The Daily Walk of Shame: The White House

This new Motley Fool series examines things that just aren't right in the world of finance and investing. Here's what's got us riled today. If something's bugging you, too -- and we suspect it is -- go ahead and unload in the comments section below. 

Today's subject:
Inflation-crushing former Fed Chairman Paul Volcker has been blazing an independent trail within the Obama administration. He's not content with financial regulations as currently proposed; he also wants commercial banking separated from trading risky securities. Essentially, his plan would lead to a modern-day Glass-Steagall Act

The plan isn't popular on Wall Street. It would force Bank of America (NYSE: BAC  ) to divest Merrill Lynch, JPMorgan Chase (NYSE: JPM  ) to give up Bear Stearns, and Goldman Sachs (NYSE: GS  ) to end its "bank holding company" charade. Citigroup (NYSE: C  ) would have to further break apart its business and, depending on the terms, even relatively pure commercial bank Wells Fargo (NYSE: WFC  ) would have to clear out valuable portions of its Wachovia acquisition. So yeah, it faces just a bit of opposition from the financial services industry. 

Not surprisingly, Volcker's calls for additional financial reforms have hit a roadblock. The administration isn't open to this line of thinking. Volcker's playing coy about the snub, telling The New York Times, "I did not have influence to start with." The chairman of the White House's Economic Recovery Advisory Board doesn't have any influence? Sounds like a problem to me. 

Why you should be indignant:
When Volcker speaks, the administration should listen. The man is a giant. I mean that both figuratively and literally. Volcker stands 6-foot-8 and had he not decided to spend his life body-slamming inflation, he probably could have spent it body-slamming men in spandex for a living. 

But he's also someone who carries a legacy of independence and not following the herd. His far-sighted decision to aggressively raise interest rates in the early 1980s put long-term economic gains ahead of short-term benefits. Whether or not this administration would like to acknowledge it, most of its major decisionmakers are seen as Wall Street-connected. Volcker doesn't suffer from this criticism, and he's earned that distinction by following his instincts and standing up to Wall Street even when his opinions were met with healthy criticism. 

While I'd like to give this administration credit where credit is due -- they've shown an increased level of transparency and given time to answer questions about new financial regulations from the community -- this is one area where the temporary benefits of ignoring dissent in order to promote an orderly passage of the current financial reform isn't warranted. Paying little heed to its most vocal internal dissenter doesn't exactly give off the vibe that the White House is truly committed to cleaning up the systemic causes of our banking failures.

And isn't that what we should be addressing here, the core flaws of our banking system that caused this crisis? If planned reform goes forth without heeding Volcker, and if Wall Street continues to be adept at circumventing weakly enforceable regulation, then we'll be stuck with a broken system for the long run. As Volcker put it, "Memories grow dim, and you want to make a system where you don't have a still bigger crisis 10 years from now." 

What now?
We've been listening to our Foolish community. When we ran a bracket-style competition back in March of who was most to blame for the financial crisis, it wasn't Greenspan, Madoff, Bernanke, Congress, or any of the usual suspects that won. Nope, the winner of the bracket was none other than the repealers of Glass-Steagall. Our readers have openly displayed their belief that Glass-Steagall is central to our financial system's woes. 

Detractors of Volcker's plan will point out that such regulations will make the U.S. financial industry less globally competitive by inhibiting financial innovation. The flip side of the argument would be that such incremental gains in innovation aren't worth the risks and conflicts of interest that occur when banks with large consumer deposits function with a high-risk investment banking division. It's an interesting debate, one that we should have between the two camps. 

But that's just the problem. There never was a discussion or even a debate. Even with a respected leader like Volcker within the administration advocating for Glass-Steagall-like reforms, such a reasonable request isn't on the table. Former Citigroup chairman and CEO John Reed, the very man who led the push to repeal Glass-Seagall, has now come out and agreed that a separation of banking houses is needed. Still, the administration sits firm and hopes Volcker tires himself out running in fruitless circles. 

There's a reason for the healthy mistrust in Wall Street; it's the same reason one of the most discussed articles on finance this year was Simon Johnson's "The Quiet Coup," a tale of how finance has captured our government. People feel as though the interests of the financial industry are put above what benefits the economy as a whole. If the White House wants to show us that it's committed to real reforms going forward and that its financial regulations will actually address the fundamental causes of the crisis, it would be listening less to National Economic Council Director Larry Summers and more to Paul Volcker. I won't hold my breath. 

