I recently resubscribed to Rolling Stone to keep up with the music scene—and for some political insight. Yes, political insight. Now before you call me crazy, stop and think about the taxpayer bailout of Wall Street. How angry were you? I know, it was bad. If every angry blog post, article, and sound bite were a grain of sand, you could fill the ocean and walk from Cape Cod to San Sebastian. But it’s hard to forget how Matt Taibbi of Rolling Stone encapsulated the rage, calling Goldman Sachs a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
On that pleasant note, I was interested in Taibbi’s take on Wall Street reform—the 2,300-page doorstop known as Dodd-Frank. Once again I find myself mostly in agreement with Taibbi’s “How Wall Street Killed Financial Reform” on how the law has been gutted:
The fate of Dodd-Frank over the past two years is an object lesson in the government’s inability to institute even the simplest and most obvious reforms, especially if those reforms happen to clash with powerful financial interests. From the moment it was signed into law, lobbyists and lawyers have fought regulators over every line in the rulemaking process. Congressmen and presidents may be able to get a law passed once in a while—but they can no longer make sure it stays passed. You win the modern financial-regulation game by filing the most motions, attending the most hearings, giving the most money to the most politicians and, above all, by keeping at it, day after day, year after fiscal year, until stealing is legal again.
There used to be laws that were effective in protecting you, the taxpayer, and your deposits from the trading and speculating of the big bad Wall Street banks. They were in large part the Securities Act of 1933, the Securities Act of 1934, the Commodity Exchange Act of 1936, FDIC protection, and the Glass-Steagall Act. But now the risk lies within the unregulated markets of derivatives like credit default swaps—a complicated web of financial engineering. They crushed the market in 2007–2009. And if you want to understand how, read The Big Short by Michael Lewis.
The unregulated markets are where anything goes. Prices can be whatever Goldman is charging. As Taibbi writes:
The best way to explain where those hidden taxes come from is to compare a regulated market to an unregulated one. It’s the difference between buying soap and buying drugs. You go into a corner store and there’s a price tag on the soap, but you can always go across the street, or on the Internet, to see what soap costs someplace else. But when you go to buy an eight ball of coke, you have to ask your dealer what the price is, and it’s not like you can compare prices online. If you’re tough and streetwise and you know what coke costs, you might get it for a couple hundred bucks. But if you’re some quivering Ivy Leaguer idling in a Lexus, the price might be $400.
It’s not hard to see how the little guy gets hurt in this game. Most would rather listen to music than keep up with the inside game between Washington and Wall Street. But it’s the taxpayers who end up being on the hook for their largesse.
