Friday, October 26, 2012

Matt Taibbi on Obama's Rolling Stone interview

Matt Taibbi, Rolling Stone:

Obama brought in many people from the leadership of Citigroup to shape his economic policy, from chief of staff Jack Lew to transition team chief Michael Froman to a host of people connected in some form or another to former Citi executive and Glass-Steagall architect Bob Rubin (even Geithner served under Rubin in the Clinton administration).

The presence of so many Citigroup executives in the Obama administration makes it not terribly surprising that the president would be sensitive on the subject of Glass-Steagall. The fact that two of Obama's closest economic advisors, Geithner and Gene Sperling (who was NEC chief under Clinton), were original architects of Glass-Steagall is also an obvious factor here.

The repeal of Glass-Steagall was just part of the decades-long deregulatory effort that led to this toxic situation. Another Clinton-era law, the Commodity Futures Modernization Act, contributed to it as well, by completely deregulating the market for derivatives (which were used to package all of those mortgages, were a major contributor to the collapse of AIG, and also played a huge role in the Jefferson County, Alabama disaster, among other things).

Reinstating Glass-Steagall or imposing a strong Volcker Rule would have been part of that, because it would have removed the threat that the federal government or the FDIC would ever again have to worry about what sorts of loony gambling schemes these new supermarket firms are getting themselves into. Obama also could also have helped reverse the damage of the Commodity Futures Modernization Act by forcing derivatives to be traded on simple, regulated exchanges. FDR did exactly the same thing with stocks and commodities after the Depression, but Obama passed on doing it with derivatives, again allowing his own party's derivatives reform proposals in Dodd-Frank to be severely gutted from within.

Finally, Obama had a chance to physically reduce the size of Too-Big-To-Fail companies by supporting the Brown-Kaufman amendment to Dodd-Frank, which would have forced big banks to cap deposits and liabilities to under 10% of GDP. He didn't support that amendment and it died.

The sum total of all of this is that Obama didn't really do anything to alleviate the dangers of Too-Big-To-Fail. If anything, we now live in a world that is more concentrated and dangerous than it was before 2008. TBTF companies like Chase and Wells Fargo and Bank of America are even bigger and less-able-to-fail-ier than they were when he took office. This is why Obama's answer to our interview question is so disappointing. If I'm understanding the president correctly, he basically says he doesn't think Glass-Steagall should be re-instated, and beyond that, he just thinks Wall Street needs to self-regulate better.

The only hope we really have to fix many of these problems is to do just that, and we will need the chief executive's help there. But President Obama apparently still isn't willing to take that step, which is really too bad.

Continue reading here.

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