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Political Waves

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Jan 21, 2010, 10:38:58 PM1/21/10
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This has been a dreadful week for the world, progressives and me, personally -- my little two-person household has both bronchitis AND the flu which makes maintaining order near impossible, I've been writing and re-writing in a frenzy as we approach release of the yearly project ... and, insult to housekeeping injury ... the puppy won't go out in the rain.

I'm not sure why I haven't mentioned him before, I kept meaning to. I put down my beloved 16-year-old long-haired miniature Doxy, Widget, a year gone, and this little guy came along on the 4th of July, as I was working the Democratic booth at the craft fair in the town square. I named him Spanky, part of our gang here in the Patch, and if you want a peek at him, go to the blog. He's a dear little guy, a wire-haired mini. Widget, an Aries, was Dragon energy, a funny, animated, feisty fire breather -- Spanky is a Pisces, mild-mannered and sweet-tempered and a Dragon of the Joy-Luck variety. If anything can make me smile at this moment, it's the Spankster. Perhaps you, as well.

As Many As 1 Million Orphans in Haiti

Scott Brown carries the weight of great GOP expectations to DC
Pelosi: Not Enough Votes in House to Pass Senate Bill

What timing: Largest US health insurer's profits rise 30%

Elizabeth Warren is fighting to save the Consumer Protection Agency

Social Security and Medicare Put at Risk By Bogus "Debt Commission," Say Progressive Leaders

and last ... a little late on the uptake:

Edwards Admits Paternity Of Rielle Hunter's Child

As far as bad news goes, I'm letting the links do the heavy lifting today, although I do want to offer just one comment on the Dem Party as a whole:

PPFFFFFT! Pony up, you weenies ... you still have a majority and you never actually had a supermajority anyway, carrying dead weight in Blue Dogs and Clueless Joe. I remember when Democrats weren't afraid of their own shadow -- and I'd like to live long enough to see that again! Get busy!

I did find some good news to report which I'm posting below -- let's hope it grabs the populist zeitgeist by the short hairs and the public DOES ITS JOB by demanding follow-through -- and following this, I'm going to fall down for awhile, hopefully to return next week.

Keep the faith!

Jude



Paul Volcker Prevails
Simon Johnson, Economist and MIT Professor via HuffPo
January 21, 2010
http://www.huffingtonpost.com/simon-johnson/paul-volcker-prevails_b_430869.html

Paul Volcker, legendary central banker turned radical reformer of our financial system, has won an important round. The WSJ is now reporting:

President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country's biggest banks, marking the administration's latest assault on Wall Street in what could mark a return -- at least in spirit -- to some of the curbs on finance put in place during the Great Depression.

This is an important change of course that, while still far from complete, represents a major victory for Volcker - who has been pushing firmly for exactly this.

Thursday's announcement should be assessed on three issues.

Does the president provide a clear statement of why we need these new limits on banks? The administration's narrative on what caused the crisis of 2008-09 has been lame and completely unconvincing so far. The president must take it to the banks directly - tracing the origins of our "too big to fail" vulnerabilities to the excessive deregulation of banks following the Reagan Revolution and emphasizing how much worse these problems became during the Bush years.

Are the proposed limits on the total size (e.g., assets) of banks, or just on part of their operations - such as proprietary trading? The limits need to be on everything that banks do, if they are to be meaningful at all. This is not a moment for technocratic niceties; the banks must be reined in, simply and directly.

Is there a clear strategy for (a) taking concrete workable proposals directly to Congress, and (b) win, lose, or draw in the Senate, running hard with this issue to the midterm elections?

Push every Republican to take a public stand on this question, and you will be amazed at what you hear (if they stick to what they have been saying behind closed doors on Capitol Hill.)

The spin from the White House is that the president and his advisers have been discussing this move for months. The less time spent on such nonsense tomorrow the better. The record speaks for itself, including public statements and private briefings as recently as last week - this is a major policy change and a good idea.

