The progressive movement is at a challenging but fascinating time in our country's history. Even when the Democrats had a newly elected President who ran on a platform of big change, 60 votes in the Senate, a big margin of control in the House and the most progressive Speaker in history, we still had trouble getting big changes passed. We accomplished some important things, but not nearly as much or as progressively as we had hoped. Now, with a Republican House, only 53 Democratic senators, and a President who has signaled he wants to move more to the center, progressives have even less power than before.
There's one other factor that even this old-school, lefty populist needs to acknowledge at this moment in our political history: While most voters remain very angry at Wall Street, health insurance companies, big businesses that keep outsourcing jobs, and other corporate special interests, they also are very angry with a government that seems pretty dysfunctional. Swing voters in particular are generally tired of traditional political arguments, and just want political leaders who are going to be very pragmatic about actually delivering jobs and other tangible economic benefits. In this environment, progressives should not shy away from making populist arguments, but need to temper that populism with a pragmatic message about helping small businesses and manufacturers create more jobs.
Things can change rapidly in politics (just ask Hosni Mubarak), but in the foreseeable future, if we want to make any progress in the legislative or regulatory arena, progressives will need to frame their ideas in new ways and look for alliances that go beyond the usual suspects. I have even given a name to this strategy: entrepreneurial populism. The idea is to continue to take on Wall Street and the other big corporate interests that have sweetheart deals with the government, but to do it on behalf of middle-class homeowners and entrepreneurial small businesses.
Elizabeth Warren likes to tell the story about how when she first met with Barney Frank about the financial reform issue, he told her, in no uncertain terms, that the banks would win on the issue of establishing a Consumer Financial Protection Bureau and that she had no hope of getting the CFPB as part of the law. She tells the story not to embarrass Barney -- who was very supportive of Elizabeth in her fight to get the CFPB in place -- but to rally people who feel like there is no hope of beating the banks on anything. However, the story does, in fact, carry a lesson about Barney: he is intimately familiar with what the big banks want and don't want, and is not inclined to take on the bankers unless people as strong as Elizabeth refuse to take no for an answer.
The latest example is that Barney has jumped on board with the big banks and their credit card company subsidiaries on the debit card "swipe fee" issue. He has been saying he would be happy to work with Republicans in Congress to roll back the related new Federal Reserve regulations.
Now, I love Barney Frank, and he is a good guy on most issues, but this is pure craziness. The basic question is: Politically or policywise, why would you want to help the big banks in opposition to Main Street businesses? On one side, you have six big banks that already own assets equal to 64 percent of our country's GDP. They own 80 percent of the debit card market, and the swipe fees they charge, by their own admission, are almost pure profit. On the other side you have retail stores, restaurants, hairdressers, cabbies - representatives of Main Street businesses who have lacked the ability to bargain with these behemoth credit card companies. Is there any question policywise as to who it would be better to help? What about politically -- which side do you think is more popular with the American public?
Here's the other thing that is nuts about what Frank is doing: Why would you want to give the Republicans the political cover and opportunity to re-open the financial reform bill just passed? Does Barney really think Republicans would stop with debit cards if Congress were to start debating financial reform again? Thinking about all the changes banking lobbyists would make in John Boehner's conference room if the financial reform legislation passed last year were re-opened is enough to make my head spin. (A little "tweaking" of derivatives regulations here, a little amendment or two to the CFPB there... Oh, and don't forget the legal bailout we need so that we can foreclose on people faster.) I can see the whole bloody scenario pass in front of my eyes, with Republicans just telling the media, "Well, even Barney Frank said we should fix a few of these things."
I think that Democratic members of Congress who have been in Washington a long time sometimes forget what is really at stake in issues like this. They have old friends -- former staffers in many cases -- who have gone on to work for the banks talking to them at fundraisers about little tweaks they want to make on this issue or that issue, and they forget what matters to the American public. Members of Congress -- even the good ones sometimes -- get to think it is just a battle between lobbyists, and they forget what really matters. I got involved in this swipe fee issue, helping retailers and consumer groups that care about the issue, because it is a $15 billion battle in which the money either will go straight into the pockets of the big banks or back into the Main Street economy. It is easy for me to pick sides, and it should be easy for Barney Frank as well.
