Well, finally even the Wall Street Journal has noticed it - Obama has caved to one of Wall Street lobbyists' most ardent wet dreams.
Headlined
A Triple-A Punt - Treasury's reform plan gives the credit raters a pass,
The Wall Street Journalcomes out and says what folks on the left have been complaining about for months: Our President's substantive reforms are weak swill.
We on the left should be most galled about the shallowness of Obama's reform, because we do - or we should - remember his rhetoric.
In case any here might have forgotten, this diary affords a fresh look at two highly-touted speeches that then candidate Obama gave on Wall Street excess and our economy
But first a little more, from the Wall Street Journal article of June 22, 2009 on Tim Geithner's white paper. The Journal alternates between well founded derision and plain old laughter.
If world-class lobbying could win a Stanley Cup, the credit-ratings caucus would be skating a victory lap this week. The Obama plan for financial re-regulation leaves unscathed this favored class of businesses whose fingerprints are all over the credit meltdown.
I read this article and am embarrassed for my president. Because I believed Obama's speeches in 2007 and 2008. But I must admit that the Journal, which I have never looked at with much favor - has hit the points squarely on the head.
It points out the salient problem - this white paper on The Obama plan for regulation is devoid of regulation.
Without the ratings agency seal of approval -- required by SEC, Federal Reserve and state regulation for many institutional investors -- it would have been nearly impossible to market the structured financial products at the heart of the crisis. Yet Team Obama suggests only that regulators reduce the agencies' favored role "wherever possible."
It's a revealing phrase, implying that there are situations when it's appropriate to rely on ratings from the big three instead of actually analyzing a potential investment. Can anyone name one [situation]? Probably not
Here is where the article's authors actually start laughing:
The Obama plan also calls for regulators to "minimize" the ability of banks to use highly-rated securities to reduce their capital requirements when they have not actually reduced their risks. Minimize, not eliminate? Does the Treasury believe that some baseline level of fakery is acceptable in bank financial statements?
The WSJ's derision continues:
The Obama plan does make plenty of vague suggestions, similar to those proposed by the rating agencies themselves
For two years, candidate - and now President Obama - had been saying that our 401k plans and IRAs shouldn't have been taken for a ride by ratings agencies in bed with the firms they regulated.
Now, as the Journal notes, Obama's Treasury department, in the person on Tim Geithner, has bought in to the most insulting "meme" of all - it's our fault.
Here's how the Journal puts it:
The Obama Treasury has even adopted the favorite public relations strategy of the ratings agency lobby: Blame the victim."Market discipline broke down as investors relied excessively on credit rating agencies," says this week's Treasury reform white paper. After regulators spent decades explicitly demanding that banks and mutual funds hold securities rated by the big rating agencies, regulators now have the nerve to blame investors for paying attention to the ratings.
Why should we on the left be particularly disappointed at President Obama’s hypocrisy?
After all, this is Tim Geithner’s Treasury, yes? And President Obama is merely relying on his new Treasury secretary to guide him, right?
WRONG. Here are excerpts from two major speeches that candidate Obama gave in 2007 and in 2008. They show that our President newbetter - once upon a time...
In September 2008, candidate and then-Senator Obama gave a highly promoted speech at Cooper Union in New York City; It was touted in advance: "Obama plans 'major' speech on economy" - and once delivered, it was summarized focusing on regulation: Obama calls for beefing up financial regulations
His speech had two key components. On one of those, we already know that Obama chose not to use his bully pulpit to help deliver: despite warnings in advance of the Senate vote by his former colleague, IL Senator Durbin, that the Senate was "owned" by the banking lobby, Obama failed to secure for Americans the promise he explicitly made in September 2008 that it was
"time to amend our bankruptcy laws so families aren't forced to stick to the terms of a home loan that was predatory or unfair."
Obama knew that - even in the heart of Wall Street - this was an important issue. Transcripts of his speech show that delivery of that line on March 27, 2008 at Cooper Union was followed by
"(APPLAUSE)"
(Congressional Quarterly Transcripts. Thursday, March 27, 2008; 11:19 AM, published by Washington Post)
But here was the other key point: what candidate Obama said about the ratings agencies and all of their triple-AAA ratings that so many of us - and so many of our mutual fund IRAs - relied on:
We must develop and rigorously manage liquidity risks. We must investigate ratings agencies and potential conflicts of interest with the people that they are rating. And transparency requirements must demand full disclosure by financial institutions to shareholders and counter parties.
This wasn't the first time that Obama pointed out the singular problem of conflicts of interest in the ratings agency fiasco - then-Senator Obama had his eye on the problems of credit ratings agencies a year and a half before he gave that 2008 speech.
Back in March of 2007, Senator Obama gave a speech at the NASDAQ market site in Times Square. News reports at the time took note that he trained his focus in particular on the ratings agency failures, and in particular the too-cozy relationship between ratings agencies and those whom they were rating.
MSNBC, summarizing Obama’s four points, makes clear that ratings agency problems were high on his list of problems requiring a fix:
Obama said there are four steps the country needs to take prevent future problems: (1) create more disclosure and accountability in the housing market by updating the current mortgage rules to prevent fraud and enact tough penalties against lenders who knowingly act in bad faith; (2) restore trust in the rating agencies by investigating the relationship and business practices of rating agencies and their clients; (3) fix a lack of transparency problem in other areas in the market by teaching consumers about the risk involved with credit cards; and (4) ask mortgage institutions to help people who are trying to sell or refinance their homes.
The New York Times September 18, 2007 article on that Wall Street speech placed Obama’s focus on ratings agency failures in its very first paragraph:
Senator Barack Obama chastised Wall Street executives yesterday as failing to protect middle-class interests and called for increased federal oversight of credit rating agencies, including a government investigation.
The NY Times went into significant detail on this issue - quoting candidate Obama's emphasis that the failure to accurately rate high risk instruments created the crisis - and the article even went so far as to enquire the source of candidate Obama's interest in ratings practices:
Mr. Obama of Illinois called for regulatory efforts to increase transparency and accountability among financial companies. Mr. Obama zeroed in on the housing market, proposing tighter federal rules on mortgage fraud and government rating systems for mortgages and credit cards.
"If more Americans were armed with this kind of information before they purchased risky mortgage loans," he said, "the current crisis might not have happened."
A spokesman for Mr. Obama, Bill Burton, said the proposed inquiry was inspired by a planned European Commission investigation into credit ratings practices in Europe. The inquiry, Mr. Burton said, would be spearheaded by the Securities and Exchange Commission.
A final note: Paul Krugman has been trying to be more delicate in his critique of President Obama, lately. But even Krugman appears to be growing restless with the absence of any substance in the Obama Treasury plan. Here's Krugman on Obama's failure to deal with the insult of executive compensation - it is a "description of what should happen, rather than a plan to make it happen."
And here's Krugman on the ratings fiasco:
[T]he plan says very little of substance about reforming the rating agencies, whose willingness to give a seal of approval to dubious securities played an important role in creating the mess we’re in.
I used to send copies of Obama's two Wall Street speeches out to friends and colleagues - I was so proud at this man's prescient understanding of what needed to be done.
But as each new step is taken by his Treasury Secretary, I cringe just a little bit more.
If then-Senator Oama had never given those two speeches, I might feel differently. But with this clear history of his focus on the true problem of rampant conflicts of interest between financial institutions and the ratings agencies - I cannot help but feel that President Obama will deserve all of the opprobrium he may receive if our financial recovery is derailed.
Obama's failure to insist that Secretary Geithner take on the ratings agencies is for me, a signal that Obama may be wresting with his principles - and losing.