Last week, President Barack Obama released key legislation designed to fight the banking industry's too-big-to-fail problem. But Obama's plan doesn't actually address too-big-to-fail at all. It reinforces a broken system in which economically dangerous companies are bailed out whenever they drive themselves to the brink of failure.
If we want the economy to support all people, we have to break up the big banks and start treating the creation of good jobs as an economic priority on par with Wall Street rescues.
The editors of The Nation break the political debate over banking into three camps:
The first camp is composed of bank lobbyists, Republicans and conservative Democrats and wants to do nothing.
Camp two, endorsed by the White House and influential Rep. Barney Frank (D-MA), would impose tougher regulations on too-big-to-fail banks to keep them from getting out of control.
The third camp wants to go even further: If a bank is too-big-to-fail, it is also too-big-to-regulate. Companies that pose a danger to the economy have to be split up into smaller firms that cannot induce economic ruin.
The Nation editors rightly see the third strategy as the most sensible. While the "break-up-the-banks" policy is being portrayed as a left-wing pipe dream by cable news networks, the policy actually relies on an age-old observation of conservative economists. Regulators make mistakes, and they often get co-opted by the very industries they are supposed to be supervising.
The practical policy is to impose structural limits on what activities banks can participate in and how big they can get. Just look at the list of high-profile supporters: former Federal Reserve Chairman Paul Volcker, former Citigroup Chairman John Reed, Bank of England Governor Mervyn King. I don't remember seeing any of those guys at the Iraq War protests.
Many of the regulatory blind spots that brought down the economy were obvious to some policymakers for years. Back in 1994, Sen. Byron Dorgan (D-ND) wrote an article for The Washington Monthly warning that derivatives trading was putting the economy in grave danger. Commodities Futures Trading Commission Chair Brooksley Born tried to take action on these derivatives, but was overruled by other regulators, including then-Fed Chair Alan Greenspan, and then-Treasury Secretary Lawrence Summers, now the top economic adviser to President Obama. Summers and Greenspan even convinced Congress to pass a law banning the regulation of key derivatives, including credit default swaps, which ultimately brought down insurance giant AIG.
Fifteen years after Dorgan's article first ran, The Washington Monthly is featuring it again, along with a recent speech by Dorgan that details massive failures in Wall Street and Washington.
"We had regulators come to town in recent years and willfully boasted that they wanted to be blind as regulators," Dorgan says.
There are good elements of Obama's plan to deal with too-big-to-fail. It gives policymakers the option of putting a too-big-to-fail institution through a special bankruptcy process administered by the executive branch, thus avoiding the problems created in bankruptcy court when Lehman Brothers failed. But the bad part is really bad: Officials would also have the option to provide unlimited bailouts to Big Finance via loans, guarantees and even asset purchases.
As Mike Lillis notes for The Washington Independent, some responsible Democrats like Rep. Brad Sherman (D-CA) have been objecting to this aspect of the legislation for months. Sherman, in fact, calls it "TARP on steroids," noting that the bank bailout at least came with some meager oversight and a limit on the program's actual size.
The bank lobby is spending money like mad to maintain their stranglehold on the economy. Neither Congress or the administration will change course without intense public pressure. So it was very reassuring last week to see thousands of people protesting the annual meeting of top bank lobby group, the American Bankers Association. David Moberg chronicles the protest in a blog post for Working In These Times that covers speeches by both key union leaders and ordinary people facing foreclosure after watching their tax dollars go to the very bankers who wrecked the economy.
"There was broad agreement on anger at the banks for providing so little, if any, public benefit for the massive bail-out, and for so quickly returning to the greed and abuse that precipitated the crisis," Moberg writes.
