What Should The President Say On Thursday?

By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown

On Thursday, President Obama will give one of the defining speeches of his presidency.  Most presidents are remembered for only 2 or 3 policies or events during their tenure.  The SEC case against Goldman Sachs means, like it or not, the legacy of this administration is wrapped up with the outcome of this and related cases.

The president is apparently lining up to give a fairly conventional “support the Dodd bill” speech.  This would be major miscalculation.

The Democrats are afraid that if they truly take on the big banks, they will lose campaign contributions and be placed a major disadvantage for November 2010 and 2012 – “don’t push it too far” is the message from the White House to the Senate.  But this just shows the White House has not fully comprehended the modern nature of banking.

The banks are already coming after the Democrats.  A pro-big bank group launched advertizing yesterday against Harry Reid in Nevada, as well as in Missouri and Virginia; the media spend is eye popping.  Neal Wolin (Deputy Treasury Secretary) already declared war on the Chamber of Commerce over consumer protection; the people behind the Chamber are not nice people and they are very angry about what they think will hurt their interests.

If you want to rally the country against oversized banks that serve no productive purpose, you need to really end the Too Big To Fail problem – half measures simply will not convince people or rally sufficient support.  And what we have so far is half measures, as understood from left and right – see today’s New York Times – because the “resolution authority” simply cannot work for large complex cross-border financial institutions. 

It will help manage the failure – and avoid bailouts – at purely domestic US financial institutions, but it does not help for cross-border institutions because there is no international agreement on how to handle such failures and – I can assure you – there is no prospect for such an agreement in at least the next 20 years.  The Dodd bill will help for resolving bank holding companies and for nonbank financial companies, but not for the megabanks.

How can you take on the banks – whose executives are out for revenge because of the consumer protection measures and because of what seems likely to happen on derivatives, and just to show they are still the top dog (e.g., Goldman) – with one hand tied behind your back in November?

What you would like to do is say: look, we had an up or down vote on whether to break-up the biggest banks and my opponent (or his/her party) was steadfastly opposed.  You would want the president to state, in his clearest and loudest voice: There is no social value to having banks above $100 billion in total assets and we all now understand the danger of allowing banks to become 10 times that size – let alone entering the $2-$3 trillion range; we will gradually and responsibly force our biggest banks to become smaller.  This worked for Standard Oil – no one can claim it hurt the oil industry.  And who would really want to go back to having AT&T run a monopoly in any part of telecommunications?

What about the campaign contributions?  If confronted on these terms, the top executives of the six megabanks, without question, would spend more money defeating Democrats.  But that is exactly the issue you should take to the country.  And it’s only six banks.

Show people, in gruesome detail, the money being spent by this part of big finance.  Go to the nonfinancial sector, to other parts of the financial system, and directly to individuals – asking most clearly for contributions that would replace what the banks have withdrawn and offset what the banks are spending to defeat the president’s reform agenda.

Of course, people may choose not to support this effort.  They are busy – and everyone has many distractions.  Perhaps even the president cannot break through the daily clutter of information and ideas on this issue.  But at least he should make a clear and determined effort – by putting the bank size issues accurately in stark and simple terms.

And if people still refuse to come on board, that’s fine.  But then they shouldn’t complain so loudly as the big banks propel us all towards a Second Great Depression.

120 thoughts on “What Should The President Say On Thursday?

  1. This also needs to be addressed:

    Scientific studies proving that Prozac encourages psychopathic behavior and suicidal tendencies in young people are voluminous. Red Lake High School killer was on Prozac. “The Uni bomber”, Michael McDermott, John Hinckley, Jr., Byran Uyesugi, Mark David Chapman and Charles Carl Roberts IV, the Amish school killer, were all on SSRI Psychotropic Drugs

    Our media does not report that killer,Steven Kazmierczak, Northern Illinois University shootings, had been taking Psychotropic Drugs. Columbine shooters Eric Harris and Dylan Klebold, as well as 15-year-old Kip Kinkel, the Oregon killer who gunned down his parents and classmates, and Cho Seung Hui, the Virginia Tech killer, were all on Psychotropic Drugs.

    This is an ever-repeating story in America. Everyone seems befuddled each time like it will never happen again and it must have been a failed school system, a bad parent video games or perhaps an odd song. While these may be contributing factors, we should be open to investigating all possible causes. Our US “News” media never whispers any hint of possibility of side effects of these legal drugs being a possible part of the cause.

    Imagine a cocktail of these drugs in American “troubled teens” and prisoners. This is common in our vastly over-medicated American society. The problem is often combined with other seemingly harmless drugs that often have serious confusion and violence producing side effects. Many people take 5 or more medications at the same time. This is considered a good thing in the US.

    Add this to a population who are missing critical components of their diets. UK Prisons are cutting violent behaviour by a third by simply correcting that deficiency. These are in placebo controlled double blind studies conducted right now with Oxford College. http://www.independent.co.uk/life-style/health-and-wellbeing/health-news/prison-

    If Obama, as our next United States President, is not whipped to his knees by the Powerful Health “Care” Industry, he could clear prisons and youth detentions drastically in the USA within a year, maximum. I think, tragically, he probably is already affected by their millions in contributions. He said he will not be. Only time will tell if he is a true hero for change. I hope so.

  2. It would be refreshing if the President began to live up to campaign promises regarding total transparency in the financial sector. They were bold statements made but as of yet nothing has been forthcoming.

    No doubt Bloomberg Llp would like to see the President force the Federal Reserve to come clean to their FOIA request in which lower courts have already sided with the people. If your going to give away over 2 trillion of our tax dollars, we must require complete transparency.

    If your going to funnel those tax dollars through the front door of AIG and then out the back, we demand to have released a paper work along with e-mails between parties as Elliot Spitzer requested yesterday.

    In short Mr. President, we the tax paying citizens of this country deserve to know to whom and just how our tax dollars are being spent. We would also like to see you backing support in a big way to the Paul / Grayson bill to audit the Federal Reserve. Seems like a reasonable start to the majority. How about you?

  3. Who are you kidding? Break up the banks? Hah? Hah? Hah? They could not even force the banks to consider allowing the courts to adjudicate foreclosures on first homes…i.e. “cram down.” That was minor.

    I love Barack. I voted for him. I supported him from the beginning, but, as you know the President is weak. He does not do confrontation. I know people will assert otherwise.

    The President did parallel park into the Presidency. He never defeated Hillary, he simply out lasted her. Likewise, he somehow got a coalition of Democrats to vote with him. In the end, it was like, do you want my Presidency to fail. Not, gee, it’s Lyndon Johnson on the phone, holy ….I better get my game up.

    He is no Lyndon Johnson; he is no FDR; and he is no TR. I don’t even think the American people really rally around him anymore. He is very blurry.

    This may work at Harvard Law School; but, it is not inspiring leadership. I predict the President will not be able to seize this moment. Reagan would have. Lincoln would have. Obama won’t have what it takes to make it so.

    So it goes.

  4. Nonsense. He may have started out his term in a very cautious mode, but he’s caught on and is taking the bull by the horns as of late. He’s becoming the President I voted for!

  5. Like grandma used to say. Seeing is believing. The jury is still out on this one and time will tell if the President has found the horns on this bull.

  6. i sure don’t see any “taking the bull by the horns”….milquetoast modest half steps…..

  7. Unfortunately, when you are one of THEM it’s hard to side with one of US. I voted for Obama as well, believing he really understood the psyche and lives of the American taxpayer who on a daily basis, faces financial ups and downs which at times, can bring you to your knees…like paying for college tuition in this economy!

    I don’t know anyone of my friends (except the wealthy ones) who are not struggling right now. Education is taking a hit and some of my relatives have lost their jobs and others have had salaries cut in education. Both public and private are seriously in financial trouble.

    I would like Obama to authentically go after bank reform like his life depended on this, because OUR lives do depend on reform and generations that follow will depend on reform as well.

    When you take into account that our federal billions went to shore-up Goldman and AIG and then you see teachers and librarians across the country either loose their jobs or have their (really low) salaries cut because some greedy jerks took advantage of sub prime mortgages to fatten their already bursting wallets, it does make you sick.

    I don’t understand how either Obama or Congress can not want to rectify what Goldman and AIG (Lehman, and the rest of the Hole-in-the-Wall gang) did to this country when they played their greedy risky game of who can make more money!

  8. America has lost the fifth estate – the freedom of the press. The corporately owned media does not provide the truth to Americans about what is going on in this country because it is not in their best financial interest to do so. Example: NBC, CNBC, MSNBC is owned by General Electric, which is a multi-national corporation.

