Asked about JPMorgan’s trading loss and trading risks in the market Moynihan said, “Jamie has the skill to get out of it. The loss concerned the market but did not disrupt it.”

Moynihan is the CEO of a major competitor to JP Morgan Chase, but when it comes to regulations and the government, they are as brothers.

And then there’s this.

This afternoon Moynihan was asked to defend the universal banking model which marries retail banking with investment banking. The CEO of the nation’s second largest bank said the model is the “most important” model there is because it gives consumers access to global information, capital markets, investment advice and basic banking all in one place.

“We can’t be competitive if we can’t provide all those services to our consumers,” he says.

Moynihan argued that the dialogue on banking has gone from concerns about “too big to fail to too big to manage.” He noted that regulations brought forth by Dodd-Frank have addressed the former and added that BofA has dramatically narrowed down the scope of its business to address the later.

“Three years ago when we merged [with Merrill Lynch] our balance sheet was $2.7 billion. Now we are down to a $2.18 billion balance sheet, and we’ve doubled liquidity and capital,” he says.

He pointed out that the bank no longer has a private equity business and that it wound down its prop trading business in the second quarter of last year.

Pretty much everyone, even its proponents, admits that Dodd-Frank has not yet fixed our banking system.  Everyone, that is, except Bank of America CEO Brian Moynihan.  For him, Dodd-Frank is just fine.

In September 2011, two Appalachian women traveled to Delaware to deliver a petition to the state’s Attorney General Beau Biden. Betty Harrah and Lorelei Scarbro represented thousands who believed that the business charter for coal-mining company Massey Energy should be repealed. The company, mostly operating in Appalachia but incorporated in Delaware, has violated the Clean Water Act 60,000 times. An investigation commissioned by the governor of West Virginia found Massey could have prevented the explosion that claimed the lives of 29 miners, among them Harrah’s brother, at the Upper Big Branch Mine in 2010.

Massey, they contended, was simply too dangerous to be in business. But their pleas fell on deaf ears. The company plugs along, despite its shoddy environmental and safety records, churning out profits for its parent company, Alpha Natural Resources.

To many, Massey is not simply one bad apple, but part of an economic system heavy with rotten fruit. Companies like Lehman Brothers, Bank of America, Countrywide, BP, and Walmart epitomize the relentless drive of corporations to maximize profit above everything else, including safety, fair working conditions, clean air and water, healthy communities, and common decency. In doing so, the very word “corporation” has become a dirty word.

Forget bad apples, perhaps we should just raze the entire orchard, right?

Our economy, like our environment, is in trouble. Limitless growth that drives the profit-hungry corporate model today is ecologically impossible. We simply cannot sustain business as usual and the cracks in our system are showing.

“You look at the Arab Spring … what looked like very stable regimes across the Arab world were suddenly shown to be completely vulnerable and brittle and I think that we may see the same kind of thing in our economy,” said Marjorie Kelly, a fellow at the Tellus Institute and author of the new book Owning Our Future: The Emerging Ownership Revolution. “What looks massive and permanent and invulnerable, may show itself quite suddenly to be brittle.”

Maybe this doesn’t sound heartening but it should. The corporate model we have today hasn’t always been around and it doesn’t need to remain the dominant way we do business. There is no reason we should be swabbing the decks of a sinking ship — alternatives already exist and they are flourishing.

“What’s underway is an ownership revolution. It’s about broadening economic power from the few to the many and about changing the mindset from social indifference to social benefit,” Kelly writes. “We’re schooled to fear this shift, to think there are only two choices for the design of an economy: capitalism and communism, private ownership and state ownership. But the alternatives being grown today defy those dusty 19th-century categories. They represent a new option of private ownership for the common good. This economic revolution is different from a political one. It’s not about tearing down but about building up. It’s about reconstructing the foundation of ownership on which the economy rests.”

Better Business

A common complaint in today’s world is one of disconnection. Our industrialized world has resulted in less contact with community — we don’t know our neighbors or who grows our food. In the same way that we’ve lost touch with a deeper sense of belonging and place, many of us have become disconnected from the soul of our work. The corporation-worker structure today is a master-servant relationship. We’re slaves to the company, working longer hours for less wages.

“Now mass layoffs to boost profits are the norm, while the expectation of a career with one company is long gone,” William Lazonick wrote. “This transformation happened because the U.S. business corporation has become in a (rather ugly) word ‘financialized.’ It means that executives began to base all their decisions on increasing corporate earnings for the sake of jacking up corporate stock prices. Other concerns — economic, social and political — took a backseat. From the 1980s, the talk in boardrooms and business schools changed. Instead of running corporations to create wealth for all, leaders should think only of ‘maximizing shareholder value.’”

Our economy is dominated by a monoculture business model, Kelly says, driven largely by publicly traded corporations that have built in pressure from Wall Street for maximum short-term earnings. But a healthy, living economy needs biodiversity. We can find this if we begin to look around — across the U.S. and the world — where there are businesses designed not for maximum profit, but with a mission-driven social and economic architecture. One of these models is the “social enterprise.”

The Social Enterprise Alliance defines these organizations as “businesses whose primary purpose is the common good. They use the methods and disciplines of business and the power of the marketplace to advance their social, environmental and human justice agendas.” And one of the defining characteristics is that “The common good is its primary purpose, literally ‘baked into’ the organization’s DNA, and trumping all others.”

Here’s an example. Remember Working Assets? Starting out as a progressive-minded credit card company in the ’80s, it added phone service — first long-distance in the ’90s, then cellular in 2000 — and now it has created the subsidiary CREDO Mobile. The company operates as a for-profit business, which is privately owned, with most of the employees owning the stock, so it doesn’t have to bow to Wall Street pressures. They use their profits to help support causes they believe in — so far the amount of money donated is $70 million and counting.

Social enterprises can also be nonprofits, like Goodwill Industries, which last year turned donations from 79 million people into revenue that provided job training to 4.2 million people. And by reselling donated clothing, furniture and household goods, they divert an estimated 2 billion pounds from landfills every year.

The idea of social enterprises is catching on in the business world in the U.S. with the emergence of Benefit Corporations, also known as B Corps, which are designed, “to create a new sector of the economy which uses the power of business to solve social and environmental problems.” B Corps are all for-profit companies that have legal structures mandating that the company is designed to work not for maximum shareholder gain, but for the good of society and the environment.

Currently there are more than 500 companies that have become approved B Corps and legislation has been passed in seven states (Maryland, New Jersey, Vermont, Virginia, California, Hawaii and New York) making them official entities. Some are larger corporations, such as Method Products and Patagonia, but many are also smaller companies and business-to-business operations.

B Corps are similar in design to another kind of company called L3Cs. “The L3C is a hybrid between the nonprofit and for-profit models in that it is essentially a profit-generating entity with a socially beneficial mission,” writes Ashley Holmes for GreenBlue. “Like an LLC corporation, L3Cs have the same liability protection and are not tax-exempt; however L3Cs have access to forms of capital that traditional corporations don’t qualify for, all in order to further social and environmental goals. Americans for Community Development describe the L3C as a company that ‘combines the best features of a for-profit LLC with the socially beneficial aspects of a nonprofit… the for-profit with a nonprofit soul.’”

