Runaway Wall Street
By Robert Scheer
IT IS instructional that only one of the three tax-challenged Obama
appointees has survived public scorn to claim a high position in the
new administration. Oddly enough, it is Treasury Secretary Timothy
Geithner, the man who will collect our taxes, whose career has not
been stunted by his failure to pay them.
What makes Geithner so special? The answer, provided by everyone from
the president to the media pundits, is that his services are
indispensable because he has the expertise in regulating markets
needed to preside over the most massive government intervention in the
economy. Are they kidding?
Both in his years in the Clinton Treasury and as chair of the New York
Federal Reserve Bank, Geithner has been paving the way for a runaway
Wall Street. Nor has he changed his ways, as was evidenced once again
last week with his appointment of Mark Peterson, a Goldman Sachs vice
president and lobbyist, to be his top aide. Peterson had lobbied
strenuously for precisely the deregulation that the Obama
administration now concedes needs reversing. It was confirmation that
Goldman Sachs runs the Treasury Department—no matter which party is in
Last October The New York Times ran a devastating story entitled "The
Guys From 'Government Sachs,' " spotlighting the many Goldman Sachs
alums operating under the firm's former head, Henry Paulson, after he
was named Treasury secretary. The problem is that Geithner, whom Obama
appointed as Paulson's replacement, was totally enmeshed in Paulson's
handout to Wall Street while chair of the New York Fed. In that
capacity, Geithner was intimately involved in the highly questionable
negotiations to bail out AIG, in which Goldman had a $20 billion
partnership at risk.
Goldman Sachs CEO Lloyd C. Blankfein was present for those rushed and
highly guarded weekend meetings, which resulted in an initial $85
billion bailout for AIG and has since grown to $122 billion. As The
Times reported, "Mr. Paulson helped select a director form Goldman's
own board to lead AIG." That decision to save AIG came after the New
York Fed, led by Geithner, summarily spurned requests to save Goldman
competitor Lehman Brothers. While he opposed Lehman's attempt to
reconstitute as a bank holding company and therefore obtain federal
financing, he later supported a similar request by Goldman Sachs.
Another major player in those machinations was Robert Rubin, who
headed Goldman Sachs before becoming Treasury secretary under Clinton
and who pushed for the radical deregulation that is at the center of
the banking crisis. Geithner was a protégé of Rubin's in that effort,
as was Lawrence Summers, who went on to be Clinton's Treasury
secretary after Rubin moved on to head Citigroup. Regrettably, Summers
is now the key White House economics adviser.
Rubin, Geithner and Summers are hell-bent on denying the
responsibility of their deregulation initiatives for the economic
crisis. But the reality is that the merger of investment and
commercial banks with insurance companies and stock brokers was
illegal before the approval of their legislation, which reversed the
Glass-Steagall Act passed under Franklin Delano Roosevelt. So, too,
the newfangled financial instruments were exempted from any government
regulation, thanks to the Commodity Futures Modernization Act, which
Summers got Clinton to sign into law a month before he left office.
The reversal of Glass-Steagall unleashed the robber barons, as was
freely conceded by Goldman CEO Blankfein in an interview he gave to
The New York Times in June 2007. "If you take an historical
perspective," Blankfein said, gloating back then about the vast
expansion of Goldman Sachs, "we've come full circle, because that is
exactly what the Rothchilds or J.P. Morgan the banker were doing in
their heyday. What caused an aberration was the Glass-Steagall Act."
The "aberration" being the sensible regulation of Wall Street to
prevent another depression, which now seems dangerously close at hand.
Since Glass-Steagall was repealed in 1999, Goldman Sachs experienced a
265 percent growth in its balance sheet, totaling $1 trillion in 2007.
What we need is an honest accounting of how we got into this mess,
beginning with an investigation of the role of Goldman Sachs as the
most insidious Wall Street player. But we are not likely to get that
from an administration populated by Goldman's Washington allies.
On Tuesday, new Attorney General Eric Holder assured Wall Street that
"We're not going to go out on any witch hunts." But what if the
once-celebrated financial wizards, still allowed to dominate our
economic policies, are indeed wicked witches?