Steve Klingaman

Steve Klingaman
Minneapolis, Minnesota,
January 01
Steve Klingaman is a nonprofit development consultant and nonfiction writer specializing in personal finance and public policy. His music reviews can be found at

Editor’s Pick
MAY 2, 2012 1:18PM

Frontline’s “Money, Power & Wall Street”

Rate: 12 Flag


“Money, Power & Wall Street” Episode 3 plumbs the inner workings of the Timothy Geithner–Barack Obama dynamic. 

Frontline’s “Money, Power & Wall Street” Episodes 3 &4 aired on PBS affiliates nationwide last night.  Episode 3 covered the federal government’s response to the economic meltdown during the waning days of the Bush administration and the first ten months of the Obama administration.  Most striking was the coverage of the relationship between Timothy Geithner and and President Obama—two peas in a pod it turns out.  The ironic takeaway:  Geithner played to Obama’s weak side—his cautiousness—by advocating the strength of the steady course.  In so doing, Obama forever relinquished his potential air traffic controller strike moment in refusing to oust a bank CEO and put a bank on a short leash as a way of demonstrating that he was serious about reform.

Geithner won the day over competing voices within the administration by correctly assessing Obama’s aversion to downside risk. Yet it is likely that if—of all people—the president’s chief economic advisor Larry Summers had won the day and we had kicked a little bank ass, banks would be compliantly lending today. Instead, as Texas Republican Representative Jeb Hensarling so aptly put it, the response to the last economic crisis planted the seeds of the next, as we now only have Too Big To Fail on steroids as well as banks that have not separated house trading from client relations, fueling the inherent conflict of interest that has spread like mold since the repeal of the Glass-Steagall Act.

            Obama’s response to the U.S. banking crisis helped fuel the rise of the Tea Party, the desertion of the left, as well as the eventual rise of the Occupy movement.  It was indeed a short honeymoon.  In its aftermath, President Obama seemed strangely quiet.  We heard no voice of moral outrage, á la Roosevelt, taking on the corporations in his day. Why?  Because from a reform-minded point of view Obama caved.  Instead, Obama seemed to be on the sidelines, even after he turned away from the meltdown to push health care reform.

            In the aftermath of Geithner’s phony stress tests, Wall Street took Obama’s measure and found him wanting to such a degree that when Obama showed up on Wall Street to scold them in a speech on the anniversary of the Lehman Brothers collapse in September 2009, virtually no Wall Street leaders bothered to show up, and the few low-level minions who did were chewing gum and checking their watches.  The titans just didn’t care. The banks had won, and by the time Congress took up the Dodd-Frank financial reform act, the banking lobby owned Congress once again.  That was all she wrote.

            That Larry Summers would emerge to be the voice with which I most closely identify is hard to stomach, Arrogant, full of himself, Larry was not “my guy.”  Yet, if the perspective of Frontline holds, he was the latent reformer—and he was aggressive about it.  Geithner held him off by sticking doggedly to the position that we mustn’t upset the delicate equilibrium.  His platform of “cautious encouragement,” could have only come from an insider, a person who was married to the status quo.

And yet, as Episode 4 of the program reinforced, the entire response to the meltdown was based on a misapprehension of banking.  Derivatives had become the lifeblood of the industry, and the frontiers of the banking had moved on to “regulatory arbitrage,” gaming the system to a degree that undermined the financial existence of nation-states such as Greece, Italy, Iceland, and, to the lesser degree, the United States.  In Greece, the Goldman Sachs introduced toxic currency swaps containing “off balance sheet loans” that allowed Greece to lie to the world about its rampant indebtedness.

The “no WMD” moment of the national response to the meltdown was the belated revelation that banks had borrowed and received $7.7 trillion in loans and guarantees from the Fed.  This was a secret.  Had we known, well, who can say?  But banks were at their weakest even as we were being told they were on the mend, in March 2009.

            Some Democrats might argue that there is no reason to dwell on all this during a presidential campaign.  Certainly despite his weaknesses, President Obama has my vote.  But we need to acknowledge who he is, and what his policies have not wrought.  We did not learn from this crisis.  Viet Nam taught us that we cannot ignore a rot within our own party.  And for those who prefer to repeat history, we need to remember that this is not ancient history.  Viet Nam, for example, colored U.S. politics for a generation.  This recession and its aftermath is looking to be a ruinous ten-year episode all on its own, and we didn’t even score the tee shirt.

