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Wall Street's Big Win

Finance reform won't stop the high-risk gambling that wrecked the economy — and Republicans aren't the only ones to blame

August 4, 2010 1:00 PM ET
Wall Street's Big Win
Illustration by Victor Juhasz

Cue the credits: the era of financial thuggery is officially over. Three hellish years of panic, all done and gone – the mass bankruptcies, midnight bailouts, shotgun mergers of dying megabanks, high-stakes SEC investigations, all capped by a legislative orgy in which industry lobbyists hurled more than $600 million at Congress. It all supposedly came to an end one Wednesday morning a few weeks back, when President Obama, flanked by hundreds of party flacks and congressional bigwigs, stepped up to the lectern at an extravagant ceremony to sign into law his sweeping new bill to clean up Wall Street.

Obama's speech introducing the massive law brimmed with celebratory finality. He threw around lofty phrases like "never again" and "no more." He proclaimed the end of unfair credit-card-rate hikes and issued a fatwa on abusive mortgage practices and the shady loans that helped fuel the debt bubble. The message was clear: The sheriff was padlocking the Wall Street casino, and the government was taking decisive steps to unfuck our hopelessly broken economy.

This article appeared in the August 19, 2010 issue of Rolling Stone. The issue is available in the online archive.

But is the nightmare really over, or is this just another Inception-style trick ending? It's hard to figure, given all the absurd rhetoric emanating from the leadership of both parties. Obama and the Democrats boasted that the bill is the "toughest financial reform since the ones we created in the aftermath of the Great Depression" – a claim that would maybe be more impressive if Congress had passed any financial reforms since the Great Depression, or at least any that didn't specifically involve radically undoing the Depression-era laws.

Wall Street's Bailout Hustle

The Republicans, meanwhile, were predictably hysterical. They described the new law – officially known as the Dodd-Frank Wall Street Reform and Consumer Protection Act – as something not far from a full-blown Marxist seizure of the means of production. House ­Minority Leader John Boehner shrieked that it was like "killing an ant with a nuclear weapon," apparently forgetting that the ant crisis in question wiped out about 40 percent of the world's wealth in a little over a year, making its smallness highly debatable.  

But Dodd-Frank was neither an FDR-style, paradigm-shifting reform, nor a historic assault on free enterprise. What it was, ultimately, was a cop-out, a Band-Aid on a severed artery. If it marks the end of anything at all, it represents the end of the best opportunity we had to do something real about the criminal hijacking of America's financial-services industry. During the yearlong legislative battle that forged this bill, Congress took a long, hard look at the shape of the modern American economy – and then decided that it didn't have the stones to wipe out our country's one ­dependably thriving profit center: theft.

Tim Dickinson blogs about all the news that fits from the Beltway and beyond on the National Affairs blog

It's not that there's nothing good in the bill. In fact, there are many good things in it, even some historic things. Sen. Bernie Sanders and others won a fight to allow Congress to audit the Fed's books for the first time ever. A new Consumer Financial Protection Bureau was created to protect against predatory lending and other abuses. New lending standards will be employed in the mortgage industry; no more meth addicts buying mansions with credit cards. And in perhaps the biggest win of all, there will be new rules forcing some varieties of derivatives – the arcane instruments that Warren Buffett called "financial weapons of mass destruction" – to be traded and cleared on open exchanges, pushing what had been a completely opaque market into the light of day for the first time.

All of this is great, but taken together, these reforms fail to address even a tenth of the real problem. Worse: They fail to even define what the real problem is. Over a long year of feverish lobbying and brutally intense backroom negotiations, a group of D.C. insiders fought over a single question: Just how much of the truth about the financial crisis should we share with the public? Do we admit that control over the economy in the past dec­ade was ceded to a small group of rapacious criminals who to this day are engaged in a mind-­numbing campaign of theft on a global scale? Or do we pretend that, minus a few bumps in the road that have mostly been smoothed out, the clean-hands capitalism of Adam Smith still rules the day in America? In other words, do people need to know the real version, in all its majestic whorebotchery, or can we get away with some bullshit cover story?

In passing Dodd-Frank, they went with the cover story.

Invasion of the Home Snatchers

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ABOUT THIS BLOG

Matt Taibbi

Matt Taibbi is a contributing editor for Rolling Stone. He’s the author of five books and a winner of the National Magazine Award for commentary. Please direct all media requests to taibbimedia@yahoo.com.

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