Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Detroit News, the Guardian, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndrewKroll.

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Obama and Volcker: About Time

| Thu Jan. 21, 2010 7:34 AM EST

It took a year—of pathetic deference to the financial lobby, of siding with the Wall Street alums in his administration, of allowing special interests and their shills on the Hill to hollow out financial regulation legislation—but Obama's finally seen the light. In the latest Wall Street-Washington news, the president's aiming to hit banks where it hurts by clamping down on risky speculative trading, capping the size of major financial institutions, and stopping commercial banks from trading with their own cash. An encouraging sign, Obama's latest move is just as much Paul Volcker's, the former Fed chairman who until lately couldn't get any of his ideas heard in Washington and had criticized Obama's earlier proposals. Until recently, Volcker,  the chair of Obama's Economic Recovery Advisory Board, was widely seen as less influential than more pro-Wall Street administration types like Treasury Secretary Tim Geithner and Larry Summers, the president's chief economic adviser. But now Obama and Volcker appear to have teamed up, and while Wall Street will surely scream bloody murder here, I can't help but feel excited that maybe, just maybe, Obama intends to quit bowing to big finance and work toward serious, lasting, productive financial reform.

Here's why this announcement is so important. For starters, as Kevin has pointed out in his piece "Capital City" and in many blog posts, a lot of the fallout from the financial crisis (and others like it in the past, i.e., LTCM) came down to one word: leverage. Shops like Lehman Brothers were allowed to be ridiculously, insanely leveraged, their bets so far exceeding what they actually had on hand, that when a great deal of those bets failed the entire ship sank with it. That applied to a lot of institutions, some of whom would presumably be impacted by this plan, which, as it's laid out now, would limit that risk-taking—and thus prevent future Lehmans and other catastrophes that would ripple throughout the economy. 

The proposal also hits on one of Volcker's causes celebre: prohibiting what's called "proprietary trading," when commercial banks make bets with their own money from, say, deposits. Until 1999, the Glass-Steagall Act maintained a firewall between commercial and investment banking, but once the act was eliminated banks began to bet again with their own cash on things like mortgage-backed securities. This latest proposal would again tamp down on that practice, given the role it caused in the run-up to financial meltdown.

With this latest proposal coming on top of the president's support for a Consumer Financial Protection Agency and the bank tax, has the administration finally reversed course? Obama has done more to take on Wall Street in the past week than in the previous year. As Congress looks to take up financial regulation talks, are today's moves a harbinger of what's to come?

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Has Obama Won in Iraq?

| Wed Jan. 20, 2010 2:29 PM EST

On a day when there's nothing but dismal, depressing news on the Obama front, Juan Cole credits the president for what Cole deems his first major foreign policy success: the US drawdown in Iraq. While he acknowledges the presence of US bases there (which will likely never leave), Cole credits Obama for his adherence to a strict timetable for withdrawing American troops from Iraq's cities despite his generals' opposition, for turning over security (however feeble) to Iraqi forces even in dangerous regions like Al-Anbar Province, and for essentially ending the war as we once knew it. Cole adds:

Contrary to the consensus at Washington think tanks, Obama is ahead of schedule in his Iraq withdrawal, to which he is committed, and which will probably unfold pretty much as he has outlined in his speeches. The attention of the US public has turned away from Iraq so decisively that Obama's achievement in facing down the Pentagon on this issue and supporting Iraq's desire for practical steps toward sovereignty has largely been missed in this country.

Not only will the US drawdown in Iraq greatly improve the image of the US in the Arab world and allow for more cooperation with Arab countries, but it will probably help US-Turkish relations, as well. Turks often blame the US for backing Iraqi Kurds and allowing a resurgence in Kurdish terrorism via the Kurdish Workers Party (PKK), to some 5,000 of whose fighters Iraqi Kurdistan has given safe harbor. The US will soon be out of that picture, and Turks and Kurds will have to pursue their relations on a bilateral basis.

I mostly agree with Cole here. That the US' actions in Iraq haven't made major news in quite a while—apart, that is, from their withdrawal from Iraq's cities—is telling, and Obama does indeed deserve credit for standing up to people like Gen. Ray Odierno and sticking to the Status of Forces Agreement with the Iraqis. It's probably the best foreign policy move Obama made in his first year as president.

Iraq remains, however, in political turmoil, and Iraqi-led security leaves a great deal to be desired. (The Iraqis do claim to have thwarted another major bombing on their ministries, after several deadly attacks rocked Baghdad last year.) Sure, American troops are mostly removed from the car bombings and violence still rippling through Iraq's cities, but the turmoil that remains is the US' legacy. The victory may be Obama's, but any kind of lasting success seems far off for the Iraqi people.