The major question now is - will the White House have the courage of its convictions and really fight the big banks on this issue? If the White House goes into this fight half-hearted or without really understanding (or explaining) the underlying problem of unfettered banks that are too big to fail, they will not win. ++


New Banking Regulations: Obama Seeks Bigger Banking Restrictions (VIDEO)
JIM KUHNHENN, Associated Press
01-21-10
http://www.huffingtonpost.com/2010/01/21/new-banking-regulations-o_n_431514.html

WASHINGTON - President Barack Obama stepped up his campaign against Wall Street on Thursday with a far-reaching proposal for tougher regulation of the biggest banks.

"We have to get this done," Obama said at the White House. "If these folks want a fight, it's a fight I'm ready to have."

It was a stern, populist lecture from the president to Wall Street for what he perceives as its abandonment of Main Street. Obama said the government should have the power to limit the size and complexity of large financial institutions as well as their ability to make high-risk trades.

He said it wasn't appropriate that banks have been able to run these trading operations with the protections afforded to regular banking services.

"We have to enact commonsense reforms that will protect American taxpayers and the American economy from future crises," Obama said. "For, while the financial system is far stronger today than it was one year ago, it's still operating under the same rules that led to its near-collapse."

Joining Obama for the announcement were former Federal Reserve Chairman Paul Volcker, who heads the president's Economic Recovery Advisory Board, and William Donaldson, chairman of the Securities and Exchange Commission under President George W. Bush. Volcker and Donaldson have advocated stronger restrictions on banks.

Overhauling financial rules is the one issue on Obama's legislative agenda that appears still alive after Democrats' devastating loss Tuesday in the Massachusetts Senate race. The White House is renewing Obama's demand for an independent consumer financial protection agency as part of any overhaul. That's one of the major sticking points in the Senate; the House has passed its version already.

The new proposal from Obama intends to limit speculation by commercial banks and to keep financial institutions from growing so big that they pose a risk to the economic system.

"When you see more and more of the financial sector basically churning transactions and engaging in reckless speculation and obscuring underlying risks in a way that makes a few people obscene amounts of money but doesn't add value to the economy -- and in fact puts the entire economy at enormous risk -- then something's got to change," Obama said in an interview released Thursday by Time magazine.

Obama has branded bank executives as "fat cats" and proposed a fee on large banks to cover shortfalls in the government's $700 billion financial rescue fund.

Expanding on earlier measures, Obama endorsed Volcker's proposal to restrict proprietary trading by commercial banks. That would separate commercial banks from investment banks, a line blurred a decade ago by the repeal of the Depression-era Glass-Steagall Act.

This restriction would affect some of the biggest banks, including Bank of America Corp., Goldman Sachs and Citigroup Inc.

"The better answer is to modernize the regulatory framework and not take the industry and the economy back to the 1930s," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, an industry group that represents large Wall Street institutions.

Goldman Sachs Group Inc. said Thursday it earned $4.79 billion in the fourth quarter as its trading business again outdistanced the rest of the industry. The company rewarded its employees with $16.2 billion in salaries and bonuses for 2009, 47 percent more than the previous year but still lower than many had expected.

There was a new urgency in the Senate to respond to the voter anger at Wall Street and bank bailouts that helped propel Republican Scott Brown to victory in Massachusetts for the seat long held by Democeatic Sen. Edward M. Kennedy, who died in August.

Brown's victory gave Republicans 41 votes, enough to mount successful filibusters and prevent Democratic legislation on health care or climate change from getting final votes.

But financial regulations could survive.

Administration officials believe that while Republicans may seek to block other aspects of the president's agenda, Senate GOP leader Mitch McConnell of Kentucky is considering making financial regulations an exception.

---

President Obama's remarks, as prepared for delivery.

Good morning, everybody. I just had a very productive meeting with two members of my Economic Recovery Advisory Board: Paul Volcker, who's the former chair of the Federal Reserve Board; and Bill Donaldson, previously the head of the SEC. And I deeply appreciate the counsel of these two leaders and the board that they've offered as we have dealt with a broad array of very difficult economic challenges.

Over the past two years, more than seven million Americans have lost their jobs in the deepest recession our country has known in generations. Rarely does a day go by that I don't hear from folks who are hurting. And every day, we are working to put our economy back on track and put America back to work. But even as we dig our way out of this deep hole, it's important that we not lose sight of what led us into this mess in the first place.

