A post by Pat
It’s pretty clear now that Obama is out to dismantle the private sector starting with banks and investment companies. The government—Obama–will be in control. His quest to consume the financial sector continues. He just warned that none of those 3 million jobs he’ll save or create will be on Wall Street. In fact, he wants people with math skills to do something more constructive with their lives than go into finance. There’s more to it than the Obama family motto: public service is better than profit. Wall Street is on the President’s acquisition list.
I have no sympathy for the Wall Street barons. They delivered us into this mess with their love for subprime mortgages and themselves. They devised their fail-safe mathematical models and their labyrinth of derivatives to cover all the angles and then placed their bets on the housing market never falling. When it did fall, as anyone with common sense could have predicted, the economy was brought to its knees. Without the least ruffling of their egos, the barons felt a smug comfort that the final safeguard would be the government coming to their rescue at the expense of the rest of us. They were too smart to fail.
I would love to see them suffer. Instead, I worry. To control finance is to control the economy. We’ve seen the coercive leverage TARP has given the White House. In only 100 days, right before our very eyes, Obama turned major banks into his slaves. He demonstrated he has a capacity for ruthlessness and coercion. He doesn’t have to regard the law as long as he mesmerizes people. He is the well-intentioned, kind-hearted disciplinarian. He will make the rules.
As usual he plays on resentments with arguments that have some basis. It’s true we’ve been living off cycles of illusionary prosperity based on inflated assets. He sets up false alternatives. Derivative trading did not siphon off America’s engineers. His manner is disarming. We all have to make sacrifices. Dazzled by his charm, too few notice or chose to ignore the systematic destruction of capitalism.
Obama: Wall Street will play less dominant role
Wall Street is not going to play as dominant a role in the economy as regulations reduce “some of the massive leveraging and the massive risk-taking that had become so common,” President Barack Obama says.
The changes in the role of Wall Street and the huge profits that came from that risk-taking could mean other adjustments as well, Obama said in an interview in this week’s New York Times Magazine.
“That means that more talent, more resources will be going to other sectors of the economy,” he said. “I actually think that’s healthy. We don’t want every single college grad with mathematical aptitude to become a derivatives trader. We want some of them to go into engineering, and we want some of them to be going into computer design.”
“Wall Street will remain a big, important part of our economy, just as it was in the ’70s and the ’80s,” he said. “It just won’t be half of our economy.”
Obama said he expects that government efforts to fix the economy will cause long-term changes.
“What I think will change, what I think was an aberration, was a situation where corporate profits in the financial sector were such a heavy part of our overall profitability over the last decade,” he said.
Obama’s warning to Wall Street about looming regulations severe enough to make them shrink is intended to be coercive. We’ve seen he means business. He says he envisions markets once again being guided by an invisible hand.
OBAMA CALLS FOR SWEEPING OVERHAUL OF WALL STREET REGULATIONS
“If we once again guide the market’s invisible hand with a higher principle, our markets will recover, our economy will once again thrive and America will once again lead the world in this new century as it did in the last,†he said.
Obama’s comments rattled investors. U.S. stocks fell after a day of choppy trading.
Obama has turned the bully pulpit of the Presidency into the bully’s pulpit. If he can’t make you love him, he will make you fear him. His concept of the invisible hand is not from The Wealth of Nations—it is from The Godfather.
Godfather III
Vincent Mancini: Don Lucchesi, you are a man of finance and politics. These things I don’t understand.
Don Lucchesi: You understand guns?
Vincent Mancini: Yes.
Don Lucchesi: Finance is a gun. Politics is knowing when to pull the trigger
Manufacturing accounted for a larger share of the economy in the 70′s and 80′s. It shrank as the share of financial services and government increased. Now financial services are targeted to account for less of the economy. Don’t expect manufacturing to improve. The makeup of the economy will be a monstrous government that includes outright influence over education, ultimate control over health care and intimidation of financial services. Manufacturing? Well, maybe Obama will decide to put unions in charge of a few more of those companies.
Something’s gotta’ give. If this where we are at 100 days, 2 years seems too far away to turn things around. Maybe, hopefully, the story about the threats to Chrysler’s bondholders will finally be the one with legs.
I fear for the country. As crazy as it sounds, maybe Rick Perry was right and eventually secession will be the only answer. That would be a tragedy, but living in Barry’s Banana Republic sounds worse every day.
