Weekly Audit: The Battle for Wall Street Begins
by Zach Carter, Media Consortium MediaWire Blogger
"I’m not talking about a budget deficit. I’m not talking about a trade deficit. I’m not talking about a deficit of good ideas or new plans. I’m talking about a moral deficit . . . . We have a deficit when CEOs are making more in ten minutes than some workers make in ten months; when families lose their homes so that lenders make a profit; when mothers can’t afford a doctor when their children get sick."
–Sen. Barack Obama, Ebenezer Baptist Church, Atlanta, Jan. 20, 2008
We can drop the "elect" from his title. President Obama is official. Everyone take a deep breath. Let it out slowly. And now let’s focus on the work.
Even before he was sworn in this afternoon, parts of President Obama’s economic platform were already moving through Congress. Overall, the general public remained largely in the dark about his plans for rebuilding the decimated financial system. What needs to be considered as the economic stimulus plan moves forward?
The $350 billion public investment in banks and other finance firms has not spurred banks to make loans that can foster economic recovery, nor has it encouraged them to face up to the huge unrealized losses embedded in their balance sheets. Over at The Washington Independent, Mike Lillis demonstrates how the current bailout program fails to offer meaningful incentives for banks to direct their public money toward the public good, much less require it.
Moreover, the rescue plan attempts to address a symptom of the U.S. economic malaise–financial turmoil–without directly fixing the bad mortgages that caused the disease. Last week, the Senate gave President Obama the all-clear to deploy another $350 billion for financial rescue purposes, again with no strings attached. Obama and the new National Economic Council Director Larry Summers have pledged to spend up to $100 billion in Troubled Asset Relief Program (TARP) money to avert foreclosures. We should know very soon if they plan to live up to that promise.
For now, the financial system remains perilously close to where it was in September 2008, when a cascade of gigantic firms failed, inciting panic among investors and policymakers alike. The word "nationalization" has been mysteriously sidelined in the U.S. debate over what to do with our Wall Street financiers, despite a major taxpayer commitment of resources. If we want to change bank behavior, the best way to do it is through straightforward government takeovers, as William Greider explains in a piece for The Nation.
"Without such a move, the taxpayers will essentially be financing the slow death of failed institutions while getting nothing in return," Greider writes.
Greider invokes problems at Citigroup, which inked an agreement to receive an additional $7 billion in taxpayer funds last week, on top of $45 billion it accepted in 2008. Based on the $3.50 closing price of Citi’s stock on January 16, the stock market values the entire company at roughly $19 billion. If any company is too big to fail, Citigroup certainly qualifies, but it is increasingly clear that Citi cannot keep pace with its losses– more than $8 billion in the fourth quarter alone. If we’re on the hook for the company’s collapse anyway, we might as well nationalize them to make sure they go down the right way, and end its predatory lending practices in the process.
Beyond matters of sheer practicality, it’s important to remember that these companies are being bailed out because they completely screwed up. Their errors were not restricted to bad bets on home values, either. Huge U.S. institutions undertook systematic efforts to fleece consumers for every penny they were worth on everything from credit cards to home purchases. In this video spot, Brave New Films details some of the abuses at Bank of America, which received another bailout of its own on Friday.
The Bush administration itself continued to encourage predatory, anti-borrower policies through to its final day in office, thanks to an almost surreal caveat for loan work-outs administered through mortgage giants Fannie Mae and Freddie Mac. This fall, Treasury Secretary Henry Paulson rolled out a loan modification effort at Fannie and Freddie, touting the plan as a major new effort to curb foreclosures. What he didn’t advertise was the fact that borrowers have to sign away all of their legal rights to contest any aspect of their mortgage to be eligible for lower monthly payments.
"In plain English, the waivers mean a borrower can’t sue the lender that originated the mortgage if the loan modification goes bad, or for any other lending abuses concerning their loan," Mary Kane writes for The Colorado Independent, highlighting Congressional testimony on the program from Julia Gordon of the Center for Responsible Lending.
This legal absurdity is beyond reckless, given that Paulson was trying to solve a problem created by gouging consumers for the benefit of big finance companies.
But even if Obama rights the Bush administration’s bizarre programs and enforces corporate responsibility on Wall Street, a mountain of equally important economic work will still face Team Obama. Writing for AlterNet, Charlie Cray emphasizes that TARP and other salvage plans will not fix imbalances in the drastically insufficient financial regulatory structure. A sweeping overhaul of the nation’s regulatory architecture is absolutely necessary, but will face much stiffer opposition from the bank lobby than, say, a $350 billion giveaway.
While Obama’s economic stimulus proposal enjoys broad public support and will likely be enacted–Steve Benen presents some persuasive statistics on that topic at The Washington Monthly–it will be harder to garner up public support for technical and complex regulatory issues. When was the last time you heard anybody get riled up about how the Federal Reserve is funded?
Fortunately, the stimulus package offers a major opportunity to enact other badly neglected, longer-term projects to update the U.S. economy. OneWorld.net highlights analyses from leading think-tanks revealing that investments in renewable energy create far more jobs than pouring money into environmentally destructive coal-fired power plants, and leave future generations with a stronger social infrastructure.
There is room for hope. Amid a barrage of increasingly grim economic figures, Obama appears to understand what needs to be fixed and how much is at stake. He is certainly aware of the dangers posed by drastic economic inequality. Danny Schechter’s News Dissector blog features a post of Obama’s speech one year ago on Dr. Martin Luther King Jr. and the quest for economic justice. It’s inspirational stuff, particularly on the day the first black U.S. president is being sworn into office.
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