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PBS coverage of the President's speech in Osawatomie, Kansas

Tuesday morning Barack Obama channeled one of American history's truly transformative figures by visiting the tiny Kansas town where Teddy Roosevelt gave his "New Nationalism" speech over a century ago. It was refreshing to see the President invoke his predecessor, who was a powerful and fearless agent of change both inside and outside the White House.

For the first time the President directly confronted the injustice of our growing economic divide, which were caused by the ongoing rapacity of the already-wealthy. He promised to take real action against the bankers who accepted our help after ruining the economy, then went on hoarding the nation's wealth for themselves at everyone else's expense.

Teddy would have been proud.

But echoing the populist chords of the First Progressive Era isn't without its risks. The speech that Roosevelt gave in Osawatomie, Kansas in 1910 should serve as a beacon for the President and his fellow Democrats. It also warned future leaders that there is a price to paid for promises betrayed.

Roosevelt's Ghost

If Roosevelt's ghost had been hovering over the lectern today, no doubt it would have appreciated being remembered. But the apparition might also have repeated the words Roosevelt spoke on the same platform in 1910:

"It is of little use for us to pay lip-loyalty to the mighty men of the past unless we sincerely endeavor to apply to the problems of the present precisely the qualities which ... enabled the men of that day to meet those crises."

President Roosevelt fought relentlessly against the powerful financial interests of his time, who dominated the nation in pretty much the same way they dominate ours today. J. Pierpont Morgan famously offered to "send my man around to meet your man and sort it all out," but President Roosevelt didn't want to cut deals with powerful banking interests. He wanted to make them less powerful, and he got it done.

Four years after leaving office, Roosevelt was running for President again. People back then suggested that his ideas were too extreme: A minimum wage. Women's right to vote. Direct election of Senators. An eight-hour workday. But they all came true.

Now that's change you can believe in. And here's what Teddy Roosevelt told his Kansas audience that day.

Corrupt bankers must be prosecuted

More than one thousand bank executives were prosecuted after the Savings and Loan scandal of the 1980's under Republican President Ronald Reagan. This week's 60 Minutes report presented overwhelming evidence of criminal behavior at the major banks. The Financial Crisis Inquiry Commission provided a wealth of evidence suggested criminal acts, as did the Senate Subcommittee on Investigations. I analyzed information about leading executives at my former employer, AIG, that also seemed to suggest blatant illegal activity.

Yet, up to now, not one senior executive at a major financial institution has been prosecuted. There is no excuse for the Obama Administration's failure to prosecute anyone.

Teddy Roosevelt told the citizens of Osawatomie that "I believe that the officers, and, especially, the directors, of corporations should be held personally responsible when any corporation breaks the law."

Personally responsible, the man said.

Meanwhile the Obama Justice Department sits idly by as the SEC continues to let major corporations pay slap-on-the-wrist fines for executive criminality - fines that are often paid by the same shareholders they deceived - while "neither admitting nor denying wrongdoing."

The Wall Street Casino

"No man should receive a dollar unless that dollar has been fairly earned," said Roosevelt. "Every dollar received should represent a dollar's worth of service rendered-not gambling in stocks, but service rendered."

Today the financial sector is once again earning nearly 40 percent of the nation's corporate profits, and much of that income is earned by gambling in ways Roosevelt and his contemporaries couldn't have imagined.

As for "services rendered," there's not much of that going on. Lending remains at low levels, despite all the low-interest loans and other money-generating perks the banks have been given.

The Revolving Door

"One of the fundamental necessities in a representative government such as ours," said Roosevelt, "is to make certain that the men to whom the people delegate their power shall serve the people by whom they are elected, and not the special interests."

The Obama Administration, like the Bush and Clinton Administrations before it, has seen a revolving door between Wall Street and its economic officials. Larry Summers, Bill Daley, and others made millions on Wall Street before serving this White House.

Peter Orszag went directly from the President's service to a high-paying and vaguely designed position with Citigroup, a corrupt and inept mega-bank that wouldn't even existed had it not been for the ministrations of Clinton officials like Summers and former Treasury Secretary Robert Rubin.