    Additionally, the news media continues with the illusion of a left-right political system. What America has is a one party system with two names (Republicans, Democrats) that represents big business and special interests – not Americans.

    Americans need to vote all incumbents out of office, get the money out of politics through a constitutional amendment, which includes politicians being unable to work at lobbying and working in big business when they leave office.

    Until Americans wake-up and vote the SOB’s out of office, this country will continue to decline with corporations pillaging the taxpayers at all costs, shipping jobs overseas, and wages continuing to decline.

    All of us should be very concerned where this country is headed. Simon Johnson speaks the truth – breaking up the banks will help but the multinational CEO’s have done a lot of damage to this country, as well. The U.S. Chamber of Commerce and the Business Roundtable are the two largest lobbying firms for banks and multi-nationals, which do not represent America’s best interests.

    Globalization and free trade, the type that is promoted by our corporate politicians, has ruined this country to the point we now have a jobless recovery and are living in the Second Gilded Age.

    America needs a President like Teddy Roosevelt to take on big business and monopolies. Will Obama become another Teddy Roosevelt overnight by Thursday? Thus far, I’m not counting on it since Obama has demonstrated himself to be just another puppet politician for big business – so much for change and hope.

  9. Why does he not start by proposing to take back to the US much of the regulatory power the US delegated to the Basel Committee and which has proven to be so disastrous to the world?

    For instance you would do well noticing that when, on April 28 2004, the SEC took that unfortunate step to authorize a dramatic increase in the leverage of brokers and investment firms like Goldman Sachs, it specifically stated that “The CSE would be required to comply with rules regarding its group-wide internal risk management control system and would be required periodically to provide the Commission with consolidated computations of allowable capital and risk allowances (or other capital assessment) prepared in a form that is consistent with the Basel Standards.” http://bit.ly/cGEOhA

    And that then on June 26, 2004, the US, as part of G10, signed up on Basel II, which had the tragic/comic purpose of “Basel II improves the capital framework’s sensitivity to the risk of credit losses generally by requiring higher levels of capital for those borrowers thought to present higher levels of credit risk, and vice versa.

  10. He needs to explain to the American people just how much the government had to do to save the big banks in Fall 2008- Spring 2009. Most people just equate bailout with TARP and so unfortunately the “they’ve paid back the TARP” line is starting to be used as propaganda. There was much more – the alphabet soup programs, backstops, FDIC insurance of bank bonds, insurance of MMMF, Fed buying $1.3 trillion in MBS, the 0% interest rate = free money thing, etc. He needs to explain that without the government having taken these steps, none of the big banks would even EXIST today, they owe their LIFE to the government. He needs to draw a direct line between the banks’ screwups and the ~10% unemployment we have today and will likely have for some time. He needs to emphasize that we can’t let it happen ever again.

  11. You do no one a service when you post something like this that is COMPLETELY IRRELEVANT to the topic. Regardless of merits (which in my opinion are none), this has NOTHING to do with any of the topics readers of the blog want to follow. Your post makes me very angry.

  12. There is one point that seems to have slipped by all administrations of recent memory. Both sides in this issue actually need each other. The working middle class built America. They built every building you see on a daily basis. They built every school, every dam, every railroad, the electrical grid and every road. Yes the middle class built America.

    Without the financing of the bankers none of this would have or could have happened. The sooner we all realize that this is a symbiotic relation that requires continuing nurturing, the faster our country can grow again. We do ourselves that greatest disservice when we place a higher value on greed and gaming the system over the value of hard work. Just as I’ve never seen a banker getting his hands dirty digging a ditch or emptying garbage cans into the back of a truck at 4 am, neither have I seen that ditch digger or garbage man sitting behind a mahogany desk with a Picasso on his office wall buying and selling CDO’s or other financial instruments of mass destruction.

    No doubt we all get the drift here. Wall Street has lost its way. Its moral compass was thrown out the window years ago. In all fairness to the people, we should have a financial system that is transparent and one which levels the playing field for all. For Wall Street, it can no longer be business as usual because such actions are killing the country through the loss of property values as well as jobs.

    The President must find a way to have both sides work towards the betterment of the whole, not just one segment advancing at the cost of the other. If this process continues, surely the host ( our country ) will be killed off and that doesn’t serve either parties interests.

  13. I Agree Sandi. I was looking at the salary schedule of teachers in VA and couldn’t imagine how they survive. A first year teacher makes about $42K. What? How do you live on $42K. The highest paid teacher makes $98K with 18+ years of service having a Ph.D. Really? I make that now and find myself struggling. I want to see President Obama fight like President Bush did (even though it was for ill intent)for the American people. Of course he has the tea party, reform free, oversight free, Right to deal with.

  14. While I think the idea of breaking up the TBTF banks is a great idea for economic resilience, HOW would the federal government go about breaking up these multi-national corporations? What are the mechanics and pros/cons of different methods?
    A discussion along these lines would be instructional to the public and politicians alike.

  15. Barbara you so rightly say:

    “Both sides in this issue actually need each other. The working middle class … the bankers… The sooner we all realize that this is a symbiotic relation that requires continuing nurturing, the faster our country can grow again.

    But then you destroy everything writing:

    “Just as I’ve never seen a banker getting his hands dirty digging a ditch or emptying garbage cans into the back of a truck at 4 am, neither have I seen that ditch digger or garbage man sitting behind a mahogany desk with a Picasso on his office wall buying and selling CDO’s or other financial instruments of mass destruction.” Do you really believe bankers in general sit behind a mahogany desk with a Picasso on his office wall buying and selling instruments of mass destruction?”

  16. Just making a visual point and I doubt it killed the concept being made. We need each other and the sooner the President can bring both sides together the better for both sides. I do actually know that most of those on Wall Street actually work in boiler rooms with banks of phones rather than the office described. That are is reserved for the Blankfeins, Rubins and Dimons of the world.

  17. It’s time to rip the wheel off the rickshaw. Yes we can. We were previously warned to change Washington these diehards would not go down easy. This is a culture of greed creating a legacy, equivalent to the brewd of viper with a will to do their Fathers desire. This was a premeditated strike against our society and everything we stand for. No apparent risk of any sort, just a transfer of wealth from the middle class to the gigantic totalitarians. A double play insuring a double take down getting paid up first by the buyer presenting AAA credentials and Government backing and the second payed off by a failed investment insurance fake indemnity cover. and leaning on the tax payer with to big to fail that transfered a debt from Wall St to Main Street. Then they sat on the money bathing in the support of a Party of NO. This is like a new ruollete wheel with no probability number 13 the house always wins. 172 trillion is missing from our economy the biggest recession in history, two wars,eight million jobs never to return. It’s like the no WMD we were all unpatriotic and 5,000 dead and we are forbidden to look at the bodies in the coffins on return . We are all so proud of our righteousness.. This totum pole is top heavy. Put people in jail by all means but regulate the system. Pumping in money to pretend our system works is laughable to the Communist regiemes.

  18. More like the bulls**t.

    Obama has never been cautious. On the contrary he’s been aggressive to the point of recklessness in pushing his kleptocratic, corporatist policies like the Bailout, the health racket bailout, and escalating the war.

    Not to mention the downright sadistic glee with which he’s assaulted civil liberties, seeking to enshrine and extend every Bush/Cheney policy on detentions, trials, secrecy, assassinations. And of course he’s gung ho on protecting all the Bush war criminals, since he and his thugs are committing and compounding all the same crimes. He despises the very rule of law itself.

    You voted for it. You’re proud. Good work.

  19. I am ashamed to say that I vote for McCain because I didn’t think that Obama was qualified enough to do the job and I was afraid of where he wanted to take the country. I am glad that he proved me wrong.

    I support his health care measure because the status quot was pushing this country into a two class system.

    I support his efforts at financial reform. The only thing that I wish he would do more of is be the Obama that we saw at the end of the Health Care smack down. He was decisive and he took ownership. He was a leader when America had enough with the endless squabbles that was getting nothing accomplished.

    That showed me that he was fighting for the little guy and that the Republicans didn’t have a real interest in keeping America #1, only getting re-elected.

    I was shocked to hear so many Republicans make what nearly sent us into a Great Depression political. It is not an issue to take lightly.

    Some Republicans have good ideas about finance reform like breaking up the banks like we broke up Standard Oil and Bell Communication. No sector should be able to hold the nation financially hostage as the 2 big 2 fail banks.