Laura Flanders covers the protests for GRITtv, including video of protesters chanting "Bust up big banks!" In a roundtable discussion with Christina Clausen of the United Food & Commercial Workers Union, George Goehl of National People's Action and Rob Robertson of the Right To The City Alliance, Rolling Stone journalist Matt Taibbi explains the overriding impotence of the regulations Congress is about to approve. Regulators will not be able to crack down on abusive derivatives, a full 8,000 of 8,200 banks will be exempt from Consumer Financial Protection Agency oversight, while the same agencies that screwed up heading into this crisis will be charged with preventing the next one.
"They've had sweeping powers to do whatever they wanted," Taibbi says. "They've had this regulatory power all along."
What we need are good jobs, and lots of them. Obama's economic stimulus package has made tangible economic progress. It's saved hundreds of thousands of jobs, and is clearly responsible for the turnaround in gross domestic product (GDP) we saw in the third quarter. But a full 17% of the workforce remains unable to find full-time work, as Julianne Malveux explains for The Progressive.
When Wall Street crashed in 1929 and unleashed the Great Depression, the government eventually stepped in as an employer-of-last-resort. The Works Progress Administration (WPA) and Civilian Conservation Corps (CCC). built schools, parks, roads and bridges which still serve our communities today. Both the WPA and the CCC employed literally millions of people-in the 1930s. It's a model that could work very well today.
As the current recession makes clear, ending too-big-to-fail and guaranteeing a good job for everyone in our society who wants one are the two most critical structural reforms our economy needs. Don't let lawmakers forget it.
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In the effort to pass a public health care option, state blogs are going to be key. Today, North Decoder, a great state blog out of North Dakota, shows why.
Elected officials are very responsive to local media. As such, North Decoder has been pressing the state's two Democratic Senators to make a public statement on the public option. Entering today, Stand with Dr. Dean listed both Senators Conrad and Dorgan as "unknowns" on the public option. However, due to the efforts of North Decdorer to push Conrad and Dorgan to provide answers, we can now put Byron Dorgan in the "yes" column.
In the extended entry, you can read the answers that Senator Dorgan's office provided on the public option, in response to North Decoder's queries. I believe it is the first time Senator Dorgan has gone on record in favor of a public option.
Staff Sgt. Ryan Maseth, a 24 year old Green Beret, died in Iraq last January in a military base bathroom, of electrocution. He's one of 13 soldiers to die because of faulty electrical work. Press reports at the time mentioned what was known of contractor Kellogg, Brown and Root's (KBR) role:
... Army documents obtained by CNN show that U.S.-paid contractor Kellogg, Brown and Root (KBR) inspected the building and found serious electrical problems a full 11 months before Maseth was electrocuted.
KBR noted "several safety issues concerning the improper grounding of electrical devices." But KBR's contract did not cover "fixing potential hazards." It covered repairing items only after they broke down. ...
Based on the testimony given at a Senate hearing on the matter, Senators Byron Dorgan (D-ND) and Bob Casey (D-PA) asked the Army to investigate. The results are in and the Army has changed Maseth's cause of death from "accidental" to "negligent homicide". And while this raises the possibility of criminal action against KBR, there's plenty of blame to go around.
About an hour ago I had a chance to speak with Senator Sherrod Brown of Ohio, who sits in the Banking committee. I asked Senator Brown that, in light of HR 384 ready to pass the House, would he help push Senator Dorgan's S 195, which has been referred to the banking committee and which places similar oversight and transparency requirements on the Wall Street bailout money. His response was both clear and positive: yes, he would try to push S 195 out of committee, and that "we" (I assume he meant himself and other banking committee Senators) would speak to, and work with, Chairman Dodd in an attempt order to make it happen.
This is news gives real hope that additional legal restrictions will be placed on the second $350 billion in TARP funds, and that the House's effort to pass HR 384 will not be in vain. I will try to follow-up with Senator Brown's office on this matter later in the week, checking in and progress and looking for ways that we can assist in his efforts.
Further, I also was able to speak to Senator Byron Dorgan. I told him that the Open Left community was ready to help pass S 195, and that we appreciated his efforts in introducing the bill. He thanked us for our support. Thank you, Senators Dorgan and Brown.