Disagree with my sentiment? Think the White House should listen up when Volcker speaks? Sound off in the comments section below.

Eric Bleeker owns shares of Citigroup. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (42) | Recommend This Article (111)

Comments from our Foolish Readers

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  • Report this Comment On October 29, 2009, at 1:23 PM, Gallal wrote:

    As a retired banker of 35 years my view goes back to the days of Glass-Steagal when I started in the business. I have witnessed the industry move from one of risk management to sales. When I retired credit was the voice in the wind. All bonus' were based on sales attainment with management by individuals who had never seen a economic downturn.

    I believe that today there are banking companies who still have credit/risk management that have large sway in determining how much risk is appropriate. But I also believe these companies are few and were getting fewer.

    Regulators have found it harder to manage/regulate the numerous banking/finance companies and I have witnessed Credit Unions now following in the steps of Banks in granting credit using the character principal used in Credit Unions and ignoring sound underwriting principals.

    Banking and lending needs core practices and principals. Not everyone deserves credit they have not earned. The government has mandated the Community Reinvestment Act (CRA) that has created an enviroment that suggests all deserve credit even if they have not earned the right or abused the right.

    We do need to take a step back. Maybe Glass-Steagal was too restrictive but the recent environment was too lax, as evidenced by the abuses we have witnessed.

  • Report this Comment On October 29, 2009, at 1:57 PM, catoismymotor wrote:

    Do what I did and write the White House ( http://www.whitehouse.gov/contact ) and recommend they listen to Volker. Will it change anything? Probably not. But at least you can say you were proactive.

  • Report this Comment On October 29, 2009, at 2:03 PM, TMFRhino wrote:

    Thanks for that Cato. No harm in following Volcker on his "quixotic" journey.

  • Report this Comment On October 29, 2009, at 2:33 PM, catoismymotor wrote:

    Have you guys tried to get Volker for a sit down?

  • Report this Comment On October 29, 2009, at 2:36 PM, TMFRhino wrote:

    Cato,

    I don't believe anyone has, but we're always on the look out for new speakers. I'll pass that suggestion along.

    -Eric

  • Report this Comment On October 29, 2009, at 2:47 PM, TMFHousel wrote:

    Great stuff, Eric.

  • Report this Comment On October 29, 2009, at 4:22 PM, venturen wrote:

    Eric really well done...I agree with this 100%.

  • Report this Comment On October 29, 2009, at 4:29 PM, venturen wrote:

    The US Investment Banks overshadow all the other banks. The idea that they won't be able to compete is a joke. I think it is a revolving door into government. rubin, paulson, Emanuel...these guys do not have joe average's interest at heart...they have private equity and making rules unfair for their gain. goldman can borrow at 0% and trade us into the ground. They packaged the mortgages that then shorted..there is something very wrong with that!

  • Report this Comment On October 29, 2009, at 4:36 PM, JPG101 wrote:

    Regulation put in after the Great Depression to prevent another Great Depression was relatively quitely done away with by bankers who are good at manipulating the rules to personally make money. Could they make so much with a truely level playing field and without risking the future of the financial system? Not a chance. Their employers would all be broke without our money to bail them out. They need a crooked system to thrive.

    What will it take for the needs of the many to become more important then the needs of currupt bankers and market manipulators? The Great Recession becoming the second Great Depression? Public outcry will probably be the only thing that could move the regulators to act. Will the public get mobilised for banking regulation? Unfortunetly I doubt it.

    JPG

  • Report this Comment On October 29, 2009, at 5:04 PM, TMFEditorsDesk wrote:

    Good stuff, Eric...100% agree. Not including a Glass-Steagall-like proposal was the glaring hole in the proposed regulation. I don't even really buy the argument that it would hurt the U.S. in world markets. I would think regulations on derivatives would be more detrimental (which is why we need international cooperation on derviatives regulations, if possible).

    -Anand Chokkavelu (TMFBomb)

  • Report this Comment On October 29, 2009, at 5:08 PM, edvantjr wrote:

    Glass-Steagall should be reinstated.

    Ed Vant, Jr.

