Robert Reich
By Robert Reich
Former U.S. Secretary of Labor, Professor at Berkeley
Senator Chris Dodd, the chairman of the Senate Banking Committee, scolded Wall Street representatives at a hearing Thursday for sending “an army of lobbyists whose only mission is to kill the common-sense financial reforms” needed by the public. “The fact is,” Dodd said, “I am frustrated, and so are the American people.” He charged that Wall Street’s intransigence was the reason for Congress’s failure to pass any bill to regulate the Street. “The refusal of large financial firms to work constructively with Congress on this effort borders on insulting to the American people who have lost so much in this crisis.”
In other words, it isn’t Congress’s fault. It isn’t the Senate Banking Committee’s fault. It certainly isn’t Dodd’s fault. The reason more than a year has passed since the biggest bailout in the history of the world and nothing has been done to prevent a repeat performance — even as the biggest banks are doling out more than $30 billion of bonuses, even as Goldman Sachs is awarding its big traders $16 billion in bonuses (more than the $13 billion Goldman collected from taxpayers via the bailout of AIG), even as AIG itself is handing out bonuses — the reason is … what, exactly, Senator? Because the Street has sent an army of lobbyists to Capitol Hill?
Call me old fashioned, but I thought Congress was in charge of passing legislation, not Wall Street.
Dodd left out the most telling detail, of course. Wall Street is where the campaign money is. Dodd of all people knows that. He’s been on the receiving end of lots of it over the years.
Wall Street firms and their executives have been uniquely generous to both political parties, emerging recently as one of the largest benefactors of the Democratic Party. Between November 2008 and November 2009, Wall Street firms and executives handed out $42 million to lawmakers, mostly to members of the House and Senate banking committees and House and Senate leaders. During the 2008 elections, Wall Street showered Democratic candidates with well over $88 million and Republicans with over $67 million, putting the Street right up there with the insurance industry as among the nation’s largest equal-opportunity donors.
Some Democrats are quietly grumbling that all the tough talk emanating from the White House in recent weeks — the President calling the Street’s denizens “fat cats” and threatening them with limits on their size and the risks they can take, even waiving a watered-down version of Glass-Steagall in their faces — is making it harder to collect money from the Street this mid-term election year. And the Street is quietly threatening that it may well give Republicans more, if the saber-rattling doesn’t stop.
Congress isn’t doing a thing about Wall Street because it’s in the pocket of Wall Street. Dodd’s outburst at the Street is like the alcoholic who screams at a bartender “how dare you give me another drink when all I’ve done is pleaded with you for one!”
Dodd is right about one thing. The American people are frustrated, and the failure of Congress to pass real financial reform is insulting. But in trying to place responsibility for this appalling failure on Wall Street, Dodd insults us even more.
***
Cross-posted from Robert Reich’s Blog
***
Robert Reich served as the nation’s 22nd Secretary of Labor and now is a professor of public policy at the University of California at Berkeley. His latest book, “Supercapitalism,” is out in paperback. For copies of his articles, books, and public radio commentaries, go to www.robertreich.org.
February 8th, 2010 at 1:19 pm
Wall street donates to both parties, and then has control over the legislative process.
Maybe all of the recently created new financial products, and similar new toxic asset products created by the master financial criminal geniuses that created the derivative and other junk bond type paper securities out of the thin air should require a separate application and a separate license granted by the SEC for the existence and/or sale of each and/or any new financial product.
Maybe the SEC should grant license only to any of them that have some intrinsic collateral value, are easily understood, transparent, forthright, and not deceptive in their sworn financial statements.
Maybe the SEC should also require a study to justify the need and safety of any new derivative type instrument created, similar to an Environmental Impact Statement.
When the financial risks are several layers or completely removed from the title to the actual asset that has some actual collateral value (like a Mortgage, Bond, Stock Share, Promissory note), and this instrument is insured from most of the investment risk, how much due diligence will an investor perform before he will commit to purchase, as compared to the investing into a primary mortgage or similar instrument that is collateralized for the event of failure?
