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I thumbed through my old edition of Wheelock’s Latin grammar this afternoon to see if I could find the correct conjugation for the verb ‘Obamere‘, which roughly translates as ‘to Obamerate,’ i.e., to deliver a speech full of eloquence and sleights of tongue; to leave the listener wondering — was it only fairy dust?
Today’s call to financial arms was the quintessential Obameration. As he stood in Federal Hall, site of the inauguration of George Washington, Obama was both heroic and elegiac: Fie! to the Wall Street bankers who needed taxpayer money; woe! to switch-and-bait mortgage lenders; shame! to the unnamed borrower who asked for more than he could truly manage (that’s you Edmund Andrews). Never again will the the United States of America allow so few to hurt so many. In other words, Obama had nothing to new to say. But I loved the structure of the speech and the omissions.
There was barely a ‘tsk, tsk’ to the regulators who missed it all. He urged almost every other player to take full responsibility for their actions (a very good thing), but in essence he said the regulators were largely to be pitied. And here is the heart of an Obameration, which allows our president to re-arrange the alphabet into words that soar so that if we blink, we miss the real import of his message: Those who were asleep during the years that bankers and borrowers amassed life-threatening amounts of risk shall gain more power. Here’s my favorite part of the speech (emphasis added):
…we’ve got to close the loopholes that were at the heart of the crisis. Where there were gaps in the rules, regulators lacked the authority to take action. Where there were overlaps, regulators often lacked accountability for inaction. These weaknesses in oversight engendered systematic, and systemic, abuse.
Under existing rules, some companies can actually shop for the regulator of their choice – and others, like hedge funds, can operate outside of the regulatory system altogether. We’ve seen the development of financial instruments, like derivatives and credit default swaps, without anyone examining the risks or regulating all of the players. And we’ve seen lenders profit by providing loans to borrowers who they knew would never repay, because the lender offloaded the loan and the consequences to someone else. Those who refuse to game the system are at a disadvantage.
Let’s take a closer look at just this section of the speech:
Regulators lacked the authority to take action. That is a myth of the first order. The real issue is something known as ‘regulator capture’– the people entrusted to police Wall Street operated like minions. Think SEC and Bernie Madoff and you get a pretty good picture of what was really going on in the last decade. The power the regulators had they didn’t use. The regulators who urged more vigilance and greater independence from Wall Street — FDIC chair Sheila Bair and Brooksley Born — weren’t even in attendance.
Regulators often lacked accountability for inaction. I wonder if this quick little slap made White House economics advisor Larry Summers and US Treasury Secretary Tim Geithner — who were invited to the speech — squirm. I believe that would be the former president of the New York Federal Reserve who somehow said in his confirmation hearings that he wasn’t actually a regulator; Summers, of course, was part of the Clinton Administration urging critical changes that enabled many of today’s problems.
And others, like hedge funds, can operate outside of the regulatory system. Excuse me, but I don’t recall anyone bailing out any hedge funds — except for Long Term Capital Management during the Russian ruble crisis ten years ago. This line resonated for a bit on Twitter.
And we’ve seen lenders profit by providing loans to borrowers who they knew would never repay. Now that’s what I call a segue: from powerless regulators who clearly would have done something if they had only been able to see the forest for the trees (as Obama later explains was the real problem) to hedge funds (which the White House now needs to invest in toxic assets) to sleazy mortgage lenders.
And there, you have it, dear readers, the Obameration.
For those of you interested in true regulatory reform, I refer you to another speech also delivered today by Jeff Lacker, president of the Federal Reserve Bank of Richmond (h/t @bobbrinker). It take s a much more serious look at the real roots of the market blow-up and offers suggestions that won’t be popular.
Also of greater note today is an interview on CNBC with Rep. Barney Frank. I wondered if the White House crowd wasn’t ticked with Frank, who actually said something worth noting ahead of today’s Obameration. He asserted that Congress has got to do something to de-fang the credit rating agencies, lead players in the market mess. The agencies, of course, didn’t merit mention in today’s Obameration (and no one from the three biggies were in attendance to hear the speech in person); and so far, they’ve avoided any slap-down in power from the SEC. But who knows, maybe change is really afoot.
Avete atque valete.
Wall Street Social 