As an intro, we need to realize that current strategy for managing the financial crisis is not working. The Fed is still pouring trillions of dollars into the bank system:
Feds heavy artillery - Business Week
On top of that, Fed and tax payer funded bail out dollars are being used in ways that are far from their intended uses (that is when there is any traceable accountability on how the funds are being deployed by the financial behemoths:
LA times report on the real bailout scandal
Next, we have to ask why Geithner and Sommers and others who played a major hand in creating the current crisis have been placed in charge of the bailout and are not deviating very much from the Goldman Sachs friendly policies of the Paulson/Bush regime. Our at least Arianna Huffington needs to ask that:
Hufffington questions bailout strategy on MSNBC
An interesting point she makes about President Obama's Leno appearance. He mentioned a plan to create a government run alternative credit system for college and auto loans because the conventional banking system is still not providing credit. As she notes, hello, have we not just poured trillions of dollars into the system for the ostensible purposes of restarting credit flows? What has all this money been used for?
Now, Matt Taibbi has brilliantly deconstructed this mess, explained its root causes and connected the dots:
The Big take-over
Here is a key explanatory passage from this report:
But in the late Nineties...the Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?
So that's the first step in wall street's power grab: making up things like credit-default swaps and collateralized-debt obligations, financial products so complex and inscrutable that ordinary American dumb people — to say nothing of federal regulators and even the CEOs of major corporations like AIG — are too intimidated to even try to understand them. That, combined with wise political investments, enabled the nation's top bankers to effectively scrap any meaningful oversight of the financial industry. In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.
Let's move to the present day:
"Obama received more donations from employees of investment banks and hedge funds than from any other sector, with Lehman Brothers, Goldman Sachs and JP Morgan Chase among his biggest sources of support.
"Individual donors included Ken Griffin, the multi-billionaire founder and chief executive of Chicago-based Citadel Investment Group, one of the world's biggest hedge fund companies," the UK's Financial Times reported July 17, 2007.[57]
"Obama's fundraising was more heavily dominated by financial professionals than other main candidate. He received $160,760 from employees of Lehman Brothers, just over $100,000 each from employees of Goldman Sachs and JP Morgan Chase and $61,125 from Citigroup employees," the Times reported.
From Obama and the financial lobby
So, let's connect the dots:
For about 10 years, the financial sector has positioned itself as the major lobbying force in DC and they have created a nice revolving door between Wall Street execs and government regulatory positions.
This lobby wields tremendous power in the election cycle in three ways:
Direct campaign support to preferred candidates; 2) intimidating other candidates who might take exception to their special interests through the threat of burying them through contributions to more finance friendly candidates; 3) using their influence in the MSM to marginalize and trivialize candidates who question the status quo.
That is serious power folks. Had Obama not signaled throughout his campaign that he was going to be a friend to Wall Street (i.e. continuing the status quo) he would have been declared "unelectable" and found himself languishing in the Kucinich, Edwards wastelands and I would now be writing about President Clinton.
So, I am not ranting againt Obama in any sense. He had to grapple with these realpolitik institutional constraints and play the game to get elected.
But, the status quo has completely broken down. the Wall Street masters of the Universe have pushed the system past its breaking point and no really knows how deep their financial rabbit hole really goes.
Every day, Obama is getting more entangled in these bad policies. Let's be honest, praising Geithner is just a notch above, you are doing a heck of a job Brownie. The Geithner/Sommers' brain trust has blown over a TRILLION dollars and the system is still hemorraghing.
Experts outside the financial/DC cabal, such as Krugman and Stiglitz have laid out plans that put the costs and burdens of restructuring on the financial system and that ensure that the dollars being spent are being used for purposes of jump starting the economy. They also take care of a huge problem that Taibbi points out in his article:
Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.
This cozy arrangement created yet another opportunity for big banks to devour market share at the expense of smaller regional lenders. While all the bigwigs at Citi and Goldman and Bank of America who had Paulson on speed-dial got bailed out right away — remember that TARP was originally passed because money had to be lent right now, that day, that minute, to stave off emergency — many small banks are still waiting for help. Five months into the TARP program, some not only haven't received any funds, they haven't even gotten a call back about their applications....
the lion's share of the bailout money has gone to the larger, so-called "systemically important" banks. "It's like Treasury is picking winners and losers," says one state banking official who asked not to be identified. This itself is a hugely important political development. In essence, the bailout accelerated the decline of regional community lenders by boosting the political power of their giant national competitors.....Which, when you think about it, is insane: To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of megafirms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk
.
Every day and billions of dollars that goes by makes it more difficult for Obama to change course because the resources needed to make such changes are quite literally disappearing.
The opportunity for Obama is to use the crisis (and public range mounting around) as a club to beat back Wall Street's corruptive influence and redesign the financial system in a way that actually makes sense.
The time is now and the enemy is clear. If Obama continues to stay the course, I fear that his great promise as transformational leader will be squandered.