The unrepentant sons-of-bitches who are fighting banking reform

It’s been one year since the investment bank Lehman Brothers went belly up, putting into motion a chain of events that would culminate in some $600 billion in American taxpayer money being given away to corporations like AIG, Bank of America and Goldman Sachs. To commemorate the day, and breath new life into his stalled push for modest reform, our lovable yet naive President delivered a speech on Wall Street, condemning the resurgence in “reckless behavior” that we’re seeing in the industry, and warning that the American people would not likely open their wallets to bail them out again, should they create another catastrophe… I haven’t watched the tape yet, but I expect you can hear hearty guffaws rising up from the audience at that point… Anyway, here’s former Labor Secretary Robert Reich’s take on it:

…Let’s be clear: The Street today is up to the same tricks it was playing before its near-death experience. Derivatives, derivatives of derivatives, fancy-dance trading schemes, high-risk bets. “Our model really never changed, we’ve said very consistently that our business model remained the same,” says Goldman Sachs’ chief financial officer.

The only difference now is that the Street’s biggest banks know for sure they’ll be bailed out by the federal government if their bets turn sour — which means even bigger bets and bigger bucks.

Meanwhile, the banks’ gigantic pile of non-performing loans is also growing bigger, as more and more jobless Americans can’t pay their mortgages, credit card bills, and car loans. So forget any new lending to Main Street. Small businesses still can’t get loans. Even credit-worthy borrowers are having a hard time getting new mortgages…

So will the president succeed on financial reform? I wish I could be optimistic. His milquetoast list of proposed reforms is inadequate to the task, even if adopted. The Street’s behavior since its bailout should be proof enough that halfway measures won’t do. The basic function of commercial banking in our economic system — linking savers to borrowers — should never have been confused with the casino-like function of investment banking. Securitization, whereby loans are turned into securities traded around the world, has made lenders unaccountable for the risks they take on. The Glass-Steagall Act should be resurrected. Pension and 401K plans, meanwhile, should never have been allowed to subject their beneficiaries to the risks that Wall Street gamblers routinely run. Put simply, the Street has been given too many opportunities to play too many games with other people’s money.

But, like the healthcare industry, Wall Street has platoons of lobbyists and an almost unlimited war chest to protect its interests and prevent change. And with the Dow Jones Industrial Average trending upward again — and the public’s and the media’s attention focused elsewhere, especially on healthcare — it will be difficult to summon the same sense of urgency financial reform commanded six months ago.

Yet without substantial reform, the nation and the world will almost certainly be plunged into the same crisis or worse at some point in the not-too-distant future. Wall Street’s major banks are already en route to their old, dangerous ways — now made more dangerous by their sure knowledge that they are too big to fail…

In the whole scheme of things it may not be that much, but at least New York Attorney General Andrew Cuomo seems to be putting up a bit of a fight… If only he were working at the White House, instead of all of these former Goldman Sachs employees, we might actually get somewhere.

This post is brought to you by Glass-Steagall Act, and Michael Moore’s new film, Capitalism: A Love Story, opening September 23 in NY and LA.