After appointing banking industry insider Tim Geithner to manage the executive branch’s response to the economic crisis, the banks made out like bandits. Free market values were thrown out the window as trillions of dollars were simply handed to the financial industry in order to save them from almost certain collapse… courtesy of the US taxpayer, especially future ones. The result was expected, decline in the dollar, skewed market reality, and banks were saved. By saved I do not mean that they simply did not die, I mean that they got bigger, their bonuses got huger, and instead of using the money to rebuild the economy, they simply invested it in the market making record profits. I also do not mean that all banks were saved, the smaller ones continue to die to this day, only to be gobbled up by larger banks or nationalized by the federal government. In essence, Geithner, the bank guy, saved the banks. Not surprising.

What did surprise people was that Obama, the “agent of change,” seemed to be more and more in bed with Wall Street. The market has dramatically improved over the last year, primarily because the big market movers have been drafting off highly-public government bailouts and “stimuli,” but this has not “trickled down,” in fact, the bailouts and cash continue to “trickle up” under the Obama regime. Simultaneously, while Democrats have done their best to concentrate taxpayer dollars in the hands of government-regulated enterprises (as banks are), the American people have grown unhappy with the direction of the country. The charge that Republicans benefit big business disproportionately has been muted by the Democrats’ blatant redistribution of wealth from bottom to top. The victory of Republican Scott Brown in heavily liberal Massachusetts made it clear that the people were unhappy. Lucky for the Democrats, they had a plan ready all along.

Even the Lefties are sick of Obama’s bailouts

For months, Obama has been blasting “fat-cat bankers” for their arrogance (pot calling the kettle black) and struck a populist tone. This is a sharp change from most of last year, during which Obama was “spreading the wealth” as he promised. He even recently said that they would tax the banks in order to make back the money that they lost from the bailouts… of course, banks would simply pass on these extra taxes onto the consumer, making it so that we, the taxpayers, would end up paying ourselves back. But forget logic, let’s get back to populism. Now Obama says that he wants to enact stricter regulations on the financial industry, adopting the so-called “Volcker Rule” that aims to separate the investment and commercial banking operations of financial firms, including the provision and I quote: “banks will no longer be allowed to own, invest or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers.” He railed against banks taking advantage of the taxpayer safety net that they enjoy… a safety net that the president eagerly employed in his quest to save the banks. He railed against the excess and abuse of greedy banks… without mentioning that it was the federal government that enabled, encouraged, and ultimately rewarded such excess and abuse. In sum, after building up the banks, handing them taxpayer dollars without oversight, and placing bank industry insiders as managers of the “recovery” efforts, he made banks the scapegoats… bashing Bush can only take you so far.

If you think that this was not the plan from the beginning, you are fooling yourself. Obama and his minions made it priority one to inflate the banking industry and then make them out to be the villains so that the Democrats could continue with their principal argument: capitalism is a failure and socialism is the only way. Some people say that the Volcker Rule will prevent any crash like this from occurring in the future, that may be so, but what we sacrifice is the growth of the American economy and any hopes of a recovery from this recession. The Volcker Rule may plunge us into a near-permanent recession. The reasons are abundantly clear. If banks cannot use the market to diversify their portfolios and reduce their risk, then they will be even more reluctant to make risky loans. This means fewer mortgages, which means that the real estate market does not recover. No real estate recovery means no construction jobs, fewer mortgage brokers, fewer real estate agents, more renters, less home ownership, slowed economic growth, etc. etc. etc. Obama is making the smart political bet that breaking up Wall Street will resonate with voters, I think he is right… but the intended consequence is not merely votes, it’s cutting the American economy off at the knees and making the most important sectors of the economy even more dependent on the federal government. Along with the fascistic health care proposals, the federal government will have almost total control over the American people.

Volcker and Obama

While I am no friend of the financial industry, I do understand that banks are a business. I, as a bank customer, would like my bank to be prosperous. The better they do, the better we all do. Do I care about their bonuses? Normally no, except in this case they are using taxpayer dollars, but what do we expect to happen if the government hands over the taxpayers’ wallets? What is most important to me is the health of the free market economy and what is being suggested by the administration is a direct attack on both the free markets and the economy in general. The real culprit behind the recession is not the fact that banks took risks, this is expected of them. The real culprit was the fact that these risks were under-priced, in other words, people were investing in things that they knew nothing of for unrealistic prices. If any regulations are to be enacted, they should focus on the cause, not focus on restructuring an entire industry and putting them under more direct control of the state. All we need is accurate valuation of securities, more transparency, and less of a government guarantee. The Volcker Rule seems to try to accomplish all these things while knee-capping the economy. This is because the Democrats have an ulterior motive, just like with health care reform, instead of a plan that is straightforward, e.g. reducing costs, tort reform, fixing the pre-existing conditions issue, we get a convoluted mixture of cuts to medicare, higher taxes, benefits that kick in after several years, company and individual mandates. and more government bureaucracy. This is the Volcker Rule, another way to impose a Democrat agenda in the guise of “fixing” a problem.

The Republicans should get on the ball and propose some common sense moves. Want more transparency? Pass legislation requiring full disclosure of what financial products are comprised of. Want the price of securities to reflect risk? Pass legislation that requires rating agencies to be fully capable of rating new financial products. Want less of a government guarantee? Require capital reserves on certain types of high risk assets or simply don’t bail out these firms like we did. The answers are not so difficult and do not require a top-down restructuring of the American economy… it seems like every time a Democrat tinkers with the economy, we get closer and closer to full-fledged communism.

-AG