In response to my post from earlier today about Senate Banking Chair Chris Dodd not introducing mirror legislation to House Finance Chair Barney Frank's bill to place conditions on how bailout money is spent, I was contacted by a Senate staff member for the banking committee. To help provide reassurances that Senator Dodd will be conducting oversight of the second half of the bailout, I was pointed to a recent NPR interview Senator Dodd gave on this subject. Natasha and I transcribed what we believed to be the relevant section (emphasis mine, more in the extended entry):
So it's a lazy Sunday, and the Presidential race looks like it'll come down to environmental factors. I put up a post about four months ago (can't find it now) in which I basically echoed the thesis that Obama would win if the economy melted down prior to the election, but would only probably win if it didn't. I'm not good at predicting electoral outcomes, and despite giving out mounds of advice, I don't believe in backseat strategizing. I think you execute based on what you know, and that the Obama team has done. Given the financial crisis, this strategy is doing just fine - the country wants a steady centrist hand on the tiller. And now the 60 vote threshold in the Senate is possible, with Liddy Dole 'certain' to lose according to McCain officials and McConnell getting pounded in the polls.
So what does this mean? Well, I don't really know, but I'm going to assume that the Senate, as the most conservative institution on our Federal level, will be a major breeze to the right in terms of health care, trade agreements, civil liberties, economic justice, etc. Let's then examine the playing field for 2010; the environment for 2010 is unpredictable and probably chaotic, with a sharp recession on its way and a credit crisis here now.
I'm particularly interested in possible primaries to the Democrats, the party that the lobbyists are going to fete repeatedly and intensely in 2009 and 2010, much to our chagrin. I'm sure there will be retirements, but here's the list of Democrats up for reelection.
Krugman explains that the executive branch had to originate this complex financial rescue because Congress couldn't. And Paulson screwed it up, but something had to be done, and the bill became 'better than nothing, but not good'.
So am I for the bill? Yuk, phooey, I guess so. And I'm very angry at Paulson for putting us in this position.
What did he expect? Paulson is a Bush administration official.
Jim Webb pulled his usual 'I'm a populist and don't like Wall Street' line earlier in the debate, and then voted for a piece of reactionary legislation. A bunch of Rs said no to this bailout, truly an odd bunch. On the bright side, Dorgan, Feingold, Wyden, Tester, Cantwell, and Sanders voted no.
Earlier this year, the Federal Communications Commission relaxed rules preventing TV stations and newspapers from owning each other in local markets. This was a very bad thing. Tonight, the Senate passed by a near universal voice vote a resolution of disapproval that would nullify this rule. It's in the House as well, and while the President will veto it, the next President will not.
If I were a media executive at a big outlet, I'd be getting very nervous about what a Democratic administration and a new progressive Congress will bring. The Pentagon Pundits scandal is the smoking gun, with the WGA strike big media lost its labor allies, and it's clear that the media executives don't get how much legitimacy they have lost. It's as if they have rerun the Quiz Show scandal, only this time with bullets and trillions of dollar.
Republican Kevin Martin, the current head of the FCC and a presumptive North Carolina politician, was shown as politically incompetent tonight. Less than 1% of the public comments supported his move to allow more media consolidation, and now the Senate is mad. A rule of thumb, Kevin, in case you're reading. You shouldn't make the Senate angry. You won't like them when they're angry.
Byron Dorgan gave a barnburner of a speech on our broken fiscal policy, trade policy, and regulatory crisis. He went after hedge funds and called our fiscal policy reckless, and then added the following: "The world see it. The markets see it. We're acting like a drunk who pretends that no one sees him drink."
More Byron! Incidentally, Dorgan is the bulldog who championed net neutrality from 2005-2006, and he along with Ron Wyden advanced our goals substantially. He also has a book out titled 'Take this Job and Ship It'.
