The New Finance Bill: A Mountain of Paper, a Molehill of Reform
By Robert Reich,
Robert Reichs Blog: 17 July 2010
Thursday the President pronounced that "because of this [financial reform]
bill the American people will never again be asked to foot the bill for Wall
Street's mistakes."
As if to prove him wrong, Goldman Sachs simultaneously announced it had
struck a deal with federal prosecutors to pay $550 million to settle federal
claims it misled investor - a sum representing a mere 15 days profit for the
firm based on its 2009 earnings. Goldman's share price immediately jumped
4.3 percent, and the Street proclaimed its chair and CEO, Lloyd ("Goldman is
doing God's work") Blankfein, a winner. Financial analysts rushed to affirm
a glowing outlook for Goldman stock.
Blankfein, you may recall, was at the meeting in late 2008 when Tim Geithner
and Hank Paulson decided to bail out AIG, and thereby deliver through AIG a
$13 billion no-strings-attached taxpayer windfall to Goldman. In a world
where money is the measure of everything, Blankfein's power and influence
have grown. Presumably, Goldman can expect more windfalls in future years.
Although the financial reform bill may have clipped some of Goldman's
wings - its lucrative derivative business may require Goldman to jettison
its status as a bank holding company, and the access to the Fed discount
window that comes with it - the main point is that the Goldman settlement
reveals everything that's weakest about the financial reform bill.
The American people will continue to have to foot the bill for the mistakes
of Wall Street's biggest banks because the legislation does nothing to
diminish the economic and political power of these giants. It does not cap
their size. It does not resurrect the Glass-Steagall Act that once separated
commercial (normal) banking from investment (casino) banking. It does not
even link the pay of their traders and top executives to long-term
performance. In other words, it does nothing to change their basic
structure. And for this reason, it gives them an implicit federal insurance
policy against failure unavailable to smaller banks - thereby adding to
their economic and political power in the future.
The bill contains hortatory language but is precariously weak in the
details. The so-called Volcker Rule has been watered down and delayed.
Blanche Lincoln's important proposal that derivatives be traded in separate
entities which aren't subsidized by commercial deposits has been shrunk and
compromised. Customized derivates can remain underground. The consumer
protection agency has been lodged in the Fed, whose own consumer division
failed miserably to protect consumers last time around.
On every important issue the legislation merely passes on to regulators
decisions about how to oversee the big banks and treat them if they're
behaving badly. But if history proves one lesson it's that regulators won't
and can't. They don't have the resources. They don't have the knowledge.
They are staffed by people in their 30s and 40s who are paid a small
fraction of what the lawyers working for the banks are paid. Many want and
expect better-paying jobs on Wall Street after they leave government, and so
are shrink-wrapped in a basic conflict of interest. And the big banks'
lawyers and accountants can run circles around them by threatening
protracted litigation.
Why do you think Goldman got off so easily from such serious charges of
fraud?
Reliance on the discretion of regulators rather than structural changes in
the banking system plays directly into the hands of the big banks and their
executives and traders who contribute mightily to Democratic and Republican
campaigns. The flow of money virtually guarantees that regulatory agencies
won't be adequately staffed to enforce the law, that penalties for
violations won't be overly onerous, and that all loopholes (what's a
"derivative"? what has to be listed on exchanges? exactly how much capital
must be on hand for which transactions? How are the various forms of
predatory lending to be defined?) will be easily stretched in future years.
Wall Street lawyers will have a field day. The profit-for-nothing sector of
the economy (law, accounting, finance) will continue to grow buoyantly.
Make no mistake: As long as there's no fundamental change in the structure
of Wall Street - as long as the big banks stay as big and are allowed to
grow bigger, and have every incentive to invent new financial gimmicks with
which to bet other peoples' money - they will remain too big to fail, and
too politically powerful to control.
Goldman's share price, as well as those of JP Morgan Chase, Citicorps,
Morgan Stanley, and Bank of America, will no doubt soar the basis of the
final bill because their future profits are almost guaranteed. The pay of
their executives and traders, and of the managers of hedge funds and
private-equity funds they deal with, will likewise accelerate. In the short
term the economy will benefit, at least to the extent financial
entrepreneurship is now the apex of American wealth and innovation. But over
the longer term we will be much weaker for it.
