[Peace-discuss] The old system refuses to change. Is Obama getting the message?

[LAURIE SOLOMON]

An interesting article with a telling story with respect to who has the
power and influence and who does not in Amerika, why AmeriKan representative
democracy with its political parties and elections is a bit of the old
flim-flam shell game, and why the Democratic Party and OBAMA orchestrated
letter writing, opinion seeking, and focus group enterprises are merely a
way to coopt the public so as to make them feel that they have had their say
and have been listened to while the establishment go its own merry way. [LS]

 

Summary:

 

FOCUS | Michael Hirsh: Wall Street Digs In http://www.truthout.org/041209Y
Michael Hirsh, Newsweek: "Not long ago, a group of skeptical Democratic
senators met at the White House with President Obama, his chief economic
adviser, Larry Summers, and Treasury Secretary Tim Geithner. The six
senators - most of them centrists, joined by one left-leaning independent,
Vermont's Bernie Sanders - said that while they supported Obama, they were
worried. The financial reform policies the president was pursuing were not
going far enough, they told him, and the people Obama was choosing as his
regulators were not going to change things fundamentally enough."

 


***********************FOCUS | Michael Hirsh: Wall Street Digs In
http://www.truthout.org/041209Y Michael Hirsh, Newsweek: "Not long ago, a
group of skeptical Democratic senators met at the White House with President
Obama, his chief economic adviser, Larry Summers, and Treasury Secretary Tim
Geithner. The six senators - most of them centrists, joined by one
left-leaning independent, Vermont's Bernie Sanders - said that while they
supported Obama, they were worried. The financial reform policies the
president was pursuing were not going far enough, they told him, and the
people Obama was choosing as his regulators were not going to change things
fundamentally enoughFOCUS | Michael Hirsh: Wall Street Digs In
http://www.truthout.org/041209Y Michael Hirsh, Newsweek: "Not long ago, a
group of skeptical Democratic senators met at the White House with President
Obama, his chief economic adviser, Larry Summers, and Treasury Secretary Tim
Geithner. The six senators - most of them centrists, joined by one
left-leaning independent, Vermont's Bernie Sanders - said that while they
supported Obama, they were worried. The financial reform policies the
president was pursuing were not going far enough, they told him, and the
people Obama was choosing as his regulators were not going to change things
fundamentally enoughFOCUS | Michael Hirsh: Wall Street Digs In
http://www.truthout.org/041209Y Michael Hirsh, Newsweek: "Not long ago, a
group of skeptical Democratic senators met at the White House with President
Obama, his chief economic adviser, Larry Summers, and Treasury Secretary Tim
Geithner. The six senators - most of them centrists, joined by one
left-leaning independent, Vermont's Bernie Sanders - said that while they
supported Obama, they were worried. The financial reform policies the
president was pursuing were not going far enough, they told him, and the
people Obama was choosing as his regulators were not going to change things
fundamentally enough


Opinion


Wall Street Digs In <http://www.truthout.org/041209Y> 

Friday 10 April 2009

 <http://www.newsweek.com/id/193360> by: Michael Hirsh  |  Visit article
original @ Newsweek

The old system refuses to change. Is Obama getting the message? 

    Not long ago, a group of skeptical Democratic senators met at the White
House with President Obama, his chief economic adviser, Larry Summers, and
Treasury Secretary Tim Geithner. The six senators - most of them centrists,
joined by one left-leaning independent, Vermont's Bernie Sanders - said that
while they supported Obama, they were worried. The financial reform policies
the president was pursuing were not going far enough, they told him, and the
people Obama was choosing as his regulators were not going to change things
fundamentally enough. His appointed officials and nominees were products of
the very system that brought us all this economic grief; they would tinker
with the system but in the end leave Wall Street, and its practices, mostly
intact, the senators suggested politely. In addition to Sanders, the
senators at the meeting were Maria Cantwell, Byron Dorgan, Dianne Feinstein,
Carl Levin and Jim Webb. 

    That March 23 gathering, the details of which have gone largely
unreported until now, was just a minor flare-up in a larger battle for the
future - one that may already be lost. With the financial markets seeming to
stabilize in recent weeks, major Wall Street players are digging in against
fundamental changes. And while it clearly wants to install serious
supervision, the Obama administration - along with other key authorities
like the New York Fed - appears willing to stand back while Wall Street
resurrects much of the ultracomplex global trading system that helped lead
to the worst financial collapse since the Depression. 

    At issue is whether trading in credit default swaps and other
derivatives - and the giant, too-big-to-fail firms that traded them - will
be allowed to dominate the financial landscape again once the crisis passes.
As things look now, that is likely to happen. And the firms may soon be
recapitalized and have a lot more sway in Washington - all of it courtesy of
their supporters in the Obama administration. With its Public-Private
Investment Program set to bid up and buy toxic assets, the administration is
handing these companies another giant federal subsidy. But this time the
money will come through the back door, bypassing Congress, mainly via FDIC
loans. No one is quite sure how the program will work yet, but it's very
likely going to make a lot of the same Wall Street houses much richer at
taxpayer expense. Meanwhile, the big banks that still need help will almost
certainly get another large infusion once the stress tests are completed by
the end of the month. 