Rubin went on to make more than 100 million dollars as an executive with the monolith he helped create, which then became the largest recipient of public largesse.

Roosevelt told his Kansas audience that "every national officer, elected or appointed, should be forbidden to perform any service or receive any compensation, directly or indirectly, from interstate corporations."

Corporate Personhood

"They're people, my friend!" That's what Mitt Romney told an audience member who asked him about the novel and warped idea of "corporate personhood" that's stripping real people of their ability to assert their rights against corporate interests.

"Corporate personhood"? Here's what TR had to say:

"We are face to face with new conceptions of the relations of property to human welfare, chiefly because certain advocates of the rights of property as against the rights of men have been pushing their claims too far."

Roosevelt also said this in Osawatomie:

"The man who wrongly holds that every human right is secondary to his profit must now give way to the advocate of human welfare ..."

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It took the journalists at Bloomberg News two years - and presumably lots of legal fees - to pry information out of the Federal Reserve that should have been made public long ago. We now know that the Fed's secret $7.7 trillion lending program wasn't just the most massive bank bailout ever seen, and it wasn't just free money for mega-bankers - though it was certainly both of those things. It was also the greatest hoax in stock market history.

No, scratch that. It was the greatest hoax in the history of money. And it was built on lies. How many? Let us count the ways.

Here's the first one: The banks paid back all the money back that they were given. No, they didn't. They paid back the principal on these loans. But by obtaining loans at rates far below market value, we now know they received the equivalent of $13 billion in cash giveaways.

Here's another lie: Fed economists support a free-market economy.

Ben Bernanke is a conservative economist who claims to support a free-market system. But we now know that the Federal Reserve lent astonishing sums to US banks in secret, and Bernanke fought with all the resources at his disposal to ensure that this information didn't become public. He didn't just want it to be held back to avoid a panic during the crisis. He wanted it kept secret forever.

I don't know what you call somebody like that, but I know what you don't call him: A capitalist. Free markets need transparency, so that investors and customers can make informed decisions and 'the wisdom of the market' can prevail. Nobody wanted the market to do its job. When it came to banks, they wanted it to be blind, deaf, and dumb, unable to make sound judgments about their financial soundness.

They still want it that way. They don't want investors to know how badly Wall Street executives failed at their jobs. They don't want the free market to do what it does best - thin the herd so it's free of incompetent managers like the executives who still run our largest banks.

You can believe in the free market, ur you can believe in today's Wall Street. But you can't do both.

Here's another lie, one that's spread by Dimon and others: Giant banks are more efficient. Size brings efficiency in other kinds of business, but these banks needed massive help. America's six largest banks accounted on any given day for an average of 63 percent of the debt on these loans. The only thing they're more efficient at is wringing free money out of government-created institutions.

And, wow. Jamie Dimon sure is a hypocrite. As Bloomberg noted:

JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed's Term Auction Facility "at the request of the Federal Reserve to help motivate others to use the system." He didn't say that the New York-based bank's total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program's creation.

He also didn't mention that these favorable loans gave his bank nearly half a billion dollars in cash it otherwise wouldn't have had. Know what's convenient about that? It helps make up for the three-quarters of a billion Dimon's bank gave up to settle charges of bribery and corruption in Jefferson County, Alabama.

Chase borrowed massive sums of money, either because it was in bigger trouble than it has admitted or because it was bleeding an emergency public program out of greed. Either way, they weren't doing anybody a favor except themselves. How big a favor? Chase netted $457.9 million.

Citigroup's an even more extreme example. Once our largest bank (until continued mismanagement led to ongoing shrinkage). It only exists because Robert Rubin and other officials in the Clinton Administration,cleared the way for the largest merger in history with the enthusiastic support of the Republicans. That merger combined a bank with an insurance company, a harbinger of bad things to come in the risk area.

Citigroup's got the equivalent of a $1.8 billion gift, courtesy of Uncle Sam.

Bank of America CEO Brian Moynihan sneers at his critics, especially those who think you shouldn't foreclose on families without obtaining proof that you own their mortgage. "Oh, sure," he said in response to government demands, "we'll do our homework."

