How Obama Got Rolled By Wall Street
Sep 1, 2010 at 9:23 AM
Dr. Pitchfork in banks, geithner, geithner, obama, obama, summers, wall street, wall street

This one is not positive for 'Dear Leader.'


By Dr. Pitchfork

If you thought that Obama was clueless about finance and markets when he took office a year and a half ago; if you suspected that he was nothing more than putty in the hands of Geithner and Summers; or if you wondered whether the banksters had somehow managed to play him like a fiddle, then stop wondering.  You were right. 

Michael Hirsh's recent Newsweek article reveals that Obama gave Wall St. the kid glove treatment, not because he's a smart guy who made some politically un-popular decisions, but because Summers and Geithner told him to.  Obama even considered breaking up the TBTF banks at one point (would've been nice), but Geithner and Summers wouldn't let him.  FinReg?  Team Obama fought tooth and nail to water down the bill in order to please Wall St. 

None of this is news to regular readers of The Bail, but the myth of Barack Obama -- the strong, smart, confident leader -- is now officially dead.


From Newsweek

Barack Obama was “incredulous” at what he was hearing, said one of his top economic advisers. The president had spent his first year in office overseeing the biggest government bailout of the financial industry in American history. Together with Federal Reserve chairman Ben Bernanke, he had kept Wall Street afloat on a trillion-dollar tide of taxpayer money. But the banks were barely lending, and the economy was still mired in high unemployment. And now, in December 2009, the holiday news had started to filter out of the canyons of lower Manhattan: Wall Street’s year-end bonuses would actually be larger in 2009 than they had been in 2007, the year prior to the catastrophe. “Wait, let me get this straight,” Obama said at a White House meeting that December. “These guys are reserving record bonuses because they’re profitable, and they’re profitable only because we rescued them.” It was as if nothing had changed. Even after a Depression-size crash, the banks were not altering their behavior. The president was being perceived, more and more, as a man on the wrong side of an incendiary issue.

And so, prodded forward by Vice President Joe Biden—the product of a working-class upbringing in Scranton, Pa.—the president began to consider getting tougher on Wall Street. “We kept revisiting it,” said the economic adviser (who recounted details of the meetings only on condition of anonymity). One big proposal the White House hadn’t adopted was Paul Volcker’s idea of barring commercial banks from indulging in heavy risk taking and “proprietary” trading. In Volcker’s view, America’s major banks, which enjoy federal guarantees on their deposits, had to stop putting taxpayer money at risk by acting like hedge funds. This had become a grand passion for Volcker, a living legend renowned for crushing inflation 30 years before as Fed chairman. He had long been skeptical of financial deregulation. Beyond the ATM, Volcker asked, what new banking products had really added to economic growth? Exhibit one for this argument was derivatives, trillions of dollars in “side bets” placed by Wall Street traders. “I wish somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy,” he barked at one conference.

Yet for most of that first year, Obama and his economic team had largely ignored Volcker, a sometime adviser. Treasury Secretary Tim Geithner and chief economic adviser Larry Summers still questioned whether Volcker’s proposals were feasible. Now Obama was pressing them—very gingerly—to reconsider. “I’m not convinced Volcker’s not right about this,” Obama said at one meeting in the Roosevelt Room. Biden, a longtime fan of Volcker’s, bluntly piped up: “I’m quite convinced Volcker is right about this!”

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