As the auto industry and financial markets begin to stabilize, the President says the government’s emergency interventions can now wind down. He pledges that real reform, particularly on Wall Street, must now begin.

For seven months a team of investigative journalists from ProPublica looked into a story for us, the inside story of one company that made hundreds of millions of dollars for itself while worsening the financial crisis for the rest of us. It includes our original Broadway song “Bet Against the American Dream.”

Listen “This American Life” with Ira Glass.

So even if the Tea Party folks saw the light, what can ordinary Americans do?

That’s the question I want to put to my guests, Simon Johnson and James Kwak. They have written this new book, 13 Bankers: The Wall St. Takeover and the Next Financial Meltdown. It’s a must read – already a best seller — and it couldn’t have come at a better time. This book could change the debate over financial reform by tipping it in favor of the public.

Read this story on AlterNet.

Nomi Prins is a senior fellow at the public policy center Demos and she published a story today on Alternet about how Wall Street fatcats are raking in stacks of cash and up to their old tricks again while they lobby Congress to not regulate them.

So far it looks like the Democrats are kind of siding with the banks and the Republicans are totally siding with the banks. But what’s going to play well for members of congress come November? I wonder.

As we wind up for another dramatic bipartisan squabble over all the crap Wall Street flung at us, things are getting back to normal – for the wealthy. The top 25 hedge fund managers made a record $25.3 billion dollars in 2009. And despite all those dramatic congressional hearings, average compensation of Wall Street bankers rose by 27 percent in 2009. Meanwhile, banks are hiding their debt with the same old balance sheet magic they’ve been deploying for years and posting record new trading revenues—putting the economy at risk while creating no perceptible economic benefits.

Read the entire story on AlterNet

Regulating the health insurance was a big effing deal, but reigning in the the banks is arguably far more critical to US economic stability. As usual, Economist Paul Krugman is your guide to all things economic, and today he broke down financial reform in simple and easy to understand terms.

There are three groups of people involved in this process. There are those that don’t want any regulation of any banks under any circumstances. We’ll call them Republican members of Congress. Then there are two groups that want to regulate banks but differ in how it should be done. One group we’ll call the Volckers and the other we’ll call the Krugmans.

The Volckers, named after former Chairman of the Federal Reserve Paul Volcker, want to regulate the size of banks. For them, the solution to our banking problem will be in eliminating “too big too fail” banks. The theory is that if we just break the banks into smaller pieces, and if some of them fail, the free market will kick in to solve the problem and prevent another taxpayer bailout. Unfortunately history doesn’t support this claim (e.g. The Great Depression).

The Krugmans believe that to fix our banking crisis we need to regulate what banks do – not how big they are.

Opposing the Volckers, Krugman wrote:

Here’s how I see it. Breaking up big banks wouldn’t really solve our problems, because it’s perfectly possible to have a financial crisis that mainly takes the form of a run on smaller institutions. In fact, that’s precisely what happened in the 1930s, when most of the banks that collapsed were relatively small — small enough that the Federal Reserve believed that it was O.K. to let them fail. As it turned out, the Fed was dead wrong: the wave of small-bank failures was a catastrophe for the wider economy.

Paul Krugman economist

According to the Krugmans, the same could happen today, so rather than bailing out a few big banks, the taxpayer would be bailing out lots of smaller banks. The end result would be another taxpayer bailout.

Here‘s the Krugman solution.

After all, the U.S. banking system had a long period of stability after World War II, based on a combination of deposit insurance, which eliminated the threat of bank runs, and strict regulation of bank balance sheets, including both limits on risky lending and limits on leverage, the extent to which banks were allowed to finance investments with borrowed funds. And Canada — whose financial system is dominated by a handful of big banks, but which maintained effective regulation — has weathered the current crisis notably well.

What ended the era of U.S. stability was the rise of “shadow banking”: institutions that carried out banking functions but operated without a safety ne

t and with minimal regulation. In particular, many businesses began parking their cash, not in bank deposits, but in “repo” — overnight loans to the likes of Lehman Brothers. Unfortunately, repo wasn’t protected and regulated like old-fashioned banking, so it was vulnerable to a pre-1930s-type crisis of confidence. And that, in a nutshell, is what went wrong in 2007-2008.

So why not update traditional regulation to encompass the shadow banks? We already have an implicit form of deposit insurance: It’s clear that creditors of shadow banks will be bailed out in time of crisis. What we need now are two things: (a) regulators need the authority to seize failing shadow banks, the way the Federal Deposit Insurance Corporation already has the authority to seize failing conventional banks, and (b) there have to be prudential limits on shadow banks, above all limits on their leverage.

From a banker’s perspective, they’d rather have the Volcker regulation than the Krugman one – or even better no regulation at all. Under the Volcker plan, banks merely have to break up into smaller chunks but could still do business as usual. But under Krugman’s plan, banks would have to dramatically adjust how they’ve been doing business, and that they don’t like.

The question is, can Congress fix this problem? If health care reform is any gauge, the answer is maybe.

–
Financial Reform 101 by Paul Krugman

It makes a lot sense to tax the heck out windfall bank executive bonuses, and that’s what France and Great Britain are doing.

According to a story over at the Huffington Post, France is going to follow Britain’s lead in implementing a one-time 50 percent tax on bonuses given to bank executives.

