Why the Obama White House Cannot Reform Wall Street
“The guy’s a giant, he’s a genius, he is a great human being.Whenever he has advice, the administration is very interested.”
-Austan D. Goolsbee, counselor to President Obama
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Let us stop to ask ourselves a simple question: Can the Obama White House reform Wall Street ?
Its hard to see how when key presidential advisers are Wall Street creatures. When the post-mortem gets written on the current administration, it likely will reflect the President taking advice from the wrong advisers: Timothy Geithner and Lawrence Summers.
Who should he be listening to?
There are lots of other people whose advice the President should consider, but I am thinking about one in particular.
Who is he? Well, I’ll describe him:
• Chairman, president’s Economic Recovery Advisory Board
• Co-Campaigner with Mr. Obama
• Trusted adviser, widely perceived as standing apart from Wall Street, and critical of its ways
• Fed Chair, 1979 to 1987
I am obviously referring to Paul Volcker:
“Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities.
The Obama team, in contrast, would let the giants survive, but would regulate them extensively, so they could not get themselves and the nation into trouble again. While the administration’s proposal languishes, giants like Goldman Sachs have re-engaged in old trading practices, once again earning big profits and planning big bonuses.
Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways.
“The banks are there to serve the public,” Mr. Volcker said, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails.
The only viable solution, in the Volcker view, is to break up the giants. JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company. It’s a tall order, and to achieve it Congress would have to enact a modern-day version of the 1933 Glass-Steagall Act, which mandated separation.”
The sooner team O starts listening to Tall Paul, the better off they — and the country — will be . . .
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Source:
Volcker Has Obama’s Ear, but Not on Banks
LOUIS UCHITELLE
NYT October 20, 2009
http://www.nytimes.com/2009/10/21/business/21volcker.html
October 21st, 2009 at 4:32 am
If Volcker was, really, interested in ‘Reform’, he’d ‘force the case’, or walk–giving i-views on the way out the door..
As it is, “Tall Paul”, merely, provides shadow for the continuing obsfuscation that is served ‘du jour’.\
Banking, though, is one thing, what we consider ‘Bankable’ is, quite, another.
thedeal.com & RateFinancial Inc., ably, cover the systematic weakness of our, current, Accounting Schemas. see–
RateFinancials’ Germack on accounting practices
“What do Calpine Corp., Circuit City Inc. and Citigroup Inc. have in common? Aggressive accounting and lax recording rules. Despite reforms implemented post-Enron, the U.S.’s complex accounting rules can easily be gamed to deceive investors about the true conditions of public companies, according to Victor Germack, president of RateFinancials Inc. In this episode of Inside The Deal, Germack speaks with The Deal’s Suzanne Stevens about why accounting rules need to be overhauled in order to fix the financial markets. See the video below or download it at iTunes.”- Maria Woehr
http://www.thedeal.com/fastsearch?blogs=27%2C19%2C20%2C22%2C21%2C24%2C23%2C30%2C29%2C34%2C35&order=date&search=RateFinancials+Inc.
http://www.ratefinancials.com/
note that their focus is on GAAP/FASB and IFRS, not the GAO, and noone has a bead on the FedRes.( could ‘reform’ Paul comment on H.R. 1207?)
We’re, seemingly forever, being entreated to soothing sounds of “Reform”, we should wonder. These, same, issues, keep coming back, again and again. Maybe, the *True Zombies are Us, entranced by such clever -craft. We should snap out of it. The only thing that we’re eating, in our perambulating catatonia, is ourselves. One might think that the same Diet, decade after decade, would become tiresome.
October 21st, 2009 at 4:35 am
King Suggests Splitting Up Largest Banks to Stem Risk
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAdP3tUMTdVE
October 21st, 2009 at 4:50 am
Mervyn King’s speech of yesterday is a good read.
http://www.bankofengland.co.uk/publications/speeches/2009/speech406.pdf
e.g.
“The “too important to fail” problem is too important to ignore.”
“To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.”
“In other industries we separate those functions that are utility in nature – and are regulated – from those that can safely be left to the discipline of the market.”
