Obama's War on the Middle-Class

There has been another glitch in the President’s charm offensive with the middle class --- his name is Larry Summers.

After the Securities and Exchange Commission with Wall Street’s lawyers, putting a man of dubious financial dealings, Jack Lew, in charge of the U.S. Treasury, the President finally (finally) outraged his fellow Democrats with the leaked rumor that he was considering Larry Summers for the most important monetary position in the world --- the Chairmanship of the Federal Reserve Board of Governors.

On July 26 of this year, 19 Democrats and one independent sent an unprecedented letter to the President, urging him to nominate Federal Reserve Vice Chair, Janet Yellen, to lead the Fed when Ben Bernanke’s term ends early next year.

Summers has the notorious reputation as being part of the bullying gang that included the former Fed Chair, Alan Greenspan, and former Treasury Secretary, Robert Rubin, who triple-teamed Brooksley Born, Chair of the Commodity Futures Trading Commission in the late 90s when she tried to regulate derivatives. Their bullying succeeded, leading to unregulated derivatives being at the center of how Wall Street blew up the U.S. economy from 2008 to 2010. 

Summers was also part of the same team when it came to repealing the depression-era consumer protection legislation known as the Glass-Steagall Act. Once Glass-Steagall was repealed, Wall Street was free once again to merge its speculating casino units with banks holding FDIC insured deposits, leading to the 2008 taxpayer bailout of the too-big-to-fail banks. 

In an interview with Bloomberg News, Oregon Senator Jeff Merkley, a Democrat who signed the July 26 letter to President Obama, had this to say of Summers: “I start from a position of being extraordinarily skeptical that his background is appropriate for the role of the head of the Fed. If you nominate someone who is a life-committed deregulator to be in a regulatory position and if you believe regulation is necessary to prevent fraud, abuse, manipulation and so forth, then there’s a lot of questions to be asked: Why is this person appropriate?”

George Melloan penned an opinion piece for the Wall Street Journal making the claim that the big banks aren’t doing anything more egregious than they have done in the past, and the growing charges of fraud are the product of overly zealous regulators, “encouraged by the Obama administration” to blame the nation’s economic ills “on the rich, Wall Street, moneybags bankers, deal makers like Mitt Romney or almost anyone else who still wears a suit to work.”

Melloan worked for the Wall Street Journal as both a writer and editor for 54 years, retiring in 2006. Surely, after more than half a century working for the Wall Street Journal, he is actually reading the investigative reporting in the paper and not just the right-wing editorials.

Melloan’s evidentiary support for the premise that Wall Street simply can’t be any more corrupt than it was in the past is built around the Alan Greenspan theory (now debunked by everyone including Alan Greenspan) that bankers have a vested interest to self-regulate. (Wall Street bankers, both today and throughout history, have had an overriding interest to make as much money as they personally can.)

Melloan writes: “Have bankers all gone rogue? Populists would have you think so, and apparently a sizable majority of Americans hold that view as well, judging from opinion polls. But this is not plausible. Bankers are more likely to exercise extreme discretion in an era when they are being constantly reviled by leftist politicians, writers and placard-carriers in the streets.”

For Melloan’s first witness, he calls up Jamie Dimon, Chairman and CEO of JPMorgan Chase, the poor mistreated figure who is “paying dearly” at the hands of those populist regulators for no greater crime than simply calling parts of the Dodd-Frank financial reform legislation “idiotic.”

Melloan’s position on Dimon is a rude slap across the face to the investigative reporters who unearthed the London Whale derivatives fraud at JPMorgan; to the Justice Department prosecutors who just brought a criminal indictment against two of the traders involved in that matter; to Senator Carl Levin and the Senate’s Permanent Subcommittee on Investigations which thoroughly reviewed the case and unearthed the emails showing how JPMorgan’s books were being cooked to make losses from the trades appear manageable.

Melloan’s opinion piece is also an unwarranted distraction, if not outright intimidation, at a time when the news section of the paper is reporting seven open investigations of JPMorgan by the U.S. Justice Department.

The critical aspect of today’s crimes on Wall Street that Melloan fails to grasp is that thanks to the repeal of the Glass-Steagall Act in 1999, Wall Street traders are no longer gambling with just the firm’s capital. Today, they are using the FDIC insured deposits of the mom and pop accounts held in the main street banks they are misguidedly allowed to own. When JPMorgan lost $6.2 billion in wild, reckless trading of derivatives – the so called London Whale matter – it wasn’t betting with its own capital. Unbeknownst at the time to its regulators and the savings depositors of Chase, its commercial bank, it was gambling with the bank’s deposits.

From selling rigged interest rate swaps to municipalities, rigging the interest rate benchmark, Libor, in London, securing triple-A ratings on bogus subprime mortgages, betting against investments designed to fail while selling them to customers as good deals, to fraudulently foreclosing on desperate families, Wall Street has earned every bit of its abysmal reputation. No amount of Melloan fantasizing is going to change that.

The crimes on Wall Street today are exponentially greater and more deserving of prosecution because insured deposits are being used in ways that violate safety and soundness requirements of insured bank depositories. And, those deposits have been concentrated into trillion dollar holdings at a handful of Wall Street firms. This has no comparison in the history of Wall Street: it’s dangerous, it’s frightening, and it deserves to be of the utmost concern to the public and prosecutors.

Gene Sperling, the director of the National Economic Council, is telling people he may soon leave the post as one of President Obama's top economic advisers. These same people say that high on the short list of replacements is Jeffrey Zients, who has close ties to former Clinton Treasury Secretary and Citigroup executive Robert Rubin. He has also earned income as an adviser to the big investment bank Goldman Sachs, and has received speaking fees from various financial firms. More Obama cronyism.

But for all his "talk" about the middle-class, it appears that President Obama (by considering Larry Summers) is just begging for more of the same --- a war on the middle-class.