A lot of progressive leaders and writers, yours truly included, have expressed concerns about Bill Daley's appointment as COS. One of the most depressing pieces was written by Simon Johnson, the former IMF chief economist who has written brilliantly and compellingly over the last couple of years about banking issues. His entire piece is well worth reading, especially in light of the mess these uber-powerful big banks have made of the housing, mortgage, and foreclosure situation. With judges increasingly incredulous and angry at the fraud and shoddy record keeping of the banks and their lawyers, and an ever wider spectrum of economists and bank analysts increasingly alarmed by the implications of the foreclosure crisis, and the size and economic dominance of the big banks, it is not surprising that folks like Simon are expressing these concerns.
Simon's basic argument, which as he writes is shared by many other major economists across a wide ideological spectrum, is that the big banks' size, fundamental business model, and political clout are both preventing a stronger economic recovery and virtually guaranteeing another major financial crisis in the near future. He points out that the 6 biggest banks now control assets worth 64% of GDP, up dramatically from the 55% they controlled before the crisis at the end of 2006, and up overwhelmingly from the 17% they controlled in 1995- only 16 years ago. Economic changes that massive are unprecedented and terrifying.
Simon's fear is that since Bill Daley comes from one of the big banks, any hope of taking the banks on in terms of these big issues is gone. As he writes:
Bill Daley now controls how information is presented to and decisions are made by the president. Daley's former boss, Jamie Dimon, is the most dangerous banker in America - presumably he now gets even greater access to the Oval Office. Daley is on the record as opposing strong consumer protection for financial products; Elizabeth Warren faces an even steeper uphill battle. Important regulatory appointments, such as the succession to Sheila Bair at the FDIC, are less likely to go to sensible people. And in all our interactions with other countries, for example around the G20 but also on a bilateral basis, we will pursue the resolutely pro-big finance views of the second Clinton administration.
Top executives at big U.S. banks want to be left alone during relatively good times - allowed to take whatever excessive risks they want, to juice their return on equity through massive leverage, to thus boost their pay and enhance their status around the world. But at a moment of severe financial crisis, they also want someone in the White House who will whisper at just the right moment: "Mr. President, if you let this bank fail, it will trigger a worldwide financial panic and another Great Depression. This will be worse than what happened after Lehman Brothers failed."
Let's be honest. With the appointment of Bill Daley, the big banks have won completely this round of boom-bust-bailout. The risk inherent to our financial system is now higher than it was in the early/mid-2000s. We are set up for another illusory financial expansion and another debilitating crisis.
I think Simon is right on the economics of the financial system, that the big banks are way too big and powerful, and have a stranglehold on both our economics and politics. But I am a little more optimistic on the political dynamics with Daley, simply because by the President appointing a JP Morgan Chase banker, I think the administration will have to bend over backwards to look like they are not doing sweetheart deals for the bankers. Anytime they do something to help the big banks, or even just to defer to them on something, activists, analysts like Simon, media people like Dylan Ratigan and Eliot Spitzer, and maybe even Republicans for political advantage will be jumping all over the administration. In an odd sort of way, Daley's appointment could be the best thing for the progressive organizers and media people on the banking issues, because it gives us a hook we can use in our organizing. Anytime Elizabeth Warren is being messed with, we can push back and ask why. Any attempts to help bail the banks out again, or help them out of the legal problems they have created for themselves on foreclosure, we can raise hell and ask what the hell is going on. Bill Daley is a smart enough guy to understand this dynamic, and will not want to be seen favoring the banks with the access he provides or appointments that are made.
Here's the other thing to remember, though: White House Chiefs of Staff, while of course very powerful players, are not the end-all and be-all in terms of administrative decisions. I worked with all 4 chiefs of staff in the Clinton White House, and they ranged from Erskine Bowles at the most conservative to John Podesta at the most liberal, but there were no appreciable differences as far as I could tell in the kinds of policy decisions being made by Clinton. Or look at Rahm in this White House: his advice got ignored a lot of the time, including on the biggest decision of Obama's presidency so far, whether to push forward on comprehensive reform after Scott Brown won. The fact is that Presidents make decisions for all kinds of reasons and are influenced by all kinds of factors. Chiefs of Staff organize decision flow and staffing operations, but don't tend to drive Presidents to do things they wouldn't ordinarily do. The COS is important, but not determinative. What is more important by far than the Chief of Staff's personal views on issues are the outside political dynamics that drive the debate. That is why progressive activists need to redouble our organizing efforts, and use the political dynamics that are in our favor.
One thing people should not forget is that the single most progressive populist Presidential campaign in the last 35 years, the Gore campaign in 2000, (remember "the people vs the powerful"?) was chaired by Bill Daley. That wasn't because of Bill, but because of the political dynamics of that race and the political instincts of the candidate.