This economic crisis began as a financial crisis, when banks and financial institutions took huge, reckless risks in pursuit of quick profits and massive bonuses. When the dust settled, and this binge of irresponsibility was over, several of the world's oldest and largest financial institutions had collapsed, or were on the verge of doing so. Markets plummeted, credit dried up, and jobs were vanishing by the hundreds of thousands each month. We were on the precipice of a second Great Depression.

To avoid this calamity, the American people -- who were already struggling in their own right -- were forced to rescue financial firms facing crises largely of their own creation. And that rescue, undertaken by the previous administration, was deeply offensive but it was a necessary thing to do, and it succeeded in stabilizing the financial system and helping to avert that depression.

Since that time, over the past year, my administration has recovered most of what the federal government provided to banks. And last week, I proposed a fee to be paid by the largest financial firms in order to recover every last dime. But that's not all we have to do. We have to enact common-sense reforms that will protect American taxpayers -- and the American economy -- from future crises as well.

For while the financial system is far stronger today than it was one year ago, it's still operating under the same rules that led to its near collapse. These are rules that allowed firms to act contrary to the interests of customers; to conceal their exposure to debt through complex financial dealings; to benefit from taxpayer-insured deposits while making speculative investments; and to take on risks so vast that they posed threats to the entire system.

That's why we are seeking reforms to protect consumers; we intend to close loopholes that allowed big financial firms to trade risky financial products like credit defaults swaps and other derivatives without oversight; to identify system-wide risks that could cause a meltdown; to strengthen capital and liquidity requirements to make the system more stable; and to ensure that the failure of any large firm does not take the entire economy down with it. Never again will the American taxpayer be held hostage by a bank that is "too big to fail."

Now, limits on the risks major financial firms can take are central to the reforms that I've proposed. They are central to the legislation that has passed the House under the leadership of Chairman Barney Frank, and that we're working to pass in the Senate under the leadership of Chairman Chris Dodd. As part of these efforts, today I'm proposing two additional reforms that I believe will strengthen the financial system while preventing future crises.

First, we should no longer allow banks to stray too far from their central mission of serving their customers. In recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward. And these firms have taken these risks while benefiting from special financial privileges that are reserved only for banks.

Our government provides deposit insurance and other safeguards and guarantees to firms that operate banks. We do so because a stable and reliable banking system promotes sustained growth, and because we learned how dangerous the failure of that system can be during the Great Depression.

But these privileges were not created to bestow banks operating hedge funds or private equity funds with an unfair advantage. When banks benefit from the safety net that taxpayers provide -- which includes lower-cost capital -- it is not appropriate for them to turn around and use that cheap money to trade for profit. And that is especially true when this kind of trading often puts banks in direct conflict with their customers' interests.

The fact is, these kinds of trading operations can create enormous and costly risks, endangering the entire bank if things go wrong. We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if the bank wins but taxpayers foot the bill if the bank loses.

It's for these reasons that I'm proposing a simple and common-sense reform, which we're calling the "Volcker Rule" -- after this tall guy behind me. Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that's something they're free to do. Indeed, doing so -- responsibly -- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.

In addition, as part of our efforts to protect against future crises, I'm also proposing that we prevent the further consolidation of our financial system. There has long been a deposit cap in place to guard against too much risk being concentrated in a single bank. The same principle should apply to wider forms of funding employed by large financial institutions in today's economy. The American people will not be served by a financial system that comprises just a few massive firms. That's not good for consumers; it's not good for the economy. And through this policy, that is an outcome we will avoid.

My message to members of Congress of both parties is that we have to get this done. And my message to leaders of the financial industry is to work with us, and not against us, on needed reforms. I welcome constructive input from folks in the financial sector. But what we've seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people.

So if these folks want a fight, it's a fight I'm ready to have. And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small business, they can't keep credit card rates low, they can't pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers -- that's the claims they're making. It's exactly this kind of irresponsibility that makes clear reform is necessary.

We've come through a terrible crisis. The American people have paid a very high price. We simply cannot return to business as usual. That's why we're going to ensure that Wall Street pays back the American people for the bailout. That's why we're going to rein in the excess and abuse that nearly brought down our financial system. That's why we're going to pass these reforms into law.

Thank you very much, everybody. ++
 
 
Wall Street Rumble: A Fight We're All Ready To Have
Isaiah J. Poole, Campaign for America's Future
01/21/2010
http://www.ourfuture.org/print/43946

It does not matter whether today's pronouncement on financial reform by President Obama was prompted by Tuesday's election disaster in Massachusetts or was a long-building unleashing of his inner populist. What matters is the potential for real White House leadership on changes that must happen if we are to have a stable, growing economy on Main Street. This is the fight for which we have to bandage our wounds and pick ourselves up to win.

All you have to do is look at the Wall Street reaction to Obama's short speech today to get a sense of what's at stake. The reaction, on business news sites such as CNBC, borders on hysterical. "His ideas to put a straightjacket [sic] on the banks and the key to funders of business in this country will once again be a growth killer," harrumphs Chip Hanlon, president of Delta Global Advisors in Huntington Beach, Calif. and the proprietor of the right-wing website RedCounty.com.

What growth is he talking about killing? Surely not lending to Main Street businesses and consumers, which shrank by $500 billion last year, according to Federal Reserve Board — enough, by the way, to offset all of the federal spending budgeted in the 2009 Recovery Act over 10 years.

Surely by "growth" he and other Wall Street critics of Obama's reform proposals must mean the reopening of the Wall Street casino of derivatives and other exotic financial transactions that brought the economy down, only this time with firms that are even larger, and thus more threatening to the larger economy, than was the case just two years ago.

Fortunately, this week Obama has laid down three critical markers:

Banks should not use the federal guarantees that they get as deposit institutions as a license to operate high-risk ventures—hedge funds, private equity funds, or other trading operations. It's not a return to the Glass-Steagall wall of separation between banking and Wall Street trading, but it is in the ballpark.

Banks should not be too big to fail, and Obama is backing limits on the percentage of deposits that one institution can control. The spate of mergers prompted by the financial crisis only perpetuated the domination of the banking sector by an elite group of gargantuan players—Citigroup, Bank of America, JP Morgan Chase among them—with the power to hold the American economy and government hostage. Obama recognizes the danger and should be encouraged to bring these giants down to size.

There must be a consumer financial protection agency that will act as a referee between the big banks and the rest of us. Obama did not mention the agency in today's White House remarks, but he did reportedly tell Senate Banking Committee Chairman Christopher Dodd this week that he wanted to see the Senate pass legislation creating that agency, after Dodd indicated that the effort to create that agency might be dropped in the face of banking industry opposition.

Since banks won’t rein themselves in, the government is going to have to do it. Send a message to your senators via Working America so they know we want the banks to face consequences for their actions.Doubt the motives of Obama's populist pivot if you must (as James Kwak does today).

Nonetheless, it is noteworthy, and praiseworthy, that Obama, in openly touting what he called the "Volcker rule" on walling off Wall Street speculation from Main Street banking functions, openly favored the advice of Paul Volcker, the former Federal reserve chairman who is now an adviser on Obama's economic team, over that of Treasury Secretary Timothy Geithner and economic adviser Lawrence Summers, Wall Street's cheerleaders in the administration. UCLA-Berkeley professor Robert Reich notes today that Summers and Geithner "scuttled Paul Volcker's plan to separate the banks' commercial and investment functions, and didn't want to limit the size of banks or the risks they could take on. Summers and Geithner have wanted to get the banks back to profitability as soon as possible. And Dems in Congress have had no stomach to take on Wall Street, a major source of campaign funding."

But one of the lessons of Tuesday's election is that people do not want to see their elected leaders capitulating to the very institutions whose hubris brought the economy down. It's also a lesson some conservatives seem hell-bent not to get: When people such as Rep. Scott Garrett, R-N.J., scoff at Obama's "faux populism" —as opposed to the very real Wall Street popularity of Garrett, who has so far already received $167,000 from banking, finance and real estate interests for his 2010 re-election campaign—it's no wonder that Obama points to the "army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road" and says, "if these folks want a fight, it's a fight I'm ready to have." It's a fight we should all be ready to have. ++


"I'm asking you to believe. Not just in my ability to bring about real change in Washington ... I'm asking you to believe in yours."
~ Barack Obama

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

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