Bought and Paid For (41 page)

Writing in the
Daily Beast
, former SEC chief Harvey Pitt likened the bill to the Sarbanes-Oxley Act, the accounting overhaul passed by Congress in the wake of the Enron implosion, which had accomplished very little in ensuring that Wall Street complied with rules and regulations. “As it was with Sarbanes-Oxley, we'll be told that our last economic crisis was someone else's fault (but never Congress') and all we really need is a hefty dose of legislative medicine,” Pitt wrote. “And ‘hefty' doesn't even begin to describe this dose of legislation. In 2,500 pages of dense prose, we're about to receive legislation that could better be entitled ‘The Lawyers' and Lobbyists' Full Employment Act.' Which begs the question, what's the likely impact of Dodd-Frank?”

Pitt's answer: “Congress has labored mightily, and brought forth a mouse!”

Here's why: The banking system will be layered with new costs to pay for all the new mandates, which will be passed on to consumers in one way or another. Fees on ATM card transactions will be capped, but the banks are talking about doing away with free checking accounts. Banks might be forced to hold more capital in reserve to protect against market losses. If you think that's such a good thing, consider the following: Because they have to hold more money, they will make less available to small businesses to expand and begin hiring again.

The SEC's new powers to regulate part of the financial business, like the rating agencies, which ineptly placed triple-A ratings on toxic debt and hid the burgeoning bond debacle, are hardly comforting given that the agency has missed so many other scandals in the past. The Fed may be the best of all regulators, and it receives some added enforcement powers, but this is the same agency that allowed Citigroup to buy and hold all those risky bonds that led to its near bankruptcy.

More than anything, if you read though the bill's 2,500 pages, you will notice that there's not one reference to ending “too big to fail.” It's hard to find a serious student of the 2008 financial collapse who doesn't believe that the notion that government will protect, albeit by regulating, the big financial institutions wasn't a major reason for the mindless risk taking by the banks that led to the meltdown. Yet if you read the bill (I haven't, but Harvey Pitt has), it is still alive and well and ready to create the next crisis as traders view the protection of government as license to take risk.

As the
Wall Street Journal
pointed out: “The Democrats who wrote the bill are selling it as new discipline for Wall Street, but Wall Street knows better. The biggest banks support the bill, and the parts they don't like they will lobby furiously to change or water down.

“Big Finance will more than hold its own with Big Government, as it always does, while politicians will have more power to exact even more campaign tribute. The losers are the overall economy, as financial costs rise, and taxpayers when the next bailout arrives.”

Even worse, government will be intruding in the financial system more than ever before, based on the false premise that a lack of regulation caused the financial crisis, rather than the nanny state of bailouts over the past three decades (most notably in 2008) that let Wall Street believe consequences did not go hand in hand with risk taking.

The two lawmakers who seem most destined to take credit for the legislation, Senator Chris Dodd, the head of the Senate Banking Committee, and his counterpart in the House, the inimitable Barney Frank, are preparing, I understand, for political stardom. Dodd in particular is viewing the bill as the cornerstone of his long political career, which is now coming to an end. But both have blood on their hands, so to speak; as the
Wall Street Journal
has pointed out, just a few years ago they were “cheerleaders for” the largesse of the government housing-bubble makers, Fannie Mae and Freddie Mac. Ironically, both Fannie and Freddie, now in receivership, remained untouched in all the reforming going on in Washington. In fact, the talk from Frank was to revive them in some way as the cost of their bailout neared $1 trillion.

And what did Vikram Pandit say about financial reform?

“America—and our trading partners—need smart, common-sense government regulation to reduce the risk of more bank failures, mortgage foreclosures, lost GDP and taxpayer bailouts. Citi embraces effective, efficient and fair regulation as an essential element in continued economic stability.”

In other words, on Wall Street the nanny state lives, no matter how many times the protection of the financial sector by the federal government has been at the heart of the massive risk taking that has led to thirty years of booms and busts, and ultimately the recent great recession that may not be felt on Wall Street, but continues to squeeze the lives on Main Street.

“
W
e'redone with lobbying, finished,” explained a senior JPMorgan Chase executive in mid-July 2010, about the firm's and the industry's position on the financial reform bill as it neared completion.

Considering where it began, as nothing more than an exercise in futility, the bill could be seen as a major accomplishment. Wall Street would be forced to give up certain lucrative businesses—namely proprietary trading, even if it represents only a modicum of the risk taken by the banks on a daily basis. There would be greater oversight of the banks, even if lack of oversight was never really a problem in the past.

At nearly the last moment, Republican senator Scott Brown, whose victory in Massachusetts caused the panic that led to the Democratic attacks against the bankers, proved to be a formidable obstacle to getting the bill passed due to his opposition of the bank tax Barney Frank had tried to insert to force Wall Street to clean up costs. But even that could be finagled.

In the end, Frank agreed to forgo the tax and take the money from the government bailout funds known as TARP and Brown agreed to drop his opposition, ensuring the legislation's passage.

Brown's opposition meant the bill missed its July 4 deadline to be signed into law by the president. What a pity. Wall Street used the holiday that celebrates the creation of our country and the vast freedoms endowed upon its people to regroup and figure out how to maneuver around the bill's various edicts, thus influencing the Big Government it has manipulated, and that manipulates them.

“There's nine buckets in this thing and we have to figure how each of those buckets works for us over the next couple of months,” one senior banking executive told me on the eve of the bill's passage.

