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Obama: Economically illiterate

The staid National Journal:

More tellingly, Obama, by all evidence, is not unhappy with the financial status quo. The president clearly has other issues he wants to spend his political capital on: a deficit-reduction deal, gun control, immigration reform. And Obama seems fairly satisfied with what Geithner has wrought. In a revealing interview with Rolling Stone last fall, Obama sounded the straight Geithner-Rubinite line on Wall Street: “I've looked at some of Rolling Stone’s articles [by acerbic critic Matt Taibbi] that say, 'This didn't go far enough; we didn't institute Glass-Steagall' and so forth, and I pushed my economic team very hard on some of those questions. But there is no evidence that having Glass-Steagall in place would somehow change the dynamic. Lehman Brothers wasn't a commercial bank; it was an investment bank. AIG wasn't an FDIC-insured bank, it was an insurance institution. So the problem in today's financial sector can't be solved simply by reimposing models that were created in the 1930s.*”

[Jeff Connaughton, who as a senior Senate staffer fought for financial reform and later, in despair, wrote a book titled Wall Street Always Wins,] calls Obama’s view “financially illiterate,”** and he’s right. The point was not that the repeal of Glass-Steagall caused the crisis. Instead it laid the groundwork—planted the “seeds,” to use Kelleher’s term, along with other key moves by the Rubinites in the 1990s. A crisis of size of what happened 2008 doesn’t occur because of just a Lehman or an AIG is out of control. It happens because the entire financial system is infected by risk, and there are no more islands of safety, such as commercial banking, or any firewalls. This what Rubin’s signature policy, the repeal of Glass-Steagall, began to accomplish in 1999; it ensured there would no longer be any strong firewalls and capital buffers between Wall Street institutions and their affiliates, and between banks and nonbanks and insurance companies. A year later, in 2000, Summers and Geithner pushed for the Commodity Futures Modernization Act, which created a global laissez faire market worth trillions in unmonitored trades. So with the repeal of Glass-Steagall, systemic failure was entirely forgotten while at the same time, with the passage of the CFMA, huge new systemic risks were being created. As Eric Dinallo, the former superintendent of the New York State Insurance Department who dealt with the collapse of AIG, once put it: Deregulation "created a perfect storm of financial disaster."

NOTE Oooh, FDR slam!

NOTE ** Isn't this just another way of saying Obama's weak, instead of admitting Obama's getting what he wants? After all, he's "not unhappy"...

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