Not Too Big to Fail, Economy Too Weak To Oppose Them

Let’s do a little exercise for the imagination. If you were to tune into the first speech President Obama was going to give to Wall Street after the sub-prime loan/credit default swap crisis, what would you expect to hear?

Would you expect to hear him describe what we found out about the massive fraud in the lending and financial firms, and failure of regulation by Washington? Maybe even vows to never have it happen again? I might even have expected a harsh indictment of our reliance on the financial sector, it being it’s own bubble, near an unsustainable 21% of our GDP and a path toward a more sound economy, say by investing in new energy? “Banking is not the creator of our prosperity but is the creation of it. It is not the cause of our wealth, but it is the consequence of our wealth." A quote in Kevin Phillips, “Bad Money.” A world power’s heavy reliance on finance at this stage of development is not historically a reliable formula.

Obama still seems to be making his speeches about the financial crisis and regulation from a position of vulnerability. Although this speech marks the one-year anniversary of the crisis he is still talking in the present tense about closing the loopholes and passing reform legislation. You almost wouldn’t know the rhetoric in this speech is aimed at those who caused the worst economic downturn since the great depression.

The crisis revealed a weakness of the American economy, if the financial sector was not 21% of our economy they wouldn’t have been able to influence congress and the regulators to look the other way while they robbed the American people, which is exactly what they knew they were doing. They knew lenders were getting people into bad loans, or financially speaking, “high-risk” loans, that risk is what gave the assets (those loans) used in the derivatives and credit default swaps value. If Obama isn’t fighting for his plan to strengthen the structure of our economy by developing other industries like renewable energy, he is at the mercy of the financial firms. Without financial sector reform being part of a larger plan to reform the structure of our economy any changes that threaten the position of favor of the financial sector will threaten the overall economy, and his opponents and the financial sector and their supporters will not hesitate to make that call and use it to squash reform allowing our economy to safely recover, let alone be reconfigured in a stronger way. Without fighting for a plan to strengthening the economy through reform and his campaign promise to reform corporate tax loopholes any real change is a foregone conclusion.