It is no secret if you have been reading my stuff for a while that I am pretty focused on the biggest banks as being the heart of much of our economic problem. When six companies have assets equaling 64 percent of GDP, that fundamentally destroys normal market functioning and threatens our entire democracy, so I have gotten pretty focused on doing everything in my power to lessen the stranglehold these behemoths have on every aspect of our economy. One modest but important issue I have been working on with a coalition of the retail industry and consumer groups is the debit card swipe fee issue.
The Federal Reserve's proposal to reduce credit and debit card "swipe fees" would keep banks from taking advantage of small businesses and consumers. It's only natural that banks, along with the credit union allies they have managed to sweet talk into their coalition, are grasping at straws in their fight to hang on to as much of our money as possible.
A bipartisan amendment included in the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the Fed to establish regulations to ensure debit interchange fees are "reasonable and proportional" to the actual cost of processing a debit card transaction. The Durbin amendment, as you may remember if you followed this issue in the financial reform fight, was crafted to help rein in the excessive fees Visa and MasterCard charge businesses each time customers use a credit or debit card. The Fed concluded that swipe fees, which currently cost businesses about 1 to 2 percent of each transaction, should be capped at 12 cents per transaction. Credit unions and banks with less than $10 billion in assets would be exempt from this new rule.
Critics of the long overdue interchange fee cap -- including Bill Cheney of the Credit Union National Association -- have claimed that implementing such a policy would stifle debit card providers by forcing them to pay more for their customers' transactions. (The big banks get the vast majority of the benefit from swipe fees, but they prefer to use willing front men like CUNA to make their case for them, since no one is too fond of big bankers right now.) This is the same baseless argument credit union lobbyists were making in June 2010 when the Durbin amendment was being debated. Reuters analyst Felix Salmon wrote in June about his exchange with CUNA Chairman Harriet May:
"The fact is that the banks have worked out, over the past five years or so, that raising interchange fees is a great way of making money, more or less invisibly. As financial regulatory reform curtails their ability to make money in other ways, they're going to look to interchange fees as a method of making up for revenue lost elsewhere - unless the Durbin amendment, or something like it, passes.
"May's stated reason for believing that U.S. interchange fees -- which are already the highest in the world -- won't continue to rise indefinitely is that 'merchants can work together with the card associations and we can work through it'. But the fact is that this is a game where the card associations very much have the upper hand: merchants aren't allowed to group together in a negotiating bloc, and most of the time just have take-it-or-leave-it offers from the Visa/Mastercard duopoly."
Credit unions and small banks, on the other hand, have wrangled an excellent deal with Visa, because the credit card industry (wholly owned by the big bank companies) needed the political cover of the more popular credit union industry. On Jan. 6, the credit card company announced it would support a two-tier debit interchange system, allowing credit unions and banks with less than $10 billion in assets to continue charging high interchange fees. MasterCard is still evaluating the two-tier system, but will likely implement it to remain in competition with Visa.
According to the Fed, debit interchange fees raked in $16.2 billion for banks in 2009. Also, CUNA has already admitted in an official fact sheet that these interchange fees exceed the cost of providing debit services. Even the estimated losses from new consumer-protection regulation in the Dodd-Frank law are more than $10 billion less than that swipe fee bounty.
Despite this, charges to businesses and consumers have never gone down. As processing costs for credit and debit card transactions have decreased, Visa and MasterCard have continued to raise swipe fees. Through all of this, banks and credit card companies have been hacking into the tight profit margins of small businesses. It's absurd to think that halting the Fed's swipe fee cap will suddenly result in lower rates for consumers.
It's also unreasonable to expect banks to place their own limitations on how much than can extort from the American public. Just recently, credit card companies have blamed fee hikes on the 2008 financial crisis, the Credit CARD Act of 2009, and overdraft regulation. The threat of raised fees and eliminated free checking will always exist, and banks are always happy to blame their actions on any financial event or gust of wind. There is no reason to allow financial institutions to use the Durbin amendment as just another excuse to burglarize exorbitant amounts from small businesses and consumers.