Progressives cannot afford to take the attitude that with Daley as COS, all is lost and we should just give up on trying to influence policy and politics in regards to economics and other issue areas. We need to keep pushing the administration to listen to us, but also use every other leverage point we have to influence the political dynamics around us.
Although Arianna Huffington's recent book Third World America was mostly about economics, my great fear is that her idea that this great country is moving too far in the direction of a third world nation was eerily prescient in more ways than one.
When members of Congress start being assassinated, when the rhetoric about politics and politicians becomes increasingly violent and extreme in nature, and when corrupt oligarchs with way too economic and political power assume they can operate outside the bounds of the law, you have the hallmarks of a Third World country. I have been focusing more and more on the incredible crisis brewing in the financial sector because the corruption there is at the core of so much that is messing up our country's economy, but the assassination attempt on Gabby Giffords this weekend was a deadly and tragic reminder of how we have the potential to slide more and more toward Third World status in more than just economics. When media figures like Beck and Limbaugh, politicians like Palin, and way too many others so loosely talk about "death panels", or the President being "friends with terrorists", or the need to reload, we have a big problem in our democracy: the mentally ill who are close to the edge can easily go over the edge, and the far right borderline violent militia types start seeming like they are mainstream.
I am not an alarmist, a conspiracy theorist, or a pessimist about all this. I don't think we are on the verge of a Third World dictatorship. This country has seen waves of political violence and terrorism repeatedly in its history, including assassinations, bombings of churches and clinics, and lynchings, and we have survived and overcome. This country has seen waves of economic concentration of wealth and power in the late 1800s and the 1920s before the Great Depression, and we survived that too, making the reforms we needed to make to get stronger. But we are at a very dangerous moment, and not just because of the threat of violence we saw play out this weekend.
What troubles me the most is the combination of violent and extreme rhetoric, increasing incidents of violent actions (including the shooting this weekend, the shooting of an abortion doctor, the shooting at the Holocaust Museum, the attempted assassination of people at the Tides Foundation), and the economic signs of a Third World mentality by the big banks who have become so powerful in this economy. Unnoticed this weekend in all the focus on the Giffords assassination attempt was the massively important Massachusetts Supreme Court decision US Bank National Association vs. Antonio Ibanez, which essentially and decisively laid bare the big banks' economic strategy on foreclosures. Check out this piece by Numerian at The Agonist for a great explanation of the stakes in this case. As Numerian says, "all it took for the banks to win was to show up in court with the proper legal documents", and the bankers weren't even close to being able to do that. In fact, if you read the growing literature- including a ton of great books, blog posts, magazine and newspaper articles- on the behavior of the big bankers leading up to the financial crisis and in terms of this rapidly mushrooming mortgage and foreclosure crisis, it is impossible to escape the sense of these big banks as feeling so powerful and wealthy that they no longer need to worry about following the law. They can create massive bubbles they know will pop, set up and bet against their own clients, create real estate securities they know are toxic, and recklessly obliterate existing law on mortgage documents while all the while assuming they will always be bailed out through the power of being too big to fail.
Political leaders engaging in rhetoric with violent undertones and economic elites deciding they can pretty much ignore the law and run roughshod over anyone they want to is a formula for political violence and instability plus an economy that looks like a banana republic. We need to step back from the brink of Third World America before it is too late.
I don't know Chris Dodd well, but have always liked him quite a bit. I appreciated his advocacy on behalf of children, on civil rights and civil liberties, and on many other important issues. I thought he was a great DNC chair back in the '96 cycle. I knew that his closest friends on the Hill were Ted Kennedy and Rosa DeLauro, who have always been two of my favorite people. I thought he ran an honorable and strongly progressive campaign for President in 2008.
But lately, it seems like Chris Dodd has been taken over by a Wall Street pod person. He repeatedly tried to make major compromises to please the big banks in the financial reform bill, saying that the bill could not pass without these changes when in fact the bill got steadily stronger on the floor of the Senate, and the Republicans were always too scared to filibuster it. He has come out strongly against filibuster reform. And now he is mounting a major campaign to defeat Elizabeth Warren, both with public statements (for a while using the filibuster excuse, now just blatantly questioning her ability to do the job) and especially in private. Based on everything I am hearing from insiders at the White House and Capitol Hill, the two people who are most anxious to keep the President from nominating Warren are Geithner and Dodd.
What is going on with Dodd? I am told by extremely good sources that he remains extremely angry with Warren for daring to push back against the compromises gutting the consumer protection bureau, so that at least is one reason. More disturbingly, some are suggesting that he feels like he needs to carry water for the White House on this, so that they have a good excuse not to pick her, although I am more skeptical of that idea because I know there is a strong contingent at the White House that favor her nomination as well as some who oppose. Finally, the DC rumor mills have been ablaze for months that Dodd is looking at a lobbying career when he retires, and as former chair of the Senate Banking committee, he could be in line for some pretty sweet contracts with the big banks.
