January 21 brought us Episode 199 of HBO’s Real Time with Bill Maher. At the end of the program, Bill went through his popular “New Rules” segment. On this occasion, he wound it up with a rant about how the Republicans were exclusively at fault for the financial crisis. Aside from the fact that this claim was historically inaccurate, it was not at all fair to David Stockman (a guest on that night’s show) who had to sit through Maher’s diatribe without an opportunity to point out the errors. (On the other hand, I was fine with watching Stephen Moore twist in the wind as Maher went through that tirade.)
That incident underscored the obvious need for Bill Maher to invite William Black as a guest on the show in order to clarify this issue. Prior to that episode, Black had written an essay, which appeared on The Big Picture website. Although the theme of that piece was to debunk the “mantra of the Republican Party” that “regulation is a job killer”, Black emphasized that Democrats had a role in “deregulation, desupervision, and de facto decriminalization (the three ‘des’)” which created the “criminogenic environment” precipitating the financial crisis:
The Great Recession was triggered by the collapse of the real estate bubble epidemic of mortgage fraud by lenders that hyper-inflated that bubble. That epidemic could not have happened without the appointment of anti-regulators to key leadership positions. The epidemic of mortgage fraud was centered on loans that the lending industry (behind closed doors) referred to as “liar’s” loans — so any regulatory leader who was not an anti-regulatory ideologue would (as we did in the early 1990s during the first wave of liar’s loans in California) have ordered banks not to make these pervasively fraudulent loans.
* * *
From roughly 1999 to the present, three administrations have displayed hostility to vigorous regulation and have appointed regulatory leaders largely on the basis of their opposition to vigorous regulation. When these administrations occasionally blundered and appointed, or inherited, regulatory leaders that believed in regulating, the administration attacked the regulators. In the financial regulatory sphere, recent examples include Arthur Levitt and William Donaldson (SEC), Brooksley Born (CFTC), and Sheila Bair (FDIC).
Similarly, the bankers used Congress to extort the Financial Accounting Standards Board (FASB) into trashing the accounting rules so that the banks no longer had to recognize their losses. The twin purposes of that bit of successful thuggery were to evade the mandate of the Prompt Corrective Action (PCA) law and to allow banks to pretend that they were solvent and profitable so that they could continue to pay enormous bonuses to their senior officials based on the fictional “income” and “net worth” produced by the scam accounting. (Not recognizing one’s losses increases dollar-for-dollar reported, but fictional, net worth and gross income.)
When members of Congress (mostly Democrats) sought to intimidate us into not taking enforcement actions against the fraudulent S&Ls we blew the whistle.
President Obama’s January 18 opinion piece for The Wall Street Journal prompted a retort from Bill Black. The President announced that he had signed an executive order requiring “a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive”. Obama’s focus on “regulations that stifle job creation” seemed to exemplify what Black had just discussed one day earlier. Accordingly, Bill Black wrote an essay for The Huffington Post on January 19, which began this way:
I get President Obama’s “regulatory review” plan, I really do. His game plan is a straight steal from President Clinton’s strategy after the Republican’s 1994 congressional triumph. Clinton’s strategy was to steal the Republican Party’s play book. I know that Clinton’s strategy was considered brilliant politics (particularly by the Clintonites), but the Republican financial playbook produces recurrent, intensifying fraud epidemics and financial crises. Rubin and Summers were Clinton’s offensive coordinators. They planned and implemented the Republican game plan on finance. Rubin and Summers were good choices for this role because they were, and remain, reflexively anti-regulatory. They led the deregulation and attack on supervision that began to create the criminogenic environment that produced the financial crisis.
Bill Clinton’s role in facilitating the financial crisis would have surely become an issue in the 2008 Presidential election campaign, had Hillary Clinton been the Democratic nominee. Instead, the Democrats got behind a “Trojan horse” candidate, disguised in the trappings of “Change” who, once elected, re-installed the very people who implemented the crucial deregulatory changes which caused the financial crisis. Bill Black provided this explanation:
The zeal, crude threats, and arrogance they displayed in leading the attacks on SEC Chair Levitt and CFTC Chair Born’s efforts to adopt regulations that would have reduced the risks of fraud and financial crises were exceptional. Just one problem — they were wrong and Levitt and Born were right. Rubin and Summers weren’t slightly wrong; they put us on the path to the Great Recession. Obama knows that Clinton’s brilliant political strategy, stealing the Republican play book, was a disaster for the nation, but he has picked politics over substance.
