I’ve just gotten around to reading Matt Taibbi’s excellent piece (“Wall Street’s Big Win”) in the 08/06/10 Rolling Stone.
This is a must read for anyone who wants to understand what happened and how to gauge who is serious about fixing America’s problems, and who is only interested in pleasing their Wall Street masters.
Matt’s look at how the Democrats have squandered a historic opportunity to fix the root causes of our ongoing economic armageddon is incisive and spot-on, and provides a play-by-play account of the sausage-making that went into this bill.
The Dodd-Frank Wall Street Reform and Consumer Protection Act is being sold by the Dems as the toughest financial reform since the Great Depression — an idea which Taibbi obliterates:
…-a claim that would maybe be more impressive if Congress had passed any financial reforms since the Great Depression, or at least any that didn’t specifically involve radically undoing the Depression-era laws.
Taibbi explains that almost all of the collapse can be traced back to two Clinton-era “reforms”:
1) The Gramm-Leach-Bliley Act of 1999 – which allowed for the mergers of insurance companies, investment banks and commercial banks
2) The Commodity Futures Modernization Act of 2000 – which allowed banks to make high risk bets by deregulating the derivatives market
The huge profits that Wall Street earned in the past decade were driven in large part by a single, far-reaching scheme, one in which bankers, home lenders and other players exploited loopholes in the system to magically transform subprime home borrowers into AAA investments, sell them off to unsuspecting pension funds and foreign trade unions and other suckers, then multiply their score by leveraging their phony-baloney deals over and over. It was pure financial alchemy – turning manure into gold, then spinning it Rumpelstiltskin-style into vast profits using complex, mostly unregulated new instruments that almost no one outside of a few experts in the field really understood.
Unfortunately, despite the good stuff in Dodd-Frank (new lending standards, and more transparency in the derivatives market), it does absolutely nothing to address the real problems at the heart of the collapse.
It’s clear that Republicans aren’t serious about the problem, and it is well-established who they serve. During the debate leading up to this bill, they made clear who they wanted blamed for this mess:
During an other-wise deathly boring year spent covering this debate, I learned to derive some entertainment from watching politicians scramble to give floor speeches about financial reform without disclosing the fact that they didn’t have the first fucking clue what a credit-default swap is, or how a derivative works. This was certainly true of Democrats, but the Republicans were way, way better at it. Their strategy was brilliant in its simplicity: Don’t even bother trying to figure out the math-y stuff, and instead just blame the entire crisis on government efforts to make homeowners of lazy black people. “Private enterprise mixed with social engineering” was how Sen. Richard Shelby of Alabama put it, with a straight face, not long before the bill passed.
The Republicans are referring the the Community Reinvestment Act (CRA) of 1977, which was designed to encourage banks to provide loans to low and moderate-income borrowers. The GOP trope is that this is what caused the housing bubble and subsequent collapse. Bullshit. The Financial Crisis Inquiry Commission issued a draft report that found that compared to the foreclosure rate of mortgages in the independent market was twice as high as those administered through CRA-regulated lenders.
The report found:
Moreover, after accounting for the effect of other characteristics of the loans and the borrowers, such as income and credit score, they find that loans made by CRA-related lenders in their assessment areas are less likely to default than similar loans made by independent mortgage companies.
Maybe someday Democrats will find the balls to take on Wall Street, but those in the present Congress aren’t going to.
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