  • Report this Comment On October 29, 2009, at 5:15 PM, pmlang37 wrote:

    I agree 100 %, even though I own stock in a couple of the companies mentioned at the beginning of this piece. Glass-Steagall should be reinstated, and in addition, when needed, the largest, still too big to fail, companies should be broken up.

    All this empire building by the CEOs may enrich them, but it doesn't do likewise for their stockholders.

  • Report this Comment On October 29, 2009, at 5:43 PM, maccdw wrote:

    Great piece, Eric! In addition to Volcker, you may find Brooksley Born a very interesting interview. I'd love to have her share her comments with Fools about what happened to her.

  • Report this Comment On October 29, 2009, at 5:48 PM, HenryFellows wrote:

    Eric,

    Your article is excellent. The re-enactment of the Glass-Steagall Act will reduce conflicts of interest associated with hybrid banks/investment firms and create more checks and balances which will inure to the benefit of the investing public. At this time, we need specific legislation in the form of the Glass-Steagall Act rather than more financial regulation. It should be noted that the Glass-Steagall Act was repealed through bipartisan action in the late 1990s. Mr. Paul Volcker is the appropriate person to lead a bipartisan reinstatement of the Act. It will be interesting to see if the Obama Administration "does the right thing" as to this matter.

    Henry D. Fellows, Jr.

  • Report this Comment On October 29, 2009, at 7:04 PM, TMFDiogenes wrote:

    Agreed. Nice work Eric.

  • Report this Comment On October 29, 2009, at 8:05 PM, Bonsaiscrooge wrote:

    No doubt Washington is in the hands of the plutocrats! Just look where Paulson, Geithner, Summers and most of the other White House financial advisors came from.

  • Report this Comment On October 29, 2009, at 8:31 PM, thisislabor wrote:

    I love it, one week the whitehouse is asking for our advice, the next week they are on our daily walk of shame list.

    Hey, maybe they will get their head out of their ***es and act like adults and do their job. Instead of massively trying to make up new laws that don't need to be enacted maybe they will just eventually enforce the ones we have, or had in the case of glass-steagal, or you know maybe like the anti-trust laws too. we use to have anti-trust laws, when a company was too big to fail it was broken into pieces so we could have competition for the good the public masses even though it was bad for the owners of the companies.

  • Report this Comment On October 29, 2009, at 8:34 PM, thisislabor wrote:

    I love it, white house is in the daily walk of shame. just where it should be. they ask us for advice and because it isn't what they want to hear they throw it out the window and discount all of it. good put em in the spot light where they belong.

    gj Eric. good reporting and editorial.

    and how 'bout getting an interview Volker?

  • Report this Comment On October 29, 2009, at 9:08 PM, xetn wrote:

    "thisislabor"

    What did you really expect? They have already written the legislation. Every thing else is just PR. In the final analysis, all government regulation basically help a few at the expense of the many.

    The only regulation that would truly help the economy would be to remove all government regulation, drastically slash taxes and spending, eliminate legal tender laws and replace paper with a commodity money such as gold and silver, and end the fed and the FDIC.

    Government regulation adds billions to the cost of everything and ends up destroying jobs by exporting them to other countries. Minimum wage laws limit jobs especially for young people and and people with out job skills. The only "real" use for government is to protect us all from aggression or the threat of aggression and private property rights.

    I would like to propose that TMF interview someone from the Mises Institute on what would really help fix the economy and restore personal freedom, but I will not hold my breath.

  • Report this Comment On October 29, 2009, at 9:17 PM, daleinaz wrote:

    Here is a thought: If a company is "too big to fail", doesn't that mean it is simply TOO BIG?

    Corporations are legal fictions, created by law to shield the owners/executives from most legal liability. If they are created by law, the same law should regulate them. Either they should be limited to a size that won't collapse the entire economy if they fail, or else, they should legally limited in the risks they can take, to make it highly unlikely that they will fail.

    Go Volker! All Fools, contact the white house!

    PS: I'm a Libertarian, which normally means I'm against government meddling. But when you socialize risk, while privatizing gain, you end up exactly where we are today.

  • Report this Comment On October 29, 2009, at 9:42 PM, robertf36009 wrote:

    I completely agree in fact I would go even farther. Jeremy Grantham's GMO third quarter letter and the accompanying piece are a real eye opener I recommend that all Fools read it.

