Wall Street Reform Turns Out Great for Wall Street -- Why Aren't the Big Banks Being Punished?

I was among those initially raving about the passage of the financial reform bill. And now I am just raving.

“Unbelievable,” said one advocate who hoped for the best but expected the worst. He was amazed it even passed. The wise men in the media immediately began making comparisons with the New Deal. The pundits praised the president and the fact that a handful of Republicans did not just say no this time.

Somehow, even the most hard-headed among us realized that something had to be done to bring Wall Street in line if only because the mood in the country on this issue is practically insurrectionary.

You would think as this 1,500 page “reform” went through (anyone want to bet if its strongest provisions will survive the reconciliation process?) the banks would be quaking in their boots. After all, they funded what President Obama called swarms of lobbyists to kill it at birth. They denounced it with doomsday language with their rhetoric helping to drive the market down. Oh, the fear! Oh, the consequences!

But then, what happened? Were bankers jumping out of windows like their predecessors did when the market crashed in ’29? No way.

WSNS reported what happened:

Bank stocks soared on Friday, with the share price of JP Morgan Chase, one of the biggest finance houses, surging 5.9 percent and helping drive the Dow Jones Industrial Average up 125 points. Other bank stocks rose sharply: Bank of America up 4.7 percent, Goldman Sachs up 3.3 percent, Morgan Stanley, Wells Fargo and Citigroup. The S&P financial sector index was up 3.6 percent overall.

The Wall Street Journal reported the rise in prices under the headline, “Financial Stocks Turn Higher After Senate Passes Reform Bill.”

Sounds bad, right? Ha ha ha! So much for Harry Reid’s boast, “When this bill becomes law, the joyride on Wall Street will come to a screeching halt.” In fact, there is still plenty of joy in Mudville because Mighty Goldman has not yet struck out.

The bankers were encouraged by something else as well: a vow by President Obama "not to punish the banks.” A day later it was reported that AIG will not be prosecuted criminally.

Writes Daniel Gross for Newsweek:

Given what the financial sector put the nation through in the past three years, the case for punitive action was—and is—very compelling. But while there's stuff in there that the financial sector doesn't like, the legislation that is now headed to a House-Senate conference is, in fact, relatively tame.

Gross’ piece is headlined “Reform Without Punishment." The bill’s passage came two days after the Tory-dominated government in Britain announced plans for a new agency to fight financial crime. Sorry to say, the United States, under the “progressive” Obamacrats, is moving in the opposite direction. The press is even reporting that the Treasury Department, i.e., Tim Geithner, is, along with the big banks, against the provision in the bill calling for regulation of derivatives. Watch for that to go in some new compromise.

Two other parts of the “reform,” one that survived the politicking and one that didn’t, should also concern us. First there was the provision transferring what was first conceived as an independent consumer protection agency into the Federal Reserve Bank, which has shown no concern with protecting consumers. One financial blogger argued that big financial power vetoed any independent role. His conclusion: “The Giant Banks, Federal Reserve and Treasury Have All Blackmailed America.” Elizabeth Warren must be furious.

Baseline Scenario’s Simon Johnson tells us what else went terribly wrong:

After nine months of hard fighting, financial reform came down to this: an amendment, proposed by Senators Jeff Merkley and Carl Levin that would have forced big banks to get rid of their speculative proprietary trading activities (i.e., a relatively strong version of the Volcker Rule). The amendment had picked up a great deal of support in recent weeks, partly because of unflagging support from Paul Volcker and partly because of the broader debate around the Brown-Kaufman amendment (which would have forced the biggest six banks to become smaller). Brown-Kaufman failed, 33-61, but it demonstrated that a growing number of senators were willing to confront the power of our biggest and worst banks. Yet, at the end of the day, the Merkley-Levin amendment did not even get a vote.

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