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Oct. 21 2009 - 11:03 am | 34 views | 2 recommendations | 4 comments

Obama administration determined to usher in new Great Depression

Paul Volcker, former head of the Federal Reser...

Paul Volcker Image via Wikipedia

Paul Volcker must feel like he’s going crazy. The former Federal Reserve chairman, current chairman of the newly formed Economic Recovery Advisory Board, and the man Austan D. Goolsbee, counselor to President Obama, calls a “giant,” “genius,” and “great human being,” can’t get any respect these days.

You see, Volcker has been hounding the Obama White House to prohibit the nation’s banks from owning and trading risky securities, the practice that got the “too big to fail” crew intro big trouble in 2008.

The administration is saying no.

Whatever one thinks of Volcker, any amateur historian can see that he’s right to want to keep investment banking separate from commercial banking. This was the basic reasoning behind the Glass-Steagall Act of 1933 that mandated the separation of the two types of banking in order to protect the country from risky investments and speculation. This worked splendidly for six decades until 1999 when the Republicans spearheaded the Gramm-Leach-Bliley Act, which was signed into law by former President Clinton.

Totally unsurprisingly, without regulation and the Glass-Steagall wall, a series of financial bubbles began to grow, and repeatedly burst, fattening the wallets of a select few while taxpayers continually bailed out a broken system.

Now, another Democratic leader, President Obama, seems determined to continue the New Deal reversal. What’s the reasoning here? The New York Times cites anonymous officials who describe Volcker as an adviser perceived as “standing apart from Wall Street, and critical of its ways,” while Treasury Secretary Timothy F. Geithner, and Lawrence H. Summers, chief of the National Economic Council, are seen, “rightly or wrongly, as more sympathetic to the concerns of investment bankers.”

Let me clarify some confusion for the Times. This is a “wrongly” philosophy.  It’s very wrongly. It’s so wrongly that it’s the exact behavior of deregulation and cronyism that led to the 2008 economic catastrophe, and before that, the dot-com bubble burst, and before that, the savings and loan debacle, along with a myriad of other so-called “unforeseeable freak events of the stock market.”

Lawrence Summers knows this is true. He even said it in a very comprehensive speech where he explained that there has been an economic crisis, on average, every three years. That’s an outrageous failure rate, and it indicates the need for dramatic reform, Summers argues. Of course, he doesn’t go one step further and indict his investment banker buddies as guilty parties in the larger “reform plan.”

No need to step on any toes, right, Larry? As if the man who accepted payments for speaking appearances from financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch (with fees ranging from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs) is going to lead the charge to regulate the banking industry.

Summers and Geithner’s various connections to the banking industry have been well documented, but what’s outrageous is that they are now shooting down Paul Volcker’s correct assessment that only a new Glass-Steagall will prevent future economic catastrophe.

Summers and Geithner are so clearly wrong for so clearly the “wrongly” reasons that it’s really shocking anyone is taking these two seriously. At least we can take comfort in the knowledge that when the next economic crisis hits in three years (according to Summer’s calculations,) our excellent media will hold the economic gurus’ feet to the fire. …Right?


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  1. collapse expand

    Just trying to imagine how the Geithner/Summers crew actually see Paul Volcker… someone with more than a half-century of macroeconomics/investment banking experience… someone whose Fed was credited with ending the 1970s stagflation crisis. In simplest terms, someone who they can’t dismiss (like you and Taibbi for instance) as a polemic (Fye!) that doesn’t really know what they are talking about. (You contrarian, you just don’t get the BIG Picture!) Because you know they think they exist on an ethereal plane of understanding very much elevated from us normal mensch.

    They can’t, i would imagine, marginalize him in discussions quite so easily and thus he must present a very annoying threat to their legitimacy. I picture them shooting the shit over martinis at some swank DC cigar bar, presenting each other brochures of Sunny Pastures, Shady Pines and other homes to which they dream about sending Volcker.

  2. collapse expand

    Ms. Kilkenny,

    Mr. Summers and Mr. Geithner (and Mr. Obama) are scared to death that Wall Street will collapse at any moment. They want the surviving firms to be able to make profits at something, anything. The DJIA just topped 10,000 but based on what? Companies are still laying people off, going bankrupt, and houses are still being foreclosed. Several of the giants of Wall Street have been reporting record profits, profits from what activity? What are they buying or selling that is so profitable? It seems likely that these huge profits and stock value gains are just more of the same high risk Ponzi schemes and shell games that lead to last years melt-down. It is possible that the people in Washington are well aware that the big players on Wall Street are “gaming the system” but they fear that there is no other sources of profits. What would happen if AIG or one of the other “whales” stopped these high risk financial games, where would they make their profits? Buying and selling stock in GM or Chysrler? The game my be crooked but it is the only game in town.

  3. collapse expand

    Nice column.

    the health care deliberations and the response to
    the banking fiasco run parallel to each other
    lavish deals for the health insurance cartel,
    the taxpayer paying for all less desirable
    customers who might in any way threaten
    preferred medical loss ratios

    the banks:
    they get the benefits from unrestratined
    risk-taking while the taxpayer pays for the
    inevitable fiascos, the cookie jar always
    open since the banks are TBTF, that in
    itself also disadvantaging the regional

    Britain has already declared they will be
    breaking up banks seen heretofore as
    too big to fail.

    And the sellouts directly jeopardize
    recovery and risk a renewed crisis.




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