    The financial industry isn't leaving anything to chance, however. One
sign of a newly assertive Wall Street emerged recently when a bevy of
bailed-out firms, including Citigroup, JPMorgan and Goldman Sachs, formed a
new lobby calling itself the Coalition for Business Finance Reform. Its
goal: to stand against heavy regulation of "over-the-counter" derivatives,
in other words customized contracts that are traded off an exchange.
Companies like these kinds of contracts, which are agreed to privately
between firms, because they allow them to tailor a hedge perfectly against a
firm-specific risk for a certain time period. But in order to preserve its
right to negotiate these cheaper private contracts, Wall Street is
apparently willing to argue for the same lack of public transparency and to
permit the systemic risk that led to the crash. 

    Geithner's financial regulation plan, announced April 2, does address
some of these concerns. The Treasury chief wants all standardized
over-the-counter trading of derivatives to go through an industry
clearinghouse, which will give the government more oversight. Geithner said
he wants to require "systemically important" firms to reserve more capital.
He also wants to rein in "customized" derivatives contracts - those agreed
to privately between firms. Whereas once these trades went totally
unregulated, Geithner would require that they be "reported to trade
repositories and be subject to robust standards" for documenting and
collateralizing, among other new rules. 

    But it's unlikely this will do much to change Wall Street. Geithner's
new rules would allow the over-the-counter market to boom again,
orchestrated by global giants that will continue to be "too big to fail"
(they may have to be rescued again someday, in other words). And most of it
will still occur largely out of sight of regulated exchanges. The response
favored by the administration, the Federal Reserve and even many in Congress
is to create a new all-knowing "systemic risk regulator" with
as-yet-undetermined powers. Is such a person sitting at 30,000 feet really
going to be able to keep up with all this onrushing complexity, especially
as over-the-counter trading resumes in quiet places around the world? It is
a triumph of hope over experience to think so. 

    Meanwhile, up in Manhattan, the New York Fed has been conducting
meetings on future regulation with a group of major Street insiders and
their traditional regulators. At the most recent meeting, on April 1, they
agreed on creating central clearinghouses for trading and "trade-information
warehouses" that will track market data far better than before. But they
have resisted anything more dramatic, like requiring all trading to occur on
publicly recognized exchanges. Geithner has also put his stock in
clearinghouses; he says he only wants to "encourage greater use of
exchange-traded instruments." That has placed Geithner at odds with another
Democratic senator, Tom Harkin of Iowa, chair of the agriculture committee,
who wants all futures contracts traded on exchange. "The senator feels that
what he's offering in his bill does include more integrity and transparency
than the current Geithner plan," a Harkin spokesman told me. 

    Officials at the firms who took part in the New York Fed meeting and at
the Fed maintain that there is little difference between clearinghouses and
formal exchanges; both are regulated and both are industry-run, they say.
But that misses a major point, says Michael Greenberger, a former top
official at the Commodity Futures Trading Commission who has been a critic
of the administration's reform efforts. Exchange trading gives the
government authority over fraud and manipulation and emergency powers to
stop trading, he says, and it creates the kind of public transparency that
isn't possible in a privately run clearinghouse. 

    The White House and Treasury Department did not immediately respond to
my requests for comment on these issues or on the March 23 meeting (beyond
confirming that it took place). But it's noteworthy that more than a month
and a half passed before Obama agreed to the meeting, which was prompted by
a letter that Dorgan sent in early February. The senators were invited after
one of the group, Sanders, put a hold on the nomination of Gary Gensler,
Obama's nominee to be head of the Commodity Futures Trading Commission. In
an interview, Sanders said he opposes the nomination because Gensler has
spent much of his career in Washington working for Wall Street's interests.
Gensler, in testimony, has said he has learned from his past mistakes. "At
this moment in our history, we need an independent leader who will help
create a new culture in the financial marketplace," Sanders said. 

    Instead, the old culture is reasserting itself with a vengeance. All of
which runs up against the advice now being dispensed by many of the experts
who were most prescient about the crash and its causes - the outsiders, in
other words, as opposed to the insiders who are still running the show.
Among the outsiders is Nassim Nicholas Taleb, the trader and professor who
wrote "The Black Swan: The Impact of the Highly Improbable." Taleb wrote in
the Financial Times this week that a fundamental new approach is needed. Not
only should firms be prevented from growing too big to fail, "complex
derivatives need to be banned because nobody understands them and few are
rational enough to know it," he said. Yet even as we are still picking up
the debris, we seem to be ready to embrace that world once again. 

 

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