Everything I am reading these days on financial issues points to some serious reckoning soon to come, especially because of - as the folks at Third Way are calling it - foreclosure-gate. The Massachusetts Supreme Court ruling in the Ibanez case, along with a growing body of cases where the banks and/or their servicers have been ruled against in foreclosure cases, and even the banks' lawyers are being castigated in court by judges for bringing in made-up paperwork, is causing a growing sense of panic among the biggest banks that hold the most mortgages. Spokespeople for the banks are talking bravely, trying to dismiss the situation as some minor paperwork errors, but everyone who has been paying attention to the situation fears that there are really big consequences afoot. The plain fact is that over the last decade, in their overwhelming rush to make bigger and bigger profits from trading in the bubble-driven real estate securities market, the banks ran roughshod over the home mortgage and title system that had served this country (and England and many others) quite well for hundreds of years - and they made a serious mess of it. Because of the way these mortgages have been sliced and diced and sold into complicated securities, homeowners, judges, and the banks themselves are having quite a bit of trouble figuring out who actually owns the note in more cases than is easy to believe. The "paperwork" - figuring out who owns the note - is not just a little messed up, it is a disaster area.
This wouldn't be as big a deal except that the combination of the housing bubble itself plus the worst recession since the Great Depression (caused in great part by that bubble) has created a foreclosure crisis of gargantuan proportions. Millions of homeowners are in foreclosure proceedings, millions more underwater because of the collapse of housing prices. And because the banks have cooked their books, not wanting all these toxic assets to wreak havoc with their official valuation and their stock prices, they have no interest in helping homeowners stay in their homes by writing down these mortgages to current market levels. So banks are moving to foreclose these millions of homes, but they can't prove to judges that they even own the notes that would allow them to foreclose. Thus you have robo-signers, falsified affidavits, and all kinds of strange things being presented to judges in courts. The judges who are not bought and paid for by the banks are raising big red flags about all this, and thus you have cases like Ibanez going against the banks.
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.
One of the most discouraging things about the last two years was seeing swing voters in focus groups, when asked what President Obama's economic strategy was, repeat different versions of "Well, I know he said we needed to save the banks. Beyond that, I'm not sure." When Obama in his first State of the Union gave a vigorous defense of bailing out the banks, saying he knew it about as popular as a root canal, and saying "I get it", it was very memorable to voters. But when his predictions about what would happen when the banks were stabilized- they would start making loans to businesses, and businesses would start hiring- didn't happen, and instead the banks gave themselves record breaking bonuses, voters turned on Obama fast. In exit polls on Nov. 2nd, when asked who was most to blame for the bad economy, voters by a wide margin said Wall St was most to blame, and the voters who said that went Republican by a 14 point margin.
Obviously, saving the banks hasn't been the President's only economic strategy. The stimulus bill, while too small, was an important job creator/saver. Saving the American auto industry was an incredibly important thing to do. Health care reform was in part a long term economic strategy. The infrastructure bank idea is a great potential job creator. Extending unemployment insurance helps keep money in the economy. And all the tax cutting going on is clearly meant to have some stimulative effect, although how much is highly debatable.
However, there have certainly been times where Secretary Geithner, who has been the main driver of the economic strategy, seems to think and act as if helping the big banks and helping the economy amount to the same thing. The tepid reaction to the foreclosure crisis has sure felt that way- apparently we can't freeze foreclosures or do much to help homeowners because it might "endanger" the banks. In fact, I would argue the exact opposite: that our number one economic strategy right now should be to shift money from the big banks to the real economy, to Main Street businesses and workers and consumers. The big banks are hoarding extraordinary amounts of money, and they are clearly not investing it in job creating businesses. They are speculating with it, they are trading with it, they are investing in complicated financial instruments that do nothing to create jobs- in fact, they are sucking capital out of the real economy that might actually create jobs. These massive financial conglomerates have way too much concentrated wealth and market power, and that is weakening the rest of the economy.