  • Report this Comment On October 29, 2009, at 11:47 PM, madhat007 wrote:

    i GUESS OUR COMMUNITY ORGANIZER PRESIDENT ISN'T REALLY ABOUT CHANGE! HE'S INCAPABLE OF SCALING BACK THE POWER OF THE WALL STREET BANKING LOBBY... and yes it is powerful,,,the issue is the lobbyists are not as smart as they think they are! The short term solution which they all want, will blow up in their face! So what do fools do?

    THEY MOBILIZE....IT IS POSSIBLE ...YES WE CAN! I KNOW HOW TO FIX THE PROBLEM SO THAT SMALLER BANKS AND SMALLER INDEPENDENT BROKERAGES CAN LEAD US OUT OF THE MAZE...ONLY DUMMIES INVEST WITH THE LIKES OF THE EXPENSIVE INVESTMENT HOUSES THAT CHARGE AN ARM A ND A LEG FOR THEIR DUBUIOUS RECOMENDATIONS...you know who I mean they rip off their customers and charge way to much for their "advice" I would much rather learn from the fools than the fools these big houses use to spew their books..look at all the worthless "innovative products" they created the last ten years that no one understood and the only ones that made money were the brokers and the banks and now it is all coming back and we see how they stole the money! makes me think maybe the adminastration has issues if they are in support of this type of approach...

    Volker is the man! He manhandled the Saudis during the oil crisis and his toughness frixed the problem we need tough love....probably won't happen though because the power likes it when people don't have access to the information... Volker is the guy..

    so what to do....let's mobilize with the readers and get all of us together to appear at the special congression hearings for what caused the financial crisis and get Mr Volker heard and get his ideas presented to the Anerican people...We need Glen Beck, Bill Oreilly and alot of help from Fox because they have the capacity to launch a realistic opposition to the Lobbyists! what do you say are we ready to stand up and ask tough questions?

  • Report this Comment On October 30, 2009, at 12:16 AM, bc0203 wrote:

    xetn hit the nail on the head.

    If you're not helping them towards their end goal, shut up. "'I don't want the folks who created the mess to do a lot of talking. I want them to get out of the way..."

    As was the case with healthcare, you'd best share their vision of what a "mess" is, and how it "should" be cleaned up (i.e. "with a socialist mop") or they will marginalize you.

    In case you weren't smart enough to pick up on that, fellow Fools, that's why you were invited to the White House earlier this month - so they could see if you'll be useful towars their ends, or if you'll end up being marginalized.

  • Report this Comment On October 30, 2009, at 12:29 AM, ELPY2 wrote:

    Corruption on Wall St is only possible because of corruption in Government. Federal,State,City and local politicians are mainly concerned with feathering their own nests. Term limits would help along with an interested electorate. Some people should not be bribed to vote. People receiving public handouts shouldn't be allowed to vote till they get off the dole.

  • Report this Comment On October 30, 2009, at 10:04 AM, ewent0 wrote:

    The problem isn't a lack of financial regulations. It's the lack of teeth put into regulation. For every law, some financial genius figures out a loophole when the answer is right under their overeducated noses in black and white. Until accountability returns to the financial industry and lack thereof is punished to fit the negligence, public trust will never be stable again. There's the "change" no one expected.

  • Report this Comment On October 30, 2009, at 10:21 AM, TMFRhino wrote:

    Hey ewent0,

    Agreed with your comment. That's the kind of issue I was getting at with this section, "If planned reform goes forth without heeding Volcker, and if Wall Street continues to be adept at circumventing weakly enforceable regulation, then we'll be stuck with a broken system for the long run."

    It'll be hard to enforce regulation as currently presented. To me, a black and white splitting of investment banks and commercial banking is a far more viable/effective solution for ensuring a safer banking system.

    -Eric

  • Report this Comment On October 30, 2009, at 10:59 AM, paducah5102 wrote:

    do what you can to make the views of Volcker known to the general public. I wonder why Obama has him there if he is not going to pay any attention to him. Sometimes I agree with the notion that Obama is the prisoner of Wall Street and cannot really act on his own.

