Armageddon (25 page)

For decades, the banks have chaffed under the restraints of Glass–Steagall and lobbied hard for its repeal. Of course, the banks wanted to get rid of the Glass–Steagall restrictions but were very happy to continue to accept federal deposit guarantees. (During the crash of 2007–2008, a new de facto layer of federal guarantees of bank capital emerged when the “too big to fail” doctrine made its way into national policy. Now not only would depositors' money be protected, but the risky investments and wagers of the bank, its managers, and its owners would, in effect, be guaranteed as well.)

The big task before the GOP in 2016 is to make it clear that Hillary is the candidate of the big banks while Donald Trump is their opponent.

Bernie Sanders has done all he can to make people understand the connection between the Hillary and Bill Clinton wing of the Democratic Party and the Wall Street speculators. We have only to quote him to prove that part of our case. In the first Democratic debate,
Sanders opened up on Hillary over the issue: “Here's the story,” the Vermont senator said. “I mean let's not be naive about it. Over her political career, why has Wall Street been a major, the major, campaign contributor to Hillary Clinton? Now, maybe they're dumb and they don't know what they're gonna get, but I don't think so.”
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Sanders was appropriately dismissive of Hillary's claims that she would not be influenced by swimming in Wall Street money. “I have never heard a candidate,” he said, “—never—who's received huge amounts of money from oil, from coal, from Wall Street, from the military-industrial complex, not one candidate, who doesn't say, ‘Oh, these contributions will not influence me, I'm going to be independent.' But why do they make millions of dollars of campaign contributions? They expect to get something. Everybody knows that.”
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Hillary replied by claiming that she had “hundreds of thousands of donors—most of them small—and I'm proud that for the very first time, a majority of my donors are women—60 percent.”
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Of course most of one's donors are small contributors. But even though the Wall Street money comes from only a few donors, the total of the donations constitutes a huge part of her total campaign treasury.

Then Hillary tried to say that the Wall Street money she got was given as a gesture of gratitude for her help to the downtown New York City area after 9/11. She said this of her support from Wall Street: “I represented New York on 9/11 when we were attacked. Where were we attacked? We were attacked in downtown Manhattan where Wall Street is. I did spend a whole lot of time effort helping them rebuild. That was good for New York, it was good for the economy, and it was a way to rebuke the terrorists who had attacked our country.”
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Who does she think she is kidding? The contributions she got were in gratitude for relief measures for downtown New York after 9/11? No, they were payoffs for her past support of Wall Street and down payment for future favors.

The most important of those favors came in 1999 when President Bill Clinton abandoned the traditional Democratic position against
repeal and signed legislation to wipe Glass–Steagall from the books. (Was it any coincidence that Clinton must have known that his law license was in jeopardy in the Paula Jones case—he was, in fact, stripped of it as he left office. How would he earn a living? In fact, he raked in massive fees for paid speeches, much of it from the very banks he had helped by signing the repeal legislation. Were they paying him back for signing the bill?)

The repeal of Glass–Steagall catalyzed the huge returns Wall Street has reaped since. Goldman-Sachs launched an initial public offering (IPO), taking 12% of the company public in 1999, just as the ink was drying on the repeal of Glass–Steagall. That year, now that Glass–Steagall no longer bound its hands, Goldman acquired Hull Trading Corporation, one of the world's top market-making firms for $531 million, and bought Speer, Leeds & Kellogg, one of the largest firms specializing in the New York Stock Exchange, for $6.3 billion in 2000. And when the banks crashed in the subprime crisis of 2007–2008 and the feds stepped in to give them TARP money to bail them out, the concept of depositor insurance was, de facto, extended to the banks and their executives. Everyone but the taxpayers.

The Wall Street Casino was open for business.

Reinstating Glass–Steagall is a crucial first step in reining in Wall Street and ending the gross wage inequality it has caused. Democrats, led by Hillary Clinton, have opposed reinstatement (to do so would be to condemn her husband's position) while many good Republicans have embraced reinstatement. Old Senator Carter Glass had a good point. If we let Wall Street do as it pleases while we protect their depositors money through the FDIC and safeguard the bank's profits through the “too big to fail” policy, we had better restrict banks to conservative investments.

The rich get richer because the Federal Reserve Board sees to it that they do. That wasn't their original mandate. The Fed was
established in 1913 to strengthen the banking system after a series of catastrophic failures during financial panics. Over the years, the Fed has expanded its job to include fighting inflation and protecting the currency. In 1947, the Congress added the goal of promoting full employment to the Fed's mission. Now, in theory, the Federal Reserve Board has three purposes:

• • Maximize employment
  
• • Stabilize prices
  
• • Moderate long-term interest rates
  

But these days, its formal mandate has been eclipsed by its desire to keep Wall Street wealthy and growing. The Fed has become a personal piggy bank for the richest bankers in America to use to play the stock market and drive up prices. The Fed's former focus on creating jobs and stabilizing prices has fallen back in its priorities. Now—with the strong support of Obama's Treasury Department—this mission has been eclipsed by their personal financial interests, and those of their friends, to keep stock prices soaring even in a tepid and largely stagnant economy.

Even as the personal income of the average American stayed flat and the American economy (GDP) grew by only 20% during the four-year period between 2009 and 2014 (unadjusted for inflation) while the Dow Jones Industrial Average rose by 143%! Wall Street doesn't make its money from a growing economy. It makes it from the rise in stock prices reflected in the Dow Jones index. And the policies of the Fed—by pumping in money the banks can use to buy stocks and take risks—have made the phenomenal income increases on Wall Street over the past five years possible. Indeed, it makes them inevitable.

Why is the Fed so solicitous of Wall Street and its top executives? Two reasons:

• • The Fed staff and board members came from there.
  
