Here are the key points from Taibbi's response to Obama's straw-man criticisms of Rolling Stone's financial reporting. First:
But it's still odd that [Obama] would focus so intently on that one point [Glass-Steagall], given that the president himself proposed and supported a sort of new version of Glass-Steagall, called the Volcker Rule. Almost all the pro-reform voices I know on Wall Street and in Washington liked the original version of the Volcker rule, and many would have been content to forget about Glass-Steagall forever had the original version of the Volcker Rule that President Obama himself supported actually made it through to become law.But it didn't. Instead, the Volcker rule was gutted from within by members of both parties during the Dodd-Frank negotiations, and as we reported on several occasions, it was Geithner and the Obama administration that were particularly aggressive in scaling it back behind closed doors. That was what we criticized the president for – not so much for failing to reinstate Glass-Steagall, but for allowing his own policy proposal to be punched so full of holes that it would never be an effective law.Years after the passage of Dodd-Frank, even the critically-weakened version of the Volcker rule that did ultimately pass is still not officially federal law, its implementation recently delayed again until at least 2014.
But Glass-Steagall isn't all of this story of failed reform that goes back to the Clinton Administration and his Citibank buddies:
The repeal of Glass-Steagall was just part of the decades-long deregulatory effort that led to this toxic situation. Another Clinton-era law, the Commodity Futures Modernization Act, contributed to it as well, by completely deregulating the market for derivatives (which were used to package all of those mortgages, were a major contributor to the collapse of AIG, and also played a huge role in the Jefferson County, Alabama disaster, among other things). Supreme Court decisions allowing interstate bank mergers where before they had been prohibited helped create the Wachovias and WaMus of the world. And a 2004 SEC decision to lift restrictions on leverage for the country's biggest investment banks allowed companies like Lehman to borrow forty dollars or more for every one they actually had.Collectively, these and other policies created a market where banks were over-large, capital was lethally overconcentrated in the hands of a few huge firms, financial companies were all leveraged to the moon and the fates of federal insurance programs like the FDIC were suddenly tied to the gambling habits of some of the riskiest investment banks in the world. It wasn't just Glass-Steagall – it was Glass-Steagall plus all of this other stuff that made the world so dangerous.So the first and most critical goal of any reform-minded administration should have been to alleviate these dangers by making things less concentrated, i.e. by making Too-Big-To-Fail companies small enough to fail. And Obama really didn't do that, on any front.
And then there is the issue of Too Big Too Fail, which with troubled bank "shotgun" mergers is now worse than ever:
Finally, Obama had a chance to physically reduce the size of Too-Big-To-Fail companies by supporting the Brown-Kaufman amendment to Dodd-Frank, which would have forced big banks to cap deposits and liabilities to under 10% of GDP. He didn't support that amendment and it died.
P.S. -- Never let it be said that I'm a hack who carries Obama's water. He had an historic chance to put Wall Street in its place and a real bi-partisan sentiment against the bailouts and TBTF banks -- remember the Tea Parties were and are (they say) against TARP and the other TBTF bank bailouts?? But Obama let his opportunity slip. Partly due to his inaction, then Occupy Wall Street got involved and the Right knee-jerk reacted against them, conflating OWS attacks against the bailouts and the financialization of the U.S. economy with an attack on capitalism, a reaction which the rightwing media happily helped foment. Then the selfish, self-righteous Wall Street dickheads like Jamie Dimon who nearly destroyed the world suddenly became John Galt in the Right's eyes.
By Matt Taibbi
October 26, 2012 | Rolling Stone
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