the bank lobby is buying off Congress to keep the Consumer Financial Protection Agency from becoming law, please watch this movie to understand why it is so badly needed.
And, if you have Netflix you can see it on your computer at any time!

This Week in Banking: Root Canals, Rhetoric or Real Reform?

Guest Post by Mary Bottari.
The debate over banks and banking came front and center this week. In his toughest language yet, President Barack Obama vowed to veto financial reform legislation that is not tough enough on Wall Street. “The lobbyists are already trying to kill it,” Obama told Congress in his State of the Union address. “Well, we cannot let them win this fight. And if the bill that ends up on my desk does not meet the test of real reform, I will send it back.”
The President’s rhetoric offers an important measure of progress. Now we can be assured that the political elite are paying attention to the poll numbers showing an unprecedented anger at the big banks and the Wall Street bailouts. Democrats are starting to figure out if they don’t take up this populist message and run with it in November, the Republicans will.
But the rest of the President’s speech and the other dramatic developments in the banking world this week indicate that Democratic actions are falling far short of their rhetoric, a pattern that voters are sure to notice.
First, the speech. Many had anticipated a big announcement on jobs. With jobless rates in the double digits and a projected 5-10 year haul to get employment back to normal levels, workers were hoping for something big and bold. Instead, Obama proposed $30 billion in TARP funds to get credit flowing to small businesses. $30 billion to put 16 million Americans back to work? $30 billion when the Wall Street bonus pool for a few thousand bankers was $140 billion this month? Democrats will live to regret this missed opportunity.
Also on Wednesday, U.S. Treasury Secretary Tim Geithner was called on the carpet once again by irate members of the House for his mishandling of the AIG bailout. To their credit, several Democrats asked the toughest questions. But Geithner bobbed and weaved and no knock-out punches were landed. This is a problem for the Democrats. The whole incident paints an ugly picture of the federal response to the financial meltdown, best described by Representative Edolphus Towns (D-NY): “The taxpayers were propping up the hollow shell of AIG by stuffing it with money and the rest of Wall Street came by and looted the corpse.”
On Thursday, Federal Reserve Chairman Ben Bernanke was reconfirmed by the Senate for another four year term. His nomination had been in trouble and a record number of senators voted no, but Obama stood by his man and pushed him through. The problem with Bernanke is best summarized by economist Simon Johnson: “Bernanke is an airline pilot who pulled off a miraculous landing, but didn’t do his preflight checks and doesn’t show any sign of being more careful in the future – thank him if you want, but why would you fly with him again (or the airline that keeps him on)?” While Bernanke may have saved Wall Street, he has shown little interest in using his power as Fed Chairman to aggressively aid Main Street. He is not the man for the job in these tough economic times and that will soon be apparent to the detriment of the Democrats who secured his confirmation.
Ultimately, however, the most important developments of the week were played out behind closed doors in the Senate. Senate Banking Chairman, Chris Dodd, made the decision some time ago to try to devise a bipartisan financial reform package. His package of reforms was then handed over to four bipartisan working groups. With thousands of bank lobbyists swarming the hill, it is no surprise that these groups are busily making the Dodd bill worse.
The derivatives language is being weakened and bankruptcy is emerging as the preferred method of unwinding financial institutions, which could leave taxpayers to foot the bill for this expensive procedure. To truly end the “too big to fail” problem and crack down on the reckless behavior of the biggest banks, we need strong, specific preventative measures such as leverage limits, capital and margin requirements, limits on counterparty exposures, a ban on proprietary trading and limits on bank size through a low cap on total liabilities. Even Obama’s signature reform, an independent consumer agency is in danger of being whittled down to a corner desk in a failed federal agency.
The President understands that the Wall Street bailout was “about as popular as a root canal.” But if Democrats continue to peddle this type of rhetoric while neglecting meaningful reform as they have done this week, the Republicans will run away with the anti-bailout message and with the election in November.