• • They will return to Wall Street when they leave.
  

There is a revolving door between the Federal Reserve Board and the banks it is supposed to regulate. A study by the New York Federal Reserve Banks found that 10% of all Federal bank regulators left the Fed just in 2014 alone to take jobs with the banks they used to regulate. There is an especially active exchange between the major banks and the Treasury Department. Jack Lew, the current secretary, came from Citigroup. Timothy Geithner, his predecessor, went to the private equity firm Warburg Pincus after leaving Treasury. And his predecessor, Henry Paulson, was the CEO of Goldman Sachs before becoming Secretary of the Treasury.

This revolving door creates an identity of interests between the regulators of the Fed and the Treasury Department on the one hand and the big banks on the other. The regulators who are working for the government want to protect their future earnings for when they return to Wall Street. And if they are now on Wall Street, they can keep reminding the bureaucrats of their shared interests whenever the need for special favors or bailouts arises.

Under pressure from her supporters like Massachusetts Senator Elizabeth Warren and opponents like Vermont Senator Bernie Sanders, Hillary released her own Wall Street regulatory plan in a December 7, 2015, Op-Ed in the
New York Times
. The key part of the plan was what was not in it: She opposed reinstatement of Glass–Steagall.

We Republicans must make reinstatement of Glass–Steagall our rallying cry in 2016. This one law, albeit with some updating, is the key to stopping the kind of federally insured Wall Street gambling that has put the taxpayers on the hook and created historic income inequality. Instead, Hillary proposed to “impose a new risk fee on . . . banks with more than $50 billion in assets . . . to discourage the kind of hazardous behavior that could induce another crisis.”
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The idea of fining or taxing banks is popular with the Obama administration and their allies on Wall Street because, while the fines seem high and sound like a harsh punishment, they really
matter little to the big banks who are the offenders. They know full well that the feds will never fine them so much that it risks their business—because they are, after all, too big to fail. They treat the fines as a cost of doing business. In fact, it is a kind of fee splitting with the federal government as the fines are paid to Washington to use as it pleases rather than to provide any relief to the ordinary Americans Wall Street's corrupt practices have defrauded.

Indeed, Obama uses the revenue from fines like these to support community action groups that are allied with him politically. He has broad discretion in the use of these monies and uses it to his advantage. You will never discipline Wall Street with fines. The bankers will just laugh.

Hillary dismisses the Glass–Steagall Act as a “depression-era rule” and laments that it wouldn't have stopped Lehman Brothers or AIG from their conduct in the financial scandal. She attributes her opposition to Glass–Steagall to the need to regulate such nonbank institutions. But obviously, any reinstatement of Glass–Steagall will include updating it to cover these growing nonbank firms. The principle behind Glass–Steagall is what is key: Federally insured deposits must not be used for insecure, speculative investments.

Hillary has left herself very vulnerable on the Glass–Steagall issue and we must hammer her over it. Remember that five of the top six organizations that have given campaign money to Hillary Clinton since her current political career began in 1999 are all big banks:

Big Bank Donations to Hillary Since 1999
*

And this total of over $3.5 million does not include speaking fees paid directly to the Clintons nor does it include donations to either the Clinton Foundation or the Clinton Global Initiative. Never has a candidate gotten more money from a single source than the Clintons have received from Wall Street.

Wall Street will loom large in the election of 2016. Exposing Obama's failure to control it, and his record in allowing it to grow at the expense of the rest of us, will be key to winning.

But most important, the Wall Street issue can turn the whole class warfare shtick of Obama's around to work against Hillary. Mrs. Clinton's prodigious involvement with Wall Street, her husband's approval of the law repealing Glass–Steagall, and her own refusal to support reinstating the law, make her very vulnerable on the issue.

But we will have some educating to do. We need to explain to blue-collar Democrats how Hillary's and Obama's infatuation with Wall Street is causing the income inequality about which they complain. We need to show how stopping these abuses and the reckless trading in government-guaranteed funds are essential to avoiding another crash.

The Democrats will push proposals to raise the minimum wage. But only a small part of the labor force gets the minimum wage, and most of them are not the primary wage earners in the family. They are sons and daughters who deliver groceries or work in Wendy's to supplement the family income. The wage should be raised, but it won't do much about income inequality.

We must expose the corrupt, insider relationship between Wall Street and Hillary and make the young people in the Occupy Wall Street group who oppose the bloated incomes of the top one percent to understand that Hillary is their enemy.

Every issue in American politics comes to be equated with one or the other of the parties. Decades of experience have taught voters that holding down taxes, cutting spending, and strengthening the military are Republican issues. Meanwhile, they agree that
Democrats, in general, are better at helping education, protecting the environment, and giving aid to the elderly.

Now the Democrats and the liberals have staked their claim to the new issues of income inequality and of Wall Street's abuses. Capitalizing on the GOP's long identification with the more wealthy in our society, the Democrats are working to make income inequality and big bank abuses work against the Republicans.

But the record is quite different. It was Obama's policies that swelled the incomes of the wealthy and allowed Wall Street to get away with the most predatory of practices.

Trump must tie Wall Street around the neck of the Democrats, using the facts to dispel the myth that it was Republicans who allowed the rich to get so much richer.

Trump must take strong positions on the issue by committing to:

1. 1. reinstating Glass–Steagall,
   
2. 2. mandating criminal penalties and jail time for those who create financial crises by irresponsible investments,
   
3. 3. imposing a fiduciary duty on Wall Street not to lie to investors and to act in their best interest, and
   
4. 4. refusing to bail out big banks if they face failure; paying off the depositors through the FDIC, but for the bank executives and stockholders, it's YOYO—You're On Your Own.