He says the beginning of it all was a change in strategy on the part of the Democratic Party:
But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more “business-friendly.” Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn’t going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?
Yes, if Taibbi is right, then so are the Republicans when they say there’s more than enough blame to go around.
Why doesn’t Congress step up and find out what’s going on? The Fed doesn’t think they have to tell the Congress anything:
None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn’t like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself – or so said the law.
The prognosis is grim:
The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex. It might not bode well that Geithner, Obama’s Treasury secretary, is one of the architects of the Paulson bailouts; as chief of the New York Fed, he helped orchestrate the Goldman-friendly AIG bailout and the secretive Maiden Lane facilities used to funnel funds to the dying company. Neither did it look good when Geithner – himself a protégé of notorious Goldman alum John Thain, the Merrill Lynch chief who paid out billions in bonuses after the state spent billions bailing out his firm – picked a former Goldman lobbyist named Mark Patterson to be his top aide.
In fact, most of Geithner’s early moves reek strongly of Paulsonism. He has continually talked about partnering with private investors to create a so-called “bad bank” that would systemically relieve private lenders of bad assets – the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed’s new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.
Read the whole article. It’s written in Taibbi’s usual uncompromising style. If he’s even mostly right on the facts, this is a bad situation that does not seem to be getting addressed.
Lack of reform of campaign finance sets up a race to the bottom. Those politicians who can most appeal to a policy that will benefit an industry’s next quarter will haul in the campaign contributions. Those who don’t have a choice: either lose out on contributions (hence, ultimately elections) or give in.
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p>The result is eventually the same: policies that narrowly help an industry’s short term interests.
This also appears to be part of it. As Krugman points out:
A result of this wrong analysis is that it saves bankers not banks — or to put it more provocatively, it saves campaign contributors not the economy.
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p>With this sort of faux centrism, we’ll get to experience Japan’s lost decade in the cozy comfort of our North America.
Yes, this is a scary scene that is playing out. There is no doubt for me now that we need some legislative controls on the devious actions of Wall Street. Mea culpa: I used to think that Pil Gramm knew what was best for our economy.