    I only have this to say to President Obama: If Republicans have good workable ideas on finance reform then include them. But if they just have stalling tactics, call them out, stop trying to make nice with bullies whose only goal is to frustrate you and preserve the harmful status quot.

  20. Hi everybody,

    Hope this is also an appropriate place for bringing forward recommendations for future themes, I just wanted to suggest to authors to write something about the follwoing link and the recent correlations of which are mounting on the global scale. I would love to see some insights on this matter from both authors. Here is the link:

    An Iranian student from somewhere far away!

  21. To reiterate: President Obama still has not discovered the politics (good, bad, and fierce) of the financial racket, unless he is playing ignorant. But this political blindness corresponds to the general political “behind the times” ignorance of how the internet is transforming our whole culture, politics and everything else. In brief, citizens are educating ourselves in spite of the government subsidized, corporate welfare queens in the mainstream media trying to keep us ignorant of what the Washington, DC ignoramuses are doing and not doing.

    To support Dodd’s illusion-laden package is abominable at best, treason at worst. Obama is ignoring what polls are already making clear to the world. We are sick of status quo politics, and Obama still believes he can talk us into going back to that.

    But there is good news here. When the Democratic Party follows the Republican Party over the hill into retirement, options will emerge from below. Consider the Labor Party in North Carolina as one example.

    Of course, the DeMint’s will always be with us, and also create paleolithic parties. But these, too, are to be celebrated. For they reveal to us the approximate level of conscientious know-nothingism.

    Three cheers for cyber evolution.

  22. Well the topic may be the general stupidity, and how to explain it. In Europe, full of enormous banks, politicians, even right wing politicians (Sarkozy, Merkel) claim they want to do a lot against the existing financial system, but they can’t convince the Americans to act. The conventional explanation for the attitude of the USA is to say that the political system in the USA is financially corrupt; politicians are on the take. But what if a real inability to think was also a fundamental cause of it all?

    I view the present crisis as the real Great Depression, not just a Great Recession. The loss of economic power is real, and is having ominous strategic effects. It is ongoing, not just a future menace. I am happy that Simon mentions the possibility of a Great Depression. I think we can see we are already there by looking at 15 years time series, and comparing with the 1930s.

    To explain Rome’s increasing mismanagement by its plutocracy, and the supine attitude of the Roman People, as the republic went down, some academics have evoked lead in the water. Thus to evoke the abuse of drugs (legal or not) by the present population, resulting in a supine attitude, is not completely off subject.

    I personally believe more in neuropsychological reasons, at least for the Romans (a thin film of limestone covered the inside of the pipes). But the long term effects on memory of presently abused drugs is getting increasingly scientifically demonstrated. No memory, and the lessons of history will have to be repeated.


  23. The theme of Mr. Obama’s campaign, call them promises if you will, was embraced by the people. I suspect even many who voted for his opponent, the one-time maverick, wanted change.

    He is one of the few who can communicate through our crippled media and rally popular support for financial reform and other reforms desperately needed.

    But he needs to quit trumpeting half measures as significant steps and plainly acknowledge the morass we are in.

    The people will get the message. All the attack adds and political manipulation by the financial sector will backfire if the President goes to the people.

  24. I thought Gillis up top gave a very exact example of the way campaign contributions can warp government, which seems to me what this discussion is about: Can the American people — before Obama’s speech on Thursday — persuade him (his speechwriters?) that the electorate will not be smoke-screened by money, either in campaign ads or in the media?
    I won’t sleep sound till I know.
    When Gail wrote about General Electric owning NBC et al., that is just a corner of it. (I want to see economists go at this from all corners, congressional district by congressional district, preferably by Thursday, but definitely by November.) “Most people” think, for instance, the anger about the national debt (no new taxes) is NOT drummed up under the financial auspices by the same interests (defense industry? banking industry?) who have brought us the drains on the national budget in the last few years — er, decades. Can we persuade the huddled masses yearning to breathe free that Your Next Vote Could Be Warped by the banker behind the scenes? How?
    I believe it was Kwak himself on WFCR.org (look there) this morning, a local station, talking about how we depend on the oiling of money flow (credit) the way we depend on water and electricity, and the banking industry needs to be regulated as if it were a public utility. He thinks it will take another presidency to get to that point, UNLESS there is a second dip to this recession.
    I’m not an economist. Correct me if I’m wrong. Somewhere I heard that it is good for the middle age brain to talk not to like-minded people, but to talk where an open mind and tough one is needed. In short, the pathetic partisanship in Washington, D.C., can’t multiple out to public discourse across the land. Sing out.
    More about Basel II, Per? And restrictions for those less credit-worthy? Interesting. (Barbara doesn’t have to tell ANY of us that the bankers with their Picasso’s have to defend any present moral compass; but she says they’ve “lost their way,” compared to people who fell trees, fix phone lines, dig ditches, haul trash….
    Ruetheday speaks my concerns above:
    “Most people just equate bailout with TARP … the ‘they’ve paid back the TARP’ line is starting to be used as propaganda. There was much more – the alphabet soup programs, backstops, FDIC insurance of bank bonds, insurance of MMMF, Fed buying $1.3 trillion in MBS, the 0% interest rate = free money thing, etc. … without [which] none of the big banks would even EXIST today….
    “[Obama] needs to draw a direct line between the banks’ screwups and the ~10% unemployment…”
    Hear, hear.

  25. “The Democrats are afraid that if they truly take on the big banks, they will lose campaign contributions and be placed a major disadvantage for November 2010 and 2012 – “don’t push it too far” is the message from the White House to the Senate.”

    Please clarify! How is this possible? This is my main question about American politics.

    Why are the contributions from corporate America so important? How much are we talking about?

    I thought Barack Obama was extremely succesful in employing the new media to raise contributions for his campaign. Why do they need the corporations to chip in? Thanks in advance.

  26. You make a good point regarding the Second Gilded Age, but it is worse than that. After the original Gilded Age the USA was able to grow via manufacturing. Now every new business owner first flies to India or China to establish its manufacturing facility. Simon is 100% correct on Wall Street reform, but if we do not reverse the hemorrhaging of jobs, Depression 2.0 will still make an appearance.

    The top four exporters are, in order: China, Germany, the USA, and Japan. Up until last year Germany was #1. It is a national disgrace that Germany, a country just a little smaller than Montana, exports about 13% more than the USA.

    Your point regarding the fifth estate is also valid, but we cannot place the blame solely on them. Look at the rise in Faux-News-style media outlets. Many people are too lazy and/or stupid to read a few different Internet news sites and decide for themselves; they prefer to let someone else digest the news and summarize it for them, with bias thrown in at no extra charge. But what would you expect from an educational system that worries more about a student’s precious self-esteem than competence in science, math, and history.

    Another point you could have made regards H-1B / L-1 visas, responsible for a few hundred thousand jobs being transferred from Americans to Indians (there is a cap on H-1B, but not on L-1). Obama could easily instruct Hillary to stop approving these visas, side-stepping Congress. For the 100th Congress, 37 Senators and 174 Representatives belonged to USINPAC, aka the India Lobby. The members are fairly evenly split between Democrats and Republicans. Clearly the only bi-partisan agreements in Washington involve the outsourcing of good American jobs.

    As I wrote in my blog (http://saucymugwump.blogspot.com/2009/11/musical-chairs-is-not-change-we-can.html) I nominate Simon for Treasury Secretary, but we need someone like Nomi Prins (“It Takes a Pillage”) for SEC Chairman and Alan Tonelson for Commerce Secretary or United States Trade Representative.

  27. How about he says he’s giving back the million he got from Goldman Sachs. Now that would be refreshing. Obama is a hypocrit if he doesn’t.

  28. Rene, it seems to me that Obama generated huge support (in terms of numbers of small contributions) over the internet, and people like me felt so proud to get him elected. But MEANWHILE, corporate donors noticed that he had all this support (like public radio stations trying to prove to the regulators that they DO represent local interests so we all give $25) — and so the Big Chip Donors bought our candidate our from under us. And because of the BIG contributions — which were not touted on the news day in day out — Obama won. And knowing that, we have team Geithner (not that I know whether that helps or hurts in the long run, but…).

  29. You are absolutely right! We dismiss too easily the possibility that for instance our financial regulator sitting over there in the Basel Committee are plain stupid and might therefore have a vested interest in seeing that all remains the same and no one rocks their homey Titanic… no matter how much water it is taking in.

  30. Yes, he is right in the swim. First he caves in to the health insurance racket, then he collaborates with the bankers to produce a toothless financial reform bill. Don’t worry though. His speech is likely to be terrific. Lap it up. The whole idea is to make you feel good while the plutocracy steals everything that isn’t nailed down.

