[Peace-discuss] Fw: Obama Banking Too Much On Banks

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Sent: Wednesday, September 16, 2009 9:24 PM
Subject: Obama Banking Too Much On Banks


> Obama Banking Too Much On Banks
> 
> In his Wall Street speech, the president outlines
> reforms-but they don't go deep enough.
> 
> By Nomi Prins
> Mother Jones 
> September 14, 2009
> http://www.motherjones.com/politics/2009/09/obama-banking-too-much-banks
> 
> On Monday-one year after the once-mighty Lehman
> Brothers collapsed in the nation's biggest bankruptcy-
> President Obama addressed the state of the economy and
> again outlined his proposals for what he calls reform.
> The location-Federal Hall at 26 Wall Street, near the
> New York Stock Exchange and New York Federal Reserve
> Bank-was fitting. George Washington took his
> presidential oath there, a precursor for how
> intertwined Washington and Wall Street would become.
> And Obama's speech indicates that he's still making the
> grave error of mistaking the health of Wall Street for
> the health of the American economy.
> 
> Obama chose not to deliver his speech on, say, the
> streets of Bend, Oregon, or Fresno, California, which
> provide different indicators of our economic
> predicament. That's because Washington's approach to
> the crisis has been to focus on the banking system,
> throw a few crumbs to citizens, and hope everything
> else will magically work itself out.
> 
> The problem with concentrating on the banking system is
> that it allows the administration to present an overly
> optimistic assessment of its actions. "The storms of
> the past two years are beginning to break," Obama
> pronounced, attributing this to a government that
> "moved quickly on all fronts, initializing a financial
> stability plan to rescue the system from the crisis and
> restart lending for all those affected by the crisis."
> He continued: "By taking aggressive and innovative
> steps in credit markets, we spurred lending not just to
> banks, but to folks looking to buy homes or cars, take
> out student loans, or finance small businesses. Our
> home ownership plan has helped responsible homeowners
> refinance to stem the tide of lost homes and lost home
> values."
> 
> Those steps were certainly aggressive. Under both the
> Bush and Obama administrations, the government, from
> the Federal Reserve to the Treasury Department, has
> flushed the banking systems and other components of the
> financial markets with $17.5 trillion worth of loans,
> guarantees, and other forms of support. About another
> $1 trillion has been provided to citizens through the
> recovery package, first-time homeowner tax benefits,
> auto purchase credits, and approximately $800 billion
> to help guarantee the loans of certain lenders-which
> somewhat helps borrowers, but helps lenders more.
> 
> But these measures have hardly brought the economy back
> from the brink. They brought Wall Street back from
> capital starvation and prevented the possibility of
> more big banks going bankrupt-instead of the slew of
> smaller and mid-size ones that have since met the same
> fate as Lehman Brothers. Taking credit for stabilizing
> the financial system after feeding it with massive
> amounts of federal money is like a teacher bragging
> about turning around the academic performance of a
> failing student after handing them all the answers to
> the big tests.
> 
> Here's how the economy is really faring (and how
> Washington is failing to take adequate steps to fix
> it):
> 
>    * National unemployment is at 9.7 percent, higher
>    than last year's 5.8 percent, with double digit
>    jobless rates in 139 metropolitan areas this July,
>    compared to 14 last July. * The number of
>    foreclosures is greater than last year: nearly 2
>    million new foreclosure filings occurred in the
>    first half of 2009, up 15 percent from the same
>    period in 2008. * While homes in some areas have
>    begun to slowly sell again, they are doing so at
>    deeply depressed prices, in many instances below
>    their mortgage value. * Wall Street bonuses are
>    back to pre-crisis levels. For some firms, such as
>    Goldman Sachs, they are even higher. * Bank
>    leverage, or excessive borrowing on the back of
>    risky assets-a major cause of the meltdown-is
>    rising again. * Geithner recently reported that his
>    program to enable private financial firms to buy up
>    toxic assets with government help will wind up
>    costing less than the $1 trillion he had first
>    envisioned. However, he did not mention that there
>    are less toxic assets available to buy partly
>    because the Fed has allowed banks to use some toxic
>    assets as collateral in return for cheap loans. *
>    Big banks are bigger than they were last year.
>    Since the Fed blessed more mergers last fall, the
>    nation's three largest banks-Bank of America,
>    JPMorgan Chase and Wells Fargo-hold the maximum
>    percentage of legally permissable US deposits or
>    more. * Mid-size and smaller banks keep closing.
>    This year, the Federal Deposit Insurance
>    Corporation (FDIC) has closed 92 banks and depleted
>    its deposit insurance money in the process. * We
>    still don't have detailed information on the
>    trillions of dollars of loans the Fed handed out to
>    the banking sector or about the quality of the
>    collateral banks provided in return.
> 
> Obama did acknowledge that the picture isn't entirely
> rosy. He also outlined his ideas for avoiding another
> catastrophe: reshuffle the decks of regulatory
> agencies, slap a few trading constraints on some
> derivatives, and create a Consumer Financial Protection
> Agency (CFPA). But while Obama's rhetoric was
> stern-"normalcy cannot lead to complacency," he vowed-
> the proposals themselves are hardly sweeping.
> 
> Obama's plan calls for eliminating the Office of Thrift
> Supervision and providing greater oversight by the Fed
> of "systemically important" institutions. The Senate is
> trying to water that down, in part because some members
> of both parties in Congress remain skeptical about the
> power of the Fed itself. The Senate also wants to
> consolidate regulatory authority into fewer entities,
> but leave oversight to a council of regulators. Of
> course, consolidating regulatory oversight only works
> if regulators are doing their jobs and the banking
> system is transparent enough to allow them to do so.
> 
> The last leg of Obama's proposal would be establishing
> the CFPA, which would monitor financial products in an
> effort to protect consumers from risky instruments such
> as subprime mortgages. Legislation to create such an
> agency is expected to be taken up this year by the
> House Financial Services Committee, chaired by Rep.
> Barney Frank (D-Mass).
> 
> A strong CFPA is a sensible plan. Right now there is no
> other body imbued with the power not just to protect
> consumers but also to foster the general economic
> stability that would be achieved by closely monitoring
> the integrity of financial products. This proposal has
> drawn the most ire from the banking community, so you
> know it's good. The Chamber of Commerce launched a $2
> million ad campaign to convince people that a CFPA
> would mean that local butcher couldn't extend credit to
> his customers without government interference.
> 
> But Obama's reforms do not strike deeply enough. The
> banking crisis has been subdued, not fixed, because of
> enormous amounts of government assistance. Ignoring
> that fact, and failing to overhaul the sector, leaves
> us open to another crisis. And the next round will be
> worse, because there is now so much more federal money
> invested in the banks.
> 
> Simply funding the banking system without reforming it
> is an expensive and dangerous game. Obama is capable of
> truly fixing things-by dividing up the Wall Street
> mega-banks with a new Glass Steagall Act, thereby
> enabling the success of more extensive regulatory
> reforms. Or, he could introduce a set of cosmetic
> changes that allow banks to keep doing what they did
> before last year's crisis and that put us on the path
> for the next one.
> 
> Nomi Prins is an economist and frequent contributor for
> Mother Jones. Her most recent book is It Takes a
> Pillage: Behind the Bailouts, Bonuses, and Backroom
> Deals from Washington to Wall Street.
> 
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