Congress has labored mightily to produce a mountain of legislation that can
be called financial reform, but it has produced a molehill relative to the
wreckage Wall Street wreaked upon the nation.
Robert Reich is Professor of Public Policy at the University of California
at Berkeley. He has served in three national administrations, most recently
as secretary of labor under President Bill Clinton. He has written twelve
books, including "The Work of Nations," "Locked in the Cabinet," and his
most recent book, "Supercapitalism." His "Marketplace" commentaries can be
found on publicradio.com and iTunes.
***
http://rawstory.com/rs/2010/0716/dcs-spooks-panic-mode-post-expose/
DC's spy establishment in panic mode over Washington Post expose
By Daniel Tencer
The Raw Story: July 16th, 2010
Washington's intelligence establishment appears to be in panic mode over an
upcoming Washington Post series about runaway growth in defense and
intelligence spending.
A State Department email has accused the Post of planning to make public
"top secret" information about defense and intelligence contractors working
for the US, despite an admission in the same email that the Post's
information came from "open sources."
The series, by Pulitzer Prize-winning reporter Dana Priest, will include a
TV partnership with PBS's Frontline and is expected to consist of three
articles and an online database of military and intelligence contractors and
their projects.
It's that database of contractors that seems to be worrying Washington the
most. Josh Rogin at Foreign Policy reports that the State Department sent
out an email Thursday warning all 14,574 Washington-area employees of the
upcoming reports.
"On Monday July 19, the Washington Post plans to publish a website listing
all agencies and contractors believed to conduct Top Secret work on behalf
of the US Government," the email stated. "The website provides a graphic
representation pinpointing the location of firms conducting Top Secret work,
describing the type of work they perform, and identifying many facilities
where such work is done."
However, the extent to which the Post's information will be "top secret" is
debatable. The State Department email goes on to say that the information
the Post has gathered came from "open sources," suggesting the information
published in the Post's database is already publicly available.
The email also tells employees they must "neither confirm nor deny" the
claims made in the Post articles.
That line is echoed in a letter to "industry partners" from the Office of
the Director of National Intelligence. In a blog posting entitled "Is Wash
Post Harming Intelligence Work?", the Washington Times reprints the letter
from the ODNI, which asks contractors to "remind all cleared employees of
their responsibility to protect classified information and relationships."
Marc Ambinder at the Atlantic has obtained a memorandum from the ODNI's
communications chief, Art House, in which House lays out what he expects to
see in the Post series, and his predictions paint a negative picture of
defense and intelligence spending over the past decade. House said while he
"can't predict the content" of the piece, he expects it will draw several
conclusions:
The intelligence enterprise has undergone exponential growth and has
become unmanageable with overlapping authorities and a heavily outsourced
contractor workforce.
The IC and the DoD have wasted significant time and resources, especially
in the areas of counterterrorism and counterintelligence.
The intelligence enterprise has taken its eyes off its post-9/11 mission
and is spending its energy on competitive and redundant programs.
House also lays out a strategy for an expected public-relations battle after
the series' publication:
It might be helpful as you prepare for publication to draw up a list of
accomplishments and examples of success to offer in response to inquiries to
balance the coverage and add points that deserve to be mentioned. In media
discussions, we will seek to garner support for the Intelligence Community
and its members by offering examples of agile, integrated activity that has
enhanced performance. We will want to minimize damage caused by unauthorized
disclosure of sensitive and classified information.
And Foreign Policy's Rogin reports that the Obama administration is already
refuting the Post series, even though it won't launch until Monday.
"A lot of this is explainable," an unnamed administration official told
Rogin. "You want some redundancy in the intelligence community and you're
going to have some waste. These are things we've been aware of and in some
instances we agree are troubling. However, it's something we've been working
on for a year and a half. It's something we've been on top of."
The official went on to say that "there will be examples of money being
wasted in the series that seem egregious and we are just as offended as the
readers by those examples."
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