  31. “Example: NBC, CNBC, MSNBC is owned by General Electric, which is a multi-national corporation.”

    Wrong. General Electric is also GE Money (FDIC and international), the extra-big bank Simon and James continue to overlook.

  32. That didn’t work too well. It’s under current news, local features, with audio available. WFCR.org

  33. If possible I would like to receive a brief explanation from Prof. Simon Johnson. (No offense to you Ellen but I am deeply dissatisfied and frustrated about these contributions.)

    Underneath you will find the top contributors towards Barack Obama’s 2008 campaign;

    University of California $1,591,395
    Goldman Sachs $994,795
    Harvard University $854,747
    Microsoft Corp $833,617
    Google Inc $803,436
    Citigroup Inc $701,290
    JPMorgan Chase & Co $695,132
    Time Warner $590,084
    Sidley Austin LLP $588,598
    Stanford University $586,557
    National Amusements Inc $551,683
    UBS AG $543,219
    Wilmerhale Llp $542,618
    Skadden, Arps et al $530,839
    IBM Corp $528,822
    Columbia University $528,302
    Morgan Stanley $514,881
    General Electric $499,130
    US Government $494,820
    Latham & Watkins $493,835

    Honestly, where are the difficulties? Is it not possible for the American public to chip in a couple of bucks so that the banks can have their money back?
    (Most likely I have a gap in my information?)

  34. I would say: limit the size of the banks, regulate them and protect the future of our nation!!!

    Bailouts and arrogance from Financial Institutions happen because we do not have an informed and educated society. Forget about Fox News and do not be limited by watching only CNN News. Be yourself. Think. Ask questions. Get together with others and complain about the actual situation of the country. PARTICIPATE!!! And with the tea party movement out there causing so much damage do not relax. REACT and SPEAK UP!! Write to your representative saying that you demand comprehensive financial regulation.

    Too bad we have to deal with politics to pass anything that makes good sense financially. Our politicians are fueled by money from corporations. Happened with Health Care Reform, and it will happen to Financial Reform. If something happens, it will be very little to make the effect we need.

    Currently we have Congressman and congresswoman who is not worth a penny, specially in the right side of Congress!!

  35. Rene, maybe there is a whole other blog out there on campaign financing.
    I would be glad to see Simon Johnson answer your question as well. No offense taken.
    Is there a mechanism for buying back campaign donations, getting a politician “out of the pocket” of this or that donor? Interesting idea.

  36. “The Democrats are afraid that if they truly take on the big banks, they will lose campaign contributions and be placed a major disadvantage for November 2010 and 2012 ”

    While true, this fear is secondary to the greater fear of triggering a major market dip heading into the November elections. Not how John McCain fared after the Bush market started imploding in September 08.

    They can’t fracture the banks until they figure out how to make up for the credit vacuum – else they’d deflate asset values and trigger a crushing defeat in the midterms. The Federal Reserve could compensate with another asset purchase program – but let’s be frank, they don’t want to, and they don’t even care to see the Dems do well in midterms since a fractured Congress may decrease the chances of Fed audit/discipline.

    Obama’s calculation is to find whatever will be most popular while not harming market valuations prior to a midterm.

    The Goldman suit is political theatre. The fact that the markets have not tanked is proof that they don’t believe Goldman feels really threatened. Goldman fired its market-shorting shot across the bow last Friday, and the administration is already reconsidering its path.

  37. In other words, we need ways to park our investments and ways to access credit, and the banks are watching Goldman to see what next, and the shot across bow, the market-shorting shot across the bow StatsGuy refers to by Goldman on Friday tells everyone with a retirement fund (or other investments) the following:
    “Mess with us and your worth (anything not tied down, as someone posted) will do a great demise, not a fall by mistake like the one in September 2008 to March 2009 but a fall that we will execute like a pirouette; watch us dash the market; see, my little pretty, heh, heh, heh.” The witch cackles. They know they are in charge.
    No credit, no savings, not unless you play the game our way. I agree, likely camp Obama is taking this into consideration.

  38. EllenD you make mention of a very important aspect of this issue and many other contemporary issues. There are effective counter strategies to the TBTF strategy.

    The TBTF strategy is too far advance to effectively confront in the established venues, without doing great harm to the interest of the individual and smaller entities. This is an intended effect of the TBTF strategy. However, I am not implying that the effort should not be made.

    I’m encouraged by your post. There are people who see the forest as well as the trees. Our firm established a discussion Forum (www.whatsthepointsite.com) for the individual to discuss and implement substantive enterprises that promote and strengthen the interest of the individual and the smaller entities.

  39. Money talks, actually it shouts through a megaphone and drowns out everyone else now that the Supreme Court has made its boneheaded decision which de-regulated campagin contributions and contributions for political ads.

    The big banks must be broken up as you say.

    If the President equivocates on this issue, as you seem to think he will, we’re all in big trouble. I’m particularly worried because he still has Larry Summers (Donald Rumsfeld) as his chief economic advisor. The man is part of the Wall Street tribe and his ego makes it unlikely that he has the capacity to see the world from Main Street, much less the financial and status inclination.

    I’m not optimistic about how this is going to turn out. And the Republicans, the no-nothing (or know-nothing) party are even worse; they know nothing about how the economic system works, but think they do. They act as though their patron saint is Phil Graham, one of the architects of this de-regulation fiasco.

  40. Comparing German exports with US exports can be highly misleading. A high fraction of German “exports” are within the European Union, which was originally called the Common Market for avery good reason, which is that is what it is in fact. Selling a German widget in Belguim is pretty much on par with selling an Illinois whatsit in Kentucky. Were the United States to add to the extra-national exports all the commerce that flows between the individual states you would have a closer comparison and a result more favorable to the United States. But Germany companies, with help from the German government and German labor, carefully nurture the competitiveness of German production with a view of maintaining a robust manufacturing secotr for the future.

  41. Good point, Ohio-Papa.
    In France Sarkozy, to the hatred of worldwide bankers, has just suggested to reconstitute the Banking Act of 1933, forbidding banks to “speculate”.
    Differently from TBTF, which was implemented only against Standard oil and AT&T, the Banking Act of 1933 was implemented until it was dismantled by Summers, Reagan, Rubin, etc. So it is feasible.

  42. Congress and admins are controlled by corporations / banksters / and lobbyists. Nothing is going to change, until the system collapses.

  43. Additional reasons to break up megabanks:

    * Over-the-counter derivates markets have grown mostly thanks to mega-banks.

    * Large corporations have acquired competitive advantages because they can borrow billions from mega-banks at once.

  44. Michael, it seems that there will be great cost to plenty of vulnerable people if the banks have to retrench in meaningful ways. Maybe not for a long time, and almost surely not as much cost as proceeding with correcting course. I get that.
    I am not an activist, by the way. I have a hard enough time without that. It would be nice if the Chamber of Commerce, for example, were an effective counterbalance to the mega-forces in the global economy, but I’m not looking to establish a new CoC. One of the reasons I have the nerve to participate in this sort of debate is that I don’t see anybody else with my particular experience and perspective doing that. I am more frustrated on behalf of the coming generation/s, because I can remember quite well being pretty much clueless and helpless, educated yes, but a puppet of fate. My generation used to hold “moratoria” to protest, “sit-ins,” marches.
    I am not seeing those young enough to have time (I am pretty settled, swamped with work but settled) – I am not seeing those maybe on campuses where they can organize quickly — I am not seeing them executing sit-ins at any bank TBTF. Why not?

  45. All Great solutions are simplistic – Effective Regulation

    Since the very near collapse of the world’s financial markets, there has been much discussion about the failure of regulators both here and abroad. As a political and economic junkie, we have been mesmerized by the ineptness of all those involved in these discussions.
    For a very long time, we have been amused by the two faced public stance of the Honorable Barney Frank (D), Fourth Congressional District of Massachusetts. However, during one of his recent Congressional hearings Mr. Frank said something that went unnoticed by the mainstream media. To paraphrase; he said, we sit here trying to develop and implement regulations; but as soon as we pass a law, some very bright young person sitting in the basement of some financial institution has already figured a way around our new law. I could not agree more with this statement.
    While listening to these hearings, it occurred to us that the executives of these failed companies have been stealing. So why don’t more people steal? The reason is quite simple; the thought of going to jail instills fear in most people. So my solution to the regulation problem is quite simple.
    Pass the following law: If your company fails in a manner that it requires rescue by a Local, State, or Federal agency, every person in your company who has had operational or directional responsibility and who was compensated more than $250,000 per year, in any of the five (5) years prior to the firms’ collapse, will be put in jail for a minimum of five years and all their assets will be seized.

