'Fat cats' roaring back at Obama
From The Japan Times
HONG KONG — U.S. President Barack Obama has used harsh words in denouncing the big bonuses that Wall Street is paying to its bankers and announcing new levies to claw back some of that money. "We want our money back, and we are going to get it," he said, calling the bankers "fat cats" and their payments "obscene." And, on Thursday, he announced a new proposal to limit banks' financial risk-taking.
It sounds tough, but the reality is that it is the roar of a lion safely held on a leash and unable or unwilling to break free of the grip of the financial men.
You have only to look at the state of the world's economies — those of the so-called advanced capitalist world anyway, to realize this. Larry Summers, the White House economic chief, has announced several times that "everybody agrees that the recession is over."
Technically, it is, except in Britain, but you would not realize it on Main Street or in the quiet back streets of towns across the United States, Europe and Japan where families are struggling to cope with unemployment at 10 percent and reduced household incomes and where distressed homeowners don't have the corporate option of declaring bankruptcy and renegotiating their home loans. The one area where the U.S. is flourishing is Wall Street, and here we are back with talk of $140 billion in bonuses for last year.
Indeed, it is easier for the big financial institutions now than in 2007 because there are fewer of them. Money is easy, interest rates are low and they have been classified as "too big to fail."
The big financial bosses are unrepentant. Jamie Dimon, chief executive of JPMorgan Chase has been aggressively lobbying in London and in the U.S. against any new taxes. He said blithely that "using tax policy to punish people is a bad idea. All businesses tend to pass their costs on to customers."
Was this a threat? Dimon has issued indirect threats to cancel his bank's planned new £1.5 billion European headquarters in London because of British penalty taxes on big bonuses.
The performance of the big four under questioning from the U.S. Congress was hardly encouraging as a reality check. Dimon declared that a financial crisis "happens every five to seven years. We shouldn't be surprised."
Lloyd Blankfein, the CEO of Goldman Sachs, urged Congress against tough financial reforms: "We should resist a response that is solely designed around protecting us from the 100-year storm."
The attitude of the big bank chiefs has been that you have to expect ups and downs and occasional crashes in financial markets, and no body is really to blame.
Goldman Sachs director Bill George delivered a defense of the firm's probable $22 billion bonus payout, declaring that bankers should be seen as top athletes or film stars. George, who used to head Medtronic, a medical technology firm, and is a director for ExxonMobil, said he had not figured out why investment bank traders and top athletes were paid so highly and schoolteachers so badly.
Top athletes, film and pop stars have rushed to contribute or encourage the Haiti earthquake aid effort, but no top bankers as far as I am aware.
More depressingly, a Goldman executive admitted that the bank had sometimes betted against financial instruments recommended to clients.
It should be causing concern that the big Wall Street banks have been allowed to set the terms of the debate, and have done so with the arguments on bonuses and taxes and the $700 billion Troubled Assets Relief Program. In terms of TARP, the $117 billion that Obama plans to get back over 12 years may seem substantial — if you ignore Dimon's promise to pass on any levies to customers. But TARP was not the only way the banks were able to coin new money virtually at will.
The bottom line is that for all Obama's protests, the system is pretty much the same as it was before the financial crisis. Indeed, it is worse because the bankers are busy using their fertile imagination to come up with new derivatives on which to make their turbo-charged bets, secure that they are too big to fail.
Worse yet Obama, Summers and Treasury Secretary Timothy Geithner nearly sidelined Paul Volcker, the former Federal Reserve chairman who heads the president's Economic Recovery Advisory Board. Volcker would like to see a return to Glass-Steagall-type legislation separating the banking functions of financial institutions, which would be protected and insured, from the gambling that investment banking has become. On Thursday he joined Obama for the announcement of the proposal to limit proprietary trading by commercial banks.
True, there is other legislation going through Congress, but to quote Robert Reich, the leading economist and former labor secretary in Bill Clinton's White House, "(that) House bill creates regulatory loopholes big enough for bankers to drive their Ferraris through."
Reich points an accusing finger toward the vast sums that the financial industry has used in lobbying — $344 million in the first nine months of last year and $42 million to bigwigs of Congress in the year to November 2009.
There is no shortage of interesting plans for deep financial reform. Besides a modernized Glass-Steagall, a breakup of big banks to induce competition or a continuing supertax, leading economists back increased capital requirements as a relatively easy answer to curb financial institutions from gambling.
Roy C. Smith and Ingo Walter, the authors of "Global Banking," suggest that a model code of conduct or best practice agreement be devised to enable regulators to inhibit risks without damaging competition.
It is interesting to look back to the financial crisis of the 1930s, when Franklin D. Roosevelt became president and immediately closed all banks. In his inaugural address he declared: "The rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure and have abdicated. . . . The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit."
Now that was the roar of a lion. By contrast, Obama mews like Wall Street's house kitten.Kevin Rafferty, a Hong Kong-based journalist, specializes in economic development issues