Obama Will Close the Financial Loopholes on Wall Street

“I did not run for office to be 
helping out the fat-cat bankers on Wall Street.” During the summit with the twelve principle leaders of giant American banks last December 14th, Barack Obama summoned the financiers to explain the particularly low level of credit in the United States. During the seminar, the bankers apparently did not show resistance to respecting the new capital requirements instituted by the Obama administration, even though the banks still need to reimburse the TARP plan.

The posted objective of Obama’s reform plan is to attack the structural brittleness of the American financial system. For this to work, the administration envisions the creation of a surveillance council for financial sector to follow and evaluate risks. The government will also raise the capital level that all financial institutions will have to possess, with certainly more constraining obligations and specific methods for the treatment of diverted products and operations of securitization.

Beyond the debate on credit contraction, after reinforcing statutory constraints, how will the banks reconcile these new requirements regarding the constitution of their own funds with their reimbursement of the TARP plan? Despite the apparent contradiction, it is completely possible to self-finance a project of this breadth without causing the banks any special effort, all while preserving the ethical requirement and the Obama administration under the pressure of public opinion.

With the first element of the hidden loopholes in the financial bailout plan, the banks were able to realize increases of important capital, thanks to the TARP plan: Citigroup and Wells Fargo announced $20 and $25 million respectively, financed by the bias of the bailout plan. The most surprising piece of this matter is not the manner in which American banks will reimburse the TARP plan in the form of a transmission of debts or actions, or even the idea – for the less crazy ones – that taxpayers could reinforce the creditworthiness of the bank system (after being solicited into the sub-prime financial crisis). But it passed itself just after the realization of bailout plans that continue to help the banking sector.

By not returning to the causes of the crisis and focusing on those who are guilty, these “bailouts,” including the TARP plan, contributed to destabilizing the competition at the heart of the banking sector by beguiling groupings and mergers-acquisitions that, as each knows it, tend to dope the bank capital… These groupings for the absorption and final death of small banks also allowed the new giant financiers a freshly constituted realization of the colossal profits of monopoly. It is a new godsend for the banks, one which permitted them increased profitability to reimburse the consented help from the state while respecting the new statutory constraints!

In this context, the White House’s proposition to impose a new tax on the banks’ profits will accelerate the reimbursement of the TARP plan aims only to reestablish the financial ethics of the Obama administration… That would be almost nothing exceptional if two American researchers recently had not observed the particularly narrow link that exists between the leaders of these international banks and the political world (information revealed by Barry Ritholtz, a very sensible commentator of the financial world – CNN): When the funds were granted, certain bank leaders were former Senators and others were former House representatives, which could have facilitated the granting of public funds. This is how a tremendous financial loophole can thus be closed discreetly…