By Pam Martens: August 20, 2013

The White House issued a statement yesterday on the President’s meeting with the federal agencies that regulate Wall Street. Curiously, the phrase used to describe the agencies was “independent regulators.” The President’s Deputy Press Secretary, Josh Earnest, held a press briefing with reporters yesterday, taking questions on the meeting. In that briefing, Earnest referred to the regulators as “independent” seven times.

If the President now finds it necessary to attempt to brainwash the American public through endless repetition of the word “independent” to shore up sagging public doubt that there are any real cops on the beat when it comes to policing Wall Street, he has no one to blame but himself.

When President Obama appointed Mary Jo White to head the Securities and Exchange Commission (SEC), Jack Lew for U.S. Treasury Secretary, and has floated the idea for weeks that Larry Summers could become Chairman of the Federal Reserve, he critically undermined the already low disregard the public holds toward Wall Street’s regulators.

White came to the SEC in April from the Wall Street legal powerhouse, Debevoise & Plimpton. She wasn’t just any lawyer there; she chaired the Litigation Department where she led a team of more than 200 lawyers defending Wall Street’s too-big-to-fail banks. It was understood that in most of the ongoing cases against the largest Wall Street firms, White would have to recuse herself at the SEC. Can you really call that an “independent” regulator?

Lew came to the U.S. Treasury from Citigroup – the bank that had received the largest taxpayer bailout assistance of any bank in the 2008 Wall Street crash. On his way out the door, Lew accepted a $940,000 bonus from the insolvent bank, which was paid with taxpayer money. Lew was Chief Operating Officer of the division that brought down the bank. According to public records, on January 14 of this year, just four days after Lew was nominated for Treasury Secretary, Citigroup completed a mortgage refinancing for Lew, lowering his mortgage rate to 3.625 percent for a 30-year mortgage of $610,000. At the same time, Citigroup provided Lew a $200,000 home equity loan at an unstated amount of interest.

Another issue for Lew in his confirmation hearing was his employment contract with Citigroup. It provided a bonus guarantee based on the specific requirement that he leave the bank for a “high level position with the United States government or regulatory body.” Lew succeeded in meeting that outcome. As U.S. Treasury Secretary, Lew Chairs the Financial Stability Oversight Council (F-SOC) which plays a key role in overseeing too-big-to-fail banks. Lew was in attendance at the President’s meeting yesterday with the “independent” regulators. 

Summers, of course, would round out the team of not-so-independent regulators if he were appointed by the President to lead the Federal Reserve. Summers was one of the key individuals that pushed for the deregulation of Wall Street in the Clinton administration. Summers is also currently on the payroll of Citigroup as a consultant at an undisclosed amount of compensation. 

The idea of infusing the concept of “independent regulator” may also have something to do with the recent charges that big Wall Street firms effectively control the London Metal Exchange and its rules committee as they simultaneously go about keeping aluminum off the market in metal warehouses that the Federal Reserve gave them carte blanche to own. 

Or possibly it’s the revelations of a big bank cartel controlling the setting of Libor interest rates that impacted trillions of dollars in interest rate futures trading, swaps, student loans and mortgages while the not-so-independent British Bankers Association set at the helm. 

The President may well have other things on his mind in calling the high profile meeting. One of those is that members of his own party think the Dodd-Frank reform legislation is a bust and are pushing to restore the Glass-Steagall Act, separating Wall Street casinos from banks holding insured deposits. There are now two separate pieces of legislation in the Senate and House calling for the restoration of this depression era investor protection act. 

There is also that pesky problem that real experts on the financial markets are increasingly testifying before Congress on just how dangerous Wall Street remains to the health of the U.S. economy, despite Dodd-Frank. The President may be worrying about his legacy if Wall Street crashes again. 

At a June 26 hearing before the House Financial Services Committee, Thomas Hoenig, former President of the Federal Reserve Bank of Kansas City and now Vice Chair of the FDIC, stated that the biggest banks are “woefully undercapitalized.” He said the U.S. has a “very vulnerable financial system.” Hoenig also believes Dodd-Frank is a failure and he is strongly advocating the restoration of the Glass-Steagall Act.

Hoenig told the Committee that “The largest eight U.S. global systemically important financial institutions in tandem hold $10 trillion of assets under GAAP accounting, or the equivalent of two-thirds of U.S. GDP, and $16 trillion of assets when including the gross fair value of derivatives, which is the equivalent of 100 percent of GDP.”

At the same hearing, Richard Fisher, President of the Federal Reserve Bank of Dallas, said “I don’t think we have prevented taxpayer bailouts by Dodd-Frank.” Fisher said the legislation “enmeshes us in hyper bureaucracy.” According to studies, less than 40 percent of the rules required under Dodd-Frank have been enacted.

One of the most important of those rules is the Volcker Rule which would prevent Wall Street firms from engaging in proprietary trading, i.e., gambling with its own capital to make profits for the house, and frequently using inside information to make those gambles – effectively a flawlessly honed wealth transfer system.

As the regulators delay in formalizing that rule, what the public has learned is that the real danger is not that Wall Street continues to gamble with its own money but that, as we learned from the JPMorgan London Whale episode, its not-so-independent regulators are allowing Wall Street to gamble with the insured deposits of ordinary folks and lose $6.2 billion along the way.