            Anyone who puts the slightest credence in the Frontline documentary will consider the charge that Obama is a socialist to be laughable in the extreme.  In fact, it could be good for him politically to have someone beat the drum with this material reinforcing what a hardcore centrist he is.  Geithner will go down in history as the guy who stayed true to his school, his buds in überfinance, and sold out Main Street in the process.  At least I hope that is how he is rendered.

We had only the narrowest of windows through which to enforce reform on a corrupt financial sector and now it’s gone until the next meltdown.  And let’s be clear.  There will be another meltdown.  Maybe not for a while, maybe Europe will contain its current contagion, (largely induced by American investment banks selling toxic products, but more than that, toxic ideas), maybe it won’t be for a generation.  But it will happen.  All the seeds are there, courtesy of the Obama administration’s response to the most recent crisis.

            Coverage of the meltdown as provided by Frontline moves us toward a historical perspective of the events that occurred in 2008 and 2009.  Mistakes, as they say in the passive voice, were made.  To progressives, and to people like Robert Reich, Joseph Stiglitz, Christine Romer, and Paul Volker, who all appear on camera in the documentary, the administration’s response leaves a bitter taste in the mouth.  Personally, I don’t subscribe to any black-and-white notion of the president’s record—I’m not just going to say rah-rah—despite the fact that the opposition will exploit any weakness it can find.  In this case, it is unimaginable that there exists any salient free marketeer critique of the Bush/Obama administration’s response to the crisis that would ring true to a viewer of “Money, Power & Wall Street.”  Unless you’ve already read the stack of books already published on the meltdown, the documentary series is a worthwhile investment of four hours of your time.


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Good synopsis. I watched part of this last night and just thought, "God, what a complicated disaster." Part of the problem with educating people about what happened is it is really complex. Frontline documents this well.
RW, Frontline is streaming the episodes at the link in the first paragraph.
Oops. Sorry that all came out as a link.... guess my programming skills still need work.
Juliet, I, too, got into it with Saturn over Geithner. I wanted him gone. However, I believe I said I also wanted Summers gone, so I was wrong about that, creep that he is.

The banks needed the initial $180 billion in bailouts to avoid being driven under by panic, but they ultimately went to the trough for $7.7 trillion with a "t". Citicorp and Bank of America, just to name two, should have gone into government receivership in exchange for the initial lifeline and they should have been barred from the secret Fed borrowing. All we are talking here is that they would have been treated like the auto industry.

And of course throughout the whole ordeal, Canadian banks operating in Canada were a paragon of virtue!
I wouldn't go that far. Canadian banks made a ton of money of that bailout, since it went to them for a long enough time to make a lot of interest.

We're not paragons of virtue. We just have a political system that for a long time encouraged prime ministers to do their time as finance ministers first. So we had two very, very experienced back to back prime ministers, Jean Chretien and Paul Martin, who were both former finance ministers. Thus they were sophisticated enough to understand what de-regulation was going to mean when everyone jumped on the bandwagon in the 80s and 90s.

Unfortunately those days are gone, and we now have a prime minister who is now just ripping the whole thing to shreds.

No system is perfect I guess.
Great summary, Steve. But now I am really depressed!

I had a chance to meet and hear James Kwak, co-author with former IMF chief economist Simon Johnson of "13 Bankers" and the Baseline Scenario blog, who makes many of the same points you make here. There was a moment there when the window of opportunity was open for real reform but it has since closed, he said. We've given the cops on the beat a few more weapons, perhaps, but they are still the same old cops who were asleep on their watch the last time the TBTF banks steamrolled them and us. And they will again. Both he and Johnson are one on that: it's only a matter of "when" another meltdown comes, not if, since we've done nothing to fix the problem of a financial system that controls us not the other way around. So in that sense, how can you blame Obama for being cautious? The bankers have built a system so complicated that only they know how it works. And even they are not so sure. So, do you cut the red wire or the blue one....

I'd already read 13 Bankers before I saw Kwak so I knew he was keeping his more radical anti-Wall Street views close to the vest and being on his best behavior as he spoke with this mostly white shoe group of lawyers and bankers. When I mentioned to him later in the book line to get his autographed that he hadn't used the word "oligarchy" once, he smiled coyly and said: "That is our favorite word isn't it!"
Funny this should air just as the US Treasury is making billions on AIG.

Doesn't really set well with the political story, but facts can be inconvenient.
And, the notion that Europe's problems are largely a product of toxic assets from American Banks????
Totally absent from these Frontline shows is how the entire banking system is shot through with moral hazard from government safety nets.

Why should anyone be surprised that big banks take crazy risks when they have all sorts of explicit and implicit bailouts waiting to help them in case something goes wrong? If I knew I could automatically shift the costs of my behavior onto others, I too would likely take more risks than otherwise.

