Wall Street Gets Protection ... From Itself


Purportedly, President Obama may attempt to shift the focus of the G20 summit from banking improprieties to a rebalancing of trade. While a restructuring of trade is important, Obama is out-of-step with the American public if he diverts attention from the need to cap bank bonuses, heighten scrutiny of hedge funds, and corral the shadow banking system. Recent reports of a power regrowth in the investment banking sector lend support to this concern.

A recent BusinessWeek article observed that a number of big Wall Street firms are the beneficiaries of sizable gains in market capitalization since Sept. 15, 2008. Goldman Sach’s market cap has soared by 70% during the past twelve months, while JPMorgan Chase and Bank of America are both up over 20%, acquisition impacts included. Amazingly, the financial sector now accounts for as large a slice of the S&P 500 as it did a year ago.

The trend for financials seems to be toward richer valuations for the winners, the prevalent theory being that competition in key areas is on the decline. If the recovery continues, the titans of Wall Street may be positioned to become even more formidable. Thus begins the next chapter of “too-big-to-fail.” Little wonder, then, that FDIC’s Shelia Bair wants a resolution trust mechanism that will insure the continuing viability (or supremacy) of the corporations that receive the federal government’s “seal of approval.”

One must consider what has happened on Wall Street this last year when parsing President Obama’s recent Wall Street speech. In his speech the President asked Wall Street’s leaders to show appreciation (for being rescued as America’s defacto leadership group) by cooperating with plans to control systemic risk. When President Obama explains the need for systemic risk mitigation, in all probability he is thinking of unemployment levels, sufficient tax revenues to fund expanded health care, adequate economic growth to keep Democrats in power in 2012, and other such things. In all likelihood he does not discern at much depth the considerations that inform Wall Street’s responses. How fully does the President understand that certain Wall Street elites want government to orchestrate financial fixes to insure that a few Wall Street mavericks cannot put Wall Street’s larger agendas at risk the way Lehman Brothers did? Wall Street wants systemic risk control so that it can declare, in correspondence with John’s vision of Babylon the great, “I sit as a queen and I am not a widow, and will never see mourning” (in the Bible, Revelation 18:7, NASV).

Like Babel of old, the New Babylon — as New York City likes to call itself — wants its dominance fully secure from any threat, including the threat of over-reaching by reason of its own greed. In 2008 it learned that while it is not threatened from without it can be threatened by uncontrolled greed from within. Wall Street needs President Obama’s administration to open up the operations of Wall Street entities to the Fed so that central banking stewards can insure that over-reaching on Wall Street never again hazards the New Babylon’s control of the American empire. What these mega-elites don’t see is the approach of justice’s desserts: “For this reason in one day her plagues will come, pestilence and mourning and famine, and she will be burned up with fire; for the Lord God who judges her is strong” (Revelation 18:8, NASV).

President Obama understands himself to be updating rules and regulatory structures to meet the challenges of a new century. But the capitalistic architecture of Wall Street is not to be much touched. The administration’s ambitious goals are to provide “clear rules of the road that promote transparency and accountability.” But remember: The transparency and accountability are to be gifted to the Fed. America has learned the hard way that the Fed is not a transparent institution. What the Fed learns in its surveillance operations will not work to the benefit of the common good.

President Obama has been sold the idea of a Consumer Financial Protection Agency (CFPA) as a means of protecting common folks from wolves in sheep’s clothing. Wall Street is sold on the idea, too, but its interests arise from different motives. Wall Street hopes that a CFPA will restore working people’s confidence in sending a big slice of their income to their capital acquisition machine.

As explained in his speech, Obama wants to close loopholes that played a role in the crisis, for a continuation of the crisis could do harm to the Democratic Party. Wall Street agrees to the extent it gets to choose which loopholes are closed, for some loopholes are being exploited by Wall Street rebels at an expense to the relative wealth advantages of higher ranked elites. Operating like monster parasites, the ultra-elites want to suck as much wealth from the system as can be successfully leeched. What they don’t want is for the aggregated leeching activity to kill off the hosts. It takes government intervention to insure the sustainability of the siphoning operation.

President Obama wants to put a stop to the ability of some companies to shop for the regulator of their choice. Not long ago his U.S. Secretary of the Treasury, Geithner, went on an expletive laced tirade against the territorial tendencies of regulatory heads, perhaps advocating slyly for outcomes ultra-elites seek. While Wall Street does not want financial firms taking positions that pose systemic risk to the goose that lays the golden eggs, they don’t want regulatory imperialism to be any more intrusive than what serves their purposes. This is why the Fed is being positioned as the system-wide regulator, for its very nature and structure makes its far more sensitive to Wall Street’s interests than any full governmental agency could be.

Naturally, Obama indicated his willingness to be deferential in this sensitive territory, plying the message in the coded phrase of avoiding anything “more intrusive than...any of us, Democrat or Republican...would have proposed....” Following his salute to “the power of the free market,” he argued that “the role of government is not to disparage wealth, but to expand its reach” — something undoubtedly dear to Wall Street’s collective sentiments. A speech like Obama’s serves to inform far-flung members of the investment banking diaspora — London, Moscow, Switzerland and the like — that hidden handlers have Obama’s aides and the president well under control.

Viewed from this angle, President Obama sees himself coming forward to save America. He is the “Regulator-in-Chief” for the sake of the public good. His energy to save the people calls to mind the self-view of the Reagan revolutionaries who gained control of the U.S. House in the 1994 mid-term election. Among their various visions was the hope of deregulating the American financial sector so that America’s innovative spirit could be re-energized. The innovative spirit was certainly energized as Wall Street developed a new generation of what Warren Buffett described in 2002 as weapons of mass destruction.

History now repeats itself. Obama thinks he ushers in a new era of financial security through precocious regulatory reform. Shrewder and more experienced heads on Wall Street see Obama’s legislative initiatives as they saw the earlier GOP’s initiatives: Quite useful for furthering their own vested interests, especially the goal of ensuring that America never again receives an opportunity through market dynamics to throw off the hidden rule of those who have cultivated it so insidiously. This is the systemic risk that Wall Street wants ended.

In his Wall Street speech Obama pledged that if taxpayers ever have to step in again to prevent a second Great Depression, the financial industry will have to pay back every cent. Wall Street will lose little sleep over this pledge because its kingpins believe that with the transfer of trillions of dollars of liability from Wall Street to the federal government it will not be Wall Street that fails first when the next crisis hits. It will be the federal government.

It was of enormous importance to rebuild the wealth of Wall Street rapidly on the backside of this crisis so that Wall Street can participate with a global banking consortium in coming to the government’s rescue when the U.S. Treasury loses the ability to roll its debt forward. Of course, the rescue will be on Wall Street’s terms and with the brutal sacrifice of America’s economic autonomy. How much of this does President Obama discern as he steps onto the G20 stage?