It’s About the Workers

B Corps and L3Cs create a legal foothold for a more sustainable kind of business. But other models get to the heart of the new economy as well and take up the important ideas of ownership and governance. Who gets to make decisions about how our companies are run and who gets to share in the wealth that’s created?

The U.S. helped create a system in post-war Germany for works councils, where workers are elected from companies to help manage how the business is run. “That means the councils help determine core issues, like when to open and close the store or office, who gets what shift, and who gets laid off or fired,” wrote Jeremy Gantz in a review of Thomas Geoghegan’s book Were You Born on the Wrong Continent? How the European Model Can Help You Get a Life. Germany also has co-determined boards, which give workers a voice in governance — companies with more than 2,000 employees have half of their boards composed of workers.

Empowering employees has proved a successful business model elsewhere. The John Lewis Partnership has been around in the UK since 1920 and has grown to over 30 department stores and more than 200 supermarkets, with a revenue of $13.4 billion. The business is employee-owned — all workers get to share the profits and vote for the governing council and company’s board.

“This firm has a written constitution, printed up and publicly available, which states that the company’s purpose is to support ‘the happiness of all its members,’” wrote Kelly. “Now, let me pause and note: this is the only major corporation I’ve found that declares its purpose is to serve employee happiness. This is so, at JLP, not because it boosts returns for shareholders. At the John Lewis Partnership, employee happiness isn’t a path to some other goal. It is the goal.”

Employee-owned companies aren’t just a British anomaly. “In the United States, the National Center for Employee Ownership reports that there are 11,300 employee-owned firms, with some 14 million participants,” Kelly found. “And in Europe, large companies have nearly 10 million employee-owners. Employee ownership has been increasing in such countries as Spain, Poland, France, Denmark, and Sweden.”

Organizations can be run with employee owners or other kinds of members. The London Symphony is owned by the musicians who play in it. Barcelona FC soccer team and the Green Bay Packers football team are community-owned. Mutual insurance companies are owned by policy holders and credit unions are owned by depositors.

Employee-owned businesses and cooperatives have emerged in the green business world with great success, as well. Community-owned forests in Mexico support indigenous people, protect the environment and prevent illegal logging. In Denmark community-owned wind farms have jumpstarted wind energy, supplying 20 percent of country’s power. In Minnesota, Minwind is a farmer-owned wind development company that’s grown to 350 members.

A New Vision

There are different legal and social structures that can help to feed this growing new economy. In Quebec, a “solidarity” or “social economy” was created to help nonprofits and cooperatives, and it gets popular and government support. Spain is home to Mondragon Cooperative Corporation, which is a network of more than 100 cooperatives, employing 100,000 workers. This cooperative model helps support new business ventures. If a firm is struggling in its first few years, interest rates are lowered to help it instead of flagging the business as high risk and then jacking up interest rates like we do here, says Kelly.

Supporting these new ventures is important, but so is holding the companies accountable to their missions. For cooperatives and employee-owned companies, like the John Lewis Partnership, where members get a vote and can elect those who make governing decisions (or run for the positions themselves), there is more power to make sure the company is keeping its word. With privately held businesses, accountability can be much harder. The B Corp certification process is one way that helps get around the blind spots — certified B Corps have to prove themselves to a third-party organization — creating accountability and transparency.

So what can we do in the U.S. to spur the development of socially and ecologically conscious business? “I used to think we needed new federal legislation and corporate chartering and that we could drive change with state and federal law,” Marjorie Kelly said. “And I do think we do need an articulation of what a company ought to be in law.” But we have to go beyond that, she insists.

“A teacher at Schumacher College posed a question: What kind of economy is suited for living inside a living being?” Kelly said. “It’s not an endlessly expanding economy, it’s not an economy that’s designed to serve the few, at the expense of the many, it is an economy that is generative; that is life-serving in its purposes. How do we generate the conditions for life to continue and to thrive?”

The answer will likely be not one thing, but a compilation and diversity of different business models that are consistent with supporting workers, protecting the environment, and serving the broader social good.

Like many Americans, I was doing everything I could to help elect Barack Obama. It wasn’t all that much—but as an economist in Texas, I had some authority on the thinking of former Senator Phil Gramm, John McCain’s chief economic adviser. I’d made the front page of the Washington Post describing Gramm as a “sorcerer’s apprentice of financial instability and disaster.” (Gramm, with a certain sense of humor, denied it.) For that, and for my experience drafting policy papers, I was in contact every few days with Obama’s economists.

To economists in my own circle, it had long been clear that the financial crisis then unfolding was an epic event. We had watched the subprime mortgage disaster build up. In August 2007 we knew the meltdown had begun. Bear Stearns had failed. But for reasons that have to do with the pace and rhythm of politics, these issues remained on the back burner, the campaign being dominated by health care and the Iraq war. For those of us on the outside, it was hard to know whether the insiders understood what was coming.

And so it seemed a good idea to raise an alarm. But here you confront the Cassandra paradox: if you predict disaster, no one believes you. Economics is rife with alarmists; if the wolf really is at the door, it’s better to have a whole chorus saying so.

For this I had the help of the Charles Leopold Mayer Foundation for Human Progress, which convened a meeting in Paris. When you invite twenty friends to spend a few days in Paris in June, it’s rarely hard to persuade them to come. Among the Americans in the group were the editors of two important journals, a former United Nations financial expert, and the former federal regulator who had blown the whistle on the savings and loan fraud. There were also senior specialists from France, Britain, India, China, and Brazil.

The meeting had no political connection, but one result was a long memorandum, which I sent in early July to the Obama team. I do not know whether, or by whom, my memo was read. Not the slightest word came back.

Yet the memo disproves the notion that nobody knew. To the group in Paris, three months before Lehman, what I wrote was obvious. It was our consensus view. What follows is an excerpt.

Bubbles are endemic to capitalism, but in most of history they are not the major story. In the nineteenth century, agricultural price deflation was a larger problem. In the twentieth, industrialization and technology set the direction. It was only in the information technology bubble of the late nineties that financial considerations including the rise of venture capital and the influx of capital to the United States following the Asian and Russian crises—came to dominate the direction of the economy as a whole. The result was capricious and unstable—vast investments in (for instance) dark broadband, followed by a financial collapse—but it was not without redeeming social merits. The economy prospered, achieving full employment without inflation. And much of the broadband survived for later use.

The same will not be said for the sequential bubbles of the Bush years, in housing and now commodities. The housing bubble—deliberately fostered by the authorities that should have been regulating it, including Alan Greenspan and Ben Bernanke—pushed the long-standing American model of support for homeownership beyond its breaking point. It involved a vast victimization of a vulnerable population. The unraveling will have social effects extending far beyond that population, to the large class of Americans with good credit and standard mortgages, whose home values are nevertheless being wiped out. Meanwhile, abandoned houses quickly become uninhabitable, so that, unlike broadband, the capital created in the bubble is actually destroyed, to a considerable degree, in the slump.