* * *
Obama’s proposal and the accompanying OMB releases do not mention the word or the concept of fraud. Despite an “epidemic” of fraud led by the bank CEOs (which caused the greatest crisis of his life), Obama cannot bring itself to use the “f” word. The administration wants the banks’ senior officers to fund its reelection campaign. I’ve never raised political contributions, but I’m certain that pointing out that a large number of senior bank officers were frauds would make fundraising from them awkward.
Black targeted Obama’s lame gesture toward acknowledgement of some need for regulation, encapsulated in the statement that “(w)here necessary, we won’t shy away from addressing obvious gaps …”:
Huh? The vital task is to find the non-obvious gaps. Why, two years into his presidency, has the administration failed to address “obvious gaps”? The administration does not need Republican approval to fill obvious gaps in regulation. Even when Obama finds “obvious gaps” in regulatory protection he does not promise to act. He will act only “where necessary.” We know that Summers, Rubin, and Geithner rarely believe that financial regulation is “necessary.” Even if Obama decides it is “necessary” to act he only promises to “address” “obvious gaps” — not “end” or “fill” them.
At the conclusion of his Huffington Post essay, Black provided his own list of “obvious gaps” described as the “Dirty Dozen” — “. . . obvious gaps in financial regulation which have persisted and grown during this, Obama’s first two years in office.”
Bill Black is just one of many commentators to annotate the complicity of Democrats in causing the financial crisis. Beyond that, Black has illustrated how President Obama has preserved – and possibly enhanced — the “criminogenic” milieu which could bring about another financial crisis.
The first step toward implementing “bipartisan solutions” to our nation’s ills should involve acknowledging the extent to which the fault for those problems is bipartisan.
An Army Of Lobbyists For The Middle Class
Federal Reserve Chairman, Ben Bernanke appeared before the Senate Banking Committee this week to testify about the Fed’s monetary policy. Scot Kersgaard of The American Independent focused our attention on a five-minute exchange between Colorado Senator Michael Bennett and The Ben Bernank, with an embedded video clip. Senator Bennett asked Bernanke to share his opinions concerning the recommendations made by President Obama’s bipartisan deficit commission. Bernanke initially attempted to dodge the question with the disclaimer that the Fed’s authority extends to only monetary policy rather than fiscal policy – such as the work conducted by the deficit commission. If Congressman Ron Paul had been watching the hearing take place, I’m sure he had a good, hard laugh at that statement. Nevertheless, Bernanke couldn’t restrain himself from concurring with the effort to place the cost of Wall Street’s larceny on the backs of middle-class taxpayers.
The chant for “entitlement reform” continues to reverberate throughout the mainstream media as it has for the past year. Last May, economist Dean Baker exposed this latest effort toward upward wealth redistribution:
A key propaganda tactic used by the “entitlement reform” crusaders is to characterize Social Security as an “entitlement” even though it is not (as I discussed here). Phil Davis, avowed capitalist and self-described “serial entrepreneur”, wrote a great essay, which refuted the claim that Social Security is “broken” while explaining why it is not an “entitlement”. Unfortunately, there are very few politicians who are willing to step forward to provide the simple explanation that Social Security is not an entitlement. Senator Richard Blumenthal (D-Conn.) recently made a statement to that effect before a senior citizens’ group in East Haven, Connecticut – without really providing an explanation why it is not an entitlement. Susan Feiner wrote a great commentary on the subject last fall for womensenews.org. Here is some of what she said:
The attempt to mischaracterize Social Security as an “entitlement” is not a “Right vs. Left” dispute — It’s a class warfare issue. There have been commentaries from across the political spectrum emphasizing the same fact: Social Security is not an “entitlement”. The assertion has appeared on the conservative patriotsteaparty.net website, the DailyKos on the Left and in a piece by independent commentator, Marti Oakley.
The battle for “entitlement reform” is just one front in the larger war being waged by Wall Street against the middle class. Kevin Drum discussed this conflict in a recent posting at his Plutocracy Now blog for Mother Jones:
One of my favorite commentators, Paul Farrell of MarketWatch made this observation on March 1:
On February 21, I quoted a statement made by bond guru Bill Gross of PIMCO, which included this thought:
That essay by Bill Gross became the subject of an article by Terrence Keeley of Bloomberg News. Mr. Keeley’s reaction to the suggestions made by Bill Gross was this:
Perhaps the most constructive solution to the problem is my suggestion from February 10: Recruit and employ an army of lobbyists to represent and advance the interests of the middle class on Capitol Hill. Some type of non-partisan, “citizens’ lobby” could be created as an online community. Once its lobbying goals are developed and articulated, an online funding drive would begin. The basic mission would be to defend middle-class taxpayers from the tyranny of the plutocracy that is destroying not just the middle class – but the entire nation. Fight lobbyists with lobbyists!