Whatever the reasons, this is a very disappointing way for someone with an honorable career like Dodd to go out on. I hope he steps back from the dark side.
I'm going to let economists and policy people better qualified than I go through the details of the financial reform deal that came out of conference committee in the 5 AM hour last night. In terms of where it is on a scale of -10 to +10, that all depends on whether you are an optimist or not. Both of the following are true:
There were some bad compromises made on very important issues like derivatives and the Volcker rule, and the bill will not fundamentally restructure or reform the way Wall Street does business.
There was some surprisingly impressive progress that got made on a range of really important issues. The Fed will be audited, derivatives will be more transparent, the big banks will be under more pressure to split off risky trading practices, the retail economy won a key battle with the bankers, consumers and investors will be far better protected.
The short version is that reformers won some and lost some. But however you feel on the upbeat/downbeat scale, the fact that we won anything is pretty remarkable at all, and should not dismissed by the cynics. The fact is that American democracy is in pretty rough shape: big corporations generally run this town. Watching the Wall Street lobbyists and PR gurus and PAC money roll through DC the past few weeks took my breath away, and I'm a cynical old insider with two decades here. Our side was outspent 500 to 1. The big banks had 2000 of the best-paid lobbyists in the city; our side had a few policy wonks cobbled together from various underfunded public interest groups. Their side had the biggest PR killers in the country; our side had a few intrepid bloggers. Their side had PAC dollars flowing like the Mississippi River; ours had a modest amount of labor dollars and a few $25 netroots contributors. On a few issues, like the swipe fee thing, our side had some business allies; on most issues, and the entire bill overall, the big bankers talked the Chamber of Commerce and many other business interests into helping do their dirty work for them.
So, yeah, I'm bummed that we lost some big things to this Mordor's army of Wall Street lobbyists, and I know this bill goes nowhere far enough. But my hat is off to the people in this progressive movement who fought their hearts out to win some important victories. The outgunned reformers fought the good fight against the most powerful industry seen in this nation at least since the days of the robber barons, and you won some things that mattered. This bill, assuming it doesn't yet get derailed, is just one step forward on the path to a saner financial system, but it's been worth doing.
I'm headed home to Nebraska this weekend for a family event, which reminds me of yet another Nebraska politician making a fool of himself on the national political stage (I'm not going to go through the embarrassing recent history here, it's too painful. I do want to say that William Jennings Bryan 115 years ago and George Norris in the 1930s made us proud).
Nebraska's State Treasurer, Shane Osborn, already has quite a history as State Treasurer, including allegations of spousal abuse and apparently moonlighting for a private company while serving as State Treasurer. But his most recent notoriety is flacking for his big banker friends while defending his ripping off of poor Nebraskans. Check out this great piece from the New Nebraska Network about this issue (which I have also been working on, naturally). Osborn isn't running for re-election, so maybe he's looking for a job with the banks with this latest job carrying their water.
The weirdest thing about all this is that Osborn is flying to DC next week to do an event on this issue with Sen. Mark Warner. Huh? I know Warner has been flacking for all the bankers on this issue, and in general on financial reform. But doing an event with a right-wing flake like Osborn is really over the top for Warner. Folks in Virginia really ought to give him some trouble about hosting Osborn. I know Warner wants to be Mr. Bipartisan, and I know he loves him some banksters, but he should mind the company he keeps.
Along with Americans for Financial Reform (AFR) and many great progressive bloggers and activists, my most important task between now and the final passage of the financial reform bill is to try to keep this zombie-like army of lobbyists from picking every detail that matters off the bill and dumping all the good things in the trash. The thing about a subject this huge is that all these "details" and "side issues" are actually quite enormous. Even though this bill is disappointing on many centrally important issues (the biggest of which is to actually break up these monster banks), each provision the House and Senate conferees are currently negotiating over matter a lot.
One example of an under-the-radar side issue with big consequences is this swipe fee issue. I got intrigued by this issue a few weeks ago when my friends at AFR alerted me to it, I started writing about it, and have now managed to talk a bunch of retail business folks into paying me to work on it (is this a great country or what?) Here's the deal: every time a restaurant owner or taxicab driver, a small business person or, for that matter, a blogger, swipes a credit or debit card, the credit card company can charge a fee. Any fee they want. The bigger the business, the lower the fee that can be negotiated, so the folks this really screws over are the smallest businesses who use credit card machines. My cabbie the other day told me he gets charged 10 cents on the dollar, and I know a bunch of other small business people in the same boat. You know who else gets screwed by this? Charities. The swipe fee costs charities around $250 million a year, according to an analysis by the Huffington Post.
