There may be an effort on the part of the Republican party to move away from the tea-baggers and Palin fans. May be. But it's not going to do a thing for the Democrats if the Obama administration doesn't separate itself from a Wall Street voters in both parties have come to fear and loathe.
The Obama administration does not seem to understand that this rage, left unaddressed, could consume it. It has pushed aside the entreaties of many — including Paul Volcker, the chairman of the White House’s own Economic Recovery Advisory Board — to break up too-big-to-fail banks. Those behemoths, cushioned by the government’s bailouts, low-interest loans and guarantees, are back making bets that put the entire system at risk. Yet last Sunday, we once again heard the Treasury secretary, Timothy Geithner, on “Meet the Press” dodging questions about the banks in general and Goldman in particular with unpersuasive bromides. “We’re not going to let the system go back to the way it was,” he said.
Surely he jests. On Monday morning, a business-savvy Democratic senator, Maria Cantwell of Washington, publicly questioned Geithner’s fitness for his job, given his support of loopholes in proposed regulations of the derivatives that enabled last year’s collapse. On Tuesday, Congressional Democrats, with the White House’s consent, voted to gut the Sarbanes-Oxley Act, the post Enron-WorldCom law passed in 2002 to prevent corporate accounting tricks and fraud. Arthur Levitt, the former Securities and Exchange Commission chairman, told me on Friday it was “surreal” that Democrats were now achieving the long-held Republican goal of smashing “the golden chalice” of reform. If investors cannot have transparency, Levitt said, “the whole system is worthless.”
The system is going back to the way it was with a vengeance, against a backdrop of despair. As the unemployment rate crossed the 10 percent threshold at week’s end, we learned that bankers were helping themselves not just to bonuses as large as those at the bubble’s peak but to early allotments of H1N1 vaccine. No wonder 62 percent of those polled by Hart Associates in late September felt that “large banks” had been helped “a lot” or “a fair amount” by “government economic policies,” but only 13 percent felt the “average working person” had been. Unemployment ranked ahead of the deficit and health care as the No. 1 pocketbook issue in the survey, with 81 percent saying the Obama administration must take more action.
Even as the health care reform bill succeeds in the House with a respectable, even surprising, majority of the vote, voters in every state are getting daily reminders of how bad things have gotten and how little the administration seems to care -- from additional job losses to the shocking changes in incomes and in the cost of credit. If the pain were evenly divided among us, that might be one thing. But it's not. Business reporter Louise Story lays out just how well individual banks are doing.
Even as Washington tries to rein in Wall Street pay, bankers are likely to make unusually large gains on the stock grants and options they received after shares in their companies fell sharply during the financial meltdown.
Banks cut bonuses last year and shifted more pay into stock and options from cash, a tactic that lawmakers supported for its emphasis on long-term performance. Within months, the financial system began to mend — partly with the help of billions of dollars in government aid — and that stock began surging in value. Some of it can be cashed in starting in just a few months.
And so the bonuses Wall Street received last year, billed as paltry at the time, are turning out to be among the most lucrative payouts ever.
The banks are not only doing well, they're laying the groundwork for an alliance with government which will free them from regulation as never before. Arthur Levitt gets it exactly right: the golden chalice of reform is now in shards. The administration, Congress, and Wall Street are marching in lock-step.
Our Vermont correspondent passed along this piece in Huffington Post about the banks' effort to "alter their accounting standards -- essentially fudge the numbers -- so that the public and investors won't be able to tell how insolvent they really are."
The mechanism is contained in an amendment set to be introduced in mid-November by Rep. Ed Perlmutter (D-Colo.) that would move final authority over the Financial Accounting Standards Board (FASB) from the Securities and Exchange Commission to a new body, a so-called "oversight" board, that would include the officials charged with managing systemic risks to the financial markets.
These regulators would have the authority to override FASB's accounting guidelines by taking into account economic conditions.
... Allowing banks to alter accounting standards when they run into trouble is incentive to take more risk and, in essence, institutionalizes fraud. The regulators would now be under enormous political pressure -- and sometimes under direct orders -- to allow banks to remain in business long after they've become insolvent, in the hopes that things will turn around and they'll grow again.
It's hard to pinpoint where the worst fraud can be found, whether in Congress, along Wall Street, or in the White House.