Robert Reich on Congressional Indifference

A great crime has been committed but the authorities show no interest in following the clue to find the culprit. The Wall Street Bankers created The Great Recession and ten million Americans are out of a job and many millions are losing their houses, but Obama and his administration don't see a crime and can't be bothered to look for clues. This is a great tragedy from the Senator from Illinois who claimed he fashioned himself after Lincoln, a President for the people. Nope. A President for the Wall Street elite!

Here are some key bits from Robert Reich's blog posting:

It has been more than a year since all hell broke loose on Wall Street and, remarkably, almost nothing has been done to prevent all hell from breaking loose again.

In fact, close your eyes and you could be back in the wilds of 2007. Bankers are still making wild bets, still devising new derivatives, still piling on debt. The big banks have access to money almost as cheaply as in 2007, courtesy of the Fed, so bank profits are up and bonuses as generous as at the height of the boom.

The only difference is that now the Street’s biggest banks know they are “too big to fail” and will be bailed out by taxpayers if they get into trouble – which means they have every incentive to make even riskier bets. And, of course, American taxpayers are out some $120bn, while millions have lost their homes, jobs and savings.

All could be forgiven if the House and Senate committees with responsibility for coming up with new regulations were about to come down hard on the Street and if the Obama administration were pushing them to. But nothing of the sort is happening. Yes, the White House has indicated interest in charging banks for the cost of the bailout, but this is not real reform; it’s just making up for some of the direct costs of cleaning up the mess.

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Nor have lawmakers shown any enthusiasm for resurrecting the wall that used to exist between commercial and investment banking. The Glass-Steagall Act, passed in the wake of the Great Crash of 1929, separated the two after it became obvious that commercial deposits needed to be insured by government and kept distinct from the betting parlour of investment banking. But Wall Street forced Congress to take down the wall in 1999, enabling financial supermarkets such as Citigroup to use its deposits to make all sorts of bets. Even Obama adviser and former Fed chief Paul Volcker has argued that the two functions should be separated again.

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What happened to all the tough talk from Congress and the White House early last year? Why is the financial reform agenda so small, and so late?

Part of the answer is that the American public has moved on. A major tenet of US politics is that if politicians wait long enough, public attention wanders. With the financial crisis appearing to be over, the public is more concerned about jobs. Another 85,000 jobs were lost in December, bringing total losses since the recession began in December 2007 to over 7m. One out of six Americans is unemployed or underemployed.

Yet if the president and Congress wanted to, they could help Americans understand the link between widespread job losses and the irresponsibility on Wall Street that plunged America into the Great Recession. They could make tough financial reform part of the answer to sustain-able jobs growth over the long term.

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Money is powerful. Talk is cheap. Mr Obama recently called the top bankers “fat cats”, and the bankers insisted they were shocked – shocked! – to learn how intransigent their lobbyists had been in opposing financial reform. The bankers even claimed a “disconnect” between their intentions and their lobbyists’ actions. This was all for the cameras, of course.

But the widening gulf between Wall Street and Main Street – a big bail-out for the former, unemployment checks for the latter; high profits and giant bonuses for the former, job and wage losses for the latter; buoyant expectations of the former, deep anxiety and cynicism by the latter; ever fancier estates for denizens of the former, mortgage foreclosures for the rest – is dangerous. Americans went ballistic early last summer when AIG executives got big bonuses after taxpayers had bailed them out. They will not be happy when Wall Street hands out billions in bonuses very soon. Angry populism lurks just beneath the surface of two-party politics in America. Just listen to Sarah Palin or her counterparts on American talk radio and yell television. Over the long term, the political stakes in reforming Wall Street are as high as the economic.

Go read the posting to get all the sordid details. It is depressing.