So 10 cents here, 10 cents there - not such a big issue, you say? Well, you know what, there are a lot of credit and debit card transactions in this country every day. The definitive estimate on the amount of money being taken out of the pockets of retail businesses and put into the pocket of the banks stands at $48 billion per year. And here's a shocker: 80% of all this money is received by the top 10 banks (actually, I'm a little surprised it is not even more concentrated).
In the world of trillion dollar Federal Reserve bailouts for the banking industry, $48 billion may not seem like much, which is why people call it a side issue in financial reform. But a $48 billion dollar infusion of cash into the real economy as opposed to the profits of the biggest banks would have a lot of benefit right now. And left unregulated, that number will inevitably get bigger, because the big banks' profits will likely be curbed 15-20% by the financial reform bill, and they will be looking for new ways to boost their profits. Any part of the financial industry left unregulated will be in for new rounds of price gouging and market manipulation. The amount Americans pay in swipe fees, who are already paying the highest fees in the world, has already gone up 3 times the amount it was in 2001. Left unregulated, it will go up a lot more.
So if we win this fight, and the banks don't get the $48 billion, what happens to it? Retailers say they will be able to lower prices as a result, so consumers will benefit, but it's hard to know whether or not that will be true. I suspect that some of the $48 billion will benefit consumers with lower prices; some will benefit business owners directly. Hopefully some of those businesses will use the money to hire more workers or even given the workers they have a much needed raise. The extra dollars gained by small businesses might be enough to keep some struggling restaurants and local businesses alive in these tough times.
Regardless of how that $48 billion pie gets sliced, though, getting that money pumping through the rest of the economy and out of the hands of the very biggest banks is a big plus. The big banks have too much power and too much concentrated wealth: anything that takes money out of their hands and puts it into the Main Street economy is a very good thing. This "side" issue matters a lot.
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.
Slowly and tentatively, in fits and starts yet with gradually gathering momentum, the iron grip that big corporate interests have on the throat of our democracy is loosening a little. Credit card companies got needless delays in the implementation of last year's reform bill, but they were forced to live with the outlawing of several of their most egregious practices. The insurance companies stripped the public option and some other great things out of health reform, but would have much preferred no bill at all, and certainly not one with new regulations and expectations about pre-existing conditions, lifetime caps, and recissions. The student loan industry got an outright smackdown which will result in more money for student loans. Now Wall Street is in a wild fight on the floor of the Senate, and Senators are either deserting them on major issues like auditing the Fed and consumer protection, or else Senators are having to make very uncomfortable votes on the big bankers' behalf. Progressives who want to rein in Wall St's power are losing on some important issues, but we are making our mark on this bill, and setting the stage for future fights.
Check out Simon Johnson's brilliant post on the vote to break up the banks, suggesting that while they won this round, they may be facing their Waterloo soon. He points out that as things like Greece continue to happen that unravel the world financial situation further, that it will become harder and harder for the defenders of the big banks to hide. Although our side lost the vote, getting over half the Democrats, the Majority Leader, the 2nd ranking member of the leadership, and the ranking Republican on the Finance committee to all vote with us on a bill to fundamentally restructure the financial system was a pretty big deal. With Senators now all on the record as to whether they support the big banks or not, we have a lot of potential to do some damage in the coming elections. Even when we lose, we are getting these issues aired and getting people on the record. That's all to the good.
Let me throw a couple of electoral examples into the mix. Take Delaware, a pretty strongly Democratic state where a locally popular Republican congressman, Mike Castle, is a heavy favorite to win an open seat. He voted against breaking up the big banks. If the Democratic candidate Chris Coons makes this big issue in a pretty working class state, maybe Castle's easy victory gets a little- or even quite a bit- harder.
Or take an old home state of mine, Iowa, where voters have a very deep populist streak in them (see Harkin, Tom). Grassley, the ultimate incumbent insider, ranking member and former chair of the Finance committee, voted for letting the 6 biggest banks continue to own the equivalent of 63% of our GDP. Roxanne Conlin is a crusading lawyer who has made her living going after corporate malfeasance. Grassley is favored in this race, but his vote makes things a lot more interesting, especially for a strong populist like Roxanne.
Moving on to the issue of auditing the Federal Reserve. Yes, Sanders compromised on the issue. But most observers following the issue see this as a solid compromise, not a cave-in: we got something real out of the deal in terms of looking at what went down over the last few years. And the House language they go into conference on is very strong. Rumor has it that Geithner is still trying to figure out how to unravel this deal, so we can't take anything for granted, but we have the momentum on this issue, and winning on it would be a very big deal.
We're winning so far on the consumer protection agency; we're making progress on derivatives. It is the progressive amendments that have the wind at their back right now.
