Obama Guts Dodd-Frank + Umbrella Movement Epitaph + Grocery Store Torture Report Discussion

When we look back on the Obama years, I fear, they will be seen as a dividing line. On one side of the line will be the quaint notion that people actually have a say in how we live our lives; on the other, the dystopia of our lives as actually lived in a brutal society held together by lies ruled by the super-rich and their police-state enforcers.

Last night the House of Representatives narrowly passed a budget bill (Ashley Parker and Robert Pear, "House Narrowly Passes Bill to Avoid Shutdown; $1.1 Trillion in Spending") that guts a main provision of Dodd-Frank, the key piece of legislation designed to prevent another Great Recession. House minority leader Nancy Pelosi, no one's idea of a Leftist firebrand, broke with the Obama, who was lobbying for the bill, and asked her caucus to reject it. The budget ending up clearing the House with 162 Republicans and 57 Democrats voting yes.

Jonathan Weisman explains in "Furor Over Move to Aid Big Banks in Funding Bill" what it is that the House just did:

WASHINGTON — In a 1,600-page, $1.1 trillion spending bill, a provision to roll back an obscure financial regulation became a focal point of uproar as Congress struggled to keep the government funded. 

The “push-out” regulation — a measure to ensure that banks trade their riskiest financial instruments without the protection of the Federal Deposit Insurance Corporation or the Federal Reserve’s backup — was controversial from the start. Hundreds of billions of taxpayer dollars were shoveled into Wall Street banks after instruments like credit default swaps became worthless in the financial crisis, but even some crucial Democrats were unsure if Congress went too far when it voted to include push-out in the landmark Dodd-Frank law to regulate Wall Street in 2010. 

But with regulators pressing to put rules into effect to carry out the law, a provision in the enormous spending bill to remove the push-out regulation drew bipartisan outrage. Representative Nancy Pelosi of California, the House minority leader, said she was “heartbroken” by the “taint” visited upon the spending bill, which would finance virtually all of the government through September.

***

The fierce Democratic opposition over the Dodd-Frank rollback provision created the odd spectacle of President Obama and Vice President Joseph R. Biden Jr. calling Democrats to muster support for the spending bill over the opposition of Ms. Pelosi. 

“I love the American political system, I really do, but the ability to sneak in substantive policy measures and make it take it or leave it, I think it’s appalling,” said Simon Johnson of the Massachusetts Institute of Technology’s Sloan School of Management and a former chief economist at the International Monetary Fund, who is a prominent critic of the nation’s big banks. 

The push-out legislation assumed outsize importance, not only because of what it does but because the biggest Wall Street companies have fought it since it was proposed. 

The language in the spending bill was inserted by Representative Kevin Yoder, Republican of Kansas, but he did not write it. Citigroup did. In 2013, the bank and its allies were able to corral a bipartisan vote to pass the rollback out of the House Financial Services Committee. In an analysis by The New York Times of Citigroup emails, more than 70 lines of the committee’s 85-line rollback bill came from Citigroup’s recommendations.

The banking industry strongly supports the rollback measure. James C. Ballentine, an executive vice president at the American Bankers Association, said financial instruments like credit deferred swaps are used to mitigate risk, not bolster it. To force their trading into units unprotected by federal taxpayers would be onerous, he argues. 

“The push-out requirement to move some swaps into separate affiliates makes one-stop shopping impossible for businesses ranging from family farms to energy companies that want to hedge against commodity price changes,” Mr. Ballentine said. 

Tony Fratto, a former official in the Bush Treasury and White House, called the opposition “a lot of hyperbole” around “an incremental common-sense regulatory improvement.” 

Mr. Johnson said the evocation of family farms and mom-and-pop banks was specious. The four largest banks conduct more than 93 percent of all derivatives trading in the United States. The repeal push is for them, he said. 

Such banks can still deal in derivatives and credit-deferred swaps in units uninsured by the federal government, but they could charge clients a considerably higher premium if they could keep that federal backstop. 

“In 2008, we learned the economic consequences of conducting derivatives trading in taxpayer-insured banks,” said Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corporation, calling the repeal Congress is contemplating “illogical.”

We're back to where we started before that 2008 election-night celebration in Grant Park when Oprah and Jesse Jackson cried for the television cameras.

