America's founding fathers got some things really wrong (that slavery thing, for example), but they understood one thing really well: the kind of representative democracy society they were trying to build would never work unless power was widely distributed among many different actors in society. This fundamental idea was at the heart of Tom Paine's Common Sense, Thomas Jefferson's Declaration of Independence, the checks and balances devised in the Constitutional Convention, and the foundational arguments by Madison, Jay, Hamilton in the Federalist Papers. These pluralist theories about democratic governance have been proven right over the course of our history. When the slave-holding elite became too dominant a power in the mid-1800s, our country was torn apart in civil war. When the robber barons got too powerful in the late 1800s, our government became deeply corrupted. When the financial elites on Wall Street got too much economic and political power, the Great Depression of the 1930s and the Great Recession of today resulted. When any small group of corporations get big enough to sweep away serious competition they inevitably get big enough to control many politicians and regulators as well. What happens after that are market distortions and insider deals that make those companies ever more powerful. Once they have enough market and political power, they get even greedier, arrogant and big enough that when they make speculative mistakes, they can hurt the entire economy. And with regulators and politicians and looking the other way because of their political influence, the worst case scenario happens- and if the cycle is not stopped, it happens again.
This pattern follows like night follows day. This is why I have been saying to people for the last year that the number one goal of financial reform should be to lessen the power of the big banks- not to punish them, but to make it possible for our economy and democracy to effectively function again. By this standard, the bills passed by the House and Senate still far short. A NYTimes article today sums up the dynamic:
The financial reform legislation making its way through Congress has Wall Street executives privately relieved that the bill does not do more to fundamentally change how the industry does business. Despite the outcry from lobbyists and warnings from conservative Republicans that the legislation will choke economic growth, bankers and many analysts think that the bill approved by the Senate last week will reduce Wall Street's profits but leave its size and power largely intact.
Don't get me wrong: the best provisions in the House and the best provisions in the Senate are steps forward. Solid progress will be made in several key areas including consumer protection, opening up the Fed for an audit, and derivatives reform. There are also some terrific surprises that got added to the bill during the floor debate, like the Durbin amendment regulating credit card swipe fees, am amendment that will help retail businesses and consumers alike. Like Ted Kaufman, Sherrod Brown and other progressives, I support passing this bill even though I think it falls short in critical areas. But let's not make any mistake here: let's applaud the progress, but be very clear-eyed that this bill doesn't come close to solving the problem. The only way to stop future economic meltdowns and restore a healthy balance to our economy and our democracy is to break up these massive banking conglomerates and keep the speculators away from the traditional bankers.
The reason that Lincoln, Teddy Roosevelt, and FDR go down in history as our country's greatest Presidents is that they understood the crisis that too much power in too few hands had caused, and moved boldly to take the powerful on. We need that kind of leadership today.