It’s clear that Obama intends to push us into economy by decree. I completely agree with Pat in her assessment: Our captains of finance and industry have proven themselves unworthy and irresponsible; they want to reap big rewards from the boom cycle but get subsidized when things go sour. So we’re being sold out from both sides, and I can’t say I want to protect the status quo; however we’re sliding into a framework that is both fascistic and suicidal, and it’s vital that we oppose this by any means necessary. The notion of seceding from the US sounds kooky at first blush, but I sadly concur it’s an idea that’s got to be floated. The way things are going, I would seriously consider my options in relocating to a state that would actively stand firm against the monster that Washington is becoming.
din’t Chelsey Clinton go to work for an evil wall st firm, wonder how much money she made on her deals….
I appreciate what Obama says he hopes will happen as far as where our talented people end up going. I agree with his sentiment. What I’m wary of is regulation that leads to perverse incentives. The main thing that regulation needs to accomplish is transparency, making sure that as things are traded buyers are made fully aware of what they are getting, and they can trust the information they get about it. It would probably also help if traders were required to understand derivatives. Apparently a big part of what led to the collapse of investment banks were traders who worked for them and didn’t understand what they were buying.
A new financial structure is going to need to develop anyway. There are no longer any investment banks, and according to the former head of Bear Stearns investment banks are extinct, never to return. This is not because of Obama’s policies, but because the crash made it apparent that investment banks cannot withstand bank runs fueled by rumors.
“…investment banks are extinct, never to return. This is not because of Obama’s policies, but because the crash made it apparent that investment banks cannot withstand bank runs fueled by rumors.”
The distinction between investment banks and commercial banks was an artificial one created by Glass-Steagall under FDR. Be grateful that that distinction was dramatically eroded in the past ten years, or the initial crash would’ve wiped out 90% of the Dow instead of 40%.
Pat’s piece, and the excellent parsing of the situation should say that Obama and company’s goal is one one of a coercive socialist economy.
There have been corrective measures that governments, our and others, have taken in history; price controls, leveraging and rationing.
“”Wall Street will remain a big, important part of our economy, just as it was in the ’70s and the ’80s,” he said. “It just won’t be half of our economy.” (Leaving either the unemployed or government to make up the other “half” – someone doesn’t understand GNP)
“Obama said he expects that government efforts to fix the economy will cause long-term changes.”
(When Rome went from a republic to an empire, that was a long-term change. Class distinction became even greater and those had continued to prosper – Soros, Citibank, etc.)
Why is there no outrage?
Maybe you should ask an American who collected degrees in sociology, gender and racial studies, and cinema and theatre arts from the education system we indulged in 40 years.
Maybe they’re waiting for Letterman, Matthews, Maher, Garafalo and the other voices of American brilliance to tell them what a crisis is.
“The business of America is business.” Calvin Coolidge.
Excuse me, Dave J. But Glass-Steagall limited bank leverage to a maximum of 12:1. That’s 12 dollars of loans, for each dollar of deposits or assets. Hank Paulson thought that was a draconian limitation on the banks’ ability to create new loans. The repeal of Glass-Steagall allowed the banks to apply virtually unlimited leverage to the market for loans. They also imposed the infamous “mark to market” rule in the repeal lingo. That was supposed to allow banks to continuously update the increased “value” of their underlying assets, so they could then apply all that leverage to new, ever higher property values. Mark to market backfired horribly as property values fell.
Bear-Sterns went down leveraged 36:1. All they needed was a 2.6% drop in the realestate market to wipe out their entire asset base. Lehman was leveraged 46:1. A 1.1% decline turned them upside down.
Had Glass-Steagall not been repealed, the banks would hve run out of capital to loan and raised interest rates for deposits, to recruit new depositors, and raised loan interest on mortgages which would have cooled the maket, rather than crashing it. That’s what happened in the 70′s. Interest climbed, houses sat, and prices fell until equalibrium was reached. Interest rates went crazy high because the FED raised the reserve rate, and dried up the money supply in the early 80′S to reign in inflation, but that was a separate endeavor. The slow march of interest rates started in the latter 60′s.
Glass-Seagall was imposed as a dicpline on banks to prevent the over-leverage that was applied to “assurances” and the stock market. Yes, in the 20′s bankers went crazy greedy and sold a bunch of derivatives, insurance, counter party risk abatement schemes, just like this mess. They just didn’t call them by the same names. It’s all laid out in Murry Rothbard’s detailed analysis: “Americas Great Depression” available free as a PDF download from Von Misses. org.
Didn’t Obama just use Air Force One to buzz NYC? He showed Wall Street he’s got air superiority over Lower Manhattan.