Look, I don't want to overstate this. This bank bill has some serious weaknesses in it, and with the Brown-Kaufman bank break-up amendment failing, it still doesn't solve the most central failing of our banking system. On health care and other issues, progressives have had our share of truly bitter and disappointing defeats. But progressive populist economics and a political strategy of challenging special interest corporate power is gaining traction right now. A citizen movement is bubbling up through the barriers of special interest concrete in our nation's Capitol that is not driven by tea party anti-government fervor, but by the hopes of regular folks who believe we can take our country back. Let's keep building on our momentum.
One of the most delightful news articles I have seen in months, years- okay, maybe ever- was in The Washington Post today. This was the headline:
Lobbyists Fear Overhaul Driven by Anti-Bank Fear
Some of the quotes inside the article were truly choice:
"You've got an environment, six months before an election, where politicians are acting like politicians," said Sam Geduldig, a financial lobbyist and former Republican staffer. "They are viewing any vote as a potential campaign ad. And that might not be good for any of us."
And here's another great one, from "one of the many lobbyists who spoke on the condition of anonymity":
"Every amendment you hear about is emotionally driven. . . . The Senate has turned from a deliberative body into an emotional reactor."
Now what emotions would this lobbyist be referring to? Anger at these bankers' destroying the economy for their own greed? Disgust at their arrogance? Fear that their concentration of market power is distorting our economy? A belief in the basic human decency? Oh wait, sorry, that last one is more a value than an emotion. But yes, there is some emotionalism here. Thank God. Because while being a cold heartless lizard-like creature is an advantage for a Wall Street banker, for the rest of us, we do feel a sense of emotion at the destruction you guys have wrought.
The lobbyists want all of the deals done behind closed doors. Speaking of emotion, they fear and hate open democracy because they know politicians who have to face voters and explain their voters in the light of day are going to have trouble explaining how they were defending these bankers. That's why conservatives from the founding of our country to today have federal democracy: it gets in the way of backroom deals between elites. Alexander Hamilton called democracy "a great beast" because when that beast gets mad at the insiders cutting their quiet deals, things can happen to upset the status quo.
But fear not for our lobbyist friends: at the end of the WaPo story, another unnamed lobbyist chuckled and said, "I think it's going to be job employment for me for the next decade, doing some of this stuff."
With the health care fight finally resolved (you notice I didn't use the word "over"- the passage of this bill is only the first step in a long-term battle for a better health care system in America, so nothing is really over), everyone is turning their attention to the economy. As well they should.
In spite of certain establishment economists and pundits (and unfortunately a few administration officials who are politically tone deaf), saying that the recession is over and everything is back on track economically, the simple fact is that while we are no longer dangling over the precipice of another Great Depression, the economy is still broken in major ways. The official unemployment rate still hovers around 10%, and when you add in those who have given up looking for work, those who are underemployed and marginally employed but want fulltime work, the number of people needing full-time jobs is closer to 20%. Wages are still not going up, as even many of those who have jobs have had to take lower wage jobs to get by. Foreclosures are still happening at dangerously high rates, home values are not coming back anywhere near fast enough (or at all in some neighborhoods), and way too many homeowners are still dangerously close to being underwater. Business and personal bankruptcies are still way too high.
Now I know that the economy is officially "growing" again. The GDP is up, the Dow Jones is up, corporate profits are up. If you are an establishment economist, a trust fund baby, or a Wall Street financier, the economy feels like it's just humming along. For the vast majority of Americans, the noise they are hearing is less that of a hum and more of a car wreck. That's why voters react so poorly to Democratic politicians when they say things about how the economy is looking up.
The twin pillars to building a healthy economy are producing good jobs in big numbers, and fixing the badly broken financial system. These are not separate spheres, by the way- the two things are joined at the hip. Washington legislative policy wonks tend to divide everything into different bills they are working on, and DC coalitions follow that approach as well. But if we don't start creating decent-paying jobs, the foreclosure problems will keep getting bigger and housing prices won't recover. If we don't fix the financial sector, an economy where the finance sector is focused on gambling and bubbles rather than in actual investments that will create jobs will continue dragging us down, and endangering us in the future. With so much of America's wealth concentrated in six mega-banks, and those banks investing in little that's creating jobs, we are not going to create real private sector job growth.
Let me point you to three fascinating things worth reading that have come out over the last few days, because I think they all point to central economic issues as we go forward. The first is an important, news-breaking piece in Politico that Elizabeth Warren came out with yesterday morning. Citing a memo from the American Bankers Association from a 2006 fight against more oversight that makes the exact opposite arguments they are making now, Warren makes the absolutely central point that special interests like the American Bankers Association are hypocrites to the core. The special interests that are making out like bandits at the expense of the rest of us don't have any consistent philosophy except me first and only, and members of Congress and the administration should thus given their arguments the respect they deserve: which is to say virtually none.