Securitization is a long-standing practice but the question is, at what point does it go too far? It should be clear by now that nonconforming home loans cannot be safely securitized, because the credit quality and therefore the value of the asset cannot be reliably assessed. Further, in the regulatory climate of recent years (where as William K. Black pointed out, political appointees brought chainsaws to press conferences), ordinary prudential lending practices broke down completely. The housing crisis was infected by appraisal fraud, a fact overlooked and therefore abetted by the ratings agencies. “No one looked at the loan package.” Now the integrity of every part of the system, from loan origination to underwriting to ratings, is under a cloud.

Fraud is deceit, a betrayal of trust. And it is trust that underlies valuation in a market full of specialized debt instruments, off-books financial entities and over-the-counter transactions. That trust has, as of now, collapsed. The result, as John Eatwell phrased it, is that financial crisis takes the form of market gridlock—a systematic unwillingness of institutions to accept the creditworthiness of their counterparties. This is, of course, especially grave where a counterparty has no direct resort to a lender of last resort—and so the crisis naturally erupts in parts of the system that are outside the direct purview of central banks. Deregulation is, in other words, a vector of financial crisis.

The message of all this for the Obama presidency is fairly clear. No one in the group expects the financial crisis to have disappeared, or even to be under stable control, by January of 2009. At that time there will no doubt be immediate priorities: more fiscal expansion, fast action against the wave of home losses to foreclosures, plus fast action against financial speculation in commodities would seem as of now to head the “to-do” list. But the financial problems will not go away. And that means that a seemingly benign credit expansion, such as got underway for Clinton in 1994 and carried him through his presidency, is not in the cards for Barack Obama.

Given the fact that vacated and unsold houses (unless destroyed outright) stay in inventory for a long time, there is little prospect of a housing recovery, or that a new expansion of loans to the broad population will be collateralized by home values any time soon. Recovery from this source should indeed not be expected within the policy horizon of the next presidential term. Something could happen, for reasons largely unforeseen, as it eventually did in the 1990s. But to bank on such a happy development would be an act of faith. More likely, there won’t be good news on the growth front in 2009, 2010, or 2011. Achieving economic growth in some other way will therefore be an overriding policy preoccupation.

The only other known way is fiscal policy, and this raises two questions: how much fiscal expansion will be needed, and over what time horizon?

Calls are now being heard for a “second stimulus package”; these reflect the fact that the first stimulus package [the Bush package of Spring 2008], while effective, was necessarily short-lived. But the same will be true of the second stimulus package. And once the election is over, will the coalition presently supporting short-term stimulus stay in place? If not, what then?

If the above analysis is correct, the political capital of the new presidency risks being exhausted, quite quickly, in a series of short-term stimulus efforts that will do little more than buoy the economy for a few months each. Since they will not lead to a revival of private credit, every one of those efforts will ultimately be seen as “too little, too late” and therefore as ending in failure. Meanwhile a policy of repetitive tax rebates can only undermine the larger reputation of the country; it is unlikely that the rest of the world will happily continue to finance a country whose economic policy consists solely of writing checks to consumers.

What is the alternative? It is to embark, from the beginning, on a directed, long-term strategy, based initially on public investment, aimed at the reconstruction of the physical infrastructure of the United States, at reform in our patterns of energy use, and at developing new technologies to deal with climate change and other pressing issues. It is to support those displaced by the unavoidable shrinkage of Bush-era bubbles but to do so efficiently—with unemployment insurance, revenue sharing to support state and local government public services, job training, adjustment assistance, and jobs programs. It is to foster, over a time frame stretching from five years out through the next generation, a shift of private investment toward activities complementary to the major public purposes just stated. It is to persuade the rest of the world that this is an activity worthy of financial support.

As noted, this strategy will have to be developed in a hostile environment of unstable oil and food prices. However, it would be a grave mistake to interpret that unstable price environment as “inflationary,” as leading toward a sustained or inertial inflation. In particular, money wages have not changed or caught up; real wages are therefore falling—and quite sharply—in view of the commodity price jumps. As Ben Bernanke acknowledged in a recent speech, nothing in the present movement of price indices can be attributed to wages. In Bernanke’s choice phrase, “the empirical evidence for this linkage is less definitive than we would like.”

It is Democratic Party mantra that Presidents do not comment on the actions of the Federal Reserve. But in this situation, comment is needed. An appropriate comment on the larger role of monetary policy does not amount to interference in routine decision-making, e.g., of the Federal Open Market Committee. Rather, it should reflect the core reality: the Federal Reserve and other financial regulatory agencies failed in their responsibilities in the past decade and now they must take up those responsibilities again.

The entire point of a regulatory system is to regulate. It is to subordinate the activities of an intrinsically unstable and predatory sector to larger social purposes, and thus to prevent a situation in which financial interests dictate policy to governments. That is, however, exactly the situation we have allowed to develop. The job of the Federal Reserve and of the other competent agencies in the next administration must be, in part, to reestablish who is boss. Specifically, there needs to be a very thoroughgoing revamping of the financial rules of the road, to dampen financial instability, deflate the commodity bubble, reduce the enormous monopoly rents in the financial sector, set new terms for credit management, and generate productive capital investment where it is most required. This is in large part the Federal Reserve’s job, though it has strong inter-agency and international dimensions.

These measures cannot be viewed, or undertaken, in isolation from the international financial position of the United States. Obviously, a successful speculative attack on the dollar would severely disrupt the orderly implementation of this or any other strategy. Equally obviously, a unilateral defense of the dollar via a campaign of high interest rates would severely aggravate the problems of the real economy.

The way out of this dilemma—the only way out—lies in multilateral coordination and collaboration: a joint effort by the United States and its creditors. And this means that the next administration must return, rapidly and with a credible commitment, to the world of collective security and shared decision-making that the Bush administration has been at pains to abandon. An orderly disengagement from Iraq would send a major signal of the intent of the U.S. government to play, in the future, by a different set of rules.

Collective security, in short, is not merely a slogan. It is the lynchpin of our future financial and economic security—security that cannot be assured by any unilateral means. Only a collective effort will keep America’s creditors committed to the stability of the dollar-reserve system for long enough to effect the next round of economic transformation in the United States. Conversely, continued failure to appreciate the financial and economic dimensions of unilateral militarism is one certain route toward the failure of the next administration’s economic and financial strategies. The two largest issues we face—how to maintain American economic leadership in much of the world and how to manage American military power—cannot be separated from each other.

Collective security is, however, also more than simply a way of reducing risks and instabilities. It is the foundation stone for many physical transformations of the economy to come. It is obvious, in particular, that the military basis of international power on which the United States continues to rely is completely out of date, and has been for decades. As Iraq has demonstrated to everyone including the professional military, military power alone cannot deliver stability and security at all—let alone at an acceptable human and social cost. Yet parts of the military establishment continue to develop, and to harbor, the technological talent and capacity for problem solving which every aspect of our energy problem now needs. Shifting the basis of our security system away from one based on military equipment is a key step toward making those resources available.