  • Report this Comment On October 30, 2009, at 11:55 AM, new1dog wrote:

    Okay. I sent my message to: http://www.whitehouse.gov/contact

    A personal "first" for me. But I have to wonder, does anyone actually read what must be tens of thousands of messages daily??

  • Report this Comment On October 30, 2009, at 11:58 AM, dwscho wrote:

    Excellent article.

    I spent 38 years in the financial services industry before retiring a couple of years ago. When Glass Steagall was repealed, there were many positive opportunities presented to the industry. Unfortunately, many of the big commercial banks and the investment banks got greedy. The industry started paying massive sums of money to employees while totally overlooking the risks being assumed by many of the new products concocted.

    I expect a return to Glass Stegall would address the issue. However, I am not sure we have to fully return to those regulations. I believe some restrictions on the so called innovative products would help eliminate the riskiest activities such as the various derivative and other high risk products and activities. I believe some of the new powers, e.g. the ability for banks to offer retail brokerage services to customers have generally been positive.

    I also think we need to see changes in the "too big to fail" mentality. In my opinion, if they are too big to fail, then they are too big. We need to force them to divest until they get to a level which doesn't threaten a collpase of our financial system.

    I believe the government was a major contributor to the problem. CRA and the resulting lax mortgage lending practices driven by Fannie and Freddie were a major contibutor to the meltdown. I know the government would not accept any responsibility. Why should they? We voters haven't held them accountable for their past mis-deeds and it's unlikely we will for the current mess they created. Our current situation is yet another case where the federal government tried to implement it's social agenda resulting in yet another disaster for taxpayers and the economy. Even the steps the Feds have taken, e.g. the stimulus package, cash for clunkers, housing credit, etc., have done nothing but make matters worse.

    Our government is totally out of control. We have so much irresponsible activity being undertaken with absolutely no regard for the financial impact on future generations. CRA is one example. Medicare, Medicaid, Social Security and many more failures are about to be enhanced by Health Care, Cap and Trade and who knows what else. We need to regain control of our federal government. The only way that will happen is by citizens voting out incumbents, implementing term limits and limiting the role of our federal government to that outlined in the Constitution. I don't hold out much hope of these things happening as we have seen the same old irresponsible politicians re-elected time and again. Why would we expect them to listen to their constituents when they know we will re-elect them when they perform badly? They know voters haven't historically held them accountable. In the end, we reap what we sow. If we don't force changes through the ballot box, nothing will change for the positive. Let's all remember this in 2010 and give them the boot.

  • Report this Comment On October 30, 2009, at 1:11 PM, sowthpaw wrote:

    Nice job of putting into words my thoughts as I've listen to the pundits on the news kick around the financial industry regulation debate! They're all missing the most important point in this debate. The big problem is not the size of financial services firms, which government agency is regulating them, or even how they are capitalized. These issues are all secondary to how the industry is now structured post-Glass Steagall. The current proposals are in Congress are the worst of all worlds - the dampening effect of more regulation with economic risk of mixing investment and commerical banking.

  • Report this Comment On October 30, 2009, at 1:20 PM, jasbo43 wrote:

    I agree that we need specific legislation in the form of the Glass-Steagall Act. The earlier version of

    Glass-Steagall should be reevaluated, updated and reinstated.

    In addition, the "uptick" rule should also be re-inforced.

    If reform is not strengthened, while Wall Street continues to circumvent weakly enforceable regulation, then we'll be stuck with a broken system for the long run."

  • Report this Comment On October 31, 2009, at 12:03 AM, punterman wrote:

    Eric, thanks for getting this conversation going, and thanks to everyone pitching in. Fair notice of my being a long-winded bag here.

    FIRST QUESTION: Will efforts by Mr. Volcker and any other knights at the third or fourth layer down (lets say, banks and brokerages and similar) ever be taken seriously while the first two layers go unexamined (lets say the FED & congress)? To elaborate...

    The FED leaders, as counterfeiters to congress, send new money into the system without real collateral of any kind required or provided. Also, if congress tries to reach a bit and claim as their indirect collateral the productive capacity of our country, then isn't that collateral being used twice, once by the businesses for their own credit, and then again by congress? Are they hoping that it will just go unnoticed as a practice? Is this the modeling that we want at the top?