  46. Yes, excellent point.

    Also when Simon says (ahem) “This worked for Standard Oil – no one can claim it hurt the oil industry.” He should trumpet that it actually had the effect of increasing Rockefeller wealth (i.e. owners made out better). Maybe this case should be made to shareholders, as opposed to management of the TBTF banks. I don’t know if it would hold true today, but this is all a political argument. The politicians won’t respond unless they are in jeopardy.

  47. Modern campaigns are very expensive because of commercial and other media time, as well as running the huge apparatus that a campaign entails. Unless those costs are greatly lowered (i.e. free airwave time) and public financing above a certain threshold no elected official that wants to keep his/her party in power and get/remain elected can afford to alienate big money. Small donations don’t fill all the gap. Especially if you’ve made paupers of the middle class and especially if the non-wealthy view the game as mostly rigged.

  48. Correct. Moreover French leaders (the aptly named Lagarde)have recently pointed out that Germany can’t be too tough with Greece because it is imbalanced as it exports too much to fellow Europeans, while not consuming enough (French consumption barely held up EU GDP at zero Q4 2009.) This imbalance led to a quasi collapse of German GDP at the height of the crisis. (BTW, I just bought a German car, thus illustrating the subtlety of advanced thinking.)

  49. Now you’re talking! Until there are REAL disincentives to the kind of behavior in which the megabanks have been engaged, that behavior will continue and become ever increasingly arrogant. Power corrupts, and the power that can be purchased by trillions of dollars in assets corrupts absolutely. The fact that the Party of NO is making noises about bipartisan support tells me that they see ways to water down any new regulations and to slip in some loopholes for their corporate pals. Whatever the outcome of the SEC suit (which could take years) I think the DoJ should be looking at criminal investigations. Loyd Blankfein and Jamie Dimon would look so elegant in prison dungarees, don’t you think?

  50. Sorry on my second sentence. I mean, the banks, thwarted by appropiate regulation, or even in fear of such, would find (along with all stockholders and others in the web of impact) that such regulation causes the stuffing to come out of the Dow and any bubble in the markets to pop. Later on, things would hopefully be far better, given appropriate regulation.
    If this popping sinks the Dow in expectation of regulation, that is likely to stop the government from “doing anything” before November. Ditto, after November, depending on who the corporations manage to put in office, but anyway.
    What do tell Barney Frank and his committee? I don’t know, but we need to at least identify the culprits who gamble with our money. Is it the ones who give triple A ratings obliviously?
    Then we should be campaigning and rallying against them, not the donkey or the elephant.

  51. Per: I am totally confused: was not the aim of Basel II to INCREASE capital requirements? How did they get from there to the opposite? The usual trick of talking loudly and walking softly, if at all?

  52. You can read Dr. Bill Black’s Congressional testimony on Lehman here: http://www.house.gov/apps/list/hearing/financialsvcs_dem/black_4.20.10.pdf

    He doesn’t soft peddle, and it should be sufficient to make anyone except a bankster or someone with Stockholm syndrome blanch at the though of bailing out Lehman and other megabanks engaged in the same looting.

    Since apparently there’s no orderly way to wind down megabanks in crisis conditions, the only sane alternative is to force the megabanks to break themselves up and become smaller.

  53. Amen. Obama is now in bed with these crooks. I new he was the minute I heard he had chosen tim G. to be his treasury secretary. I voted for Obama but I wont again ( unless he is running against sara p., I have no doubt she would have both hands out to service the big boys for Big money ) Not one thing has been done to rein in these banks disgusting. I am glad that Tim G’s role in paying 100 cents on the dollar for the insurance claims has finally been made public. He is one of the sleasy problems always looking out for his banking buddies and never the people. ELECT RON PAUL PRESIDENT

  54. I personally know as well as one can know anyone, two individuals who gave MUCH MORE than the top givers at Goldman Sachs. Still the top guys at Goldman (giving less)were invited with open arms, but those two, much more giving individuals, not at all. Why? Because the corruption is not just the money given, but the money, and influence which WILL be given.

    Goldman Sachs, and the like, rule the world. Those more giving individuals do not, and their mentality hostile to the plutocracy do not sit well with said plutocracy. The corruption is not just a market with votes to buy, it has futures, derivatives, and a Shadow Banking of the unsaid and very profitable.


  55. What if the direct line isn’t between bankers’ screwups and 10% unemployment but between those screwups and 5% unemployment? The real estate bubble actually was the screwup (or rather, the manifestation of those screwups plus frauds) and, while it was going strong, we had low unemployment. It was unsustainable and is deflating and now we have 10% unemployment. What if 10% is what is sustainable?

  56. Far-fetched, you just hit the cord of reason…

    In that same note, I wrote this the other day and found that it has great meaning, that it needs to be read again as a great message for our President to send and impart to our Country and the World…

    In keeping on the Scotus theme…

    “What lies in our power to do, lies in our power not to do” (Aristotle). Seems to be that mystery that invites the very nature of Evil’s empty compassion and absence of empathy to find a hollowed and empty erect body of projected common purpose as;

    “We are what we repeatedly do. Excellence, then, is not an act, but a habit” (Aristotle). For we can not achieve Good or Excellence as an erect body and soul without passion for the human condition that breeds life, hence the point of evil and eventual death; this is why,

    “It is possible then to fail in many ways…while to succeed is possible only in one way” (Aristotle). As this is the call made to all that hold the position to be able to make change to the human condition.

    I think a good way to end this deep thinking session comes with…

    “All men are by nature equal, made all the same earth by one Workman; and however we deceive ourselves, as dear unto God is poor peasant as the mighty prince” (Plato).

    Simply stated, the message to all the leaders of governments and the likes of Goldman Sachs, and all the rest of these folks were and never will be GODS Bank nor is the Churches with their collection baskets; for those wanting to rush in to toss in their two cents to involve an earthly fortress. No, all the treasures are not within the visions of the minds of man from the knowledge we gained from the loss of the original tree of knowledge.

    The Creator then is defined for all to remember as “I am” or also known as GOD. The signal of this post and the message for all who hold authority over another.

    When man places himself before all the rest, as we discussed the love, compassion, and empathy part, for your fellow neighbor (man / women “human”) you have the full definition of evil exposed.

    If you are Christian or even if you are not, these are two good theories to live by. The first, greatest commandment is to love God with all of your heart and soul and the second, to do the same with your neighbor. This is also a way to start to clear distance away from the Oppression Theorem; as posted in prior topic post.

    From the sounds of the media today, and the continued layers today and even of more of the covering up to the greed of man and the falling of the human condition. The writing is still on the walls for further folks to be losing their homes and jobs.

    Looks like the neighbor thing is having a little difficulty these days with the banking and financial folks; and for that matter, a lot of other industries just not putting people back to work.

    To many erect projected bodies putting the spin on profits first and human condition question mark; though some real great earnings are coming so far as reported these fist couple of weeks.

    Look at what came across the wires from Apple and others tonight reinforces even more the reason for this post tonight.

    Get to learn why we live and breath and know your Vote will count and send your messages by “Paying It Forward” One Soul at a Time – One person starts then many take the charge…

    God bless…

    Far-fetched, Not anymore…

    James Gornick

  57. Sandi is right. Obama is one of them, not one of us. That was the Bill Clinton strategy; small town guy becomes president. He understands us because he grew up in a single mom’s home.

    Hey Seeingisbelieving, don’t ever mention what you and teachers make as being not enough in Michigan. They will rip you apart. Here they think $42K is way too much and want to cut that. Most teachers start at $26K in Michigan.

  58. The original intention of the Basel Accord was to equalize the rules and regulations and capital requirements for banks around the world, so as to avoid regulatory arbitrage… a quite reasonable goal… but then they ended de-equalizing the capital requirements by discriminating among assets depending on credit ratings, which ended in authorizing truly minuscule capital requirement for anything that even smelled like an AAA… a highly unreasonable outcome!