And the same is true for other countries. China, for example, has long made energy choices favoring coal partly because the resulting power plants are diffuse and militarily expendable. In a secure world, that country would be far more willing to develop its vast hydroelectric potential, as the then-invulnerable United States did in the 1930s. Hydropower is carbon-clean, but militarily exposed. A stable reduction of military fears is a key step toward opening up markets that can potentially permit resolution of collective problems on the grand scale.

In short conclusion: from the beginning, the Obama presidency will face acute situations requiring immediate action, especially in oil and housing. It should aim for early victories in these areas as the foundation stone for intermediate- and long-term programs. For the medium term, institution building and the restoration of competent and effective regulatory power over the financial system—both national and international—will be key.

For the long term, the goal should be nothing less than the transformation of our energy base and the solution of our environmental challenges—the rebuilding of America. And that can be done only in an international financial climate made possible by a return to multilateral decision-making and a commitment to collective security. The American people are ready for this. President Obama should be prepared to explain that leadership in a world community—leadership of collective action on the grand scale—is America’s true destiny. It is not in futile warfare, but in great endeavors, that a great nation finds its future, its purpose, its place in history, and prosperity, as well as security, for its people.

In a hearing last week titled “Examining the Settlement Practices of U.S. Financial Regulators”, various regulators tried to justify their practice of settling with financial firms and not requiring them to admit wrongdoing. In that hearing, Federal Reserve General Counsel Scott Alvarez, stated that only seven of the roughly one thousand enforcement actions taken in the last decade were resolved without consent.

The vast majority of the Federa Reserve’s formal enforcement actions are resolved upon consent, which is fully consistent with the goal of resolving supervisory concerns with bank management quickly and firmly. In crafting enforcement actions that are entered by consent, the Federal Reserve typically sets out summary recitations of the relevant facts in “Whereas” clause provisions; however, like our fellow banking regulators, it has not been our practice to require formal admissions to the misconduct addressed in our enforcement orders given the remedial nature of our enforcement program. Requiring admission of fact and legal conclusions as a condition of entering into a consent action is likely to have a deleterious effect on our supervisory efforts by causing more institutions and individuals to challenge the requested relief in contested administrative proceedings, which typically takes years to reach final resolution, and which could delay implemenattion of necessary corrective action.

In other words, the Federal Reserve will only punish banks who break the rules if those banks consent to punishment.  This attitude is pervasive among all regulators.  Here’s the Office of the Comptroller of the Currency, which regulates among other banks JP Morgan Chase.

Obtaining an institution’s consent to an immediately effective order helps ensure that its problems are addressed at a stage when rehabilitation is still possible, thus helping the bank avoid failure…

The longstanding practice of permitting the bank or individual to neither admit nor deny wrongdoing allows the OCC to get an enforceable order in place at an early stage of the proceeding, and encourages compliance with the enforcement action and immediate correction of any deficiencies that need to be addressed. Because consent orders are made available to the public, requiring an admission of wrongdoing would prolong settlement negotiations and increase the number of respondents who choose to litigate the merits of the action.

Of all the regulators testifying, the Securities and Exchange Commission’s enforcement chief, Robert Khuzami, was the most embarrassing, announcing the SEC would be making a change to its practice of not forcing corporate actors to admit wrongdoing.

In light in the special situation where an SEC civil action may also involve a parallel criminal action, senior officials in the Division of Enforcement recently undertook a review of the “neither-admit-nor-deny” settlement policy. While reaffirming the policy more generally, as a result of this review, the Division, after consulting with the Commission, modified its policy to eliminate “neither-admit-nor-deny” language that could be construed as inconsistent with admissions or findings made in a parallel criminal proceeding.  In other words, it seemed unwarranted for there to be a “neither-admit-nor-deny” provision in those cases where a defendant had already admitted to, or been criminally convicted of, conduct that formed the basis of a parallel civil enforcement proceeding.

In other words, if the company has already admitted guilt in a criminal proceeding, where the evidence required is usually much heavier, then the SEC will ask the company to admit guilt in a civil proceeding.  Khuzami spent most of the hearing talking about how the SEC was getting most of what it wanted out of these settlements, anyway, without an admission of guilt.  This is, of course, nonsense.  I pinged Bill Black about why it’s important to make companies admit wrongdoing, and here’s what he said.

(1)  It demonstrates that what has occurred was a fraud (otherwise they deny it after the fact and insist they were simply being extorted), (2) the plea of guilty (as opposed to nolo contender) can be used by civil plaintiffs (and in administrative enforcement actions) to invoke “collateral estoppel.””  The defendant is estopped from denying their guilt in the civil action.  This makes it immensely easier for victims to recover, (3) offenders, particularly multiple offenders, are treated differently under the laws and rules.  The pleas can be used under RICO to establish a pattern of racketeering, under the sentencing guidelines to secure a tougher prison sentence, and to argue in favor of punitive damages and asset freeze orders.

The hearing was about District Court Judge Jed Rakoff’s refusal to sustain the Citigroup settlement with the SEC.  What was interesting about it, from a political standpoint, is that all three witnesses, including the witness brought in by the Democrats, opposed Rakoff’s move and supported the SEC’s position.  And one of the top Democrats on the committee, Carolyn Maloney, gave a long-winded opening statement in which she basically took the position that forcing an admission of wrongdoing was just too hard.  In other words, many high-level Democratic politicians, for all their gnashing of teeth about the need for regulation, aren’t being truthful.  They don’t want regulation, they want to be seen as wanting regulation.  And the Republicans, while they want to be seen as the party against regulation, are actually quite happy having regulators they can work with, regulators who protect the banks from state or local level action.

The argument over regulation or deregulation, in some sense, misses the point.  We need regulation, obviously.  But we also need strongly principled regulators.  And neither Barack Obama nor Mitt Romney has any appetite for that.

Harvard team cracks the code for new drug resistant superbugs Earthsky (h/t fuzzy mouse)

Toxic mortgage bonds flourish as other sectors slump  CNBC

Israel: Iran deal doesn’t rule out possible strike AP

Facebook advised analysts to cut forecasts before float Reuters

Hollande set for EU summit showdown with Merkel Reuters

Housing chief leaves Morgan Stanley to launch buy-to-rent fund Housing Wire

Greenlight’s Einhorn sees housing rebound Reuters

Top Obama Officials, Secretive Process Create ‘Assassination List’ Common Dreams

Germany rules out common euro bonds FT

Tsipras Says Berlin Must Back Down on Austerity  Spiegel

Greek Leftist Reaches Out, to Little Avail  New York Times

Obama’s Big Lie Abigail Field

The Chinese Stimulus Bull Trap Macrobusiness

Bill Targets Fed Conflict Politico

The Final Days of the Office of Thrift Supervision RegBlog

Chicago History Repeats Itself As Cops and Protesters Clash Rolling Stone (h/t martha)

Revenge of the Weeds The Scientist

* * *
D – 108 and counting. *

Lambert here:

Why, man, they did make love to this employment. William Shakespeare, Hamlet, Act V, Scene 2

NATO summit. Bridgeport Raid marks the first time state prosecutors have used the Illinois Terrorism law to prosecute individuals. Never let a crisis go to waste. “Were the three Bridgeport suspects targeted because of a candid video they shot and released the previous week, showing CPD officers searching their car and intimidating them as they entered Chicago”?

