They Go or Obama Goes

by Robert Scheer | Wednesday, August 25, 2010 by TruthDig.com

Barack Obama and the Democrats he led to a stunning victory two years ago are going down hard in the face of an economic crisis that he did nothing to create but which he has failed to solve. That is somewhat unfair because the basic blame belongs to his predecessors, Bill Clinton and George W. Bush, who let the bulls of Wall Street run wild in the streets where ordinary folks lived. And there was universal Republican support in Congress for the radical deregulation of the financial industry that produced this debacle.

The core issue for the economy is the continued cost of a housing bubble made possible only after what Clinton Treasury Secretary Lawrence Summers back then trumpeted as necessary "legal certainty" was provided to derivative packages made up of suspect Alt-A and subprime mortgages. It was the Commodity Futures Modernization Act, which Senate Republican Phil Gramm drafted and which Clinton signed into law, that made legal the trafficking in packages of dubious home mortgages. In any decent society the creation of such untenable mortgages and the securitization of risk irrationally associated with it would have been judged a criminal scam. But no such judgment was possible because thanks to Wall Street's sway under Clinton and Bush the bankers got to rewrite the laws to sanction their treachery.

It is Obama's continued deference to the sensibilities of the financiers and his relative indifference to the suffering of ordinary people that threaten his legacy, not to mention the nation's economic well-being. There have been more than 300,000 foreclosure filings every single month that Obama has been president, and as The New York Times editorialized, "Unfortunately, there is no evidence that the Obama administration's efforts to address the foreclosure problem will make an appreciable dent." The Times noted that the administration's main program has been a bust, with only $321 million of the $30 billion allocated to the program having been spent to help folks stay in their homes.

The ugly reality that only 398,198 mortgages have been modified to make the payments more reasonable can be traced to the program being based on the hope that the banks would do the right thing. While Obama continued the Bush practice of showering the banks with bailout money, he did not demand a moratorium on foreclosures or call for increasing the power of bankruptcy courts to force the banks, which created the problem, to now help distressed homeowners.

The subject of housing foreclosures is inherently boring unless you happen to own a home being foreclosed, in which case your family's life has just been turned disastrously upside down. But few of the well-paid pundits on television are in such a position, and as a result the tragedy that has hit 4 million families in the past two years has received scant notice.

But even that highly privileged group of commentators must now be aware that those foreclosures are behind Tuesday's news that U.S. home sales reached their lowest point in 15 years and that there is unlikely to be an economic recovery without a dramatic turnabout in the housing market. The stock market tanked Tuesday on reports that U.S. home sales had dropped 25.5 percent below the year-ago level.

When homes are foreclosed in a neighborhood the equity of those in the area who have faithfully paid their mortgages is slashed. And when the banks dump those foreclosed properties back on the market, prices drop even lower. Yet the administration has offered the most tepid of responses to stanch the fierce bleeding of home equity worth. A paltry $4.1 billion has been committed to efforts by the states to help the unemployed and other distressed borrowers stay in their homes. Compare that with the trillions spent on making the financial industry super-profitable once again.

There is no way that Obama can begin to seriously reverse this course without shedding the economic team led by the Clinton-era "experts" like Summers and Treasury Secretary Timothy Geithner who got us into this mess in the first place. They are spooked by one overwhelmingly crippling idea-don't rattle the financial titans whom we must rely on for investment. But when it comes to keeping people in their homes, it is precisely the big banks that must be rattled into doing the right thing.

Obama gained credibility through sacking Gen. Stanley McChrystal for making untoward remarks. Why not sack Summers and Geithner for untoward policies that have inflicted such misery on the general public?

Bring Back the 3-6-3 Rule

How to Put Bankers Back on the Golf Course, Where They'll Do Less Harm
By RUSSELL MOKHIBER

It used to be that your friendly local banker would abide by the three, six, three rule.

The banker would borrow money at three percent, loan it out at six percent, and be at the golf course by three in the afternoon.

William Quirk is a Professor at the University of South Carolina School of Law.

Quirk says – bring back three six three.

“I would put them back on the golf course at three p.m. – where they are not going to be doing that much harm,” Quirk told Corporate Crime Reporter in an interview.

Quirk has an simple solution to the financial crisis roiling the capital markets.

Treat synthetic derivatives for what they are – gambling.

And make them illegal.

Banks would stop being casinos.

And would become lending institutions once again.

Three six three.

Quirk says that prior to 2000, synthetic derivatives were in fact illegal.

But as one of his last acts in office, President Bill Clinton signed the Commodities Futures Modernization Act of 2000.

That law pre-empted state law enforcement against derivatives.

State gambling laws no longer applied.

Neither did state bucket shop laws.

The result?

Derivatives boomed.

According to Quirk, the derivatives market is now a $600 trillion market – about ten times the entire world economy – which stands at $66 trillion.

Quirk would repeal the 2000 legislation that gave derivatives immunity from state prosecution.

“Repeal the immunity they were granted,” Quirk says. “Let’s see where that takes us. That would make it subject to the state laws against bucket shops and against gambling. Take away their legal immunity and let them be dealt with with state laws dealing with gambling.”

“There is a place in our world for Southwest Airlines to buy a futures contract on their fuel oil,” Quirk says. “But that all can be taken care of on the Chicago exchanges. We’ve had future contracts going back into the 18th century with farmers.”

“But you are not going to get a situation that’s ten times the world’s economy. There’s no difficulty dealing with ordinary futures contracts. Those don’t present any danger. They are easily regulated on the Chicago exchanges. You don’t need a casino to deal with Southwest’s fuel oil price.”

Quirk says that the financial regulation bill currently moving through the Congress is just window dressing.

“I would repeal the immunity,” Quirk says. “Bring back Glass Steagall. Glass Steagall limited size by limiting function.”

“You would have to reinstate Glass Steagall. And you would have to break up the five biggest banks.”

“Everybody knows that if Goldman has trouble tomorrow, the government will bail them out again.”

“The talk about getting rid of too big to fail, absent changing the size of the big banks, is just nonsense. If you want to be serious about too big to fail, you need to break up the big banks. Otherwise, it’s not worth the paper it is written on.”

“The big banks have had their own way since 1990,” Quirk said. “Anything they’ve wanted they have gotten. Nobody has had the guts to take them on.”

“So, yes, I’m in the it’s just window dressing camp. For me to move out of that camp, you would have to see different people being put in charge.”

What are the possibilities for a populist political response to what is going on?

“I don’t think they are very great,” Quirk says. “The political system seems unresponsive. There is a tremendous amount of public anger about this. But this recent
1,500 page bill they are proposing isn’t going to change anything. No one even proposed going back to Glass Steagall. Breaking them up isn’t being taken seriously.”

“If you polled the general public, I believe you would find they would favor bankers being bankers, going back to making loans and not being involved in synthetic betting. But the political system is not responding to the popular feeling.”

“And amazingly so. We are almost two years into this thing. And absolutely nothing has changed. And that just reflects a political system that’s busted.”

Are you saying that Carl Levin’s hearings on Goldman Sachs was just a dog and pony show?

“This was the least you can do. Nobody has read the 1,500 pages of the legislation. But it looks like a bunch of new regulatory stuff. But the big banks will deal with that without any problem.”

Then why are the big banks fighting it?

“You have to say – Oh, they’re killing me. To justify your lobbying fees. And you have to go along with the gag. That you are really being treated badly. But it’s a fixed fight. The serious solution is not on the table.”