In a Wall Street Journal opinion piece written by British Prime Minister Gordon Brown and French President Nicolas Sarkozy, the duo wrote:

We have also learned that when crises happen, taxpayers have to cover the costs. It is simply not acceptable for them to foot the bill for losses in a deep downturn, while institutions’ shareholders and employees enjoy all the gains as the economy recovers.

…

[W]e agree that a one-off tax in relation to bonuses should be considered a priority, due to the fact that bonuses for 2009 have arisen partly because of government support for the banking system.

But what’s the US doing to curb the unchecked greed running rampant in its banking system? Nothing.

The New York Times reported yesterday that Goldman Sachs decided that executives won’t get cash bonuses this year but stock instead.

Bowing to calls for restraint in tough economic times, Goldman said that its most senior executives would forgo cash bonuses this year. Instead, the 30 executives will be paid in the form of long-term stock — an arrangement that means they will not get big year-end paydays, but one that could turn out to be enormously lucrative if Goldman’s share price rises over time.

So they won’t get a huge pile of cash today, just an enormous pile of cash later when they sell their stock.

President Obama continues to make the same mistake over and over again. From bankers, to members of Congress and even the American people, Obama keeps hoping everyone will just get along and find common ground.

While Obama keeps waiting for everyone do to the right thing, unemployment continues to go up, small businesses are struggling or failing, people are dying from lack of health care, the war in Iraq and Afghanistan and bailed out investment bankers are rolling in taxpayer dough.

It’s time for Obama to stop his audacity of hope campaign – what we need is action, leadership and some asses kicked (I’m looking at you Goldman Sachs and AIG).

Perhaps critics of candidate Obama were right when they said he lacked experience. He’s been in the White House for nine months and he’s accomplished nothing.

Health care reform continues to flounder in Congress.

The war in Iraq is still sucking the US Treasury dry and snatching the lives of American soldiers and Iraqi civilians.

In Afghanistan, Obama is thinking about sending more troops, but he appears to be hemming and hawing over that decision.

When the banking industry, which created the current financial mess we’re in thanks to laissez-faire regulation, was on the ropes Obama didn’t take that opportunity to force regulation down their throats, but rather he handed them billions and billions of taxpayer money and hoped that they’d play nice and be cool with regulatory changes later. Wrong.

Before Congress started debating health care reform, the president should have laid out his requirements for a bill he would sign. Obama should have started out with single-payer and made the case for it. There’s a good argument to be made for single-payer, but Obama didn’t even try. Instead, he left it all up to Congress to run wild with and boy did they. Now we’re looking at heavily compromised bills that will likely result in a lot of people paying too much money for health insurance that doesn’t cover anything. Thanks, but no thanks.

And what has he done to end the wars in Iraq and Afghanistan? Nothing. We can’t win either of these wars because there is no definition of victory. No one has ever conquered Afghanistan, and neither will the US. And what’s the exit strategy in Iraq? Hope?

Obama’s hope machine has run out of gas. Hope is great, we all need a little bit of it from time to time, but it’s no excuse for inaction. This is politics. It’s partisan.

The time for leadership is now, because let’s face it, pretending that partisan politics is something that can, or should, be avoided is no recipe for success. Obama needs to stop his wishful thinking. Conservatives and liberals will not march on Washington, DC hand-in-hand singing Kumbaya – it’s not going to happen. Wake up or step aside in 2012 to make room for a real leader.

Even while unemployment continues to climb, bailed out companies like J.P. Morgan are still making money. Last quarter, J.P. Morgan made $3.6 billion despite having to write off credit card and mortgage losses. At least someone’s making money, right?

HuffPost has an AP story about J.P. Morgan’s profit-making magic

The Nation’s Katrina Vanden Heuvel wrote today: “These next few months are a time of reckoning.

Every so often in American political history, a window for change opens, and the combination of crisis, leadership, and political movement makes big, positive reforms possible.”

Read Katrina Vandan Heuvel story “The Fight for Financial Reform”

The recession isn’t over, and there’s more evidence that we’re crawling towards another depression. Unemployment continues to increase. Conservative estimates peg unemployment at 9.8 percent and under-employment at 17 percent. The one sector of the economy seeing growth is finance, which has benefited from the taxpayer bailout, while regular folks struggle to make ends meet.

Sooner or later a movement of the people will push back against our rigged so-called “free market” overtly pro-wealthy government agenda. The question is will it happen next year or the year after, but something will have to be done to help real people and not just line the pockets of the Elite. What will the government do to stop it? They can’t trick us into voting because we all have that. Will the government create new social programs to alleviate the financial pain the middle class is feeling? I doubt it. Perhaps a real revolution will not be stopped this time.

Forbes story about unemployment

The Hill reported today that President Obama and the other G-20 members said that the bank bailouts successfully averted another Great Depression; all that’s left is just a bit of regulatory tweaking and we’ll be right as rain. I’m sure they’re right – all government needed to do to fix the economic crisis was to throw billions and billions of dollars at the banks who screwed everything up in the first place.

We’ve become a nation run by banks, insurance companies, Big Pharma, Big Oil and the military industrial complex there to make sure they all get what they need from other countries either through the “free” market or force if necessary. Politicians follow the money, not the votes. How many Americans actually think the banks should have been bailed out?

G-20 leaders say recovery worked, agree to new reforms
Subprime Meltdown: From U.S. Liquidity Crisis To Global Recession
G-20 protesters in Pittsburgh on Sept. 24, 2009