Montreal. Protests and Marches on Day 100 of the Quebec student protests (red square movement). “Our streets!” Montreal represents (picture). “A river of red-clad protesters” (remarkable, since Quebec’s national color is blue.)

Bill 78, provincial law suppressing student protest increased civil resistance, as all walks of life join. “Coalition of 140 community groups and unions encouraged people to join the demonstration to denounce the tuition increases and the legislation” (italics mine). “People in central Montreal neighbourhoods appeared on their balconies and in front of their houses to defiantly bang pots and pans in a clanging protest every night at 8 p.m.” (Pots and pans as in Argentina.) “We are all criminals,” crowd chants. Arrêtez-moi, quelqu’un! (Note red squares on the site.) “I’ve lived through a lot of big moments in Quebec history, this one feels like it ranks near the top a middle aged woman says.” “Montreal transit union announces they will no longer drive buses being used to transport police.” “Dramatic video circulating online of police pepper spraying protesters and bar patrons likely didn’t help matters.” Bar patrons?! Good one, SPVM!

Interestingly, Montreal is a leader in one central cultural tendency: Indie music. So I can’t help but think the impact of the Montreal red square movement will leap the border, heading south. For example: A bolt of crimson felt used to make red squares rolled out, red-carpet style, in Washington Square, Manhattan (picture).

For students, the issue is “not tuition, but debt”; “tuition” is the mainstream frame (good overview from reader Francois). So, jubilee?

AR. D primary: Obama 60%, Wolfe [Unknown] 39% (40 of 75 counties reporting). Wolfe web site: “Peace and Prosperity, Not War and Austerity.” Ds: “Mr. Wolfe has been completely non-compliant with Arkansas’s Delegate Selection Plan.”

CA. May 22, U.S. District Court Judge Percy Anderson grants injunction against California’s January deadline for newly-qualifying parties to get on the ballot, for Constitution Party and Justice Party.

CO (Swing State). Microcosm of Obama coalition: “[Y]oung people, minorities, and socially liberal upscale whites, especially suburban women” (Axelrod). “A small group of mothers and children from Erie, CO [presented] a petition [to Encana] signed by 21,000 people demanding that the energy giant forgo a planned natural gas drilling site near elementary schools and an adjoining neighborhood.”

KY. D primary: Obama 58%, Uncommitted 42%.

MI (Swing State). State Court of Appeals rules that the review teams that recommended Emergency Managers for Detroit and Flint were not subject to the Open Meetings Act. The court ruled that they are not a “governing body” so they are exempt from the requirement. Click through and read on ’til you get to “clown show.”

NY. Review of Under the Surface: “[G]as companies try to be nice at the beginning of the process but the rest of their story is pretty completely about power. The regulators may come off even worse… It’s less that they’re personally evil, but more that they largely fail to do their job.” Or not!

OH (Swing state). R Senate passes House Bill 473 to comply with the Great Lakes Compact, puts in place a permitting program and sets withdrawal limits for businesses wishing to draw Ohio water from the lake’s watersheds. D amendments to give plain citizens standing rejected.

PA (Swing state). Fracking backgrounder: I, II, III.

RI. Jamestown Op-Ed on local police: “We do not want to be motivated by fear…. Officer Ted Hebert: “It can be stressful because you want to bring violations back to the station.” Indeed! Outlier, or zeitgeist indicator?

WI (swing state). WI crude oil pipeline would increase flow 40% under Enbridge Inc. proposal. Enbridge’s announcement “reveals their true plans – to bring tar sands to Montreal, Quebec where tar sands can easily be shipped southward into New England” (Trailbreaker). Walker’s Deer Trustee: “Public Game Management Is The Last Bastion Of Communism” (he runs “deer parks” in TX).

Ladies of Negotiable Affection. Not just the SS. DEA. Sen. Susan Collins: “It’s disturbing that we may be uncovering a troubling culture that spans more than one law enforcement agency.” So how about the supervisors and department heads?

Inside Baseball. Hillary veep trial balloons: “If Obama were to attempt this, how would he explain it?” (Her polls.) Anatomy of an Ad: “Basketball.” A “delicate balance….” Oh noez! News apps. Sigh. Why not reporting instead of gimmicks?

Romney. Ann Romney on dressage: “When I was so fatigued that I couldn’t move, the excitement of going to the barn and getting my foot in the stirrup would make me crawl out of bed.” This is good! [Adding, I'm not being ironic!] But here’s a proposition: “Like some other good things, it only remains good if it is not possessed by too many people” (Terry Pratchett, The Fifth Elephant). Does our political class agree, or disagree? There are a great many people in the world who are fatigued, after all. Are they somehow lesser humans than Anne Romney?

Obama. “The Obama campaign says a surrogate’s use of the word “raping” to describe Mitt Romney’s actions at his private-equity firm, Bain Capital, is inappropriate.” Sure, say it then walk it back. Pierce inside OHQ in Chicago’s Prudential Center: “We live garrisoned lives, so why should our politics be any different?” Important, atmospheric post from a keen observer. (I won’t use the word “bunker,” but feel free to think it.)

Booker/Bain flap. Obama team probably figured on a fundraising backlash from some private-equity donors. However, D “lawmakers have noted that Obama’s campaign has not yet committed to transferring money to Democratic congressional campaign committees.” So Booker wasn’t an outlier, but a wannabe factional leader? Then again, “Jonathan Lavine is a long-time Bain Capital executive and co-owner of the Boston Celtics. He is also one of President Obama’s most prolific fundraisers.” Obama: “My job is to take into account everybody, not just some.” Well, for some definition of “everybody.”

* 108 days ’til the Democratic National Convention ends with a feast of oysters, bread, and butter garnished with pepper and vinegar on the floor of the Bank of America Stadium, Charlotte, NC. The number 108 is used in Islam to refer to God.

A la prochaine fois!

* * *

Certain procedural issues led the appeal to be referred to the Second Circuit Court’s motion panel to determine whether the appeal should proceed. The panel took the unusual step of putting a stay on the lower court case at the Southern District of New York (even though the case was still pending), and in the process criticized Judge Rakoff’s position without deciding the merits of the case. The merits panel is now charged with deciding on the substance of the appeal.

You can find the SEC’s appeal here, Citi’s here. Better Markets has also filed an amicus brief supporting Judge Rakoff’s position.

The lead authors of this brief were Akshat Tewary, MBS Guy, Andrew Dittmer, and yours truly.

OWS AB Motion&AmicusBrief

Just beneath the surface of traditional media attention, something vital has been gathering force and is about to explode into public consciousness. The “New Economy Movement” is a far-ranging coming together of organizations, projects, activists, theorists and ordinary citizens committed to rebuilding the American political-economic system from the ground up.

The broad goal is democratized ownership of the economy for the “99 percent” in an ecologically sustainable and participatory community-building fashion. The name of the game is practical work in the here and now—and a hands-on process that is also informed by big picture theory and in-depth knowledge.

Thousands of real world projects — from solar-powered businesses to worker-owned cooperatives and state-owned banks — are underway across the country. Many are self-consciously understood as attempts to develop working prototypes in state and local “laboratories of democracy” that may be applied at regional and national scale when the right political moment occurs.

