NOTE: this is not a health care diary.
Bank of America handed out $3.6B in bonuses to Merrill Lynch executives after the two companies merged during the height of the bank meltdown. Obama's SEC slaps them on the wrist. And Obama publicly wonders why bank executives should be held accountable.
The current signs are not good for meaningful financial system reform with real teeth. If the President is not behind serious financial reform, can we trust Congress to produce decent legislation protecting the American taxpayer base from another systematic rape by the banks? Again, here, the signs are not good.
Back in January, what did the Obama Administration do to start addressing the blossoming mortgage crisis? Declare a foreclosure moratorium for 90 days. And produce a strictly-voluntary-for-the-banks HAMP program that has accomplished precisely nothing. Now, we're experiencing the biggest wave of foreclosures since the Great Depression, while Ben Bernanke says the recovery is under way. When is the last time you can recall a more useless, tone-deaf Administration response to an ongoing calamity?
Oh, yeah. Katrina. Only the foreclosure crisis makes Katrina look trivial. But Katrina wasn't trivial. It was an utter calamity. And it was death on wheels for the Bush Administration. What makes the foreclosure problem so easy for the administration and Congress to ignore is that it doesn't happen all at once - it's unfolding over years and while it affects millions of American families, it does not affect enough of them at any specific time and does not attract enough press for anyone to get terribly upset. But we will have over 3.6 million foreclosures in the United States this year. That is 3.6 million households destroyed this year alone.
In a previous column, Frank Rich observed:
Nor has Obama succeeded in persuading critics on the left or right that he will do as much for those Americans who are suffering as he has for the corporations his administration and his predecessor’s rushed to rescue. To mark the anniversary of Lehman’s fall, the president gave a speech on Wall Street last Monday again vowing reform. But everyone’s back to business as usual: the Wall Street Journal reported that not a single C.E.O. from a top bank attended. The speech sank with scant notice because there has been so little action to back it up and because its conciliatory stance was tone-deaf to the anger beyond the financial district.
Plus, these guys know they own us. Anytime they fuck up, they now know the middle-class taxpayer will have their back, without even the pretence of a consequence for their greedy actions. There's not even a whisper of condemnation or accountability for the next batch of criminals. No wonder they didn't attend Obama's speech. Why should they? They have nothing to fear. They have a social license to pursue bad behavior.
That same day a United States District Court judge in New York, Jed S. Rakoff, scathingly condemned the Securities and Exchange Commission for letting Bank of America skate away with what Rakoff called an immoral and unjust wrist tap to settle charges that it covered up $3.6 billion paid out in bonuses when it purchased Merrill Lynch. How is this S.E.C. a change from the Clinton-Bush S.E.C. that ignored all the red flags on Bernie Madoff?
Answer: it's not. Sorry, but it's been the better part of a year. Long enough for 'the change we all seek' to start becoming clear. Nope. No change. Not in perhaps the most critical issue facing our country in the short term and the long term: reforming the financial industry so the Great Meltdown of 2008 isn't repeated.
Also see this for the latest on Congress' ineffectual efforts.
So what about the banks? Is Obama in their pocket, while Congress is obviously so, regardless of party? Don't believe me? Maybe you'll believe Paul Krugman:
I was startled last week when Mr. Obama, in an interview with Bloomberg News, questioned the case for limiting financial-sector pay: "Why is it," he asked, "that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or N.F.L. football players?"
Wow. Just wow. Because those motherfuckers destroyed our economy and came to us for a bailout as if it was a welfare entitlement? In fact, for most of 'em, they didn't even need to lift a finger. The Fed and the Federal government positively could not wait to bail those guys out. And maybe they were right to do so. But...
What does the American middle class get in return for all this? Nothing. In fact, less than nothing - millions of foreclosures, now also swelling the ranks of the homeless. The banks should have been forced to take a cramdown for any mortgage holder requesting it, stuck with an expensive underwater mortgage. Oh yeah, I can already hear some saying - you were stupid enough to buy a house; you were stupid enough to sign the contract; you bought into the marketing bullshit about real estate. More Fool You.
(I've had arguments with dumbshits even around here on this point, by the way. I expect more of that after I kick this out the door.)
This mindless argument completely misses the key point of the issue, which is that most loan holders were honorable people who did not bargain for having their loans packaged into toxic securities fradulently rated AAA by the bond rating agencies and wound up having their loans serviced by mysterious entities far out-of-state that could not even be clearly identified as banks. Most mortgage holders also did not bargain for the job market exploding in their faces thanks to the banks' fouling up the credit markets and recklessly endangering every sector of the financial system and the world economy due to their 'innovative' securities offerings and the sheer naked greed of the dumbass CEOs and their sneaky Harvard/Stanford/MIT quant underlings who designed all of this horrible shit to begin with.
No honest home buyer (that is, anyone who didn't sign up for A "Loser Loan," an Option-ARM or a no-doc/low-doc loan with a derisory down payment on overpriced homes that common sense could tell anyone with a pulse that they couldn't afford) bargained for every unregulated sector of the financial system (mortgage brokers, real estate agents, loan underwriters at savings and loans such as Countrywide and Washington Mutual, Wall Street investment banks, bond rating agencies) colluding in the biggest fraud in the history of mankind. It's no coincidence that most if not all of these sectors had lax or nonexistent regulatory oversight.
This is the essence of what Jared Diamond calls Rational Bad Behavior. From Diamond's Collapse p. 430:
A further conflict of interest involving rational behavior arises when the interests of the decision-making elite in power clash with those interests of the rest of society. Especially if the elite can insulate themselves from the consequences of their actions, they are likely to do things that profit themselves, regardless of whether those actions hurt everyone else. Such clashes... are becoming increasingly frequent in the modern U.S... For example, Enron's executives correctly calculated that they could gain huge sums of money for themselves by looting the company coffers and thereby harming all the stockholders, and that they were likely to get away with their gamble.
Well, we know that in the end, even Bush's Department of Justice made sure those guys went to jail - Jeff Skilling got 25 years! As I've also noted here, the latest financial meltdown makes the all-too-recent Enron look like child's play. But the silence from Obama's Justice Department - or for that matter Obama himself - could not be louder. Given the generally abhorrent nature of the Bush Justice Department, this is hardly a flattering comparison.
My key point here is that the interests of the moneyed elite in this country are not in any way coincidental with those of you and me. They own Congress, lock stock and barrel, and frankly, based on his recent statements and his manifest lack of engagement on this issue, I'm starting to wonder somewhat about our President. Then again, as I'm sure others will point out, it's still fairly early in his term. And he has a lot on his plate. But that's what he has an attorney general for.
In any case, regarding re-regulating the financial system, Obama can't do much of anything. After all, he doesn't write the laws. You-Know-Who does. (That makes me feel so much better.) Regarding the banks and the financial system, which is now busily inflating the next equity-driven bubble in the stock market, never has the disconnect between Wall Street and Main Street been so bluntly obvious. After the health care imbroglio is resolved one way or the other, I think one clever way to rack up a few additional favorable poll numbers would be to start indicting the fat cats and their lieutenants who got us into this mess, for investment fraud - and announcing it loudly.
I'll admit, it would sure be nice if Obama made this vital and underreported issue a much higher priority going forward. We already had one near-death economic experience. We don't need the banking system to assume that their social license to rape the nation's middle class is permanent. Never in our recent history of recurrent financial scandals (Drexel Burnham, the S&L meltdown, Enron/Tyco/MCI, etc...) have the main perpetrators actually gotten off scot-free. In this case, so far, they have.