Obama has been a terrific bust. His administration has returned the U.S. military to Iraq, has signaled a open-ended commitment to staying on in Afghanistan, has embarked on a New Cold War with Russia, is pivoting to Asia to confront China, and now has provided the crucial support to gut Dodd-Frank.

Most people understand that it was Wall Street's addiction to lightly-regulated derivatives that caused the financial crisis. Obama's support for a federal backstop of the big banks' derivatives business proves that nothing has changed.

So next time you run into a liberal who wants to tell you that Obama is a good and decent leader who would always do the right thing if not for those devilish Republicans in Congress remind him of Obama's support for the 2015 budget.

The epitaph of the Umbrella Movement has been written by Chris Buckley and Keith Bradsher, "Hong Kong Protesters Lose a Last Bastion, but Vow to Go On." The goal here, as in any political campaign, is to claim victory, regardless of the actual outcome, once the campaign is over. Note the tabloid-like opening:

HONG KONG — Constance So, a slightly built university student, wept as she looked for a way past the tightening ring of police officers closing in on the last of the sizable protest camps in Hong Kong. 

With friends urging her to avoid an arrest record, Ms. So, like many others, decided to give up voluntarily. There was no violence, only a few defiant final stands and many tearful goodbyes, as the nearly three-month Umbrella Movement disbanded. 

“It was like my home,” Ms. So said. “I’m leaving my friends behind. I feel like I’m betraying them.” 

For the Hong Kong authorities and their superiors in Beijing, the peaceful end to the protest is likely to be seen as a major victory. They repeatedly rebuffed demands for a greater degree of democracy in this former British colony, and defused the longest sustained political uprising on Chinese territory in many years without a bloody crackdown.

Yet even in their defeat, the protesters, most of them college students, left with a new sense of political identity, a willingness to challenge the almighty power holders in Beijing, and a slogan from a science-fiction film that many of them repeated as they cleared out of the encampment in Hong Kong’s Admiralty district: “We’ll be back.” (A sliver of a protest camp remains in Causeway Bay, a busy shopping area.)

Buckley and Bradsher, thankfully, do include a counter-narrative, which has to do with the diminished status of  Hong Kong's tycoons:

Some in Hong Kong worry that the protests this autumn have harmed the long-term cause of achieving greater democracy. 

They fret that Beijing has permanently transferred large numbers of security and intelligence specialists to Hong Kong to keep a much closer eye on the Chinese Communist Party’s many critics. Beijing, they say, could end up even more resistant to further democratization in Hong Kong for fear that a hostile government might be elected. 

“This movement has done more damage to the pro-democracy camp than anything in the last 17 years,” said Steve Vickers, who was a senior Hong Kong police official before Britain handed over Hong Kong to China in 1997, and who said he favored the introduction of greater democracy. 

Under the British, and through the first 17 years of Chinese sovereignty here, the most powerful political force has been the leaders of the city’s biggest businesses — heavily Scottish at first, but now mostly Chinese families originally from the neighboring Guangdong Province or from Shanghai. These tycoons have long opposed increases in social spending, fearing they would lead to higher taxes on them.

But the bruising political battle with democracy activists has hurt the tycoons’ image and their clout with top city officials and the Beijing authorities, people with a detailed knowledge of Hong Kong’s policy making said. 

To Beijing’s annoyance, the tycoons were reluctant to criticize the protesters for fear that their own businesses might be boycotted. One of the most politically active business leaders, a real estate developer, James Tien, publicly broke ranks in October with the administration’s support for Mr. Leung and called for more negotiations with the protesters. 

“The tycoons are no longer a factor; their days are past,” said the person who works closely with the Beijing and Hong Kong governments.

Last night at the grocery store I asked the checker, a guy I have known for years, what he thought of the torture report. He said, "Torture? What torture report?"

I explained to him that the Senate had released its study of the Bush administration's post-9/11 use of torture and its creation of a network of overseas secret prisons to house the tortured detainees.

He said, "Well, I'm still glad I live in this country."

"Have you ever lived anywhere else?"  I asked.

"No, I haven't."

"How do you know it's not better in, say, Ireland?"

"Well, you're right. But I would like to think that it is better here."

New Numbers from Saez: 1% Doing Even Better

New numbers from U.C. Berkeley economist Emmanuel Saez show that the income gains of the last four years have gone to the top 1%. According to yesterday's story from Annie Lowrey, who is a reporter to look for,

The numbers, produced by Emmanuel Saez, an economist at the University of California, Berkeley, show overall income growing by just 1.7 percent over the period. But there was a wide gap between the top 1 percent, whose earnings rose by 11.2 percent, and the other 99 percent, whose earnings declined by 0.4 percent. 