    Also, there are all of these center and fringe questions that persist about the FED’s msyteriousness - why not bring it into full legitamacy by leading the way with its own transparency? There are so many questions, not the least of which is why this government contractor has operated a monopoly, possibly against the Sherman Act, for 96 years with no formal entertainment of replacing them with a competing contractor that can do a better job and charge us less. I don’t get it. Many people don’t get it. Why not have it out in the light of day?

    With this clouding at the source, can anyone expect any real transparency to happen in our current downstream monetary system? It’s like a parent that is sedantary, drinking booze all the time, smoking constantly, and yelling at their kids to eat right and get their bodies in shape and then punishing them for not doing it. Hypocrisy, especially if we are actually expecting to have congress or treasury dictate and oversee other institutions’ transparency. The shiftiness has a dishonorable taste to it, it mocks our society, and it also makes a bad impression as we try to do our nation-building empirical thing.

    Doesn’t this money-creation activity by congressional leaders and FED leaders create perpetual inflation/debasement of the money? With this bizarre structure in place at the top two layers, it seems unlikely that we can accurately call what we have a market-based economy, or market-based currency, or even a capitalism. Mr. Volcker, it seems largely distractive for you and others like you to focus on banks or similar casinos when those entities are simply following the lead of capricious money-craft demonstrated by our congress and central bank as they embrace and model counterfeiting and debasing as operating norms.

    SECOND QUESTION: Doesn't our current system have an unresolvable breakdown because the same money supply flows amongst players that play by different rules? To elaborate ...

    Members of congress take out interest-bearing loans from their own self-created counterfeiting operation (FED) to beget spending money for their projects and interests (like TARP, ARRA, Iraq, etc.), and then these same members of congress author and sustain laws which compel the states' residents and states' businesses to pay the interest on the congress’ loans via taxes, while the principal of those loans is never paid back. Whereas businesses must have collateral, congress doesn't. Whereas businesses must pay back loans, congress doesn't. Whereas businesses need to make their own interest payments on debts, congress has someone else make theirs. Whereas members of congress distributing the borrowed counterfeit money are not required in any way to demonstrate that their borrowing and distributing was value-creating, businesses must do this. And congress is making regulations for businesses to follow which rules are different than their own. All the same money supply, with different rules for it’s management and some players being stuck working with finite money and other players get to operate with infinite money - can that ever really work out well?

    With this counterfeit operation at the top two layers, how can we ever really know what our money is worth, or where it is, or how much of it there is, or who is accountable for the part that goes missing? Mr. Volcker, is this not THE source issue for you to run to ground? If the top leaders are shape-shifting the existence of money, why bother those that imitate them downstream? If you try to fix the downstream imitating parties without fixing the upstream source activity, will it really fix anything, or does it become a charade?

    The counterfeiting organization (FED) provides money to the members of congress, and they historically route it to the people and regions and companies that gave money to them during election campaigns and those that will hire them following their terms in office. This siginificant flow of money is not guided by market forces nor business fundamentals - but rather political motivation. These are large flows in/out of the same money supply used by businesses which must operate by different rules. Why expect stability, sensibility, ethics, etc. in downstream institutions like brokerages or mortgage companies in the presence of this upstream modeling behavior? Can Mr. Volcker, or anyone listening, explain why we don’t fix the source upstream?

    THIRD QUESTION: With the FED's counterfeiting, and counterfeiting in general, isn't it true that it is not dilutive for first handlers of the new money, but certainly for downstream handlers of what becomes our time-debased or quantity-debased currency? Also, don’t the people at the top of the counterfeiting pyramid have corruptive advantage of knowing what is about to happen with money rate and supply decisions, and are therefore able to risklessly short futures against bonds, sell bonds, buy back bond futures at discounts, etc. essentially gaming the casino with inside information while our business system players take much more risk by having to guess about what the counterfeiter at the top will do next? Is this what we call a free market or a capitalism? Is this our congress’ idea of how to help our businesses succeed in the global context? Or is our own congress hurting our own business’ chances? It’s unclear, and it appears like a bizarre treason at first glance.

    If that isn’t addressed, how and why would we expect some new workability and intergrity to occur in our financial system?

    FOURTH QUESTION: Isn't our oligarchic money system in truth managed politically and not economically?

    Any workability that we create with our current business activity seems to happen despite our current structure of oligarchy and counterfeiting, not because of it.