The movement includes young and old, “Occupy” people, student activists, and what one older participant describes as thousands of “people in their 60s from the ’60s” rolling up their sleeves to apply some of the lessons of an earlier movement.

Explosion of Energy

A powerful trend of hands-on activity includes a range of economic models that change both ownership and ecological outcomes. Co-ops, for instance, are very much on target—especially those which emphasize participation and green concerns. The Evergreen Cooperatives in a desperately poor, predominantly black neighborhood of Cleveland, Ohio are a leading example. They include a worker-owned solar installation and weatherization co-op; a state-of-the-art, industrial-scale commercial laundry in a LEED-Gold certified building that uses—and therefore has to heat—only around a third of the water of other laundries; and a soon-to-open large scale hydroponic greenhouse capable of producing three million head of lettuce and 300,000 pounds of herbs a year. Hospitals and universities in the area have agreed to use the co-ops’ services, and several cities—including Pittsburgh, Atlanta, Washington, DC and Amarillo, Texas are now exploring similar efforts.

Other models fit into what author Marjorie Kelly calls the “generative economy”–efforts that inherently nurture the community and respect the natural environment. Organic Valley is a cooperative dairy producer in based in Wisconsin with more than $700 million in revenue and nearly 1,700 farmer-owners. Upstream 21 Corporation is a “socially responsible” holding company that purchases and expands sustainable small businesses. Greyston Bakery is a Yonkers, New York “B-Corporation” (a new type of corporation designed to benefit the public) that was initially founded to provide jobs for neighborhood residents. Today, Greystone generates around $6.5 million in annual sales.

Recently, the United Steelworkers union broke modern labor movement tradition and entered into a historic agreement with the Mondragón Cooperative Corporation and the Ohio Employee Ownership Center to help build worker-owned cooperatives in the United States along the lines of a new “union-co-op” model.

The movement is also serious about building on earlier models. More than 130 million Americans, in fact, already belong to one or another form of cooperative—and especially the most widely known form: the credit union. Similarly, there are some 2,000 municipally owned utilities, a number of which are ecological leaders. (Twenty-five percent of American electricity is provided by co-ops and public utilities.) Upwards of 10 million Americans now also work at some 11,000 employee-owned firms (ESOP companies).

More than 200 communities also operate or are establishing community land trusts that take land and housing out of the market and preserve it for the community. And hundreds of “social enterprises” use profits for social or community serving goals. Beyond these efforts, roughly 4,500 Community Development Corporations and 1.5 million non-profit organizations currently operate in every state in the nation.

The movement is also represented by the “Move Your Money” and “bank transfer day” campaigns, widespread efforts to shift millions of dollars from corporate giants like Bank of America to one or another form of democratic or community-benefiting institution. Related to this are other “new banking” strategies. Since 2010, 17 states, for instance, have considered legislation to set up public banks along the lines of the long-standing Bank of North Dakota.

Several cities—including Los Angeles and Kansas City— have passed “responsible banking” ordinances that require banks to reveal their impact on the community and/or require city officials to only do business with banks that are responsive to community needs. Other cities, like San Jose and Portland, are developing efforts to move their money out of Wall Street banks and into other commercial banks, community banks or credit unions. Politicians and activists in San Francisco have taken this a step further and proposed the creation of a publicly owned municipal bank.

There are also a number of innovative non-public, non-co-op banks—including the New Resource Bank in San Francisco, founded in 2006 “with a vision of bringing new resources to sustainable businesses and ultimately creating more sustainable communities.” Similarly, One PacificCoast Bank, an Oakland-based certified community development financial institution, grew out of the desire to “create a sustainable, meaningful community development bank and a supporting nonprofit organization.” And One United Bank—the largest black-owned bank in the country with offices in Los Angeles, Boston and Miami—has financed more than $1 billion in loans, most in low-income neighborhoods.

Ex-JP Morgan managing director John Fullerton has added legitimacy and force to the debate about new directions in finance at the ecologically oriented Capital Institute. And in several parts of the country, alternative currencies have long been used to help local community building—notably “BerkShares” in Great Barrington, Massachusetts, and “Ithaca Hours” in Ithaca, New York.

Active protest efforts are also underway. The Occupy movement, along with many others, has increasingly used direct action in support of new banking directions—and in clear opposition to old. On April 24, 2012 over 1,000 people protested bank practices at the Wells Fargo shareholder meeting in San Francisco. Similar actions, some involving physical “occupations” of bank branches, have been occurring in many parts of the country since the Occupy movement started in 2011. Large-scale demonstrations occurred at the Bank of America’s annual shareholder meeting in May 2012.

What to do about large-scale enterprise in a “new economy” is also on the agenda. A number of advocates, like Boston College professor Charles Derber, contemplate putting worker, consumer, environmental, or community representatives of “stakeholder” groups on corporate boards. Others point to the Alaska Permanent Fund which invests a significant portion of the state’s mineral revenues and returns dividends to citizens as a matter of right. Still others, like David Schweickart and Richard Wolff, propose system-wide change that emphasizes one or another form of worker ownership and management. (In the Schweickart version, smaller firms would be essentially directly managed by workers; large-scale national firms would be nationalized but also managed by workers.) A broad and fast-growing group seeks to end “corporate personhood,” and still others urge a reinvigoration of anti-trust efforts to reduce corporate power. (Breaking up banks deemed too big to fail is one element of this.)

In March 2012, the Left Forum held in New York also heard many calls for a return to nationalization. And even among “Small is Beautiful” followers of the late E. F. Schumacher, a number recall this historic build-from-the-bottom-up advocate’s argument that “[w]hen we come to large-scale enterprises, the idea of private ownership becomes an absurdity.” (Schumacher continuously searched for national models that were as supportive of community values as local forms.)

Theory and Action

A range of new theorists have also increasingly given intellectual muscle to the movement. Some, like Richard Heinberg, stress the radical implications of ending economic growth. Former presidential adviser James Gustav Speth calls for restructuring the entire system as the only way to deal with ecological problems in general and growth in particular. David Korten has offered an agenda for a new economy which stresses small Main Street business and building from the bottom up. (Korten also co-chairs a “New Economy Working Group” with John Cavanagh at the Institute of Policy Studies.) Juliet Schor has proposed a vision of “Plentitude” oriented in significant part around medium-scale high tech industry. My own work on a Pluralist Commonwealth emphasizes a community-building system characterized by a mix of democratized forms of ownership ranging from small co-ops all the way up to public/worker-owned firms where large scale cannot be avoided.

Writers like Herman Daly and David Bollier have also helped establish theoretical foundations for fundamental challenges to endless economic growth, on the one hand, and the need to transcend privatized economics in favor of a “commons” understanding, on the other. The awarding in 2009 of the Nobel Prize to Elinor Ostrom for work on commons-based development underlined recognition at still another level of some of the critical themes of the movement.

Around the country, thinkers are clamoring to meet and discuss new ideas. The New Economy Institute, led primarily by ecologists and ecological economists, hoped to attract a few hundred participants to a gathering to be held at Bard College in June 2012. The event sold out almost two months in advance! An apologetic email went out turning away hundreds who could not be accommodated with the promise of much bigger venue the next year.