Bank of America's gift came to $1.5 billion.

Goldman Sachs shouldn't have been eligible for any Fed giveaways because it wasn't a commercial bank. But a special "waiver" allowed Goldman allowed to become commercial bank so it could be rescued from actions it took before it was a commercial bank. Before that it was an investment bank. Yet, strangely, it seems to have kept operating as an investment bank even after the transition, too, even though commercial banks aren't allowed to do that.

Understand that? Don't take it personally if you don't. You're not supposed to.

Goldman Sachs's take? Just under $1 billion.

Washington's always telling us that bankers may have done naughty things, but they weren't illegal things. That gets us to our next lie: There's no evidence that bank executives have committed crimes. Thanks to Massachusetts Attorney General Martha Coakley, we may be about to discover whether that's true regarding foreclosures and mortgage filings. But when it comes to stock fraud, the evidence is already piling up.

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Progressive economist Dean Baker calls out Pete Peterson, the billionaire pushing the deficit "crisis", and his sidekick Robert Rubin for their immense hypocrisy:

Peter Peterson and Robert Rubin are both enormously wealthy men. (They joked about dividing their lunch tab based on their net worth.) They are lecturing the country on the need to cut Social Security and Medicare benefits for retirees who have a tiny fraction of their wealth. Many of the victims of the cuts that they would push are people who are already struggling.

This would be difficult to accept in any case, especially since there are ways to get the long-term deficit down to size that don't involve nailing middle income and/or poor people. However, it would be hard to find two people who have benefited more from taxpayer handouts than these two individuals.

Peter Peterson has been the recipient of tens of millions of taxpayer dollars through the fund manager's tax break. This tax break, which is also known as the "carried interest tax deduction" allows managers of hedge and equity funds to pay tax on their earnings at the 15 percent capital gains tax rate, instead of having it taxed as normal income. As a result, Peterson paid a lower tax rate on much of his earnings than tens of millions of people working as school teachers, fire fighters, and other middle income jobs.

Peterson not only collected the money himself, he came to Washington in 2007 to lobby Congress when it debated ending the tax break. He apparently wanted to make sure that his friends would still be able to benefit from this tax break even after he had retired.

After setting the country on a course for the current crisis with the policies he pushed as Treasury Secretary, Robert Rubin went to work as a top executive at Citigroup. In this capacity, he earned $110 million before leaving the company in the middle of its 2008 meltdown.

As we know, Citigroup was one of the major actors in the housing boom. It produced hundreds of billions of dollars worth of mortgage backed securities.It would have gone belly up in the crisis were it not for tens of billions of dollars in taxpayer loans and hundreds of billions in guarantees. (That the government's guarantees restored Citi to life, which allowed us to get our money back is beside the point.)Rubin's public line is that he should not be blamed for Citi's collapse or the role it played in bringing down the economy; he really didn't know what they were doing.

This is an interesting claim for someone who got paid $110 million by the bank. Presumably Citi could have employed someone who didn't have a clue about what was going on for something considerably closer to the minimum wage. In any case, being at the center of a collapsed megabank that helped bring down the economy would not ordinarily be a credential that would give a person standing to lecture the country about fiscal policy and the need for sacrifice.

Yet, in Washington in 2010, Peterson and Rubin hold the high ground, lecturing the rest of us on the need to tighten our belt. As I said, I have work to do.

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In an interview on This Week with Jake Tapper, President Bill Clinton said he made a mistake listening to Bob Rubin and Larry Summers on derivatives, and said he should have tried to regulate them, despite Republican opposition:

TAPPER: One of the things that President Obama is pushing for is regulation of derivatives, and also with a thing called the Volcker rule, he’s trying to separate commercial banking interests from investment banking interests. These were things that were the opposite policies of Treasury Security Rubin and Summers at that time, do you think in retrospect they gave you bad advice on these issues?