  59. Eric, I think that is the $64,000 question. The banks couldn’t find great investments for the money Americans were saving, nothing with great yields to attract clients, so they created “plastic” ways of creating “profits” by betting against each other, so to speak.
    Now Americans are not saving so much, so maybe the banks don’t have to hunt so hard, be so “creative.” But it’s a hard habit to break.
    Housing does not “appreciate” all by itself; it doesn’t employ people (after going up), doesn’t export (except children?). So it was an odd bubble to watch, from my perspective. But because of it, the economy got really bent out of shape. Lots of energy went into pumping up that bubble. Maybe 5%?
    It’s just implausible that when India is coming out of Third World status, and China surging ahead, and Africa as well — how is it possible the banks had to rely on housing deals to stay profitable?
    Something doesn’t compute.
    Also, maybe we don’t need all hands on deck; maybe we have “extra” Americans. I know. I worry.

  60. Question: A new Pew Poll indicates that people have little trust in government. If so, why isn’t every small to medium sized bank in the nation experiencing a run? Could it be that people have such an inordinate amount of trust in the FDIC even though they claim not to “trust government”?

    (“Just keep your government hands off of my FDIC!”)


  61. Eric’s comment about not comparing the USA and Germany is well-taken, but it also does not explain the entire story. According to the CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/rankorder/rawdata_2078.text), the EU’s total exports are $1,952,000,000,000, with Germany’s portion being $1,121,000,000,000, leaving Germany with almost 58% of all EU exports. So my original point that Germany is an exporting powerhouse remains valid. Even if one tries to directly compare the EU and the USA (exports = $994,700,000,000), the USA comes up short again. Patrice’s comment about Lagarde is amusing; considering that France is #5 ($456,800,000,000) on the list of exporters, it sounds like trade envy to me; Germany plus France equals 81% of EU exports.

    Ignoring statistics, the USA in the recent past was an engineering and manufacturing powerhouse. Companies like Cincinnati Milacron provided machine tools to the world. Then they divested their machine tool division, ceding that area to the Germans, Japanese, and Chinese, and concentrated on plastics processing machinery; last year that business went in Chapter 11.

    The USA imports almost exactly twice as much as it exports. No country has ever imported its way to greatness.

    Bringing this post full-circle, ’13 Bankers’ has a great comment on page 147: “In the 2000s . . . business investment in equipment and software grew more slowly than in the 1900s, despite the lower interest rates. The problem was that the cheap money was misallocated to the housing sector, resulting in anemic growth. . . . And the more money that flowed into new subdivisions in the desert, the less flowed into new factories where Americans could go to work.” Simon should get together with Alan Tonelson to write ’13 Bankers: Part II’ or ‘How Wall Street vacuumed all money that could be used for rebuilding manufacturing in the USA, thereby contributing to outsourcing and the decline of the American workforce.’

  62. A viw from Europe: You only have to take a look at the one-step-forward-one-step-backwards of the outlined proposals by the IMF to understand that the game will remain rigged.
    It was one of thhe greatest mistakes of the G20 to task the IMF on this matter. I still wonder what we will get to hear from the Financial Stability Board, not much according to Simon
    IMF lingo:”The second policy priority is to ensure a smooth deleveraging process that results in a safer, competitive, and vibrant financial system. Rebuilding capital buffers and securing stable funding for banks are necessary to provide adequate credit supply to support the recovery.

  63. The decline of the middle class is not the only thing that our illustrious politicians have missed. We no longer have the massive industrial base we had up until recently. Any historian will tell you that the USA could not have won the Pacific portion of WWI and contributed mightily to winning the European portion — sorry, Virginia, the Soviets were responsible for the majority of the European victory — without our massive industrial base being converted from civilian to military use. If you want proof of this, google on the various companies that manufactured rifles for WWII and the Korean Conflict and you will find a jukebox maker and IBM. I’d like to see how Wall Street could be converted to the manufacture of weapons, and I don’t mean Warren Buffet’s WMD.

    It would be ironic if the USA lost a war or had to cede territory because we thought we would never have to fight another war and therefore eliminated our industrial base. This would be comparable to the Greenspan / Ayn Rand philosophy dedicated to the moronic belief that we’d never need Wall Street regulation again.

    For more on war implications, see my blog post “The coming USA-China war” (http://saucymugwump.blogspot.com/2009/11/coming-usa-china-war.html).

    For more on Greenspan and Ayn Rand, see my blog post “Alan Greenspan, Ayn Rand, and the child killer” (http://saucymugwump.blogspot.com/2009/11/alan-greenspan-ayn-rand-and-child.html).

  64. One should not underestimate the narcotic affect of Survior (first episode aired in 2000) and the simultaneous dumbing down of MTV which began phasing out video programming at about the same time. By 2008 MTV was only playing 3 hours of music videos in their 8 hour rotation. Now MTV is mostly know for The Tom Green Show, Jackass, The Real World, The Osbournes, Newlyweds: Nick and Jessica and in 2005 and 2006 they upped the ante with favourites such as 8th & Ocean, Laguna Beach, my Super Sweet 16 and Viva La Bam but to name a few.

    I would argue that the most damaging show produced by MTV in the context of the Baseline Scenario has to be MTV cribs, on the air since -you guessed it – 2000 – an obscene glorification of the excesses of wealth targeted directly at teens and young adults, many of which would now be on Wall Street pursuing the Cribsyian Dream of living in mansions and having an endless stream of wealth and not enough time to spend it. The MTV generation have become the footsoldiers of Bank CEOs and upper management, so desperate for fast and easy wealth that they will gladly sell their fellow Americans down the river to obtain it.

    Despite the development of ground breaking dramatic series on cable that have arguably trumped film and novels as the de facto fictional narratives that inform the masses, the damage done to the collective conscience of America by the putridity of reality television and it’s toxic parade of venal celebrity seekers, wealthy exhibitionists and overall crudeness as entertainment is coming home to roost.

    Twisted by pathological narcisism, a critical number of Americans have been duped into believing that their destiny was in home ownership which could then be leveraged to obtain the luxurious lifestyles of those people, from all walks of life, that they saw reflected on television – when they could shift their attention long enough from their navels to see it.

    And this is not to blame the citizens of America. It is their leaders, across the entire spectrum of American life, that have failed them. Breaking up the banks and regulating them is just the beginning. Repairing America’s soul will be the real challenge.. And my apologies to those who don’t see themselves at all in this post. You are many. But don’t you feel like you are losing the battle?

  65. My prediction: whatever Obama says tomorrow, there will be no real follow through.

    Obama is being defined not by what he says, but by how what he actually does tends to bear little or no resemblance to what he says he is going to do.

    Again, here’s the Obama method of governance: talk tough; make a massive compromise in the opening bid; declare victory when you reach a final “compromise” that maintains the status quo (or makes it worse) and contradicts your tough talk; Repeat.

    Check out John Mauldin’s “First, Kill All the Angels” post on the Big Picture for an example of how the Dodd bill is making the status quo worse in an area that has nothing to do with fixing the TBTF problem. This is clearly a give to Wall Street, who doesn’t deserve one.

  66. Barbara,
    I think that is just it, They the banksters Don’t need the middle class. They can make money out of thin air.
    As I see it They did need the middle class for all the risky liars loans etc, so they could get their hands on the big pool of money that was/is out there.
    But now that they have a majority of those funds they don’t need anything or anyone except other banks and very wealthy investors. That lets you and me out of the loop.
    All those Loans? they didn’t go anywhere they are still there and will be for the next 100 years, I am guessing.
    I am sure their plan is to keep on slicing and dicing them selling and reselling them, Reinsuring them for the rest of their lives. Just as long as you are not the last one holding the big bag of bad loans. Because even all the good loans will default when people keep losing their jobs because the U S is a consumer nation. We Don’t build or make anything anymore, even the so called green jobs that I thought would be our salvation aren’t going to materalize. Those jobs were never here in the U S. The companies some in silicon valley that are investing in green technology are investing in offshore MFG’s.

    Of course I could be wrong.
    I am not an economist or politician. I am not as well educated as most here on this blog. I don’t have a college degree.
    I just do an above average amount of reading on various blogs, websites etc and topics.

  67. Interesting.
    Steve Poizner is in a political fight against Meg Whitman former CEO of EBAY for the Republican candidate for Governor of CA.

    I have seen advertising for both candidates and they are Both Liars.

    So you’re and Iranian student from somewhere far away?
    Why do I doubt that?

  68. Bill Black scorched everyone with his testimony on the failure of Lehman Brothers before the House Financial Services Committee today. Here’s a video of Black’s testimony:

  69. Why would there be a run on small and medium sized banks? If there was a run on small banks? Where would average people and small business take their banking needs?
    There should be a run on large big mega banks.

    Not that they would care. They don’t need small investors if they did they would trat their customers with respect.

    Small banks aren’t part of the Gov’t.