Mr. Saez, a winner of the John Bates Clark Medal, an economic laurel considered second only to the Nobel, concluded that “the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.”

I'm thinking as I'm reading Lowrey's story yesterday: Saez has been so strong on the issue of income inequality, when is that Acorn-sting clown O'Keefe or one of Karl Rove's 501(c)(4)s going to target him?

In his analysis, Mr. Saez said he saw no reason that the trend would reverse for 2012, which has not yet been analyzed. For that year, the “top 1 percent income will likely surge, due to booming stock prices, as well as retiming of income to avoid the higher 2013 top tax rates,” Mr. Saez wrote, referring to income tax increases for the wealthy that were passed by Congress in January. The incomes of the other “99 percent will likely grow much more modestly,” he said. 

Excluding earnings from investment gains, the top 10 percent of earners took 46.5 percent of all income in 2011, the highest proportion since 1917, Mr. Saez said, citing a large body of work on earnings distribution over the last century that he has produced with the economist Thomas Piketty of the Paris School of Economics.

The data analyzed by Mr. Piketty and Mr. Saez shows that income inequality — as measured by the proportion of income taken by the top 1 percent of earners — reached a modern high just before the recession hit in 2009. The financial crisis and its aftermath hit wealthy families hard. But since then, their earnings have snapped back, if not to their 2007 peak. 

That is not true for average working families. After accounting for inflation, median family income has declined over the last two years. In 2011, it stagnated for the poorest and dropped for those in the middle of the income distribution, census data show. Median household income, which was $50,054 in 2011, is about 9 percent lower than it was in 1999, after accounting for inflation.

The last two paragraphs let us know that the reign of the 1% -- despite reforms already in the pipeline like Dodd-Frank and Obamacare, as well as the recent increase of the top marginal tax rate -- is with us for the foreseeable future:

Mr. Saez has advocated much more aggressive policies aimed at income inequality. “Falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented,” Mr. Saez said in his analysis. 

The recent policy changes, including tax increases and financial regulatory reform, he wrote, “are not negligible but they are modest relative to the policy changes that took place coming out of the Great Depression. Therefore, it seems unlikely that U.S. income concentration will fall much in the coming years.”

System Failure

The Consumer Financial Protection Bureau is doing good work -- cracking down on the predatory behavior of mortgage lenders and credit card companies -- and that's why Republicans in the Senate are going all out to kill it, as explained in an excellent unsigned editorial in today's New York Times:

The bureau cannot operate without a director. Under the Dodd-Frank law, most of its regulatory powers — particularly its authority over nonbanks like finance companies, debt collectors, payday lenders and credit agencies — can be exercised only by a director. Knowing that, Republicans used a filibuster to prevent President Obama’s nominee for director, Richard Cordray, from reaching a vote in 2011. Mr. Obama then gave Mr. Cordray a recess appointment, but a federal appeals court recently ruled in another case that the Senate was not in recess at that time because Republicans had arranged for sham sessions. 

That opinion, if upheld by the Supreme Court, is likely to apply to Mr. Cordray as well, which could invalidate the rules the bureau has already enacted. The president has renominated Mr. Cordray, but Republicans have made it clear that they will continue to filibuster, using phony arguments to keep the agency from operating. 

Earlier this month, 43 Senate Republicans wrote a letter to the president, vowing to block any nominee until “key structural changes” are made, including a bipartisan commission to run the bureau instead of one director, and Congressional control of its appropriations. (It is now financed with bank fees paid to the Federal Reserve.) 

These arguments are designed solely to give Congress more opportunities to stop financial regulation. A board evenly divided between the parties would quickly reach a stalemate and become inoperative, much as the Federal Election Commission has become. Besides, board members can be filibustered as easily as a director.

Wherever one turns there is evidence of corruption, so much so that we don't even see corruption anymore. Whether it is the manufacture of metal hips, the use of lithium-ion batteries in a new jet, the corporate practices of major financial institutions, the exorbitant cost of getting a college education, or the pay-to-play reality of our politics, every major component of society appears to be corrupt. We are witnessing system failure; and because of plutocratic capture very little if nothing is being done to address it.