CLINTON: Well, I think on the derivatives – before the Glass-Steagall Act was repealed, it had been breached. There was already a total merger practically of commercial and investment banking, and really the main thing that the Glass-Steagall Act did was to give us some power to regulate it – the repeal. And also to give old fashion traditional banks in all over America the right to take an investment interest if they wanted to forestall bankruptcy. Sadly none of them did that. Mostly it was just the continued blurring of the lines, but only about a third of all the money loaned today is loaned through traditional banking channels and that was well underway before that legislation was signed. So I don’t feel the same way about that.

I think what happened was the SEC and the whole regulatory apparatus after I left office was just let go. I think if Arthur Levitt had been on the job at the SEC, my last SEC commissioner, an enormous percentage of what we’ve been through in the last eight or nine years would not have happened. I feel very strongly about it. I think it’s important to have vigorous oversight.

Now, on derivatives, yeah I think they were wrong and I think I was wrong to take it because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them and they don’t need any extra protection, and any extra transparency. The money they’re putting up guarantees them transparency. And the flaw in that argument was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.

And secondly, the most important flaw was even if less than 1 percent of the total investment community is involved in derivative exchanges, so much money was involved that if they went bad, they could affect a 100 percent of the investments, and indeed a 100 percent of the citizens in countries, not investors, and I was wrong about that. I’ve said that all along. Now, I think if I had tried to regulate them because the Republicans were the majority in the Congress, they would have stopped it. But I wish I should have been caught trying. I mean, that was a mistake I made.

A commenter over at Matt Taibbi's blog makes some excellent if painful points about this week's election results, and it was so good, so much to the heart of the matter, that I thought you would all want to read it:

The idiot pundits proclaiming this as a protest to Obama’s “overreach” are just morons and deserve to be ignored by anyone with half a brain. In a just world, bankers would wipe out their savings, after which they’d be fired and have to stand in today’s unemployment lines.

The lesson Obama should take from this is that people are not fooled by Obama throwing out platitudes like “I didn’t run for President to please fat-cat bankers” and then appointing people like Tim Geithner of Goldman Sachs to Treasury, keeping Ben Bernanke around, and having people who caused the economic pain for so many people like Larry Summers and Robert Rubin as his economic advisors. And are not fooled when he does nothing but mouth platitudes, or makes a scene of phoning a bank to tell them not to buy a plane, as the largest round of banking bonuses is handed out the year after they did the financial equivalent of blowing up the world. And are not fooled when he gives a speech to Wall Street politely requesting them not to be so greedy, and that they don’t need to wait for him to enact legislation to change their behavior. And are not fooled when all the popular elements of reform like a public insurance option are gutted out of the health care reform bill in order to “pass something” and call it a win, and then lie that you “never campaigned on a public option” (for someone who ran such a new-media campaign, it’s pretty brazen to act like in 2010, people don’t have the YouTubes!).

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You know who Pete Peterson is, right? He's the wingnut hedge-fund billionaire who's pledged a billion dollars to "reform" (and we know what that word means to the right wing) Social Security and Medicare. Via lambert, from Institutional Risk Analysis:

As we discussed with Josh Rosner and will be writing about same next week, Treasury Secretary Tim Geithner and Fed Chairman Bernanke think they are driving this process, but in fact the markets are setting the agenda. Either we act now to deal with AIG and C and take these names off the table before the other zombies arrive for the dance party, or we risk being overwhelmed. If we have a choice between preserving the credit standing of the US Treasury and flushing AIG, C and every other CDS counterparty on the planet, we'll take the latter every time.

Indeed, yesterday we were slumming at the Four Seasons in New York. Among the dinosaurs we observed grazing in the tall grass of this Midtown Manhattan refuge for the transactional class was former C director Robert Rubin, former New York Fed Chairman Pete Peterson and Treasury Secretary Geithner, who apparently was there to get new instructions from his sponsors.

Before Geithner arrived for lunch, Peterson reportedly asked one NY real estate mogul: "How much of that toxic paper is there?" Now we may know where Geithner gathers his market intelligence -- over a luncheon table in New York with his owners. Next time we are going to bring the flip-cam.

But isn't it nice that the man who wants to take our Medicare and Social Security (so we can see it go down the tubes in the market, I guess) has such good relationships with his employees!