Obama’s Money Men Finally Get It

Obama’s Money Men Finally Get It

Unveiling new proposals to regulate Wall Street, Geithner and Summers now condemn the shenanigans they once abetted and celebrated.

Facebook
Twitter
Email
Flipboard
Pocket

Robert Scheer is the editor of Truthdig, where this article originally appeared. His latest book is The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America(Twelve).

Now they tell us.

On Monday, two men with considerable responsibility for enabling the banking meltdown confronted the error of their ways. Not directly, of course, for accountability is hardly the mark of either Lawrence Summers, the top White House economic adviser, or Treasury Secretary Timothy Geithner.

Their careers have long been fueled by error. Summers was one of the leading prophets of radical financial deregulation in the Clinton administration. And Geithner, as head of the New York Fed, looked the other way during Wall Street’s collapse and then responded by opening wide the spigot of taxpayer dollars to resuscitate Citigroup and AIG.

What they wrote this week in a joint op-ed article in the Washington Post is a condemnation of the Wall Street shenanigans they once abetted and celebrated. I hope their apparent sudden conversion to common sense indicates the seriousness of the banking regulation plan that President Obama will present to Congress today.

“Over the past two years, we have faced the most severe financial crisis since the Great Depression,” they wrote, placing the blame squarely where it belongs, on the unregulated derivatives markets they once gushed over. “The current financial crisis had many causes…in the widespread use of poorly understood financial instruments, in shortsightedness and excessive leverage at financial institutions. But it was also the product of basic failures in financial supervision and regulation.”

What irony that Summers, who as Bill Clinton’s treasury secretary pushed through legislation guaranteeing “legal certainty for Swap Agreements” and banning the regulation of securitized mortgage debt, should now admit that “securitization led to an erosion of lending standards, resulting in market failure that fed the housing boom and deepened the housing bust.”

According to Summers and Geithner, the Obama plan to be revealed today promises that all derivatives dealers will be “subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse.”

If such language is ever passed into law, I hope that Brooksley Born is in the gallery and gets the standing ovation she deserves. That’s the woman who, when she headed the Commodity Futures Trading Commission, warned that the derivatives market needed to be regulated. Summers and his predecessor as treasury secretary, Robert Rubin, destroyed Born’s career because she dared to accurately predict today’s crisis.

But better late than never, although it’s a shame that Obama’s economic whiz kids are only now getting serious about cracking down on Wall Street hustlers after first guaranteeing their toxic paper with trillions of taxpayer dollars. Nor should we assume that the Obama plan will not be subverted by the financial industry lobbyists, whose enormous campaign treasure chest, now financed by taxpayers, allows them to slice and dice Congressional voting blocs the way they did subprime mortgages.

Already there’s a joker in the deck of the Obama proposal in that it relies heavily on the Federal Reserve, which on the regional level is fully controlled by the very financial industry firms that it is expected to monitor. Summers and Geithner write that “all large, interconnected firms whose failure could threaten the stability of the system will be subject to consolidated supervision by the Federal Reserve.” Like we never heard that one before.

Because of bad deregulation laws, those large, interconnected firms were allowed to grow to the point where their failure indeed threatened “the stability of the system.” What we need to do is return to the basic principle of the New Deal-era Glass-Steagall Act (which Clinton reversed) that broke up “too big to fail” financial conglomerates because, by definition, when such companies threaten to fail, we taxpayers are left picking up the tab.

It was depressing that the president told the Wall Street Journal on Tuesday that he favors “a relatively light touch when it comes to the government…in terms of financial regulation.” And that “[w]e had a regulatory system that was outdated that did not encompass the non-bank sector.”

Nonsense. We had a regulatory system inherited from Franklin Roosevelt’s New Deal that for sixty years sustained a wall between the traditional heavily regulated banks and the non-bank hustlers on Wall Street who should have never been allowed to play their funny money games with people’s savings and home mortgages. That wall was torn down by President Clinton at the behest of Wall Street lobbyists and now must be restored if there is to be true reform. The reforms presented by Obama are an important start, but I worry they do not face up to the reality that financial conglomerates too big to fail are too big to be allowed to exist.

Can we count on you?

In the coming election, the fate of our democracy and fundamental civil rights are on the ballot. The conservative architects of Project 2025 are scheming to institutionalize Donald Trump’s authoritarian vision across all levels of government if he should win.

We’ve already seen events that fill us with both dread and cautious optimism—throughout it all, The Nation has been a bulwark against misinformation and an advocate for bold, principled perspectives. Our dedicated writers have sat down with Kamala Harris and Bernie Sanders for interviews, unpacked the shallow right-wing populist appeals of J.D. Vance, and debated the pathway for a Democratic victory in November.

Stories like these and the one you just read are vital at this critical juncture in our country’s history. Now more than ever, we need clear-eyed and deeply reported independent journalism to make sense of the headlines and sort fact from fiction. Donate today and join our 160-year legacy of speaking truth to power and uplifting the voices of grassroots advocates.

Throughout 2024 and what is likely the defining election of our lifetimes, we need your support to continue publishing the insightful journalism you rely on.

Thank you,
The Editors of The Nation

Ad Policy
x