I was catching up with some of my reading when I happened across a quote from 1930 twice, which led me to write this post on how poor the Obama reform agenda really is. And I want ask you: is Obama Change you can believe in?
The first post by Paul Krugman, “Green shoots, 1930” was used to question whether we are actually moving toward recovery at all. Krugman goes on to use the Eichengreen-O’Rourke graphs on how 2009 is tracking 1930, which I was first in the blogosphere to highlight. (See my post here. Strange how things catch on because I wrote this post on June 14th and the Eichengreen-O’Rourke graph update was from June 4th, with the original being April).
The Krugman post also quotes a story highlighted by a blog I will now follow called “News from 1930” in which a banker from 1930 was waiting for imminent recovery. Obviously, that recovery did not come until 1933. Then that same story came up again in a post from FT Alphaville, fittingly entitled “News from 1930.” SO I decided to look at this blog an see what it had to offer. It is quite good, so I suggest you have a look as well.
The interesting bit for me was seeing the news from June 24th 1930.
Senator Glass is heading a subcommittee considering extensive changes to banking regulations. Among the changes considered are restricting speculative loans by banks to brokers and stock exchange members, removing the Secretary of the Treasury as a member of the Federal Reserve Board because of undue influence, making it easier for banks to expand nationwide, etc. Anticipated the committee will have meetings all of next year’s session and submit recommendations December 1931.
Now, if you recall, the Glass-Steagall Act which resulted from the work started by this subcommittee did not get enacted until 1933, three years later. So why is Barack Obama trying to get his inadequate banking reform agenda signed, sealed and delivered by the end of the year?
I have certainly been willing to give the President the benefit of the doubt. But, I cannot help but wonder whether he is using the same sort of ‘speed is crucial’ tactics that Paulson used in order to pass the TARP so that we get a watered-down, bank friendly reform bill. After the worst banking crisis in three-quarters of a century, one might think that more comprehensive reform was forthcoming – especially from a politician who touted himself as “change you can believe in.” But clearly, this is not the case because Geithner and Summers are not looking for reform. The inadequacy of the reform agenda is a feature, not a bug.
Take a look at what Bloomberg’s Caroline Baum has to say.
The Obama administration’s architects went back to the drawing board and last week produced a blueprint for regulating financial institutions. One controversial aspect of the plan is the creation of a systemic risk regulator, the Federal Reserve, with the power to oversee any financial firm, not just a bank holding company, “whose combination of size, leverage and interconnectedness could pose a threat to financial stability if it failed.”
In other words, the same folks who missed, or did nothing to prevent, the worst crisis since the Great Depression will definitely, absolutely, positively be able to anticipate the next one. Uh-huh.
Are you connecting the dots? Obama’s Administration is completely captured. Geithner and Summers were on the job when the regulatory lapses occurred. It doesn’t take a rocket scientist to figure out that they are not going to give us truly robust reform.
But, what is more troubling is how in bed the Obama administration is with the bank lobby. Even before the reforms were presented, bank lobbyists were in the White House watering this thing down. It kind of reminds me of Tim Geithner allowing banks to negotiate their stress test results. So why was Obama consulting the very people who caused the problem in the fist place? Crony Capitalism.
Take a look at a quote from this missive in the Wall Street Journal today about regulation in the ‘free markets’ era.
It was not merely structural problems that led certain regulators to nap through the crisis. The people who filled regulatory jobs in the past administration were asleep at the switch because they were supposed to be. It was as though they had been hired for their extraordinary powers of drowsiness.
The reason for that is simple: There are powerful institutions that don’t like being regulated. Regulation sometimes cuts into their profits and interferes with their business. So they have used the political process to sabotage, redirect, defund, undo or hijack the regulatory state since the regulatory state was first invented.
Thomas Frank, who wrote that piece says that even in the 1880s when the Interstate Commerce Commission was set up to regulate railroads, we had the same desire to lobby against regulation. Who wants to have restrictions imposed on them? No one.
So here we are in 2009 with the change-you-can-believe-in Administration allowing lobbyists to negotiate their capital requirements and to shape regulatory policy. And lest we forget, most Americans want a public option or single payer health care plan. Yet, Obama is caving here again. Why? Paul Krugman makes it seem like its because Obama wants to negotiate and compromise. But is that what’s really going on? After all, Tom Daschle, the original Health and Human Services nominee was a lobbyist for the healthcare people. And the HHS Secretary Sebelius used to be a trial lawyer lobbyist.
I’d like to hear from you. Are you getting the faint whiff of crony capitalism? What do you think – is this a case of ‘negotiate and compromise’ or ‘crony capitalism’?
Here’s my poll:
