Democrats: The "D" Stands for Dishonest

According to Democratic Senatorial Campaign Committee Chairman Sen. Robert Menendez, the Democratic strategy for this fall is to run away from the Democrats' legislative record and try to make the election a choice between political parties. In support of this strategy, President Obama offered up a cutesy little metaphor:

"I do want to point out, when you get in your car, when you go forward, what do you do? You put it in 'D.' When you want to go back, what do you do? You put it in 'R.' We don't want to go into reverse back in the ditch."

Effectively, the strategy is to run against George W. Bush.

"Blame Bush" is hardly a new strategy. One might even say it's a worn-out dogma that has, for far too long, strangled our politics. It's like President Obama's mind is stuck in reverse. And it's because of this brand of childishness that the president's once-soaring popularity has declined, by the way.

Far worse, however, is that it's dishonest. The groundwork for the financial crisis was laid before George W. Bush took office. In the last month of his presidency, President Bill Clinton signed the Commodity Futures Modernization Act, which exempted the toxic mortgage-backed securities from government regulation. And before that Clinton signed the Financial Services Modernization Act which allowed the creation of the mega-banks, the banks that were "too big to fail".

So by the time President Bush (43) took office big banks were getting bigger and had been equipped with the financial instruments that Warren Buffett described as "weapons of financial mass destruction". The car was already in overdrive when George W. Bush first sat in the driver's seat.

But blaming President Clinton is overly simplistic; it's the sort of thing the Democrats would do, and I most certainly will not stoop to their level. The global financial crisis was a complex occurrence, and the guilty parties are many. (Besides, the former president has had the decency to admit his error in creating the climate for the collapse.) However, when doling out blame, there are some very guilty people who mustn't escape notice: former Clinton advisers who now, coincidentally, are Obama's advisers.

As it turns out, we can't put the car in reverse because we've already gone backward.

Liberal columnist Paul Krugman asserts, dejectedly, that all of Obama's economic advisers are "proteges of [Clinton Treasury Secretary] Robert Rubin, the apostle of financial deregulation". And Krugman is right to do so. Beyond being mere proteges, Obama's economic advisers were in the room with Rubin as he pushed for the Financial Services Modernization Act before bailing government service for a $15-million-a-year job at Citigroup. (Citigroup itself having been created in a merger made legal by the Financial Services Modernization Act--it's dealings like that which earned Rubin a spot on Market Watch's 10 most unethical people in business.)

Let's take a look at the Rubin proteges who shape Obama's thinking:

• Larry Summers, Rubin's Deputy Treasury Secretary and successor, is now Obama's Director of the National Economic Council. Summers pushed Congress to deregulate the derivatives market on the basis that financial institutions are "eminently capable of protecting themselves from fraud and counterparty insolvencies"--financial speak for "they can police themselves". As it turns out, they couldn't.

• Timothy Geithner was Under Secretary of the Treasury for International Affairs in the Clinton Treasury Department and is now Obama's Secretary of the Treasury. According to a Wall Street Journal bio, Geithner "learned from Treasury Secretaries Robert Rubin and Lawrence Summers". As previously reported in this blog, Geithner was in the room with Lehman Brothers as they engaged in fraud, knew it, and failed to take commensurate action. What a stand-up guy.

• Gary Gensler's official biography as Obama's Chairman of the Commodity Futures Trading Commission states that, as Under Secretary of the Treasury, "Chairman Gensler was the principal advisor to Treasury Secretary Robert Rubin and later to Secretary Lawrence Summers on all aspects of domestic finance." Ah, so he was Rubin's Rubin. According to The New York Times, Gensler also played a "significant role in shepherding through Congress deregulation measures that led to the explosive growth of the over-the-counter derivatives market."

And, of course, there are more, lower-profile Clinton era (read as: deregulation era) economic advisers surrounding President Obama. Not quite the "Change" we were promised.

President Obama has oft-repeated a line about Republicans driving the country into a ditch. He ought to level with us and mention that the car had faulty steering and brake lines, and that they were installed by his own economic team. That doesn't make for a very rousing stump speech, however.

Sadly, our local trial lawyer won't press our case and demand restitution from the negligent technicians who put us here. Apparently, the Democratic cause has already paid her a hefty retainer for her services.

We can take heart that the tow truck is coming this November.

In an Awkward Turn of Events: Kilroy Exposes Geithner

On Tuesday revelations on the depth of Treasury Secretary Timothy Geithner's complicity in disguising the instability of collapsed investment services titan Lehman Brothers were exposed in a hearing held by the House Financial Services Committee. The hearing had been called for by Congresswoman Mary Jo Kilroy as part of the Ohio Democratic Party's strategy to place blame for Lehman Brothers's collapse on Republican gubernatorial candidate and former Columbus-based Lehman Brothers employee John Kasich. Just as his name was not mentioned in the bankruptcy examiner's report released last month, Mr. Kasich's name was not mentioned in the testimonies delivered before the committee. It would seem that living and working 500 miles away from Lehman Brothers headquarters, Mr. Kasich truly was out of the loop on the questionable accounting practices.

From Congresswoman Kilroy's perspective the hearing may have been a total failure as it neglected to prove once and for all that John Kasich single-handedly--and with malice in his black heart--caused the global financial crisis. However, the hearing provided a great public service by exposing the systemic organizational failures of the Federal Reserve Bank of New York (FRBNY) as it existed under the leadership of then-President Timothy Geithner. For once some good has come out of Mary Jo Kilroy's addiction to the lowest brand of negative, deceptive politics.

In his testimony, William K. Black, a distinguished bank regulator and professor of economics and law, found President Geithner and his FRBNY team "knew that Lehman was engaged in fraud" and that Geithner's failure to take commensurate action constituted "an egregious violation of the public trust." According to Black, "The FRBNY, led by President Geithner, had a clear statutory mission -- promote the safety and soundness of the banking system and compliance with the law -- stood by while Lehman deceived the public through a scheme that FRBNY officials likened to a “three card monte routine.” Black went on, "the regulatory perpetrators [Geithner and his team] must be held accountable."

How awkward for Mary Jo! She was looking to smear John Kasich and she ended up exposing Obama's Treasury Secretary as asleep at the wheel. I sure hope this isn't going to cause a rift that would stop White House Chief of Staff Rahm Emanuel from channeling more of his dirty housing market collapse money to her!

Not what she had planned

(Photo available at http://www.c-spanvideo.org/marykilroy#)

Anton Valukas, the Lehman Brothers bankruptcy examiner, describes in his report how the FRBNY administered three consecutively less rigorous stress tests to evaluate Lehman's ability to withstand a run or a potential run on the bank. After Lehman failed all three tests, the FRBNY allowed Lehman to design its own fourth stress test which the firm then passed. Valukas concluded, "It does not appear that any agency required any action of Lehman in response to the results of the stress testing."

So, apparently, now-Treasury Secretary of the United States Timothy Geithner's mantra is "If at first you don't succeed, keep lowering the bar until you do."

How confidence inspiring.

I'll bet Mary Jo Kilroy, Nancy Pelosi, and the rest of the congressional chupacabra crew wish the American people would adopt that mantra too--it's the only way their job-killing, deficit-deepening policies could ever get a passing grade.