“At one end of the spectrum is the proposal for “narrow banks”, which would separate totally the provision of payments services from the creation of risky assets. At the other is the proposal to separate proprietary trading from retail banking.
There are those who claim that such proposals are impractical. It is hard to see why.
What does seem impractical, however, are the current arrangements. Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are.”
“The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the “too important to fail” question. The belief that appropriate regulation can ensure that speculative activities do not result in failures is a DELUSION!!”
October 21st, 2009 at 5:17 am
OK, so we agree that the change-you-can-not-believe-in-anymore White House will not pursue the necessary changes.
Why don’t we force the change ourselves?? Together we can break up the bailed-out and/or TBTE (too big to exist) bad banks!!!
Over at http://market-ticker.denninger.net is a great CALL TO ACTION:
“A call to break these institutions by destroying their deposit base and “net interest margin”, one consumer at a time, as a protest against the outrageous actions these firms have taken in terms of risk and their shifting of the costs of that risk, which should have resulted in their failure and closure by The FDIC and OCC, onto the backs of their customers via outrageous fees, interest rates and costs, along with the direct subsidy being paid by all taxpayers generally.”
“There is no law that says you must patronize firms that engage in practices that you find outrageous or abusive. Indeed, it is your right and duty as an American to withdraw your consent to such practices ..and pull your business, whether it be small or large, and take that business to your local community bank or credit union.”
October 21st, 2009 at 5:49 am
Yes, the Commercial and Investment Banks must be separated if we are even to return to any kind of normalcy. You know the question is, “Are you willing to let a few hold the rest of the Country hostage every time they get into trouble?” Well, you would think the answer would be a resounding “No”; but, there is so much corruption and bribe money being passed around to maintain the status quo that we may not get the reform that we so desperately need even when it is so obvious. A breaking-up of the Financial Industry is the white elephant now in the room that everyone is ignoring.
God help us if Wall Street and Congress are so stupid and corrupt that they refuse to do the obvious. I am amazed at how the power elite can gradually over weeks and months reshape a consensus into something totally different. I had probably a months worth of newspapers (FT) that I never found time to read until I went on vacation recently. I was amazed at what was being said about financial re-regulation, the mandate for a public option on healthcare, etc. THEN versus NOW and how the consensus of MSM was modified/changed toward something so watered down that it represented little to no real change.
Like I said earlier, if we allow our “bought and paid for” Congress and the Wall Street elites maintain the current “wild, wild West” casino, we will lose all respect and credibility from the rest of the world and will pay a crippling price for our stupidity and arrogance.
We all know something is badly wrong and must not allow this opportunity for change to pass without making the hard decisions required to put us back on the right path.
IMO, if Obama does not stiffen-up, he will be thrown out of Office in 2012 just like a lot of other incumbents who no longer care about the United States. We are surrounded by political whores.
Pray that we will get some new (good) leadership in Congress in 2010 & 2012. We need real results and less words.
October 21st, 2009 at 5:51 am
@Mark E Hoffer – Agreed. Volker has been marginalized. He was used by the campaign organization to convince fools like myself to vote for Obama and then cast aside before he could damage the co-dependent addictive relationship between investment bankers and politicians.
For the sake of his own integrity he must either force the issues or walk. Otherwise he will become complicit by his failure to act.
October 21st, 2009 at 6:18 am
I don’t believe it.
There isn’t a soul on this planet, who has paid even 5 minutes attention, nor anyone with a double digit IQ who didn’t come to this conclusion more than a ayear ago, and for that ‘brilliant’ conclusion Volcker is considered a genius.
I guess that makes all of us automatic Mensa members.
A real bonafide genius would, instead, make it happen. Today.
October 21st, 2009 at 6:26 am
“His disagreement with the Obama people on whether to restore some version of Glass-Steagall appears to have contributed to published reports that his influence in the administration is fading and that he is rarely if ever in the small Washington office assigned to him.”
I just do not see any hope. “Hedge Fund Summers” and “I’m Your Puppet Geithner” are obviously in complete charge. Recall they are the ones who expressed “helplessness” against the AIG bonuses with their “but it is a contract” crap. Now “Master of the Spin Axelrod” goes on TV and says “all we really have with the banks is moral suasion”.