    The FED leaders fidget with interest rates and also credit availability for domestic businesses, based on private dialogue amongst a small group of people not chosen by our populace or market participants, and typically with dramatic surprise announcements, and no consequences or accountabilities if their privately developed choices are destructive to our currency, our standard of living, or our business system strength relative to other countries. Is this structure part of a sensible strategy for building our country’s relative economic strength?

    The FED leaders, without oversight or audit and as they wish, move billions of our currency into the central banks of other nations with whom we are competing. We don’t know who gets it or how much they get or whether we will get it back or when we will get it back. We don’t know if our own money is spent on weapons that end up being aimed at our own troops and cities. Is this structure part of a sensible strategy for building our country’s relative economic strength?

    The FED leaders and congressional leaders have arranged for us to be substantially in debt to communist China, after half a century of losing too many of our soldiers and other country’s civilians in the fight against communism. I am not old enough to have fought in those wars, but I am wondering what the surviving soldiers think about our current debt obligations with China. I’m confused - are we still against communism? Is this some clever ploy to get them drunk on faux capitalism so that they will give up their faux communism? Why have we become deeply obligated by our money contractor to the largest communist country (who also has the world’s largest air force)?

    Members of congress use expansive creativity, that they more or less granted to themselves, in how they choose to interpret and apply the commerce clause of the constitution to exercise oligarchic influence on private business operations, and to divert money from private business operations to government slush funds under the label of fees, licenses, and taxes. Can someone tell me how this is helping our country’s economic prosperity, long term strength, small businesses, and employment? Are they hoping that no one notices? Is this supposed to be magically experienced as an economic stimulant when it really does the opposite?

    From what I am observing, it seems that our economic flow is largely guided by political activity and more importantly POLITICAL CHARACTER. Not being a political expert, I took some time to look into what many other people have said over the centuries about this phrase. The theme of definitions for political character that emerged in my research is "having interest in status or authority rather than interest in principle".

    The expression of this political character that seems to be consistently agreed upon in what I researched includes "the tendency to hide infidelity behind a mask of loyalty, to camouflage deceit to look like integrity, to gain credibility while being duplicitous, to lie and still invite belief, to cheat and still induce confidence, to steal and still inspire trust" - essentially to con others with talk while looting them.

    What the hell has our government/banking environment become? Our country can get this done without cheating and lying and corruption. We can get rid of our spoilage and make room for what’s healthy. We’ve done it several times in our history. Isn’t that the attitude and choice and culture that all of our brave guys and gals have been fighting to defend? Mr. Volcker, do you hear me and can you help us get back on track with this? Is our society of 300 million really stuck with being the doormat of a collusive congress and central bank?

    For my two cents, I believe that the people in this online community, and many other similar communities have great knowledge and ideas and energies to contribute to cultivating and navigating a healthy vibrant market economy - which unfortunately seems to be an impossibility within the current STRUCTURE of oligarchy. We seem to be saying "boy, some day when we have an authentic free market, here are some great theories and designs for us to keep in mind".

    After reading your piece Eric, I was left hoping that maybe this structural change at the top two layers is what Mr. Volcker is working on, rather than symptomatic reforms at layers 3 & 4 that allow and encourage our destructive oligarchy's persistence.

  • Report this Comment On October 31, 2009, at 3:38 PM, burrowsx wrote:

    We not only need to reinstitute Glass-Steagall, but also need to reinstitute reasonable limits on credit availability and on usurious interest rates, to prevent abuses both by consumers and lenders. I do not want my grandchildren to re-enact Pearl Buck's "The Good Earth."

  • Report this Comment On October 31, 2009, at 11:59 PM, diligentnow wrote:

    Thanks Eric for the article about Volker's advice to re-enact Glass-Steagall. I agree with punterman, that the Fed should be audited and I share his concerns about Congress and the direction the county is headed. We need to stay informed and understand that we must act to stop this madness.

    Congress knows that they can easily be replaced in the next election. The lack of ethics, the corruption, regulatory failures, financial irresponsibility, etc, that are demonstrated in government these days is chilling. And what does one say about Congressmen who admit they don't read or understand the bills they are voting for?

    I have never been this concerned about our country's future before, so I plan to join the others and make the call to the White House. I will also contact my Congress(wo)men and anyone else who will listen.