A Crash Course on the Financial Meltdown

| Fri Jan. 15, 2010 7:21 AM EST

The 10 members of the Financial Crisis Inquiry Commission, the modern heir to the famous Pecora Commission convened in the wake of Wall Street's 1929 crash, kicked off a marathon set of hearings on Wednesday and Thursday by grilling some of Wall Street's most powerful executives, the regulators supposedly tasked with reining them in, and outside experts who watched the collapse. What they heard amounted to something of a crash course in the roots of the financial meltdown.

The FCIC is charged with issuing a report on the causes of the crisis—something that the Obama administration has been slow to do. That's meant probing people like Goldman Sachs CEO Lloyd Blankfein and JPMorgan Chase CEO Jamie Dimon, who both appeared in the FCIC's first hearing, on what caused the meltdown and what role their banks played in the process. The bankers and officials such as SEC chair Mary Schapiro pointed to a decline in underwriting standards and staggering housing bubble that combined, Dimon said, to help "fuel asset appreciation, excessive speculation, and far higher credit losses."

One outstanding question about the financial meltdown has been how the subprime collapse spread to the broader economy. Back in 2007, Federal Reserve chairman Ben Bernanke didn't expect any spillover from the housing crisis at all. Yet as the four Wall Street execs explained at the hearing, the mortgage securitization process—which took people's actual mortgages and tried to make them behave like fungible assets you could trade just like stocks and bonds—led to vast amounts of Lehman Brothers-like speculation and leverage. The evaluators of these mortgage-backed securities, the credit rating agencies, only fueled the gambling by stamping their highest imprimatur on these shoddy loans. And when people stopped making their mortgage payments and the securities backed by those mortgages went sour, all these overleveraged institutions suffered huge losses that caused some to fail and others to survive only with government help. "In hindsight," Dimon said, "it's apparent that excess speculation and dishonesty on the part of both brokers and consumers further contributed to the problem."

Obama's Big-Bank Tax

| Thu Jan. 14, 2010 4:04 PM EST

President Obama rolled out his much anticipated big-bank tax today, dubbed the "Financial Crisis Responsibility Fee." The fee will go into effect on June 30, and the White House projects the tax to generate $90 billion over 10 years and $117 billion over 12 years—but either way, the tax won't go away until the TARP bailout money for these big institutions is repaid in full. It'll apply to the largest financial institutions—technically, those with more than $50 billion in consolidated assets—and that includes bank-holding companies (i.e., Goldman Sachs), thrifts, and insurance companies (i.e., AIG). Not subject to the tax are Fannie Mae and Freddie Mac and the US automakers, even they all received more than generous rescue packages from the government.

Not surprisingly, Wall Street is clearly pissed at this oh-so-subtly named fee. In announcing it today, Obama responded to the financial sector's criticism with a direct message to Wall Street executives. "Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee," he said, "I suggest you might want to consider simply meeting your responsibilities." Fat chance of that. The head of the Financial Services Roundtable, one of the biggest coalitions of financial interests that frequently lobbies on financial issues on Capitol Hill, already came out swinging, calling the tax a "strictly political" move.

So what? From a political standpoint, Obama's record so far has been so skewed in favor of Wall Street and the financial industry, while taxpayer-directed efforts like the Making Home Affordable program have floundered and done little to abate the foreclosure crisis (which, mind you, remained at record levels in 2009 and is only getting worse in 2010), that it's about time Obama took a political stand that suggested otherwise.

That said, the tax does smell of an ad hoc solution, and feels like a move intended more to pacify anger toward Wall Street's "fat cats" and their bonuses and bailouts than to recoup bailout money. I also fear that the cost of the tax could be passed along to consumers, who are supposed to be the winners in this deal. Matt Yglesias says if that's the case, then consumers will simply spend less and take their money elsewhere; my only fear with that, however, is that if most of the big supermarket banks are included here, there aren't many options for consumers who want to take their business to another bank, unless they're willing to move to a smaller, probably regional bank. Which perhaps isn't so bad after all.

The tax, to be sure, is no substitute for better capital requirements and more rigorous regulation, and it shouldn't distract anyone from the more important goal of passing tough, smart financial regulation this year.

Quote of the Day: Wall St. Villains

| Wed Jan. 13, 2010 3:54 PM EST

Asked by a member of the Financial Crisis Inquiry Commission about whether there was a singular event—the Gramm-Leach-Bliley Act, say, or looser capital requirements at banks, or the staggering decline in underwriting standards—that led to the financial meltdown, Peter J. Solomon, a veteran investment banker, had this to say:

"It was a perfect storm from inside. It was a confluence. If you listed the number of villains in this tale, you wouldn't have a plot."

Solomon's remark, delivered in the second of the FCIC's three hearings today, came amidst a much livelier debate from three finance experts not tied to the big supermarket banks or investment houses on the causes of the crisis. For more on that and the third hearing, check back here at the MoJo blog a bit later today.

 

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