This is one reason why, as I wrote a couple of times last week, it is so important to write down the mortgages of homeowners who are underwater. Taking that money out of the bankers' hands and putting it in the hands of the hard pressed middle class would do more to stimulate the economy than any other thing the President could do right now. This is also why the Federal Reserve's new proposed rule, out last week, on swipe fees is so good. It would generally limit swipe fees to 12 cents per transaction. Right now the average is 44 cents, and with most small businesses it's quite a bit higher. If this rule is upheld, this is money that will go straight from the big banks' profit margins into the main street economy- all told probably a $15 billion boost going back to retailers, restaurant owners, taxi cab drivers, and hopefully consumers. $15 billion going from Wall Street, speculative economy into the real economy is a nice lift right now. This is why I have been working with retail business leaders and consumer groups to support this new regulation.
Unfortunately, not all Democrats see it this way. Tom Carper and Mark Warner tried to head off the amendment that made this regulation happen in the Senate, and have been lobbying the Federal Reserve against a strong regulation on the subject ever since they lost the legislative fight. And Barney Frank, who is a great liberal on social issues but spends way too much time with bank lobbyists, was whining on Friday how unfair the proposed rule was to the poor bankers.
Barney, you got this one wrong. Democrats should not be looking out for the bankers, we should be looking for every single opportunity we can to drain the Wall St swamp. The big banks are hoarding money. They have way too much market power, and when their profits expand, they put that money into the speculative economy rather than the real economy that manufactures goods, sells products and services, and creates jobs. When we take a dollar away from them, and put it into the real economy, there is actually a multiplier effect as people on Main Street spend or invest the money in real products. When mortgages get written down, it helps the real economy. When swipe fees on credit or debit card transactions get lessened, it helps the real economy. If we instituted a transactions tax on every trade made on Wall St, and put that money into a jobs program, that would help the real economy.
The big banks are hoarding our money. Our best economic program right now is to shift money from the banks, and put it into the hands of consumers who might actually buy products and businesses who might actually hire more workers.
I have that Han-Solo-encased-in-carbonite feeling this morning. The powers that be in modern America- the insurance industry, big oil and coal companies, most of all the big Wall Street banks that control 60% of our country's wealth- had gotten used to having everything go exactly their way in Washington. They had come to expect that they would write the laws, and then get to rewrite them if something happened to make the original law inoperative. They were used to politicians say "yes, sir" and "what hoop do you want me to jump through now, sir." And when a new group of politicians came to town that wouldn't say yes to every single demand, that stood up to them some of the time, they hit back hard- very hard. And they won this round.
Our elections were awash in big business money this year, and it went overwhelmingly to the Republicans. We don't even know for sure which industries gave the most to the Republican slush fund that the Chamber of Commerce has become, or to the new ones set up by folks like Karl Rove, because they don't have to disclose their donors. But we do that these corporate front groups played almost exclusively for the Republicans, and that the direct contributions to candidates and party committees shifted dramatically toward them as well. Given the Democratic control of both Houses and the White House, this kind of giving shift is unheard of, since usually corporations give to the party in power. But because Obama, Speaker Pelosi, and Congressional Democrats had stood up to insurers on pre-existing conditions, had stood up to the energy giants on pushing for climate change, and had stood up to Wall Street on the new Consumer Financial Protection Bureau and some other new regulations, these corporate leaders were pissed and looking for blood. The fact that the Democrats had unfortunately made major concessions to these corporate interests on things like the public option and breaking up the big banks didn't mollify them at all: they were still loaded for bear and ready to pull the trigger.
So they funded the tea party uprising, and they funded Republican candidates, and they funded secretive groups to run attack ads. It worked, for two simple reasons. The first is that middle-class swing voters are mad at everyone in Washington. They think both parties have failed them, that neither party cares about them, and they are happy to send a message to whichever party is in power- as they have three elections in a row- that they will keep voting out those in charge until something changes to make them think that government works again. The second is that the voters most hurt by this terrible economic crisis the Bush presidency handed to us are precisely the voters most open to voting for Democrats: young people, working class women, blacks, Hispanics. Getting hammered as hard as they have been economically put them in no mood to come out to vote.