And that’s just one example. From April to May 2012, the Social Venture Network held its annual gathering in Stevenson, Washington. The Public Banking Institute gathered in Philadelphia. The National Center for Employee Ownership met in Minneapolis—also to record-breaking attendance. And the Business Alliance for Local Living Economies (BALLE) held a major conference in Grand Rapids, Michigan. Other events planned for 2012 include the Consumer Cooperative Management Association’s meeting in Philadelphia; the U.S. Federation of Worker Cooperatives’ gathering in Boston; a Farmer Cooperatives conference organized by the University of Wisconsin Center for Cooperatives; and meetings of the National Community Land Trust Network and the Bioneers. The American Sustainable Business Council, a network of 100,000 businesses and 300,000 individuals, has been holding ongoing events and activities throughout 2012.

Daunting Challenges

The New Economy Movement is already energetically involved in an extraordinary range of activities, but it faces large-scale, daunting challenges. The first of these derives from the task it has set for itself—nothing less than changing and democratizing the very essence of the American economic system’s institutional structure.

Even viewed as a long-range goal, the movement obviously confronts the enormous entrenched power of an American political economic system dominated by very large banking and corporate interests—and bolstered by a politics heavily dependent on the financial muscle of elites at the top. (One recent calculation is that

400 individuals at the top now own more wealth than the bottom 160 million.)

A second fundamental challenge derives from the increasingly widespread new economy judgment that economic growth must ultimately be reduced, indeed, even possibly ended if the dangers presented by climate change are to be avoided—and if resource and other environmental limits are to be responsibly dealt with.

Complicating all this is the fact that most labor unions—the core institution of the traditional progressive alliance—are committed to growth as absolutely essential (as the economy is now organized) to maintaining jobs.

History dramatizes the implacable power of the existing institutions—until, somehow, that power gives way to the force of social movements. Most of those in the New Economy movement understand the challenge as both immediate and long-term: how to put an end to the most egregious social and economically destructive practices in the near term; how to lay foundations for a possible transformation in the longer term.

And driving the movement’s steady build up, day by day, year by year, is the growing economic and social pain millions of Americans now experience in their own lives—and a sense that something fundamental is wrong. The New Economy Movement speaks to this reality, and just possibly, despite all the obstacles—as with the civil rights, feminist, environmental and so many other earlier historic movements—it, too, will overcome. If so, the integrity of its goals and the practicality of its developmental work may allow it to help establish foundations for the next great progressive era of American history. It is already adding positive vision and practical change to everyday life.

On Sunday, roughly one thousand people from liberal community organizing group National People’s Action showed up at Tim Geithner’s house to ask that he investigate the banks.  ”Are you with the people”, asked these activists.  In response to this exceptionally mild pressure, the administration and New York “Attorney General” Eric Schneiderman have decided that they have no choice but to do a bit more PR around the task force.  They have doubled its size, and they have appointed a coordinator.

Senior administration officials and New York Attorney General Eric Schneiderman said they’re busy behind the scenes doubling their team to more than 100 federal and state financial experts and drawing on staff in 10 U.S. attorneys offices around the country. Matthew Stegman, an assistant U.S. attorney, has been tapped as the group’s lead coordinator, according to three sources familiar with the task force’s work.

The unit has also delivered more than 20 civil subpoenas, collected more than a million documents and deposed many witnesses as it digs through the work of bankers, mortgage brokers, appraisers and others who from about 2004 to 2007 helped millions of Americans buy homes they couldn’t afford at prices that didn’t match their property values — all while bundling the mortgages into securities for sale to investors.

20 civil subpoenas on appraisers and brokers?  How… adorable!  And they finally tapped a coordinator, an assistant US Attorney based in eastern California.  That’s a clear tell, appointing someone far from a place where they could easily coordinate among multiple agencies.

The truth is, there is no task force.  Obama is lying.  Schneiderman is lying.  The Department of Justice simply took various individuals already working on cases involving foreclosure rescue scams and petty mortgage fraud, and designated them a new task force. It’s absurd.  The reality is that Obama and Schneiderman are both working on behalf of financial elites who will fund their campaigns and pay them a lot of money when they are out of office.  That’s the game, as I noted this morning in discussing Bill Clinton’s $80 million payday from banks (among other entities).

If you look at the video above, you’ll see that protesters are asking the question of whether Geithner is with the banks or with the people.  Um, he’s with the banks.  That’s been clear for years now.  The real question is why protesters are even bothering to ask.  And I suspect the answer is that no matter how many times Barack Obama proves himself to be a corrupt and dishonest politician, it’s too painful to concede that those who want social justice in America are truly without representation.

“There was a kind of inflection point during the five-year period between 1997 and 2003 — the late Clinton and/or early Bush administration — when all the rules just went away. You went from a period, a regime, where people did have at least some concern about going to jail, to a point where everything is legal, and derivatives couldn’t be regulated at all and nobody went to jail for anything. And looking back I would say that this period definitely started under Clinton. You absolutely cannot blame this on George W. Bush.” – Charles Ferguson of Inside Job

“I never had any money until I got out of the White House, you know, but I’ve done reasonably well since then.” Bill Clinton

On December 21, 2000, President Bill Clinton signed a bill called the Commodities Futures Modernization Act. This law ensured that derivatives could not be regulated, setting the stage for the financial crisis.  Just two months later, on February 5, 2001, Clinton received  $125,000 from Morgan Stanley, in the form of a payment for a speech Clinton gave for the company in New York City.  A few weeks later, Credit Suisse also hired Clinton for a speech, at a $125,000 speaking fee, also in New York.  It turns out, Bill Clinton could make a lot of money, for not very much work.

Today, Clinton is worth something on the order of $80 million (probably much more, but we don’t really know), and these speeches have become a lucrative and consistent revenue stream for his family. Clinton spends his time offering policy advice, writing books, stumping for political candidates, and running a global foundation.  He’s now a vegan. He makes money from books. But the speaking fee money stream keeps coming in, year after year, in larger and larger amounts.

Most activists and political operatives are under a delusion about American politics, which goes as follows.  Politicians will do *anything* to get reelected, and they will pander, beg, borrow, lie, cheat and steal, just to stay in office.  It’s all about their job.

This is 100% wrong.  The dirty secret of American politics is that, for most politicians, getting elected is just not that important.  What matters is post-election employment.  It’s all about staying in the elite political class, which means being respected in a dense network of corporate-funded think tanks, high-powered law firms, banks, defense contractors, prestigious universities, and corporations.  If you run a campaign based on populist themes, that’s a threat to your post-election employment prospects.  This is why rising Democratic star and Newark Mayor Corey Booker reacted so strongly against criticism of private equity – he’s looking out for a potential client after his political career is over, or perhaps, during interludes between offices.   Running as a vague populist is manageable, as long as you’re lying to voters.  If you actually go after powerful interests while in office, then you better win, because if you don’t, you’ll have basically nowhere to go.  And if you lose, but you were a team player, then you’ll have plenty of money and opportunity.  The most lucrative scenario is to win and be a team player, which is what Bill and Hillary Clinton did.  The Clinton’s are the best at the political game – it’s not a coincidence that deregulation accelerated in the late 1990s, as Clinton and his whole team began thinking about their post-Presidential prospects.