The ultimate Wall Street “reform package” would have been to let all failing banks fail—then to abolish the Federal Reserve system, the FDIC, all legal tender laws, Freddie and Fannie, and the FHA.

In other words, force banks and bank customers to operate under genuine free-market conditions, where contracts are enforced and property rights recognized.
Frontline has done some outstanding reporting on the financial crisis over the years regardless of who is in office. There is no mathematical escape globally from our current position with 1.4 quadrillion in unregulated derivatives floating out there.

Obama is weak and corrupt just like the rest of them, loathing justice with the zeal of a blind man who's definition of responsibility is to deny responsibility. "Never make anyone accountable" could be Obama's creed. His answer to letting children play with matches is to give them gasoline instead. But NEVER EVER upset the child! The banks should have been stripped of all power instead of letting them burn down our house.

Vote for the man on the moon if you want, the outcome is the same.
Nick, this is amazing stuff I'm reading about the AIG sales.

And by the way Steve, I wrote billion, when I meant trillion. But, yeah, I always suspected that the Fed would actually come out on top after that bailout. Eventually.

That said. I'm sure what receivership would have accomplished. It seems to me the U.S. needed regulation more than receiverships. But it's so hard for your government to push through legislation. I'm not sure that's Obama's fault.

There are current efforts to finalize regulations on SIFI's (systemically important financial institutions).

The regulated banks were mostly cleaned up via failure -- banks holding 20% of insured deposits either failed or merged under pressure during 2008-2009.

When you have non banks doing what amounts to banking, you need to regulate the largest, and it is happening.

My personal opinion is that so much emphasis has been placed on the lack of proper retribution that very important areas are being ignored.

Specifically, as Harry mentioned, Credit Derivatives are still a scourge.
And for Steve:

Are US banks, Today, taking too many risks (because of increased moral hazard, TBTF, etc) or too few? And why?
Nick, Without a doubt, American banks continue to hold toxic assets dating from the meltdown, including toxic mortgage derivatives, credit default swaps and so on. They continue to hold toxic Eurozone assets. So, yes, they are exposed to hug theoretical risk.

As for their current trading, on the whole we don't know. In the meltdown we found that even banks had no idea what theoretical risks they faced. By the bonuses paid out last year, I think we can safely assume that derivatives, credit default swaps, currency swaps with hidden loans rolled in and regulatory arbitrage continue to play a significant role in their operations. And we know that Dodd-Frank and the Volker rule have sufficient loopholes to allow them to engage in such activities. I would suspect that most of this is happening at the big investment banks such as Goldman and Morgan, but expect Bank of America and Citigroup to have their investment sides active, too. Why? Because they can. And because if they get into trouble again, they reckon a bailout will be likely.
And once again, you add yourself to the deadweight of the problem by supporting Obama because of a chilling "pragmatism" to go with the lesser of two evils.

I watched part of this program. Whether Obama is incompetent or corrupt, it does not matter. The results are the same. To continue to support him who is doing so much damage domestically and internationally is to be myopic beyond belief. To use your knowledge to coax continuing support for him makes me sad.

Frontline revealed that Obama's BFF the UBS CEO kept him apprised of all that was happening even before he was elected, as Obama undoubtedly promised the banksters to sell out the citizenry without a moment's hesitation. Do you really think Obama hesitated to take on the corporate daddies? Obama is black and his race was useful in confusing and stalling outrage which should have come so long ago as more and more economic and police terrorism rages on in the US.

Of course you made the front page again. Enabling of the status quo!!!! WTG (not). I am really disappointed once again in your conclusion of sell out by encouraging citizen appeasement to the Dem corporate party. Take off the blinders, please!

Good job. I saw thislast night and the relationship between larry summers and the others was very interesting to me
Libby, No point to dialogue here. You will withhold your support from Obama in the fall election. I don't need point out what the effect of that will be. You will have made your point. I was around in the 60s. I know where you are coming from. I vote strategically. And I encourage everyone I know to do the same. You can wait for Godot, wait for the fall, wait for the second coming as you please. I have more pragmatic things to do. Will history prove your point of view to be correct? Maybe. But I'm betting neither of us will be around to find out. And in the meantime, well, each to our own.
Banc of America was the side of the house that did the house trading, the kind of trading that could be used to bet against its own investment clients. It became part of Merrill Lynch after Bank of America took Merrill over. Banc of America, an SEC-registered trading entity, specialized in junk bonds, or, as they like to say, "high-yield debt." That term can include a lot of schemes, but their biggest junk acquisition was probably Merrill itself. It nearly took the bank down.
I watched all four hours. It was one of Frontline's best. It gave enough background for enterprising sleuths to dig a little deeper. The entire debacle can convincingly be blamed on Newt Gingrich and the "Republicans." His scorched earth assault on Bill Clinton paved the way for deregulation of the banking system. Once that happened, the abuses were enabled.