If I were driving a car without insurance, I would probably drive more carefully than if I had insurance since my exposure for loss is lessened with insurance. Maybe we would be better off without any of these recently created new financial (Toxic Asset) products that required the US government to guarantee to the foreign parties that bought them.
These recent “freshly printed” financial products similar to an incurable disease, because once they are created, they destroy the basic economic foundations of the US economy, and other financial geniuses emulate these others and create even more of these various attractive toxic assets.
I believe that Martin Luther King stated something to the effect that “Everything that Adolph Hitler did in Germany was legal.” I believe that all of these financial transactions were probably legal. We need to change the laws if we want these actions to be illegal.
February 8th, 2010 at 1:21 pm
The financially astute and highly successful Arthur Anderson/Enron group and their leaders here in Houston, filed fictional, false, and/or deceptive financial statements with the Security Exchange Commission that they swore to represent the truth.
They successfully perjured themselves when testifying about financial facts, and generally lied about almost every compliance document that they created and submitted to the SEC for many years.
It was a miracle that these criminal actions were even discovered. The officers and leaders suffered very little penalty when they finally did get caught and subsequently convicted. They should rot in prison until they die as a deterrent to future prospective Financial Genius “Master Criminals”.
The financial practices of our Enron executives, Bernard Madoff, Allen Stanford, Scott Rothstein, and many other Wall Street financial wizards are also examples for the current business school students to study and learn how these people got rich, to emulate these people in their own financial careers without being caught.
These Students will study to learn how to avoid being caught while amassing their own financial fortunes.
February 8th, 2010 at 2:00 pm
Successful CEO’s and other executives with stock options (to buy a defined amount of their company stock at the price it was when they were hired, and then sell the stock if they elevate the price of the stock during their employment) have incentive to inflate the stock prices by any means possible, especially borrowing money and mortgaging various assets to pay increasing stock dividends in order to make the Price/Earning ratios more and more attractive even though the net worth of the assets per share is diminishing by their actions.
These executives usually cash in their stocks at the inflated prices and then exit their companies to let others watch the stock prices fall when the limits of the asset loss becomes noticeable and operating maintenance costs increase due to deferred maintenance. These executives will also inflate the book value of real estate assets, goodwill, and other intangibles to offset the increase in liabilities such as loans on assets that are dispensed as dividends.
This practice should be outlawed and the incentives for executive performance should be based upon increases in the net worth of the company, not the amount of hype, lies, forgeries, and public relations that inflated the company stock price.
The Economics and MBA educated executives running our Large Public traded Corporations usually know nothing about making the product that they are in business to produce, but they do know how to borrow money and re-finance existing assets, pass out money to pay increasing dividends in order to run up the company stock prices that inflates the value of their stock options, stop/postpone or minimize maintenance costs to increase profits, and then leave the corporation with large performance bonuses before the postponed maintenance requires massive plant equipment replacements.
February 8th, 2010 at 2:06 pm
I believe that all of these various public traded US Corporations should abandon Wall Street, buy and sell their company stocks themselves. This would then allow new stock brokerage firms to be created and evolve with tighter regulation and more penalties to prevent future Wall Street type criminal atmosphere of entitlement and above the law attitude.
These new trading exchanges should evolve, preferably in cities other than New York City such as Houston, Atlanta, Dallas, Chicago, or some other different location that might be a better location for a clean new start with much less of the prevalent Wall Street culture of criminal activity, self worth, and financial entitlement.
These new stock trading exchanges could evolve with new and different rules and regulations that would prohibit the criminal excesses of the Wall Street Master Criminals.
We need new federal legislation to make one single individual (President, CEO, Chairman, etc.) in each corporation criminally responsible for the accuracy of each of the company financial statements that are filed with the SEC, whether the filing is intentional or not intentional, knowingly or unknowingly false or misleading. This person needs to go to prison if there are any intentional or un-intentional false statements sworn to as a part of any SEC filing.
Many more crooked CEOs need to be in prison for long periods of time.
A CEO stating that he did not know anything about the company or that he relied on others should not be a “get out of jail free” card as it is now.