What absolute bullshit! How long will MSM’s love affair with Obama permit his Wall Street partners to rape and pillage our economy without retribution? Without being exposed?
Seriously, does the end justify the means to such a point that campaign contributions are now more important than the preservation of an ethical and fair society? Can we really expect America to lead even itself into the next millenium, the next decade for that matter, if it has fallen so low as to be willing to trade its values for $30,000 a plate campaign dinners with investment bankers?
What ever in the hell happened to the ideals of the Democratic Party that once were based on the welfare of the common person, the downtrodden, those without a voice, those who do not have powerful friends in high places? Who in the hell does Obama represent? Is it the poor, the minorities, the working class? Or is it his fellow Harvard grads., wealthy investment bankers, academicians and the rest of the limousine liberal class?
We are at a crossroads. It is not, “Will main street rise up in anger and cause civil unrest?” This may or may not happen. No, it is. “Will America persevere as a great democracy or will it collapse from the greed, avarice and lust for power and control?”
In the words of Mao, “It is always darkest before it turns totally black.” Well folks, it is looking pretty god damned dark out there at the moment. Are we going to turn on the lights and rid ourselves of corruption, or are we going to just let the whole thing fail?
October 21st, 2009 at 7:22 am
Death of ‘Soul of Capitalism:’ Bogle, Faber, Moore
http://www.marketwatch.com/story/americas-soul-is-lost-and-collapse-is-inevitable-2009-10-20
October 21st, 2009 at 7:25 am
Here was Pres. Obama speaking to his $30,000-a-couple fundraiser in NYC:
“I hope that everybody here is willing to recapture that sense of excitement that comes from a big but achievable challenge, not a superficial excitement that comes from election day, but an excitement that comes from knowing we took on something that had to be taken on.”
Can anyone think of something that Obama should take on next?
October 21st, 2009 at 7:45 am
From the “talk is cheap” Department.
Pres. Obama speaking to his $30,000-a-couple fundraiser in NYC:
And while I’m in New York, I want to stress something about this financial reform effort. The finance industry is essential to a healthy economy and to the well-being of our economy. That is why we stepped in to prevent a collapse that would have had far reaching and devastating consequences for the American people. Steps by the way that were not wildly popular and still aren’t among the American people, but it was the right thing to do. But we also know we should never again have to face potential calamity because of the reckless speculation and deceptive practices and short-sightedness and self-interestedness from a few.
“So if there are members of the financial industry in the audience today, I will ask that you join with us in passing what are necessary reforms (applause) – don’t fight them, join us. This is important for our country. And in the long run, it will be good for the financial industry to have a level playing field in which everybody knows the rules and everybody knows that the rules will be enforced. And people are repeating not by how confusing you can make things, and how to even avoid rules, but competing because you’re offering innovative good products that are helping grow the American economy and put people to work out on main street.
“Whenever I hear some folks who have just been taking taxpayer bailout money suddenly say ‘what, what, what do you want from me?’ When I hear stories about small businesses and medium-sized businesses not being able to get loans. Despite wall street being backed very properly, that tells me that people aren’t thinking about their obligations, our mutual obligations to each other and the fact that we’re in this together.
I personally like the “so if there are members of the financial industry in the audience today…” Just per chance if an investment banker happens to be in the room……. On second thought, this might have been a valid statement. The Investment Bankers were probably the empty plates at the tables in the back…low profile time……..
October 21st, 2009 at 8:14 am
Advice to a college student
Let’s talk about the real world for a moment… we broke it. Please don’t be mad. I know we were supposed to bequeath to the next generation a world better than the one we were handed. So, sorry. —Jon Stewart
October 21st, 2009 at 8:37 am
I’m not so sure that Paul Volker should ‘force the case’ by stomping out the door. That is not necessarily the best way to make a sale. In fact, that could blow it. I think the best course is to keep talking… if he is correct, events will begin to prove him so. Then you win the convert.
You may notice that public opinion and the comments of a lot of very well-respected people are starting to come around to the ‘break them up’ position.