Sherrod Brown then spoke, and he talked about how more progressives in the Senate are auguring a new progressive era. He's intensely focused on the middle class and plant closings, continuing on the theme from his election campaign.
Schumer also spoke, and discussed how the Reaganite era is dead. In 1980, people felt they could do it on their own, and Reagan, backed by very wealthy 'economic royalists', convinced them he was their leader to get the government off their back. Today they no longer believe this, so the Reagan model of eliminating government no longer has popular support. A lot of people don't realize that Schumer is a Reaganite Senator, whose thinking is organized around the 1980 and 1982 class of Democrats who were elected in spite of a severe anti-liberal tide.
Sens. Byron Dorgan, D-N.D., and Olympia Snowe, R-Maine, said the incidents involving several companies, including Comcast Corp., Verizon Wireless and AT&T Inc., have raised serious concerns over the companies' "power to discriminate against content."
They want the Senate Commerce, Science and Transportation Committee to investigate whether such incidents were based on legitimate business policies or unfair and anticompetitive practices and if more federal regulation is needed.
Senator Dorgan already features Net Neutrality on his website, but an investigation could be a signficant step forward.
Saying it had the right to block "controversial or unsavory" text messages, Verizon Wireless has rejected a request from Naral Pro-Choice America, the abortion rights group, to make Verizon's mobile network available for a text-message program.
The other leading wireless carriers have accepted the program, which allows people to sign up for text messages from Naral by sending a message to a five-digit number known as a short code.
Text messaging is a growing political tool in the United States and a dominant one abroad, and such sign-up programs are used by many political candidates and advocacy groups to send updates to supporters.
But legal experts said private companies like Verizon probably have the legal right to decide which messages to carry. The laws that forbid common carriers from interfering with voice transmissions on ordinary phone lines do not apply to text messages.
The dispute over the Naral messages is a skirmish in the larger battle over the question of "net neutrality" - whether carriers or Internet service providers should have a voice in the content they provide to customers.
"This is right at the heart of the problem," said Susan Crawford, a visiting professor at the University of Michigan law school, referring to the treatment of text messages. "The fact that wireless companies can choose to discriminate is very troubling."
In turning down the program, Verizon, one of the nation's two largest wireless carriers, told Naral that it "does not accept issue-oriented (abortion, war, etc.) programs - only basic, general politician-related campaigns (Mitt Romney, Hillary Clinton, etc.)." Naral provided copies of its communications with Verizon to The New York Times.
Nancy Keenan, Naral's president, said Verizon's decision interfered with political speech and advocacy.
"No company should be allowed to censor the message we want to send to people who have asked us to send it to them," Ms. Keenan said. "Regardless of people's political views, Verizon customers should decide what action to take on their phones. Why does Verizon get to make that choice for them?"
A spokesman for Verizon said the decision turned on the subject matter of the messages and not on Naral's position on abortion. "Our internal policy is in fact neutral on the position," the spokesman, Jeffrey Nelson, said. "It is the topic itself" - abortion - "that has been on our list."
Mr. Nelson suggested that Verizon may be rethinking its position. "As text messaging and multimedia services become more and more mainstream," he said, "we are continuing to review our content standards." The review will be made, he said, "with an eye toward making more information available across ideological and political views."
Naral provided an example of a recent text message that it had sent to supporters: "End Bush's global gag rule against birth control for world's poorest women! Call Congress. (202) 224-3121. Thnx! Naral Text4Choice."...
Timothy Wu, a law professor at Columbia, said it was possible to find analogies to Verizon's decision abroad. "Another entity that controls mass text messages is the Chinese government," Professor Wu said.
This is a direct attack on the right of assembly and the right to free speech. I know of several companies that sell mass texting services, and none of them will go on the record about carriers because they are afraid of them. And keep in mind, these telecom companies want retroactive immunity for breaking the law and spying on Americans.