The second is Sen. Ted Kaufman's brilliant speech on Chris Dodd's weak and disappointing financial reform bill. Sen. Kaufman's essential point is that Dodd is just moving the regulatory fixes around rather than doing what really needs to be done: break up the big banks. If these financial behemoths are not cut down in size, and walls are not built between the gambling financiers and the boring old bankers who loan money to invest in small businesses, the financial system will remain in danger and jobs will be far less likely to be created. Kaufman makes the argument that if you don't make real structural changes in the size, powers, and roles of the mega-banks, that you haven't changed anything important re how the banking system works. He is 100% on target. If having regulators was all that was needed to clean up the banking system, we never would have landed in the mess we did in the financial collapse. You have to change the power relationships as well- banks need to be smaller, and the trading side of the banking industry should not infect the more traditional loan and investment side of the banking industry.
Finally, I want to point you to a really thoughtful new commentary in Huffington Post by Leo Hindery. His frame on the political dynamic right now is intriguing: that Republicans are in fact the disloyal opposition, so violently opposed to Obama that they have gotten into bed with the fomenters of open and potentially violent revolution; in their place as the loyal opposition are those of us progressive populists who want Obama to take on the banks and far more aggressively create more jobs. Leo's point is that there is a growing group of people who are loyal to Obama in the sense that we very much want him to succeed, we want to help him, and certainly support him in opposition to a tea party/Glenn Beck-aligned Republican Party; but that we are in a sense in opposition as well, believing we need dramatically more progressive economic policies.
We live in a remarkable moment. We just passed a universal health care bill, something the progressive movement has been fighting for about a century or so. But we are still faced with a broken economy- a badly warped and dangerous financial sector, and a massive lack of good jobs- and we need for bolder thinking that we are getting on how to fix it. Whether or not you call us the loyal opposition, it is time for progressives to demand more- on creating jobs and fixing the banking system- in terms of fixing the economy.
Homo sapiens, that means us, is what's known as an ultrasocial species. That means we're so cooperative that groups of hundreds, even thousands of us, can distribute tasks, share rewards, have common goals and tolerate each other's proximity in abundance. We're the only ultrasocial species whose groups operate more on reciprocity than kin relationships.
If we were the creatures Ayn Rand's disciples think we are, we would live like bears, who have no civilization to speak of, no language in which to speak of it, and never will.
Which is why the current incarnations of plutocracy, patriarchy and all other 'screw you, I've got mine' politics are, in the deepest sense, antisocial. They're anti-civilization. What betrays the reciprocity of the social compact betrays the most useful trait of our species, the one arguably most responsible for our success. The people who hold these views are free riders, parasites, if you will, on the public good of basic human nature.
Our greatest good is the presence and well-being of other humans. Maybe in a spiritual sense, but definitely in a hardwired, biological sense. Consider that a person in jail can literally go mad from a lack of contact in solitary confinement, in ways that prisoners in contact with inmates or guards who are torturing them will not.
Humans just need each other.
Not only isn't there anything wrong with that, it's the only basis for policy that can stand the test of time. Just in case anyone still gives as much of a damn about building civilizations as blowing them up.
I have complained many times about how frustrating it is to see Obama not wanting to go with a populist message, especially in regards to going after Wall Street.
Yesterday, in a proposal to impose a major new surtax on the biggest banks, he really went for it:
Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities.
And this:
My commitment is to recover every single dime the American people are owed. And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people -- folks who have not been made whole, and who continue to face real hardship in this recession.
We want our money back, and we're going to get it. And that's why I'm proposing a Financial Crisis Responsibility Fee to be imposed on major financial firms until the American people are fully compensated for the extraordinary assistance they provided to Wall Street. If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers.
We cannot go back to business as usual. And when we see reports of firms once again engaging in risky bets to reap quick rewards, when we see a return to compensation practices that seem not to reflect what the country has been through, all that looks like business as usual to me. The financial industry has even launched a massive lobbying campaign, locking arms with the opposition party, to stand in the way of reforms to prevent another crisis. That, too, unfortunately, is business as usual. And we're already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair -- that by some twisted logic it is more appropriate for the American people to bear the costs of the bailout, rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.
Ultimately, it is by taking responsibility -- on Wall Street, here in Washington, all the way to Main Street -- that we're going to move past this period of turmoil.
I know, I know, I can hear the protests rising already: Obama still isn't doing enough and Geithner and Summers are still out there messing things up. I'm with you. But going after the big banks with new taxes, and smacking them down with this kind of language is still a very good thing. So let's give credit where credit is due: if you never praise a politician even when they take a step in your direction, they won't have any incentive to do so.