One huge problem for the pro-bank group is that, to the general public, only one thing was achieved by the massive taking of our wealth: bankers were made richer and even more arrogant. We still have a recession to endure; they do not. That’s one of the worst bargains in US history. Once public opinion has swung strongly against the big banks, change will happen… and the most effective thing to do is to keep prodding that public opinion onward.
October 21st, 2009 at 8:37 am
There is no question that Paul Volker is da Man….. I just can’t believe that Obama is so clueless about Rubin’s flunkies. It’s very difficult to rationalize Summers, Geithner and Co. However, I don’t fully blame Obama for these assholes, as I’m sure that many of the old establishment democrats such as Schumer, Dodd, Kerry, and the Clintons, played a huge role in twisting Obama’s arm to get those morons appointed to office.
All those mother-f&%ckers belong on the gallows or in jail. If I were the Dictator, I would have them all shot, and I wouldn’t give it a second thought, or loose a minute of sleep over it…
Best regards,
Econolicious
October 21st, 2009 at 8:42 am
flipspiceland
totally agree with you, not so long ago Obama was a genius for wanting to rid the world of nuclear weapons, wow never thought of that one either, I guess Harvard is where you have to go to get such wonderful ideas.
This is just another soundbyte going nowhere fast.
October 21st, 2009 at 8:42 am
wally Says:
October 21st, 2009 at 8:37 am
Wally, excellent points & observations.
October 21st, 2009 at 9:13 am
Paul Volcker is 82 years old. His attitudes represent a bygone era that is no longer in power and has zero influence on current policy. That former era was far from perfect but when it came time to make the really tough, important decisions they usually did the right thing and got things done. Simple commonsense principals like leaving the country in better condition for the next generation were understood and respected.
It’s great that some people still remember guys like Volcker and it would be cool if a few individuals like him got their way but overall it wouldn’t make a lick of difference. Our problems are institutional and changing the names and faces will not change our course. If anything should be apparent from the events of the past year, that should be #1.
As I said, the old era was not perfect. There were a few termites in the wood but the house still stood strong. The termites are now running the show and the house is collapsing. Trying to patch up the house as the termites gnaw away is pointless – we need a brand new house not infected with termites.
October 21st, 2009 at 9:25 am
The repel of Glass-Steagall was in the making for ten years by the likes of Sandy Weill. To expect it to be rolled back after all the shotgun marriages of the last year is not realistic. Ultimately that should be a goal. Focusing on capital requirements, eliminating the commercial bank designation for GS and Morgan Stanley, forcing BOA to spin of Merill, regulating the derivatives market, supporting the states AG lawsuits is what should be done in the short to mid term.
October 21st, 2009 at 9:30 am
[...] Volcher’s solution to ‘too big to fail’ (short): http://www.ritholtz.com/blog/2009/10/why-obama-cannot-reform-wall-street/ Here is a rather long rebuttal to that position; but it is a must read [...]
October 21st, 2009 at 10:05 am
“The guy’s a giant, … ”
Taken literally.
October 21st, 2009 at 10:07 am
Volcker is an old man even by my standards. There are several more “key presidential advisers (who) are Wall Street creatures”. He is one, they are many. If our only hope is that the WH grows some nads from the advice of a man who came from a different era we are in trouble. I like OnlineBrokerReview’s response best, “we need a brand new house not infected with termites”. A clean sweep, time to de-bug. Once the pain gets severe enough, it will happen.
October 21st, 2009 at 10:30 am
Volker is the best that we got at the moment.
Also, Bernanke could become a force and speak out but he is laying low until he is reconfirmed. I think he would gain much more respect if he went toe to toe with Congress and the WH and demanded the necessary reforms. It would be a career risky move but he would go down in history as the one who saved this nation from corruption and collapse. (Plus he would have more time to write about it in his memoirs back at Princeton.)
Otherwise, we are down to Barry, Dillon, Matt, Tyler……….No offense guys, you all are great………
October 21st, 2009 at 10:35 am
I agree, Barry. The President is clearly stonewalling necessary reforms. After all, that’s how laws are made, right? The President proposes a law, and then the President votes on it, and if the President gives himself a majority vote, it becomes law, right?