Wall Street, for all its worry over Obama's various reforms and his verbal assaults, has done pretty well under this president, so why shouldn't it expect, once all the smoke has cleared, to do well in the future? In fact, Wall Street hiring is up from last year and for all the alleged costs of the new law, banks continue to hire. Trading profits took a dip during the second quarter of 2010, but with interest rates low, Wall Street and the banks can't help but print money for the foreseeable future, no matter how many “Volcker rules” are thrown at them.

It won't be that easy for the average American worker, or for the men and women who strive to create businesses on their own to keep the American worker employed. Small businesses are the backbone of our economy; every statistic shows that they employ as much as half of the American workforce and are the engine of any recovery. And yet they have no seat at the table when the goodies of Obamanomics are doled out. Meanwhile, Jamie Dimon is so confident he can limit the downside of financial reform because his bank, one of the largest and most powerful in the world, can grease the wheels of Big Government through campaign contributions and the hiring of lobbyists.

Maybe that's why in the midst of all the talk about the increased costs of financial reform, the
New York Times
in mid-July ran a story under the headline “Wall St. Hiring in Anticipation of an Economic Recovery.”

Small businesses, as I've pointed out, enjoy no similar benefits because they enjoy no such access to Big Government. As a result, they will be paying higher taxes, will be forced to dole out more benefits through the president's entitlement agenda, and will be hiring fewer people than the crony capitalists who run and ruined our financial system.

Obamanomics, as I've tried to explain in this book, may bode well for the banks, and megacorporations like GE, but it has been an unmitigated disaster for the average American worker by just about every measure available. The
New York Times
may choose to ignore the absurdity of his economic agenda, but I can't; on the eve of Independence Day, unemployment fell from 9.7 percent to 9.5 percent, but only because few Americans are looking for work and the government hired thousands of people as temporary census workers. Businesses are making money; that's a fact that the president keeps harping on as he proclaims the positive GDP numbers as proof his policies are producing results, even as he ignores the high unemployment numbers. But we don't need the president to explain pretty simple economic facts; the reasons for the massive joblessness even as the economy grows were laid out by independent analyst Peter Sidoti in a
New York Post
column I wrote in January: Businesses are hoarding cash because they are afraid of the cost of Obamanomics—the taxes, entitlements, and massive amounts of spending that they will ultimately have to pay for.

Put it all together and the hope and change Obama promised for most of the country has translated into despair and pain. If you don't believe me, talk to a construction worker who faces the unemployment line because no one wants to take a risk and build in this economy, or the single mother who can't find a job in sales because people aren't buying stuff.

Even some of Obama's friends in the media and corporate America (aside from the beaten and bruised Wall Street crowd) are beginning to publicly denounce the folly in his approach to the economy. Writing in the
Washington Post,
journalist Fareed Zakaria reiterated what Peter Sidoti had predicted months earlier when he noted that “America's 500 largest nonfinancial companies have accumulated an astonishing $1.8 trillion of cash on their balance sheets.”

In other words, they're not spending money on job creation. The reason, according to Zakaria: “Most of the business leaders I spoke to had voted for Barack Obama. They still admire him. Those who had met him thought he was unusually smart. But all think he is, at his core, anti-business.”

Put Jeffrey Immelt in that category. Immelt, GE's CEO, has helped his company feast off of the subsidies of Obamanomics, such as, according to the
Wall Street Journal
, “electric-grid modernization, renewable-energy generation and health-care technology upgrades.” Immelt did this in much the same way the Wall Street CEOs did: through politics. He's a registered Republican, but he publicly embraced Obama, sat on some of his advisory boards, and supported his policies, such as the $800 stimulus package that gave GE tremendous benefits (the stimulus plan subsidized GE clean-energy projects) but left the rest of the nation with serious debt and rising unemployment.

Immelt touted his status as a registered Republican when he stated publicly and infamously among his Republican friends his support of the president, saying, “We are all Democrats now.” His friends tell me that the reasons Immelt supported Obama came down to the fact that he liked the president on a personal level and believed he was the moderate that he sold himself as on the campaign trail. At CNBC, where I worked for several years, Immelt called a meeting of top talent to discuss coverage of Obama's economic agenda and whether the heavy criticism by on-air commentators (like me) was fair to the new president.

But in mid-2010, Jeffrey Immelt felt a little like Larry Fink: used and abused by a president who talked moderate before the election and acted leftist after. At a meeting with Italian executives in Rome, Immelt lashed out at Obama's “overregulation” of the economy, said the business mood in the United States was “terrible,” and accused the president of being antibusiness.

When Immelt's handlers back in New York heard the remarks, they quickly backtracked, calling the quotes, which first appeared in the
Financial Times,
as taken out of context. But people who know Immelt tell me they pretty accurately describe his soured mood.

Why the change of heart? GE may have benefited from a few government handouts, but with the economy weak, the conglomerate's many businesses reflect the Obama-induced economic malaise caused by putting ideology, in the form of socializing health care and imposing higher taxes on entrepreneurs, before the economic well-being of the American people.

More than that, it appears that Immelt (along with Ivan Seidenberg, chairman of the Business Roundtable and CEO of Verizon) has come to the realization that for all the benefits offered by Obamanomics to Big Business, the well-being of the country might just be more important.

As I write this, the Obama administration, worried about losing support from big business and Wall Street, has begun a charm offensive to repair the damage of months of class warfare. They are telling business leaders that the president really isn't antibusiness, that, according to a senior executive at one major New York City-based company, he believes the business community “is really part of the solution, not the problem.”

As absurd as all of that might sound to the average reader who knows just a little about what this president stands for, I believe the charm offensive will work. Because in the end, Jamie Dimon, Jeff Immelt, and the rest of the big-business titans will come to realize that the benefits of being bought and paid for far outweigh those of opposing the system that has served these so-called capitalists so well over the years.