The roots go even deeper, beginning with the "Reagan Revolution" in the 1980s. This was the germination phase, where Reagan started his eight years of nastiness by stating ""Government is not the solution to our problem; government IS the problem."

It will get worse for a while. The "Conservative" revolution hasn't been completely discredited yet. It will, and fairly soon, not because of the superiority of "liberalism," but because the unsustainability of our economic system, in concert with climate change, will force us, or those of us who survive this era, to have a different presence on this planet.

Maybe this program will give sufficient warning to change now, and maybe it won't. However we choose, the fake ideology of "Conservatism" is through. It's kind of hard to be a raging "Tea Party" fanatic when your house has just been blown away by a tornado.
Thanks for providing the link to the Frontline stories. We missed one of the episodes. ... Everything that is going on with American finance is so shameful. I still remember an economics professor saying that "business is inherently corrupt." Based on what this country has seen over and over again throughout the course of our history, he was right.

I watched the program. I remember thinking in 2009 that this was it for the banks. Now I know Obama blew it! When I saw that 8 trillion figure there was no doubt in my mind, the banks secretly borrowed 8 trillion and the federal reserve kept it quiet. A guy on opendemocracy wrote recently that when the government bailed out the banks there ceased to be any difference between the two entities. The banks are the government, and the government is by and for the bankers. He said the arrangement works about as well as the prison system does reforming criminals. Our prisons and banks are going nowhere anytime soon.

Thanks for the heads up on the program Steve. I've been working late of late and might have missed it. It seems to cover similar ground to Inside Job. You're right that the notion of Obama being a socialist is utter nonsense, though you'll still find 20-30% of the populace brainwashed into thinking otherwise. It must be deeply frustrating for the likes of Stiglitz and Reich.
The opportunity was lost to reform banking and we have no hope of reform anytime in the future. The banks know they got a get- away- free pass and will do this to us again. The U.S. is broken.
On the basis of this post, I shall now watch the documentary. Personally I blame the entire mess on stupidity and greed, which simplifies the issue enough for me to merely be angry while I wait for the Zombie Apocalypse or at least a good plague to come along and stimulate the economy.
The only thing for sure in the world of finance is that things are not what the Wall Street Journal says they are. As you've pointed out, after a few years people get some idea of what's actually happening behind the scenes. But conventional wisdom only goes so far. Thanks for the great post!
George Carlin, repeatedly reminds us that our vote doesn't count; that the next plantation owner will be chosen for you.

Furthermore, this indisputable: “Just think of how stupid the average person is, and then realize half of them are even stupider!”
out of a dedication to morality and principle; NOT the lesser of two evils scam.
I was glued to every episode of this, and finally feel like I have the teeniest grasp on what went down, both here and in Europe. Frontline did a great job. I am left incredulous that such a small square footage of real estate, one that I've walked many times, was the locus of such extensive financial tragedy.
Mr. K. describes all the reasons Obama is a failure, a lot less respectable than Herbert Hoover ever was. H. H. after all, really was a competent man in NGO Relief after WW1, and invented many of FDR's reforms, though he wasn't around long enough to benefit from them. I haven't really heard anything useful that Obama did ; I guess if you are a Bush fan, you are pleased that O. carried out and enhanced, many of the more obnoxious Bush policies, but they are even less successful now than they were the first time around.
Shawn, the Congressional Budget Office, Alan Blinder of Princeton, and Fitch Ratings in conjunction with Oxford Economics all say that evidence shows the $700 billion Fall-2008 Bush administration bailout led by Hank Paulson and Nancy Pelosi and the $831 billion Obama stimulus package, in addition to Obama-era Fed policies all served to mitigate the recession and stimulate recovery, especially since June 2009.

I can't imagine what Hoover policies you are referring to, but go ahead, make a case.
On May 2nd Nick Carraway asked, "Are US banks, Today, taking too many risks (because of increased moral hazard, TBTF, etc) or too few? And why?"

The announcement this morning that the biggest and baddest of them all, JP Morgan, lost $2 billion on bad bets on credit derivatives through the actions of a single trader in London should answer Nick's first question. As for the why, Gordon Gekko answered that a long time ago.