Hey, what’s that thing called Congress again?
October 21st, 2009 at 10:37 am
Maybe last nights Frontline on PBS will produce a groundswell of just how bad Summers is. That would enable the big O to unload Timmy G at the same time.
October 21st, 2009 at 10:42 am
Obama is TV presidency paid for by Bankers and celebrated by Pravda and Xinhua of this country.
Nothing substantial and tough decision is going to come from this administration. Be prepared to be disappointed another 3 or 7 years.
October 21st, 2009 at 10:46 am
Mark Wolfinger at 10:37 am
“Maybe last nights Frontline on PBS will produce a groundswell of just how bad Summers is. That would enable the big O to unload Timmy G at the same time.”
as IF…
the miniscule number who saw and understood it and have the foggiest idea how to (or slight ability) to influence….
i learned nothing from the program, having read most of the brooksley born material already
the program (especially the super-fine detail photo close-ups) did however bring my visceral revulsion for these bloated tapeworms to an entirely new pitch
October 21st, 2009 at 11:00 am
When the news came out that Summers made $5 million for a part-time hedge fund gig, the press said NOTHING. Summers is completely compromised. He is in the pockets of Wall Street. But ……..he is Obama’s bitch.
October 21st, 2009 at 11:24 am
>>Why don’t we force the change ourselves?? Together we can break up the bailed-out and/or TBTE (too big to exist) bad banks!!!
the big banks are destroying themselves by their own actions, one consumer at a time. i just relayed a story about how BofA closed my brothers credit card recently because he had too high of a debt to income ratio. He had the card for 19 years and never missed a payment. my brother relayed a few other stories about new creative fees the big banks are charging to his friends that seem more extortion like than legit. my brother will never do business with BofA again. what you hope for is people take action and stick to it even when things get better.
October 21st, 2009 at 11:48 am
From the “a little bit of fraud is OK” department:
TARP report slams lack of transparency
http://www.usatoday.com/money/industries/banking/2009-10-20-treasury-bailout-banks_N.htm
October 21st, 2009 at 12:20 pm
@Mark Wolfinger,
They’re there to ensure the sequel to this horror show–smiling at the camera like Damien at the end of The Omen.
October 21st, 2009 at 12:40 pm
[...] Paul Volcker is pounding the table on de-risking banks. Is any one listening? (NYTimes also Baseline Scenario, Big Picture) [...]
October 21st, 2009 at 3:54 pm
[...] administration’s stance prompts Big Picture blogger Barry Ritholtz to wonder if Obama can actually reform Wall Street in a successful manner, considering he’s taking [...]
October 21st, 2009 at 5:23 pm
I don’t want to be a serf in a financial aristocracy.
I want to to be a free man in a republic.
And I am willing to fight for that.
October 21st, 2009 at 8:49 pm
Unfortunately, it’s not that Obama is listening to the wrong people, it’s that Obama and the wrong people are making corrupt decisions. Obama is as corrupt as his advisers. They are simply telling him what he wants to hear. Never in the history of this country have so many good people backed such a bad person. In every single aspect, from torture, to drone attacks on innocent children, to massive wealth transfer, to campaign finance, to deliberately killing the public option, to undermining Kyoto and any true climate change treaty, to handing the reins over to Stan McChrystal, never before has such a bad person swayed so many good people. I voted for him and I feel sorrow for the damage he’s already afflicted on the world. I should have known from his ethanol policies before the election. What compassionate human being would knowingly inflict that on the invisible poor and be able to sleep at night?
October 21st, 2009 at 9:35 pm
[...] Why Obama can not reform Wall Street. (Because he’s getting advice from the perps.) [...]
October 22nd, 2009 at 7:23 am
wally Says: October 21st, 2009 at 8:37 am
I’m not so sure that Paul Volker should ‘force the case’ by stomping out the door.
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wally, see “If Volcker was, really, interested in ‘Reform’, he’d ‘force the case’, or walk–giving i-views on the way out the door..”
note the use of ‘or’ ..
for further, see http://www.rif.org/ and/or http://www.teaching-esl-to-adults.com/free-esl-worksheets-for-beginners.html