Corruption used to be more overt.  Lyndon Johnson made money while in office, by illicitly garnering lucrative FCC licenses.  It was the first neoliberal President, Jimmy Carter, who began the post-career payoff trend in the Democratic Party.  In 1978, Archer Daniels Midland CEO Dwayne Andreas convinced Carter to back ethanol subsidies.  After Carter lost to Reagan, he faced financial problems, as his peanut warehouse had been mismanaged and was going bankrupt.  AMD stepped in, overpaying for the property.  But Carter wasn’t nearly as skilled as Clinton, because he didn’t stay in the club.

Over the course of the next ten years after his Presidency, Clinton brought in roughly $8-10 million a year in speaking fees.  In 2004, Clinton got $250,000 from Citigroup and $150,000 from Deutsche Bank.  Goldman paid him $300,000 for two speeches, one in Paris.  As the bubble peaked, in 2006, Clinton got $150,000 paydays each from Citigroup (twice), Lehman Brothers, the Mortgage Bankers Association, and the National Association of Realtors.  In 2007, it was Goldman again, twice, Lehman, Citigroup, and Merrill Lynch.  He didn’t just reap speaking fee cash from the financial services sector – corporate titans like Oracle and outsourcing specialist Cisco paid up, as did many Israel-focused groups, Middle Eastern interests, and universities.  Does this explain the finance-friendly, oil-friendly and Israel First-friendly policies pursued by the State Department under Hillary Clinton?  Who knows?  But if you could legally deliver millions in cash to the husband of a high-level political official, it wouldn’t hurt your policy goals.

Speaking fee money isn’t just money, it is easy money.  In one appearance, for one hour, Clinton can make $125,000 to $500,000.  At an hourly rate, that’s between $250 million to $1 billion annually.  It isn’t the case that Clinton is a billionaire, but it is the case that Clinton can, whenever he wants, make money as quickly and as easily as a billionaire.  He is awash in cash, and cash is useful.  Cash finances his lifestyle.  Cash helped backstop his wife’s Presidential campaign when it was on the ropes.

And these speaking fees aren’t the only money Clinton got, it’s just the easiest cash to find because of disclosure laws.  Apparently, Clinton’s firm apparently had a paid $100k+ a month consulting relationship with MF Global, and Clinton and Tony Blair have teamed up to help hedge funds raise money.  His daughter worked for a giant hedge fund and political ally (Avenue Capital).  And Clinton has unusual relationships with billionaires and Dubai-based investors.

Bill and Hillary Clinton are the best at what they do, but they aren’t the only ones who do it.  In fact, this is what politics is increasingly about, not elections, but staying in the club.  Erskine Bowles, former White House Chief of Staff, lost two Senate elections.  But he’s on the board of Facebook and Morgan Stanley, as well as authoring the highly influential Simpson-Bowles plan to gut Social Security and Medicare.  Tom Daschle, who lost a Senate race in 2004, is a millionaire who in large part crafted Obama’s health care plan.  Former Senator Judd Gregg is now at Goldman Sachs.  Current Chicago Mayor Rahm Emanuel made $12 million in between his stint at the Clinton White House which ended in 2000 and his election to Congress in 2002.  Former Congressman Harold Ford, now at Morgan Stanley, is routinely on TV making political claims.  Larry Summers is on the board of the high-flying start-up Square.  Meanwhile, Russ Feingold, a Senator who did go after Wall Street, is a professor in the Midwest.  Eliot Spitzer is a struggling TV host and writer.

In other words, Barack Obama and his franchise are emulating the Clinton’s, and are speaking not to voters, but to potential post-election patrons.  That’s what their policy goals are organized around.  So when you hear someone talking about how politicians just want to be reelected, roll your eyes.  When you hear an argument about the best message or policy framework to use for reelection, stop listening.  That’s not what politicians really care about.  Elections in many ways are just like regular season games in basketball – they are worth winning, but it’s not worth risking an injury.  The reason Obama won’t prosecute bankers, or run anything but a very mild sort of populism, is because he’s not really talking to voters.  He just wants to be slightly more appealing than Romney.  He’s really talking to the people who made Bill and Hillary Clinton a very wealthy couple, his future prospective clients.  We don’t call it bribery, but that’s what it is.  Bill Clinton made a lot of money when he signed the bill deregulating derivatives and repealed Glass-Steagall.  The payout just came later, in the form of speaking fees from elite banks and their allies.

Ironically, Clinton has come to express regret about deregulating derivatives.  He has not given the money back.

Preventing blow-ups like the JPMorgan “hedge” that bears no resemblance to any known hedge isn’t difficult. What makes preventing it difficult is that banks that exist only by virtue of state-granted charters — and more recently, huge transfers from the public — have persuaded public officials and regulators that they have a God-granted right not just to high levels of profit but also high levels of employee and executive compensation.

Banks enjoy state support because they provide essential services, like a payments system and a repository for deposits. One proposal to limit them to these vital services is “narrow banking,” or requiring that deposits be invested in only safe and liquid instruments. This idea was put forward by Irving Fisher and Henry Simons in the 1930s, and has been championed by the right (Milton Friedman), the left (James Tobin) and banking experts (Lowell Bryan of McKinsey).

A less radical idea would be to eliminate credit default swaps over time (they are too embedded in current practice to ban them; banks need to be weaned off them). There are no socially valuable uses for the product. Contrary to defenders’ claims, they aren’t a good way to short bonds (not only does it deal with only one attribute of bond risk, it does so badly: payouts in actual credit events on credit default swaps vary considerably, and are generally less than payouts to holders of real bonds). These swaps were the driver of the crisis. They were the mechanism that allowed real economy exposures to risky subprime bonds to be multiplied well beyond the number of actual borrowers and thus cause vastly more damage.

Another route would be to implement the Volcker Rule as Paul Volcker envisaged, meaning without the portfolio hedging exemption that JPMorgan relied on. Or officials could enforce Sarbanes Oxley, which has the chief executive officer certify the adequacy of internal controls, which for a major financial firm includes risk controls. Had any chief executives been targeted for Sarbanes Oxley violations for the massive risk management failures during the financial crisis, it’s pretty likely thatJamie Dimon, head of JPMorgan, would have thought twice before giving the chief investment officer both the mandate and the rope to enter into risky trades.

Maybe it’s time to recognize that these firms are too big and in too many complex businesses to be managed. Jamie Dimon was touted as a star who could supervise a sprawling firm running huge risks, and he fell short because no one can do the job adequately. A less disaster-prone financial system requires more simplicity and redundancy. Re-instituting Glass-Steagall or other variants on the narrow banking theme isn’t a full solution, but it would make for a good start.

Update by Yves: I’m not happy with the headline the Times put on this piece. The article did not say implementing Glass Steagall would have stopped Dimon’s losses but was an example of the sort of step that could help make the financial system less crash prone.