The cause of the Wall Street crash of 2008 is not a huge mystery. Banks took advantage of deregulation to gamble with depositor’s (that would be yours and mine) money on derivatives. Derivatives are mortgages and other investments repackaged and repackaged again until the original investment is almost completely lost in the fine print. If those original investments turn out to be duds then the entire house of cards collapses. The original version of the Dodd-Frank was supposed to tightly regulate these kinds of risky transactions but the GOP and Wall Street howled in protest and the regulations were weakened. Also, they haven’t been fully implemented yet. Wall Street needed time to get its house in order (read as: more time to gamble and make billions off of unwary investors).
Another piece of the reform that has not been implemented, and the GOP is furiously fighting against, is the Volcker Rule which says that banks cannot use depositor (our) money to do their gambling. Mitt Romney is on record as wanting to repeal Dodd-Frank along with the Volcker Rule. Why? It’s simple: as long as the banks get to gamble with depositor (our) money, they’ll always be able to force the government to bail them out. The FDIC guarantees depositor (our) money and the banks, as well as Romney and the GOP, know full well it will replace that money if the banks cannot. Think about that: the political party that “opposed” the bailouts as a matter of “ideology” is literally fighting to ensure that it happens again and again. They’re banking, if you’ll forgive the term, on the American people not being able to understand the complexities of the Wall Street reform.
Romney is desperately hoping for that right about now as TPM reports that JP Morgan announced that it lost $2 billion in much the same way as the 2008 crash. CEO Jamie Dimon claims that JP Morgan can take the loss but, in a pure bit of speculation on my part, Wall Street CEOs have been less than honest on their losses and financial stability in the past. Dimon also claims that the
fraud investment would not have violated the Volcker Rule had it been enacted but few experts that do not receive a paycheck from Fox News take this seriously. Dimon himself has admitted that this latest debacle will only help make the case for the Volcker Rule.
This is where the 2012 elections come into play. The Obama campaign and administration will undoubtedly jump on this rather large Wall Street misstep as proof that they are still out of control. The GOP and Romney will seek to downplay the severity and demand that Obama stop “exploiting” the situation. The problem is that the 2008 disaster and the bailouts are far too fresh in people’s memories. To makes things worse for the GOP, they’ve just spent the last three years blaming Obama for the bailouts and demonizing the very idea of future bailouts (again, while working to ensure their endless repetition). Now, they will be forced to very publicly take the opposite position. They will have to defend JP Morgan’s “right” to lose billions of depositor (our) money while President Obama makes the case that this is exactly the kind of reckless behavior Dodd-Frank is supposed to prevent.
It’s kind of like arguing against DUI laws while a drunk driver causes a 10 car pile-up behind you. This is not a good week for Mitt Romney which means it’s a great one for the country’s future.
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