  70. “The Bush administration transferred at least 500 white collar FBI specialists out of dealing with white collar crime even though we were entering, during the entire Bush administration, the greatest wave of white collar crime in the nation’s history — in fact, in the world’s history.” — former bank regulator Bill Black in ‘Capitalism: A Love Story’

    Here’s another video clip of Bill Black about the latest financial/economic crisis:

  71. Wyndtunnel,
    A very astute analysis, which I very much support. And I
    support it because i have seen the effects first hand.
    As a substitute teacher in Columbus, Ohio, I am appalled by the “gimme” attitude of young people, while wanting NOT to study hard for an education to support themselves. They would rather sit in my classroom and text, instead of being able to locate Canada or Mexico on e world map (8th.graders) !!
    Among the inner-city, the absolute adjulation is heaped on “gangster-rap” artists that denigrate women and praise violence. Nobody seems to work any kind of part-time job, yet, they all have Iphones or other smart phones, paying $150-200 a month cell bills.
    They all have this wanton attitude of “mine first”
    and screw everybody else !!

  72. Thaks for posting this. I saw it earlier.
    What I got from is that no one in any regulartory agency is will ing to leave their comfortable office.

    Also the republican regeime tried to gut most of the regulatory agencies in govt from OSHA to the FDA.

    No budget no regulators no oportunties to advance.
    Why would any one want to work for a Gov’t regulatory agency?

    Now this is actually where Ob a Ma did something.
    He increased the budget of many Gov’t regulatory agencies like OSHA and FDA.

    It just didn’t get any press coverage.

  73. I don’t care what President Obama says tomorrow. I won’t be supporting a Democrat ever again.

    The Democrats are willing enablers of the powerful and privileged, while the Republicans are unabashed promoters of power and privilege.

  74. vote in november with one hand tied behind our backs. Absolutely right. Jim and Simon, you need to provide us a list of all the congressmen and senators that should be thrown out of office. State by state and district by district. Great site. charles

  75. President Obama will refer you to? Next question please – I’d like to refer that too my impartial committee before making a judgment. Moving on,…what is your opinion on Goldman Sachs? I’ll refer you to CNBC where I first learned about it. Next question,…do you plan on raising taxes,oh absolutely after the 2012 elections,but it will be a progessive tax. Can you ellaborate Mr. President? It’s a “VAT? Humm,what about the military cost for america’s two wars 2010/2011 coming in at $2.3 Trillion Dollars? Is their a posibility we can shrink wrap it abit? Be serious,…? Thankyou all and “God Bless Corporate America”.

  76. Why must the system collapse? Why won’t we simply regress back to the days of the robber barons, when we had a tiny ruling class, a not-much-bigger middle class, and a huge poor class? It already requires $1 million to run for Congress, multiple millions to run for the Senate, and hundreds of millions to run for president, so we are rapidly moving to a caste system where most people have little chance of breaking out of their class.

  77. 1. Define for the sheep the difference between “bank” and “Investment bank”. Most folks have NO idea.

    2. Since Investment Banks engage in big “bets” sometimes they will lose their bet … and be in big trouble. That is what happened after they were deregulated between 1980 and 2008. Among other things, they bet that housing prices would never go down. And because there were insufficient rules on leverage and on separation of assets they were able to bet many times what they actually had as capital.

    3. This is why prudent rules are needed. 2 examples of common sense rules.
    a ) You can not create a mortgage and then sell all of it to another institution. This leaves you with no “skin in the game”, therefore the folks selling the mortgages do not take proper care to insure that the mortgagee will be able to actually repay the loan.
    b ) If a huge Investment Bank has 1 Billion dollars of money to invest, it can not use “complicated financial instruments” like derivatives to make 100 Billion dollars of “bets”.

    4. If you are “too big to fail”, there are only 2 choices. You could get broken up into pieces, so that no piece is too big, but then American based firms may not be able to compete with foreign competitors. So the only other option is that when you are making money you should have to pay into a fund that will be used when you get in trouble.

    (Obama can not say, but I will … I would do this across ALL industries … Wal-mart, Comcast, GM etc).

    5. He needs to also say that Republicans create deficits and Democrats have to “clean up the mess”. He should specifically mention how the Reagan/Bush tax cuts came crashing down on Bush I, and the recession of 1991-2 caused him to lose the election. He should also mention how Clinton admin cleaned up the mess. Then mention Bush tax cuts and questionable military decisions (including expensive contractors) that lead to most recent Deficits. And how Dems are now cleaning up that mess.
    “Lot of talk about reducing spending”. Well top 4 things fed govt spends are Defense, Medicare, SSN, interest on the debt. That’s 85% of the budget. Only 1% to foreign aid. So what should I cut … maintaining the roads, subsidizing your states education funding ? Even if I cut all of those things in half, it would not fix the problem.

    Then say how he wants to return to Clinton era tax policies (rates). Not excessive. Worked pretty well. Bring back estate tax …”ONLY on estates > 5 million. Now I know most of you folks will not be effected by that”. Fix ssn by eliminating the cap.
    Fix medicare pt D by allowing medicare to negotiate drug prices.

    Well, that’s what I would say. He won’t say any of that. Except he will use the word “bets”.

  78. “That is what happened after they were deregulated between 1980 and 2008.”

    Please enlighten me. If you used to require 8 percent in capital requirements for all type of assets and then you change requiring 8 percent for one type, 1.6 percent for another and zero percent for some… are you de-regulating or are you just regulating more and worse?

  79. Rich, baa-baa, yes, that’s good. But:
    You say Obama should, “Define for the sheep the difference between ‘bank’ and ‘Investment bank’. Most folks have NO idea.”
    That would be: “Most ‘banks’ have NO idea.” My local bank has had about 10 names in 40 years, currently Bank of America. What exactly is it? It is not a hedge fund.
    Obama should definitely tell all Americans, borrowers, lenders, and hand-to-mouth types, NOT TO MAKE BAD BETS. Or else: Big Brother will be watching. (Or clones of Mr. Bill Black above.) Good bets are okay.
    Cluck, cluck.

  80. With the “free market” liberalization that created the hands-off approach, greed and fraud has ruled Wall Street. We need to learn from history so that we don’t keep repeating the same mistakes over and over again.

  81. Both republicans and democrats have been complicit with the greed, fraud and corruption both in Washington and Wall Street.

    The U.S. has ONE CORPORATE POLITICAL PARTY system with two talking heads (republicans and democrats). Both parties do not represent Americans due to political campaign contributions and the revolving lobbyist K Street doors that politicians go into once they leave office.

  82. My thesis remains that government’s ability to cover-up or absorb REAL losses by assuming counter-party risk is going to be seriously tested, and the test has started in peripheral Euro-zone countries. It’s not a question of IF this will affect the US, but of WHEN, IMHO.

  83. To set the record straight, I worked hard to get Obama elected starting the day he announced and endin by driving little old ladies to vote on election day. I also gave a couple grand in monthly checks. So I have a real investment in his success.

    And he has done some really good things. A couple of examples; Bob Gates is really getting control of defense expenditures, Hilary, George and the others have changed how much of the world looks at us. The VA is now in good hands. And there are others.

    But on the big three, the record is awful.

    1) Healthcare Bill does not have one single thing that will begin to reduce the awful upward trend in healthcare expenditures. It is now 16%-18% (depending on who is counting) of GDP (twice any other developed country) and headed for 25%. A major failure in a very important area.

    2) The Afghanistan commitment is simply nuts. Petraeus’s Counterinsurgency Field Manual is very, very clear that you have to commit to providing security for the country for a long, long time. Yet we are committed to withdraw in a few months. This will become Obama’s war and we will all regret it.

    3)The economy is in tatters and Summers, et al, have absolutely no idea what to do about it. A big part of this is the crooks at Goldman Sachs, et al, who got rich while bringing down the whole economy. One day Obama says they are fat cats and the next day they are savvy business men. How bad can it get?

    So here is my problem; How do you have buyer’s remorse when the other choice was worse? I would appreciate any help.

  84. Simon,
    Regarding your idea of giving Obama and the Democrats campaign money to replace what they might lose from opposing the big banks…

    Let me just say that I made that mistake ONCE, to the tune of $2300 in 2008. I mistook Obama for a truly transformative president, along the lines of Lincoln or Teddy Roosevelt. A president who would truly take to heart the greater good of this nation and its people, versus the financial interest of the few and the powerful. I would have to see concrete action before I would make that kind of a commitment to this President again. He could start by canning Geithner.