  • Report this Comment On November 02, 2009, at 2:05 AM, pragmatic1 wrote:

    Great article and good comments. One note, to answer the question of what our money is worth, the US dollar is actually just an IOU. It has no backing like gold or silver certificates. At one time the US paper currency was backed by hard assets and had value, but no more.

  • Report this Comment On November 02, 2009, at 3:07 PM, Shiebron wrote:

    I was in California during the 80's and witnessed the destruction that certain policies had and were causing-at the time there was one man who stood in the way of some very bad national decisions and that was Mr. Paul Volker. At the time the sane people on Wall Street knew this and stopped Pres. Reagan from moving Mr. Volker any where so he could save us from ourselves at that time. All should stop and listen when this vauable resourse speaks.

  • Report this Comment On November 03, 2009, at 3:46 PM, mowris wrote:

    Glass-Steagall is one way or require reserves to cover everything as they do in Switzerland.

    Conflict of interest is the core problem that must be addressed.

    Liar loaners must go to jail.

  • Report this Comment On November 06, 2009, at 11:47 AM, Pliny102 wrote:

    I think Charles Morris lays out what ought to be done about the Financial sector in a page or two of 'The Trillion Dollar Meltdown' pretty clearly and succinctly. It's too bad that there are apparently so few people in Congress who are both literate and unbeholden, and who also have a dim understanding that our suicidal financial system is in desperate need of intelligent doctoring.

  • Report this Comment On November 06, 2009, at 12:06 PM, apachecav wrote:

    Holy Crap no wonder we are in such a mess, just read your comments! Have any of you ever heard of Freedom!? or Capitalism!? FDR screwed us big time by creating the SEC and the advisors act of 1940 and Glass-Steagal..et el...His policies created the great depression ruined million of lives for more than a decade, effected investor returns negatively (study done on investor returns before and after FDR) We have yet to recover from that Bozos policies and Volker’s ineptitude the first time and now you idiots want more! God help us!

  • Report this Comment On November 06, 2009, at 1:15 PM, fogahead wrote:

    While I understand the call for more regulations to restrict the size of institutions after the mess of the last two years, I'm really concerned that this is the wrong approach.

    Main reason is that we should be considering regulations in the context of the global marketplace. Not just the US. For example, restricting the size of US firms, for example, while the HSBC's of the world grow uncontrolled hinders US competitiveness.

    Instead, I think we should consider sunlight to be the best disinfectant and prevent government bailouts. Requiring everyone to fully disclose all risks to some government entity so that it becomes public information would, I think, prevent the market free fall that we saw since each firm would know the risks of an event on partner firms.

    One problem this would cause more volatility since corporate appetite for risk is likely to fluctuate. Allowing the govt entity to force specific capital requirements on firms would dampen this effect.

  • Report this Comment On November 06, 2009, at 2:08 PM, WV112568 wrote:

    The financial system has the same problem that Congress and the Senate have that caused this mess. Simply the money being spent or "invested" was not thier own. They had or have "NO SKIN IN THE GAME!"

    If I make a loan to someone to buy a house, car, etc., if it is my own money, I will do everything in this world to make sure it is paid back. I therefore have incentive to do my homework ahead of time and closely monitor the situation.

    Not only did these people making loans and underwritting mortgage securities not do their homework, they were encouraged to do volume and not quality, no matter how crazy it was gettintg in the housing market.

    Just like congress, when it isn't your money at stake, what incentive do you have to behave responsibly?

  • Report this Comment On November 06, 2009, at 2:15 PM, dhuddle wrote:

    Great article. I agree. Serious question: What are these "innovations" they keep talking about? Do they mean Credit Default Swaps, Mortgage Backed Securities and being able to speculate in stocks? Didn't those 3 "innovations" cause a lot of the problems we face now? It seems to me that they want it both ways - the benefits and government support of being a bank but also the ability to gamble and take lots of risks. Obviously, the problem is that if you know you will be propped up by the Government you are more likely to take risks. Since we are all affected, we should say "no". If they don't like it, let them be an investment firm and not a bank. Does this make any sense? And please, if you respond, don't somehow try to blame what the banks ahve done on government corruption - that is ludicrous. Lack of regulation I agree with.

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