Obama Says Wall Street's Reformed: He's Wrong

Sorry, President Barack Obama, but the Wall Street of 2016 doesn't look much different than the Wall Street of 2009.

At the time, the country was still reeling from the financial crisis and the Great Recession. Lawmakers had yet to pass Dodd-Frank, the sweeping Wall Street reform package that was supposed to make sure the American economy was never brought to its knees again by financial mismanagement.

Americans were were still angry. So it was like salt in an open wound when, during the last week of January 2009 -- a week in which American companies shed another 65,000 jobs -- the country learned Wall Street bankers had given themselves $20 billion in bonuses the previous year.

"Shameful," is how Obama described the bonuses. Vice President Joe Biden was less measured.

“I’d like to throw these guys in the brig,” Biden said, according to The New York Times. “They’re thinking the same old thing that got us here, greed. They’re thinking, ‘Take care of me.’"

More than seven years later -- and going on six years since the passage of Dodd-Frank -- the government still hasn't implemented Section 956 of the financial reform package, the section that was supposed to limit outrageous executive pay and bonuses. The pay and bonuses that, in Obama's words, contributed to the "reckless culture" that allowed bankers to gamble with other people's money and get paid, handsomely, regardless of whether their bets brought reward or ruin.

In the meantime, Wall Street bonuses aren't just at pre-reform levels, they've exceeded them. Bankers gave themselves $28.5 billion bonuses in 2014, according to CNBC.

That number fell to "only" $25 billion in 2015, but not because Wall Street's leaders were voluntarily tightening their belts. As The New York Times reported, salaries for securities industry employees in New York City actually went up by 14 percent, but bankers blamed volatile markets for the dip in bonus loot.

At the same time, the financial scandals haven't stopped, they're just happening on a smaller scale.

On March 7, flanked by Federal Reserve Chair Janet Yellen, Obama found himself defending Wall Street reform.

"I want to emphasize this because it is popular in the media and the political discourse, both on the left and the right, to suggest that the crisis happened and nothing happened" to reform the financial sector, Obama said, reports CNBC. "That is not true."

Obama is responding to critics who say Wall Street reform hasn't gone far enough. The critics are right.

While acknowledging Dodd-Frank "has had an impact," Marcus Stanley of the advocacy group Americans for Financial Reform said Wall Street is essentially playing by the same old rules.

“It hasn’t brought really deep systemic change to the financial sector," Stanley told the International Business Times.

As Democratic presidential candidate Sen. Bernie Sanders of Vermont wrote in a December 2015 editorial for The New York Times, "Wall Street is still out of control."

As Sanders points out, the Federal Reserve is an obtuse institution without real oversight or transparency. Most Americans don't know what the Fed does, and in some cases it takes years for the Fed to release committee meeting transcripts to the public.

Even worse, the Federal Reserve is supposed to provide oversight of the banks, but it's beholden to them. Executives from the biggest banks serve on the Fed's boards. As Sanders notes, Jamie Dimon, chairman and chief executive officer of JPMorgan Chase, sat on the New York Federal Reserve's board of directors during the financial crisis, and the Federal Reserve bailed out his firm with $390 billion in taxpayer dollars.

"These are clear conflicts of interest, the kind that would not be allowed at other agencies," Sanders wrote. "We would not tolerate the head of ExxonMobil running the Environmental Protection Agency. We don’t allow the Federal Communications Commission to be dominated by Verizon executives. And we should not allow big bank executives to serve on the boards of the main agency in charge of regulating financial institutions."

In 2009, the banks that received government bailouts were "too big to fail." In 2016, they're even bigger, and if they fall, they'll fall hard, with American taxpayers taking the brunt of the impact again.

Obama wants to put a positive spin on Wall Street reform and Dodd-Frank because it's part of his legacy, part of his promise to clean up the mess of the previous administration. But it's clear Wall Street hasn't really been reformed, which is why the topic comes up at every presidential debate.

True, meaningful reform -- and follow-through in areas like executive compensation -- will be among the many challenges facing the next president. Let's hope that president is someone who holds the financial industry accountable.

Click here for the opposing view on this topic.

Sources: The New York Times (2) (3), CNBC (2), International Business Times / Photo credit: Wikimedia Commons

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