    However, what I would fear would be more kabuki theater to the tune of outrage about relatively inconsequential AIG bonuses as cover for massive bailouts of AIG counterparties, or unlimited Christmas Eve bailouts of FRE and FNM bondholders, or outrage about bankers’ bonuses after a merely nominitive exit from the TARP program (FDIC bond guarantees are still in place and not re-numerated), or the provision of an EXPLICIT bailout fund for TBTF institutions from the likes of Frank and Dodd.

  85. Re: @ john rene belancourt….Sorry – Reagan was a professional actor that was literally asleep at the switch for the last six of eight years regarding his lackluster presidency. Oh yea,….”The Government is the Problem”, hogwash! He did nothing but exasperate America’s social inequities. Resource reading: http://www.washingtonpost.com/An interview with Alexander Haig,a true Cold Warrior by James Rosen 2/28/10

  86. Re: @ Anonymous….Ron Paul sounds great,and reads good,…but he is one of biggest Pork-Barrel Enablers on the Governments Feeder-Lots. The guys a crook ,…just like Dennis Kucinich. Blathering hypocrits!

  87. re @ barbara…I hate to burst your bubble…Wall Street NEVER had a moral compass from the gitgo…people who aspire to be oart of the elite in the world of high finance such as in TBTF banks are there for one reason and one reason alone: to make the most megabucks in the shortest time possible regardless who they destroy in the process…any and all victims (homeowners, laid off autoworkers, pensioners, fired teachers) are just acceptable collateral damage in the pursuit of obscene wealth…these people have no conscience whatsoever…all are imbued with extreme narcissism and could not care less about “the common good”…

  88. Re: @ Germany,and Japan must export,..but the USA,and China our self-sustaining and can survive without. Geography,and location are so – so important for survival.

  89. Re: @ EllenD….another reason for bombing Iraq to smithereens…Saddam wanted Euro’s as payment on oil. America’s dollar hegemony was waning,…time to spank

  90. a possible easier method of forcing change in the banking community would be for the FDIC to remove deposit insurance from banks or bank holding companies that:
    1- have proprietary trading desks
    2- that purchase or sell any derivative instrument that is not traded on a recognized (?) exchange
    True, it won’t deal with the size issue but it would be a start.

  91. Annoyed & Agoraphobic Kleptomaniac,

    Don’t you “get it?”

    Ms. Gillis is suggesting that the cause of our recent financial meltdown was caused by bankers who were on Prozac and/or other Psychotropic drugs. As a result, these impaired bankers were committing mass murder on the financial system.

    I for one agree with Ms. Gillis in that we should establish safeguards, as part of the financial reform bill to ensure that bankers are kept off Prozac and other Psychotropic drugs.

    Right on Ms. Gillis!!!

  92. “And who would really want to go back to having AT&T run a monopoly in any part of telecommunications?”

    Correct me if I’m mistaken, but didn’t AT&T gobble up the last of the companies it was broken in to a couple years back? Granted, their quality of service has continued to plunge in the process, but that just makes AT&T a case study for two things:

    1) Yes, huge monopoly companies are inefficient piles of monkey dung that destroy the market and don’t deliver a good product to consumers.

    2) This government is not above allowing massive, damaging monopolies to go back to being massive, damaging monopolies if the price is right. So any breaking up the banks that is done will be undone within 10-20 years and we’ll be back to square one.

    I wish living in a republic didn’t give me so much cynicism.

  93. To the American People:
    At four o’clock today, all trading on American stock markets will be suspended until further notice. Agents of the FBI are in the process of gathering such information as deemed necessary to present to a Grand Jury a Case of Fraud and Racketering.
    Members of finincial institutions are or will be in custody and remanded to Federal Detention Facilities pending their appearence before the Grand Jury.
    Hapeas Corpus is here by suspended by Presidential Order under limited circumstances to those named by the Attorney General’s Office as “parties of interest”.
    God Bless America and have a nice day.

  94. It is becoming more obvious every day that all of Washington, that is both parties, both houses of Congress, all regulators, are captured and are now a part of the plutocracy. Of all of our Presidents, I thought we had voted in someone who was NOT a plutocrat, but health care proved that he is. I am expecting a few tough words at Cooper Union to be followed up by a milquetoast legislative effort. Oh, yeah, he will advocate regulating derivatives, but not as Blanche Lincoln has suggested, but what we will get is about 15-20% transparency. Only Volcker has suggested limiting the bank size, and even he was non-aggressive about it. Obama is surrounded by the same people who got us a truly half-assed and bogus attempt at health care reform, so what can we espect regarding Wall Street? The change promised during the election will, once again be small (pocket) change.

    I hope that I am surprised, because with the public mood these days, no lengths are too far to go to rein in Wall Street. Look at what Reich wrote today in Huffington, look at what Bill Black testified during the Lehman hearings. I know that Simon and James try hard, but I believe that the plutocracy now has so much money (read power and control) that nothing but a further collapse and actual armed revolution could change that. I am not advocating this, just telling things like they are.

    Sooner or later the piper will have to be paid. I don’t want that payment in blood but in good ideas. We have both, let’s use the latter and forego the former.

    And, as a postscript, maybe you all should have someone checking blog entries to see that they are at least on topic. Don’t want to prevent people from responding to your articles at all, but it took a long time for me to read the early bogus non-responses to get to the meatier comments.

  95. So any breaking up the banks that is done will be undone within 10-20 years and we’ll be back to square one.

    That’s part of why “reformism” can’t work. It’s not just the paltry policies, but the lazy attitude that we can make one discrete exertion to “reform” something and then revert to our normal complacency.

    By antithesis, the long-dormant American Revolution was grounded in the realization that freedom and tyranny are incessantly in a zero-sum struggle, and the only way to to preserve freedom is to constantly maintain the vigilance of freedom.

    So in this case, and leaving Peak Oil (i.e., to what extent it would be physically possible to reconstitute these rackets in the decades ahead) out of it for the sake of argument, if we actually did break up the rackets, we’d then have to remain vigilant against their creeping back.

    As one example of such vigilance, the Athenians had the institution of ostracism to drive out anyone who showed signs of seeking tyrannical power. We’d need something similar to stamp out noxious weeds while they’re still small.

  96. Interestingly, I suppose peak oil will take it all away in the end. From everyone. Funny how the universe works like that. If you can’t share the toy equitably and get greedy, it takes it away.

  97. re @ Jack 54…don’t get schooled (going to college) and educated (having mastery of a chosen field) confused..many schooled people I know are not that educated…remember Bill Gates never finished college…makes you think if that’s why we’re in such a decline in the U.S. today…when colleges are full every year…

  98. It all comes down to picking a side. I strongly reccommend the President join us in putting this Nation back on course.
    Regulate, reform and prosecute. Not necessarily in that order.
    The problems of insolvent banks and forclosures both have the same root. Debt that can not be paid. Simple solution, forgive the debt, reset the loan and start over.
    To clean up Washington, tax lobbist’s at 75% of all income derived from lobbying. No exemptions, no exceptions; it’s called reform.
    Now that corporations are citizens, they are entitled to pay into Social Security and Medicare. 22% of Wall Street profits ought to cover any short fall in those plans. No exemptions, no exceptions; it’s called reform.
    Prosecute the people who adided, abbetted, invented and ran the fraud that got us to where we are today. That’s called, your Constitutional Duty.
    For some reason, I don’t think you will see this on any front page any where.

  99. Re: @ Eric….The Germans are great at what they do,period. They are wonderful people,and make the best of any or all(not afraid to deal with adversity) situations,…with exeptional foresight.

  100. Re: @ Bill….The Rockefeller Family actually owns J P Morgan Chase franchise,and….here’s another tidbit – The Homestead Bank of Brooklyn{(established- 1907)(Became Citibank)}signed by E.L.Rockefeller-Brooklyn,NY 1914. Note timeline:1907/22/26//26/55/62/76/-Sandy Weill foward….follow the Money!

  101. Re: @ Scot Griffin…..Senator (Ct/D) Chris Dodd has been the underwriter for the Insurance,Credit Card,and Big Banks/Brokerage Houses for 18years,…he’s been in their pocket since the beginning. Ironically,…also worth mentioning is his partner in crime from Conn. – Joe lieberman is the spokesman for the “Military Complex” since inception. Politicians make strange bedfellows,because of their incestual orgies. Please note that the two entities make up 50% plus of the United States Commerce contributing to our GDP! Power begets power too the n’th power?

  102. Governing and campaigning are two separate endeavors. Voters need to learn to base their election choices on the actions of candidates as opposed to the rhetoric of campaigning.

    But that perspective may leave the voter with no choices.

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