There are two things I find especially encouraging about this:
The first is that when Bob Rubin worked in the Clinton White House, he had a huge impact not only on the policy but also on the rhetoric. He was always urging the President away from any hint of populist rhetoric, saying it would scare or anger the business community. And Clinton usually gave in. I don't know how much Geithner or Summers care about the rhetoric, but I would guess they have given similar counsel, and in this case they also lost big. Don't discount the importance of political rhetoric from a President, either. It makes it harder to back away policy-wise in the future, and it emboldens those White House staffers who do want to do the right thing (who are always in battle with the Geithner/Summers team who doesn't) in playing hardball with Wall Street.
The second reason this is good is that it means some decision has been made, at least for now, that the White House is willing to forgo some of the money that can be raised from Wall Street. In my experience, the biggest single reason for Democrats avoiding populist rhetoric is worrying about the political donations you would lose as a result. Giving speeches like that is going to mean several million dollars less in Wall Street money for Democratic Party committees and candidates, and I think that is well worth the price. As I have been writing, Democrats cannot win in the 2010 elections without going after the big banks, and that means they will have to give up a lot of money. The tradeoff is certainly worth it in terms of extra votes they will get.
As I wrote yesterday, there is far more to be done, including breaking up the banks, prosecuting bank executives, a tax on financial transactions. One speech doesn't change the overall direction of an administration. But yesterday's announcement- the speech and the tax- was a big step in the right direction.
If you held a contest to pick the worst thing a politician could be called at this moment, my nominee would be Wall Street Liberal.
That phrase, which seems so bizarre to those of us on the liberal side of the aisle, is unfortunately on target in a couple of different ways: first, in terms of how regular voters are perceiving Obama, and second, on how many Democratic leaders actually think.
The great tragedy of the economic policies pursued by Obama since his election is that many, many voters perceive them both as big spending liberalism and pro-Wall Street at the same time. To a lot of voters, the bailouts of the big banks and the economic stimulus package are seen as all the same thing: because they happened so close together and both cost ungodly amounts of money, the two are tied together in the perception of these voters. And this much is fair to say: Obama has simultaneously promoted (a) a bigger government role in the economy with the stimulus, health care reform, and cap and trade with (b) bailouts for the big banks without trying to break them up or push them harder on many important things. This combination has made it all too easy for working-class voters to see him as a Wall Street liberal.
The best way to dislodge that impression from voters' minds happens to coincide with the right thing to do policy-wise: be far more aggressive in taking on the big banks. Continuing to push for a strong financial products consumer safety commission and the tax Obama just proposed on the big banks are good places to start, but they should be doing so much more:
A financial transaction tax should be imposed on every trade made by the brokers and traders on Wall Street. Europe is eager to put this in place, and many economists think this would be a good thing as it would not only raise a lot of money but would discourage reckless trading. Such a tax should be structured so that the more trades a company does, the more they are taxed, which could lead to some of the Wall Street behemoths being broken up.
The Department of Justice anti-trust division should be far more aggressive into looking into breaking up the big banks through anti-trust law.
Measures to reinstitute Glass-Steagall, or to use Bernie Sanders' simple fomula of breaking up companies over a certain threshold of financial concentration should be vigorously supported by this administration.
Speaking of the Department of Justice, they and the SEC and other regulatory agencies should be far more aggressive about prosecuting control fraud, which is fraud committed by the management of these banks through deceit. When the savings and loan scandals arrived in the 1980s, control fraud prosecutors landed over 1,000 savings and loans executives in jail. With the kind of financial shenanigans that caused this economic damage, the fact that the Administration has had virtually no prosecutors is a scandal.
There are ways for Obama to shed the Wall Street liberal label, and the above suggestions are just a few places to start. The problem, though, is that too many of Obama's advisors are just the kind of Wall Street liberals that deserve the title. Tim Geithner, Larry Summers, and most of Obama's economic team, like Bob Rubin under whom they worked in the Clinton administration, are liberals in one way: they believe (to some extent) in Keynesian economics to stimulate the economy; they think poor people's programs like Head Start and food stamps should be expanded; they don't object to, expanding health insurance coverage, raisng the minimum wage, the Family and Medical Leave Act, equal pay for equal work, or affirmative action. But anything that really takes Wall Street or corporate interests head-on is verboten.
This political philosophy will doom Democrats if it is not challenged. Voters are angry with Wall Street, angry with insurance companies, outraged that wealthy special interests seem to have a stranglehold on our government. With unemployment stuck at 10%, voters are in a foul mood, and are looking to blame somebody. My view is that in November 2010 and November 2012, the choice voters will have is to blame the party in power, or to blame the true culprits of the economic maladies which have befallen us: Wall Street. I would rather have them blame Wall Street, and not associate Democrats with the financial moguls that work there.
