Monday, December 22, 2014

Am I the Only One Who Sees the Ghost?

Dear readers, I'm going to ask you for a favor.

I want you to go to the biggest, most opulent homes in your community and leave $10,000.00 on each of their doorsteps.

That's right. $10,000.00. On the doorstep.

Then I want you to write out a check to the following: Google, Goldman-Sachs, Exxon, British Petroleum, Apple, Microsoft and Citibank for—you guessed it—10K.

Stay with me. Just one more step.

Could you please petition your congressional representation (yes, you still have some—sort of) and the president to imbue the nation's largest and most powerful corporations with absolute power?

Thank you.

OK. Sounds crazy, doesn't it? 

At your most civil, you might be thinking, well, what's he thinking? Did he have a bowl of bad chili? Forget to take his meds? Tell me he's not experimenting with meth! At your most uncivil, you're speculating into which bodily orifice I've inserted my head.

Fair enough.

Suffice to say I'm in a bad way. Let me tell you why.

In 2008, our economy collapsed after years of abuse and neglect. It wasn't because of ignorance, as you could rightly claim with the 1929 crash that kick-started the Great Depression.

No, this crash was premeditated. Enacted with malice aforethought. It was manufactured by jackals who purchased the prostitutes which inhabit the U.S. Congress.

Seduced with promises of unlimited campaign financing, our mealy-mouthed elected representation then repealed the very legislation meant to protect us from the ravages of unregulated bankers and drooling Wall Street carnivores.

Before being neutered in 1999, the Glass-Steagall Act had protect the American economy for sixty-six years. But it also kept Wall Street in shackles. 

Dozens of billions were made instead of hundreds of billions. Some chief executive officers were forced to drive two-year-old Ferraris. Bonuses that rendered Major League Baseball payrolls chump change weren't even a glimmer in Wall Street's eye.

You can see why something had to change.

It shouldn't be a surprise that a Republican, Phil Gramm of Texas, introduced the bill that would play such a large part in unraveling our economy. Two more Republicans, Jim Leach of Iowa and Thomas Bliley, Jr. of Virginia, quickly co-sponsored it.

After tossing the public a bone which amounted to bringing the woman you've just raped a bouquet of roses, the Senate and House passed the final version of the Financial Services Modernization Act that November, with President Clinton signing it into law on November 12, 1999.

Do you remember what you did on that date? Ironic how an event which will one day upend your life can pass by practically unnoticed, isn't it?

It's worth noting that the bill received very little opposition. 

In the Senate, 98.1% of voting Republicans and 84.4% of voting Democrats favored the bill. It was much the same story in the House, with 97.6% and 75.2% of voting Republicans and Democrats, respectively, approving.

Only Michigan Democrat John Dingell voiced concern, exhibiting an uncanny prescience when he stated on C-SPAN that after creating too-big-to-fail banks, passage of the Gramm-Leach-Bliley bill would one day necessitate a federal bailout.

It is remarkable that so few questioned legislation which would undo protections enacted in the aftermath of the worst financial crisis in American history. Protections whose effectiveness was measured in the six-decade absence of home-wrecking financial cataclysms since they became law.

Combined with the Riegel-Neal Act of 1994 (also signed into law by President Clinton—who says Democrats aren't business-friendly?), the environment in which banks and financial services entities operated in was changing rapidly. 

Everyone was going to get bigger and richer and less-regulated. Yay!

Banks and investment houses no longer had to adhere to bothersome restrictions dictating how and with whom they did business. They could co-mingle in any way they pleased. At its essence, the Financial Services Modernization Act meant that banks and investments firms didn't have to bother with condoms anymore.

By the ninth anniversary of its passage, the U.S. economy was in a shambles. An unholy trinity of mortgage brokers, investment firms and gargantuan banks, let off the leash of regulation, had sodomized anything and everything they could lay their hands—and other body parts—on.

The economic equivalent of unwanted pregnancies and sexually-transmitted diseases came with an enormous price tag—one which was borne by the tax-paying public. Congress fixed Wall Street in a single weekend, earmarking 700 billion dollars to bail out the very firms whose deregulation-inspired recklessness had destroyed the economy.

(Permit me a moment to point out how cries of “socialism!” accompany such aid when it is directed at individuals, but an amount which would fund the SNAP program for a decade was given away in a matter of days.)

Fast forward to Fall, 2014 and the creation of a new national budget. 

With the nation still mired in a slow-motion recovery, Wall Street feels put-upon. This despite a robust four-year run that finds the DOW, which bottomed-out in March of 2009 at 6,626, having more than doubled, closing on December 5th at 17,958.

For the mathematically-challenged, that's an increase of 63.1%. Clearly, their economy is doing just fine.

But it's not enough.

The creation of a consumer protection agency and the Dodd-Frank financial reform left Wall Street and our corporate banks feeling picked-on. Unloved. Unappreciated. Why hadn't we cuddled them and kissed them goodnight?

Never mind that the consumer protection agency isn't headed by firebrand Elizabeth Warren because the banks and Wall Street were afraid she might actually do something, or that the Dodd-Frank bill was drastically watered-down to ensure quick passage by an obstreperous Congress.

No, the petulant and entitled product of unbridled wealth and privilege wants more.

Step number-one is the removal of safeguards which were designed to limit our liability in the event Wall Street and Citibank couldn't control themselves. Translated, we (that's you and me) are now liable if Wall Street and our ginormous banks get too much slobber on the steering wheel and lose control of the car.

I'll let CNN explain:

“At the center of the dispute are arcane financial instruments known as loan swaps. Those are contracts between banks used to spread the risk in their loans and trades.

A rule that would have limited the use of those swaps by commercial banks (think Citigroup (C) or JPMorgan Chase (JPM)) was essentially stripped out of the law during budget negotiations in recent days.
Swaps were ground zero of the 2008 meltdown of the global financial system. That's because banks had bundled risky mortgage loans and sold them as bonds. And to make the bonds more appetizing to investors, swaps were created as a form of insurance that the bonds would pay as promised.

So when the housing bubble burst and so many people couldn't afford their mortgage payments anymore, those bonds blew up. And the banks and firms like AIG (AIG) that held the suddenly-toxic swaps contracts needed bailouts.”

And later:

“One provision of Dodd-Frank to protect taxpayers was a rule saying major banks couldn't use their normal commercial banking operation to create, buy or trade these kinds of swap contracts. Instead those contracts had to be held by separate entities whose assets were not insured by the Federal Reserve or the Federal Deposit Insurance Corp.

"If Wall Street banks want to gamble, Congress should force them to pay for their losses, and not put the taxpayers on the hook for another bailout," said a letter signed this week by both one of the most conservative senators, David Vitter, and one of the most liberal, Sherrod Brown.

Even though Dodd-Frank was signed into law more than four years ago, the rules to limit banks gambling with taxpayer-backed money are not yet completely in place.”

So. You get this, right? 

If Citibank and Wall Street fuck-up, it's on us. Their losses will be insured by the same people who insure your bank account—the taxpayer-funded FDIC. Which is another way of saying we the people are on the hook for it.

It's called gaming the system. Casino-owners in Las Vegas will throw you out on your ass and put you on their permanent shit list if they catch you doing this, but in Washington D.C. it amounts to following best practice.  

I'd be fine with this if we also shared in Wall Street's gains. But strangely enough, those will remain in the private sector. Only their losses will find their way to the public sector. 

Privatized gains, publicized losses. Still think the President runs the country?

Call America what you want. Just don't call it a democracy.

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