You know things are bad when even one of the most mainstream
publications - Newsweek - is slamming the Obama administration
for caving to the financial status quo, and sounding the same
themes that I and other "alternative" writers have
been shouting into the wind about for many months.
After recounting a meeting in which Senators Sanders, Cantwell,
Dorgan, Feinstein, Levin and Webb met with Obama, Geithner
and Summers and expressed their dismay that the administration
was just going to keep doing the same old thing which got
us into this mess, Newsweek writer Michael Hersh writes:
Major Wall Street players
are digging in against fundamental changes. And while it clearly
wants to install serious supervision, the Obama administration—along
with other key authorities like the New York Fed—appears
willing to stand back while Wall Street resurrects much of
the ultracomplex global trading system that helped lead to
the worst financial collapse since the Depression.
At issue is whether trading
in credit default swaps and other derivatives—and the
giant, too-big-to-fail firms that traded them—will be
allowed to dominate the financial landscape again once the
crisis passes. As things look now, that is likely to happen.
And the firms may soon be recapitalized and have a lot more
sway in Washington—all of it courtesy of their supporters
in the Obama administration. With its Public-Private Investment
Program set to bid up and buy toxic assets, the administration
is handing these companies another giant federal subsidy.
But this time the money will come through the back door, bypassing
Congress, mainly via FDIC loans. No one is quite sure how
the program will work yet, but it's very likely going to make
a lot of the same Wall Street houses much richer at taxpayer
expense. Meanwhile, the big banks that still need help will
almost certainly get another large infusion once the stress
tests are completed by the end of the month.
The financial industry isn't leaving anything to chance, however.
One sign of a newly assertive Wall Street emerged recently
when a bevy of bailed-out firms, including Citigroup, JPMorgan
and Goldman Sachs, formed a new lobby calling itself the Coalition
for Business Finance Reform. Its goal: to stand against heavy
regulation of "over-the-counter" derivatives, in
other words customized contracts that are traded off an exchange...
Geithner's new rules would
allow the over-the-counter market to boom again, orchestrated
by global giants that will continue to be "too big to
fail" (they may have to be rescued again someday, in
other words). And most of it will still occur largely out
of sight of regulated exchanges...
the old culture is reasserting itself with a vengeance.
All of which runs up against the advice now being dispensed
by many of the experts who were most prescient about the
crash and its causes—the outsiders, in other words,
as opposed to the insiders who are still running the show.
Among the outsiders is Nassim Nicholas Taleb, the trader
and professor who wrote "The Black Swan: The Impact
of the Highly Improbable." Taleb wrote in the Financial
Times this week that a fundamental new approach is needed.
Not only should firms be prevented from growing too big
to fail, "complex derivatives need to be banned because
nobody understands them and few are rational enough to know
it," he said. Yet even as we are still picking up the
debris, we seem to be ready to embrace that world once again.
