Friday, January 22, 2010

Thank You Massachusetts, But Karma is a Bitch and We Now Have Yet Another Dud in The Senate

In the end it came down to desperate voters in Massachusetts having to elect the highly questionable Scott Brown to the U.S. Senate, that caused Obama to come out from his Presidential honeymoon suite and attempt to tackle the corruption on Wall Street. Unfortunately in electing Brown, Massachusetts voters may have inadvertently elected the very person who is completely opposed to Wall Street reform.
It turns out that Scott Brown's meteoric run to the Senate was heavily funded by none other than Wall Street. According to Think Progress donors to Brown's campaign included FreedomWorks, a Wall Street front led by Dick Armey who represented AIG, Lehman and Merrill Lynch as a corporate lobbyist. In addition the Club for Growth another Wall Street funded group which has opposed a financial truth commission, ran ads in support of Brown. As a result of Wall Street's generous efforts we are now left with yet another Dud in the Senate, willing to step in to kill crucial financial reform.
Regarding President Obama's speech today, we are left with the following observations:
  1. First the speech was most definitely a much needed step in the right direction.
  2. Paul Volcker has finally moved to the center stage, and his sane voice is finally getting heard above those of Wall Street's best buddies Larry Summers and Tim Geithner.
  3. We applaud Obama's move to label the financial reform as the "Volcker Rule" - a smart move that will help silence potential Republican opposition to the President's bank reform plans. Anyone attempting to voice opposition to anything Volcker says, will have a difficult road to travel, because of the immense credibility enjoyed by Volcker in the eyes of ordinary people. Because of this we feel hopeful that the proposed bank reform will probably have a better chance of surviving the legislative process than the health care bill.
  4. Having said that, we are left with the feeling that the Obama plan to rail against Wall Street was hurriedly put together in wake of the Massachusetts disaster. Complete with strategically staged photo-ops with Volcker, it seemed as a strong attempt to boost the President's credibility. Which leaves us to wonder, would all this have come to pass had the Democrats won Massachusetts? Why has President Obama taken an entire year to propose one sensible reform? Does he really have the courage to follow through on his anti-Wall Street rhetoric? Will he start back pedalling/cut-side deals (like he did with healthcare companies), at the slightest hint of opposition from Wall Street or the Republicans?
  5. Also what are the President's plans around the Fed? Will he allow for a full and complete audit of the Fed? Does the President still support making the Fed the sole regulatory body (a highly unpopular move which has the support of Tim Geithner and Larry Summers)? Does the President still support establishing a Consumer Protection Agency as championed by Sheila Blair, or will he listen to Wall Street and scrap it?
  6. Simon Johnson a former chief economist at the IMF made some interesting observations on Obama's speech: "The serious debate with big finance is just beginning; it will get very nasty, hundreds of millions of dollars will be spent, and everyone, in the end, must take a side. What we need is for sensible legislation to come to the floor of the Senate and for all senators to go on the record, in detail. A public debate of historic proportions -- the kind that shaped this republic -- will set up the Democrats for the midterm elections. If you would like to run on a pro-too-big-to- fail platform, go ahead. As we drill down into the details of ideas for breaking the economic and political power of oversized banks, we need this litmus test against which serious suggestions should be judged: Does a proposal, at the end of the day, imply that Goldman Sachs should break itself up into at least four or five independent pieces, with the biggest being no more than 1 percent of gross domestic product, or roughly $150 billion? If the answer is yes, we are making progress in moving our financial system back toward where it was in the early 1990s, when it worked fine (and Goldman was a world-class investment bank) and was much less threatening to the global economy. If the answer is no, we are merely repainting -- ever so gently -- the deckchairs on the Titanic.

No comments: