Do you recall just before the 2008 election, Barack Obama’s statements pointing to Wall Street greed and regulatory failures as examples of the need for change in America?
“The era of greed and irresponsibility on Wall Street and in Washington has led us to a financial crisis as serious as any that we have faced since the Great Depression.”
“A lack of oversight in Washington and on Wall Street is exactly what got us into this mess.”
And after taking office, do you recall President Obama speaking of the need to reform the financial industry?
“We want a systemic-risk regulator; increased capital requirements. We need a consumer financial protection agency; we need to change Wall Street’s culture.”
But when finally enacted in mid-2010, the administration’s financial reforms were weak; and in some critical areas, including the rating agencies, lobbying, and compensation, nothing significant was even proposed. How come?
It’s a Wall Street government. The most senior economic advisors of his administration are the very people who built the financial and political structure that allowed the reckless risk-taking and fraud on Wall Street, resulting in the economic tsunami starting in 2008. The evidence speaks for itself.
Obama chose Timothy Geithner as Treasury Secretary. Geithner was the President of the New York Federal Reserve during the crisis, and one of the key players in the decision for AIG to pay Goldman Sachs 100 cents on the dollar for its bets against mortgages. When Tim Geithner was testifying to be confirmed as Treasury Secretary, he said, “I have never been a regulator.” Now doesn’t that statement in and of itself alone suggest that he did not understand his job as President of the New York Federal Reserve? Note that the new President of the New York Fed is William C. Dudley, the former Chief Economist of Goldman Sachs, who previously co-authored a paper praising derivatives, those complex financial products (that few understand) that have made financial markets very unstable, especially over the recent past, since they facilitated the gambling in risking investments by financial institutions.
And who are serving on Geithner’s team? His Chief of Staff is Mark Paterson, a former lobbyist for Goldman; and one of the senior advisors is Lewis Sachs, who oversaw Tricadia, a company heavily involved in betting against the mortgage securities it was selling.
To head the Commodity Futures Trading Commission, Obama picked Gary Gensler, a former Goldman Sachs executive who had helped ban the regulation of derivatives.
To run the Securities and Exchange Commission, Obama picked Mary Shapiro, the former CEO of the Financial Industry Regulatory Authority, the investment-banking industry’s self-regulation body. In a 1993 speech Shapiro argued against regulating derivatives in order to not stifle the “financial innovation” that would result from “a more flexible regulatory paradigm.” She served on the board of directors of Duke Energy and Kraft Foods as well as on George W. Bush’s President’s Advisory Council on Financial Literacy. In 2008, her last year at FINRA, Schapiro received a total compensation package of $8,985,334.
Recall, too, that Obama’s former Chief of Staff, Rahm Emanuel, made $320,000 serving on the board of Freddie Mac.
Martin Feldstein is a member of Obama’s Economic Recovery Advisory Board. Martin Feldstein is a professor at Harvard. As President Reagan’s chief economic advisor, he was a major architect of deregulation. And from 1988 until 2009, he was on the board of directors of both AIG and AIG Financial Products, which paid him millions of dollars.
Laura Tyson was a member of Obama’s Economic Recovery Advisory Board. She is a professor at the University of California, Berkeley. Shortly after leaving government, she joined the board of Morgan Stanley, which pays her $350,000 a year.
And Obama’s former Chief Economic Advisor was Larry Summers, a Harvard economics professor. As Treasury Secretary under President Clinton, he played a critical role in the deregulation of derivatives. While at Harvard, he made millions consulting to hedge funds, and millions more in speaking fees, much of it from investment banks. According to his federal disclosure report, Summers’s net worth is between $16.5 million and $39.5 million.
Summers’ successor as Obama’s Chief Economic Advisor, Joseph Stiglitz, has been sharply critical of the Obama Administration’s financial-industry rescue plan, stating that whoever designed the Obama administration’s bank rescue plan was “either in the pocket of the banks” or were “incompetent.”
Not surprisingly with this Wall Street team, the Obama administration resisted regulation of bank compensation, even as foreign leaders took action. In September of 2009, the finance ministers of France, Sweden, the Netherlands, Luxembourg, Italy, Spain, and Germany called for the G20 nations, including the United States, to impose strict regulations on bank compensation. And in July of 2010, the European Parliament enacted those very regulations. However, the Obama administration, once again, failed to take any action.
In 2009, Barack Obama reappointed Ben Bernanke. Bernanke became chairman of the Federal Reserve Board in February 2006, the top year for subprime lending. But despite numerous warnings from economists, including the Chief Economist of the International Monetary Fund among others, about the approaching economic disaster, Bernanke and the Federal Reserve Board did nothing.
Not a single senior financial executive had been criminally prosecuted, or even arrested; no special prosecutor had been appointed; not a single financial firm had been prosecuted criminally for securities fraud or accounting fraud. Nobody went to jail, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people. The Obama administration has made no attempt to recover any of the compensation given to financial executives during the economic bubble.
But there is additional evidence leading to the conclusion that Barack Obama is indeed a Wall Streeter in addition to his having selected his senior economic advisors from that kingdom and his failing to propose and enact significant financial reforms since he took office. For instance, last year Obama never proposed a single-payer health care system as promised, but opted for a health care plan benefiting the Fortune 500 giants in the industry, including insurance and pharmaceutical companies. While last December, President Obama immediately caved into the demands of Republicans to extend tax cuts to the richest Americans as well as to make Draconian cuts in tax revenues from the estates of the elite. And although Barack Obama has appointed a Deficit Commission that has included Social Security, Medicare, and Medicaid “on the table” for cuts, already agreeding to $1 trillion in budget cuts, tax increases have been excluded from its deliberations. In fact, Obama in recent remarks on the findings of the Fiscal Commission has suggested that he intends to lower corporate tax rates and possibly personal rates as well.
Moreover, even though he had promised to bring the troops home from Iraq during his campaign in 2008, thereby suggesting a reduced defense budget, his expanded presence of the military in Afghanistan and its involvement in Libya is sustaining the economic life-line between the military and the defense industry to the delight of investors on Wall Street.
Such personnel, policies, proposals, and postures in spite of previous promises clearly show that the office of President Barack Obama is not in the White House but on Wall Street. Mommy always said, “birds of a feather flock together.”
But why did Obama choose this course of action after all of his promises to the American people during his campaign for President in 2008? Simple. Political campaigns cost hundreds of millions of dollars. The financial sector employs 3,000 lobbyists, more than five for each member of Congress. After the crisis, the financial industry worked harder than ever to fight reform. With the further consolidations of the financial firms following the crash in 2008, the banks are now bigger, more powerful and more concentrated than ever before in the United States. And they now possess unheard of political influence and power and monies.
President Bill Clinton knew this; now President Barack Obama knows this, too. Barack Obama, for all of his patriotic rhetoric, is a pragmatist at heart and apparently believes that he would never be re-elected President if he followed through on the reforms of Wall Street that he had promised during his campaign. And as we all know by now, campaign promises are destined to be broken after the election: after all, money talks, everything else walks.
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Fantastic article! Thank you.