Last week, octogenerian Paul Volcker lost his grip. Volcker, who was the Fed chairman before Alan "Bubbles" Greenspan, remembers a time when the Wall Street (aka. the Financial Industry) worked in ways which were actually beneficial for America. Volcker was scheduled to address the Federal Reserve Bank of Chicago’s 13th annual International Banking Conference, but then departed from his prepared remarks—
Former Federal Reserve Chairman Paul Volcker scrapped a prepared speech he had planned to deliver at the Federal Reserve Bank of Chicago on Thursday, and instead delivered a blistering, off-the-cuff critique leveled at nearly every corner of the financial system...
Standing at a lectern with his hands in his pockets, Volcker moved unsparingly from banks to regulators to business schools to the Fed to money-market funds during his luncheon speech.
He praised the new financial overhaul law, but said the system remained at risk because it is subject to future “judgments” of individual regulators, who he said would be relentlessly lobbied by banks and politicians to soften the rules...
On Banking — Investment banks became “trading machines instead of investment banks [leading to] encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”
On the Financial system — “The financial system is broken. We [could] use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.”
Volcker's reference to "the judgments of ... regulators who [will] be relentlessly lobbied by banks and politicians" is a not-too-subtle allusion to what we call corruption here at DOTE. In fact, Volcker hit on the central point about Financial "Reform" in his off-the-cuff remarks. The main strategy for giving Wall Street its usual leeway to rape & pillage was to place crucial decisions in the hands of regulators who must "study" the issues for years to come before they implement new rules.
The Dodd-Frank Act requires 67 studies and 243 new rules to be created, according to law firm Davis Polk & Wardwell LLP. The act creates a Financial Stability Oversight Council with 10 voting members, including a to-be-named insurance expert and heads of at least 3 regulatory agencies awaiting new leaders. The law’s Volcker rule, which bans banks from proprietary trading and limits investments in private equity and hedge funds, requires a study by the council before rules are drafted.
We can thus understand Volcker's "blistering critique" for what it is: a last ditch attempt by an old man who remembers the good old days before Rome went to shit to shame the Powers That Be into reforming themselves. And when I state his intention this way, the right way, you can easily see that his noble mission is doomed to failure.
It is in this context that I would like to report on a story I heard (audio) on NPR's Not Many Some Things Considered a few days ago—
There was a time when some of the Democratic Party's most generous benefactors worked on Wall Street — but not this year.
As Democratic candidates and strategists face the Republican surge, they're doing it without the campaign cash that investment banks and hedge-fund investors have normally steered their way.
When Bill Clinton was president, he could talk the talk with the kings of finance, as he did at a Stamford, Conn., fundraiser in 1996. "I thank you for this money," he said. "We will invest it wisely."
And Wall Street went for President Obama in a big way. His campaign pulled in $15 million from the securities and investment sector. Goldman Sachs accounted for almost $1 million of that, according to the Center for Responsive Politics.
But the cash isn't flowing anymore: Wall Street giving overall is down sharply.
Broken Social Contract
... Wall Street donors feel the social contract has been broken, says political scientist Ross Baker of Rutgers University.
"They were willing to tolerate the anti-Wall Street rhetoric; they were willing to tolerate some regulatory reform," he says. "But I think they feel the Democrats' blood lust for Wall Street just got totally out of hand, and they're just not willing to reward that kind of behavior."
Blood lust? Broken social contract? Nonsense. There are real contracts and they were not broken. If they had been, Volcker would not be risking a stroke to tell us all the financial system is still broken in 2010. If Obama broke his contracts with Wall Street, why did he hire Satan's Favorite Son Larry Summers to be his chief economic adviser? One of Summers' top ten "blunders" was—
Asking Chris Dodd to remove post-recession caps on executive pay: Larry Summers ran into a bit of trouble after it leaked last year that he had received free rides on Citigroup’s corporate jet while months before working for the Obama White House. More appalling, however, was his subsequent decision effort to exempt Citigroup, a stimulus TARP recipient, from caps on executive pay.
But consider this: Mr. Summers has nothing left to gain in the administration. In the fortress of America's most prestigious university, he can write a book, collect speaking fees, and be a paid adviser to Wall Street powerhouses.
He's done it before, having collected nearly $400,000 in speaking fees from Citigroup Inc., Goldman Sachs Group Inc., and J.P. Morgan Chase & Co., in 2008 alone.
This all seems clear enough. Let's get back to NPR—
According to the Center for Responsive Politics, donors at hedge funds are on track to cut their contributions to Democrats by half compared with two years ago. Donors in private equity and venture capital are only slightly less tightfisted this year.
Incredibly, even with these drops in revenue, things could be worse for the Democrats.
So far, at least, Wall Street's Democrats generally are not switching sides and writing big checks to the GOP. The street has plenty of Republican donors to do that.
And it gives Democratic strategists one little bright spot: Baker says it lets Democrats get more aggressive in accusing Republicans of being in Wall Street's pocket.
You regular readers know that I am rarely speechless, but this is almost one of those times. That's pretty much the end of the NPR reporter Peter Overby's story. Democrats can accuse Republicans of being in Wall Street's pocket? Let me explain what's going on here—
Both political parties are in Wall Street's pocket. However, Wall Street also extends or withholds campaign contributions (bribes) to remind politicians & parties who is boss. This year, the Democrats must be reminded who pays for their election. The reason offered for punishing the Democrats is their totally out-of-hand "blood lust" for Wall Street banks, hedge funds, private equity firms, etc.
Overby's story did not even allude to the shamefulness (and shamelessness) of Imperial corruption. Instead of talking about corrosive tit-for-tat, he chose to talk about the resulting political posturing. Democrats can thus be more aggressive in accusing Republicans of being in Wall Street's pocket while pretending that they themselves are as pure as the driven snow.
But really, the Democrats are expressing their shock, dismay & anger over the fact that Wall Street is not funding them this year. And it is completely unfair! Didn't Democrats do a superlative job passing a Financial "Reform" bill that does not reform Finance? Sure they did, but Wall Street is still shunning them, still teaching them a lesson. Broken contract, indeed!
Director Bryan Singer's movie The Usual Suspects (1995) contained a memorable line which is apropos here—
The greatest trick the Devil ever pulled was convincing the world he didn't exist
Remember that the next time you listen to the political news.
Yins' write pretty well down there in the Burg', even if you throw fries on your sandwiches in some of your local eateries. Nice to see someone speak truth to power, to bad vested interest continues to prevent a top down solution. People can't see reality if their wealth is tied to their delusion, and they can't get other people to believe in it in some mass delusion.
Posted by: Mitch | 09/29/2010 at 04:58 PM