(Bumped for those of you in the Denver area, hope to see you this weekend. - promoted by Mike Lux)
Three things I like doing are quoting the Bible, talking about economics, and hanging out in Colorado, one of my favorite states. I get to do all three on the Sunday, January 24th at an event hosted by the Interfaith Alliance of Colorado. They are hosting an event entitled Taxes: An Investment in the Common Good. I'm on the program along with a Republican state rep, a school board member, a leader of the CO Bankers Association, and the President of a school of theology, so it should be quite an eclectic conversation. Anyone in Denver that weekend should come by. I promise to keep things lively.
Taxes: An Investment in the Common Good
A Public Forum Presented by
The Interfaith Alliance of Colorado
Sunday, January 24, 2010
2:00 - 5:00 PM
Cameron United Methodist Church
1600 S. Pearl St.
Denver, CO 80210
The forum will address Colorado's budget crisis and consider potential solutions to build a more sustainable, financially-healthy state that meets the needs of all Coloradans.
Panelists will include:
Don Childears
President, Colorado Bankers Association
Moderator: Carol Hedges
Senior Policy Analyst,
Colorado Fiscal Policy Institute
Michael Lux
Author, The Progressive Revolution
Rep. Ellen Roberts (R)
House District 59, Durango
Rev. Dr. David Trickett
President, Iliff School of Theology
Sue Windels
Board Member, Great Education Colorado
The forum is free and open to the public. Light refreshments and conversation will follow a question period.
I was planning to write a piece on banking issues today, but with three surprise retirements of Democratic incumbents in statewide positions yesterday (Dorgan and Dodd in the Senate, Gov. Ritter in Colorado) I have to comment on that situation. Fortunately, the two things are pretty closely linked.
Look, I have no doubt that personal considerations entered into all three of these decisions, and we don't want to overdraw our conclusions here. Byron Dorgan and Chris Dodd have both been in the Senate a very long time, and are both getting to the age where retirement is an understandable option. There are all kinds of rumors about Ritter's more surprising news, but again there are likely very personal reasons for him wanting to not run for re-election.
Having said all that, though, there is very little doubt that a tough-looking 2010 for Democrats weighed into the decision-making here. Base enthusiasm is lagging, Obama's approval rating is sinking, unemployment isn't going down: political professionals are looking at all these factors and getting very nervous. Anyone who was considering retiring already has to be thinking that the 2010 election trends make the decision to get out while the getting is good a pretty smart one.
I'm not going to sugarcoat anything here: anytime you have a bunch of incumbents retiring, it's not a good sign for what people think of the party's chances in the fall. However, there is one really important silver lining: in a year when voters are in this foul a mood, non-incumbents and anti-establishment candidates have some significant advantages over incumbents. In 2006 and 2008, in many of the big primary races the anti-establishment insurgent won, including that 2008 Presidential race you might remember.
Which brings me to the banking issue. The biggest single mistake President Obama has made politically and economically was the one he made in the very earliest days of the transition, which was to signal he wasn't going to take on the big banks aggressively. Swing voters, Democratic base voters, and Democratic activists are all united on one key point: they hate the big banks on Wall Street, and are angry that politicians are not being far tougher on them. In order to survive and win elections in 2010, Democrats are going to have to separate themselves from Bob Rubin-style economic policies and be far more aggressive and populist in their campaigns. Doing that as a non-incumbent will be easier in many cases than trying to do it as an incumbent.
The movement against the banks is building and growing. On May 6th of last year, I wrote a piece about what would need to happen to take on the power of the big banks. I listed six ideas, the first of which- creating a new coalition to take on financial reform issues- happened in the weeks after my article with the formation of Americans for Financial Reform. The middle four ideas are all being worked on to one degree or another- progressives coming up with an economic Plan B to the one we care on now, working to get public financing of campaigns passed, encouraging investigative journalism in the banking arena, progressives forming more alliances with independent community bankers. The sixth idea, starting a nationwide movement to switch over money from the big banks and credit unions, got a huge burst of momentum with the launch of the Move Your Money campaign. Inspired by a dinner one night with Arianna Huffington and a group of top flight political and media strategists (and, no doubt, by the one line in my seven-month-old post- I'm sure everyone there has great memories about my blog posts), a new campaign was launched to encourage people to move their money from the too-big-to-fail banks which wrecked our economy into smaller independent community banks. Read about it here, and join the action.
Bailing out and coddling the big banks is the number one reason that swing voters, Democratic base votes, and Democratic activists have gotten angry at the establishment and less inclined to support Obama. If Democratic candidates on the ballot this year take up the anti-big bank banner, they will reap big benefits, because the anti-Wall Street movement is gaining momentum. And if the rest of us start challenging Wall Street's power in other ways, we might really begin to change America in a serious way.
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