By Harold Meyerson
Wednesday, January 14, 2009
As Barack Obama looks back to Franklin Roosevelt's first inaugural address -- the only other such address that came smack in the middle of an economic meltdown -- I hope he pays special heed to Roosevelt's words on America's bankers, who then as now had plunged the nation into an economic abyss.
"The money-changers have fled from their high seats in the temple of our civilization," Roosevelt proclaimed. "We may now restore that temple to ancient truths."
The quote, of course, is an allusion to Matthew's story of Jesus driving the money-changers from the temple. But "money-changing" is also a pretty fair description of what Wall Street has been about for the past several decades. As the real income of Americans stagnated and their debt mounted, the wizards of Wall Street grew rich by collecting commissions on derivatives of derivatives of derivatives. By 2007, when Wall Street's profits amounted to an astonishing 40 percent of all American profits, the business of American finance was no longer American business -- providing loans for domestic production, technological innovation, that sort of thing -- but swapping bets and hedges on bets and hedges, all for hefty commissions.
Save for devising more ways for Americans to go into debt, Wall Street had basically decoupled itself from the economy in which Americans live and work. While the nattering nitwits of CNBC hailed the stock market increases of the first seven years of George W. Bush's presidency as evidence that the U.S. economy had never done better, every other economic index made clear that the economy was in dismal shape. As Neil Irwin and Dan Eggen documented in Monday's Post, the rate of job creation and GDP growth during Bush's tenure is the lowest of any president of the post-World War II period. Somehow, our financial geniuses managed to miss this and built a vast financial edifice on the backs of consumers who eventually could consume no more.
Yet even after their recklessness propelled their nation into an economic crisis, America's bankers remain the coddled children of Bush-Paulson economic policy and might just remain so under the Obama administration. Last Friday, the panel that Congress appointed to oversee the Treasury's Troubled Assets Relief Program (TARP), which administers the $350 billion bailout to banks, reported that the Treasury has not monitored what the banks have done with the funds they received and that despite the language in the bailout legislation "to maximize assistance for homeowners" none of the bailout has been put to that purpose.
Indeed, if the Treasury had set out to design a system to demonstrate once and for all that trickle-down economics doesn't work, it could not have done better than TARP. Treasury Secretary Henry Paulson has thrown money at the banks, which resolutely refuse to lend it to businesses and homeowners, no matter how creditworthy they may be.
That's why a bill that Barney Frank is promoting in the House, which would direct banks that choose to take bailout funds to start lending to creditworthy borrowers and designate no less than $40 billion for mortgage relief, is necessary if Congress is to authorize the Treasury to spend another $350 billion on TARP. Over in the Senate, the Democrats seem inclined to think that the need for such legislation is obviated by President-elect Obama's promise to administer the TARP in the ways that Frank's bill would mandate.
If Obama's appointees inspired sufficient trust that they would be willing to take on the banks, such legislation would be unnecessary. Unfortunately, they don't.
Obama's appointee to head the Securities and Exchange Commission, Mary Schapiro, led the finance industry's own regulatory body, which, unsurprisingly, did nothing to rein in Wall Street's speculative orgy. Obama's appointee to head the Commodity Futures Trading Commission, Gary Gensler, drafted the legislation in 2000 that exempted derivatives, including credit-default swaps, from regulation.
These appointments are notable in the ways they deviate from Obama's other appointments. The people he appointed, say, to environmental positions have clear records of championing the environment. His CIA pick, Leon Panetta, has spoken forcefully against the agency's use of torture. But to regulate banks, Obama has chosen people who have sided with banks against the public interest. They may be exemplary public servants once in office, but for now, they need to be viewed with the same wariness we'd extend to environmental appointees who voted against stricter fuel-economy standards or intelligence appointees who championed torture. That's why Frank's bill must be enacted.
"The rulers of the exchange of mankind's goods," FDR said in his inaugural address, "have failed, through their own stubbornness and their own incompetence, have admitted their failure and abdicated." Today, those rulers' failures are no less obvious, but far from abdicating, they're receiving our tax dollars and doing nothing with them. It's time, Mr. President-elect, to hurl them from the temple.