Democrats' fate was probably sealed when the same Wall Street bankers who wrecked the economy and who we had to bail out were still giving themselves hundreds of millions in bonuses while the rest of the economy continued to tank. It was the ultimate insult, and it fed the idea that our system is only working for the fat cats but has stopped working for ordinary folks. As long as the economy stayed as bad it did, voters were not going to be convinced that Obama had brought the change he had promised.
What now? Democrats have a choice. They can cower in fear at all the corporate money that will be thrown against them, and backpedal on everything that would actually help working families get out of the bind that they are in. Or they can be determined fighters for jobs, a stronger economy, and cleaning up special interest corruption in Washington. Having rejected both parties so thoroughly in the last 3 elections, Americans will be looking in 2012 to figure out who will be truly fighting for them in the years to come.
The first is that Democrats are not Republicans. The modern Republican has become a bizarre and twisted hybrid of Ayn "selfishness is a virtue" Rand economic libertarians and Pat Robertson-style pseudo-Christian conservatives. This new hybrid has taken the worst of each of these two kinds of extremists, and made it more dogmatic and more bizarre in its synthesis. Anti-intellectualism has morphed into being opposed to reality-based policy. Morality has become on what people do in their bedrooms, but never about them stealing money from the public or lying about public policy. Support for the free market has become opposition to any kind of regulation or anti-trust laws or civil rights laws. The conservatism of Ronald Reagan and George H. W. Bush became the cronyism and twisted extremism of George W. Bush, Dick Cheney, Sarah Palin and Glenn Beck.
The other reason I am a Democrat is that a majority of Democrats are reasonably progressive folks- about 75% of House Democrats, about 60% of Senate Democrats. That doesn't give us enough to pass strong progressive legislation, but I'd certainly rather be with a party that's 60-75% pretty good as opposed to the Republican alternative, which is 95-100% pretty awful. Having said all that, which is extremely obvious to any OpenLefters, let me get to my main point: the Democrats in power make me crazier than any woman the Fine Young Cannibals may have been singing about. Both the policy and the politics of this banking issue could not be clearer: take on the power of the big banks and rein them in. It is as simple as it could be. But Chris Dodd is playing footsie with the bankers, Tom Carper is shilling for them on a full-time basis, and the lobbyists are working their magic. The message is getting muddled, the base is getting pissed, and the clear political edge Democrats have had on this issue is being lost.
The last couple of days have been reformers' worst days since this issue first was brought to the floor. The mess yesterday on the cloture vote was a classic episode. Look, I am very sympathetic to Harry Reid. The Senate rules are a mess, his caucus is very divided between progressives who want to do something and the full-time shills for the Wall Street lobby, and there really is other pressing business the Senate needs to take up: a supplemental appropriations bill and the bill to extend COBRA and unemployment insurance need to be taken up sooner rather than later. And there is legitimate danger here: the longer the bank lobby has to work on members out of the public eye, the more dangerous our odds get for good legislation. But the Democratic Senators like Carper who are working with lobbyists and Republicans to mess up this bill are playing with fire, and they should be exposed and excoriated. The Republicans who won't even let a manger's amendment come to the floor without objection should be attacked and taken on. If that means a little more delay while the defenders of the big banks marinate in the sun for a few more days and good amendments are pushed forward, it's worth the extra time.
Democrats need to keep being aggressive on this issue, and not let the Republican/banker delay tactics win the day.
I was in NYC yesterday for the big march on Wall Street, and it was really great, one of the most fun marches I have been at in many years. Big, boisterous crowd; great speeches; lots of good chants. It's always great to have a gorgeous spring day to do a march on (I guess God hates the Wall Street bankers, too). And it was wonderful to see so many different organizations- labor unions and community organizations from all around the region- represented as well.
This march is part of a month of big actions going after Wall Street. In San Francisco, in Kansas City, in North Carolina, this week was a series of big marches and actions. On the weekend of May 15-17, there will be some big, fun, creative demonstrations targeting K Street (since they "own the place", as Dick Durbin put it).
These demonstrations aren't just random marches. There is a movement growing to take this country's democracy and economy back from these big banks. It's not just the legislative fight in Washington, DC. It's the Move Your Money campaign. It's the LA City Council pushing back against the big banks. It's students on college campuses starting to talk about a divestment campaign. It's activists discussing state and local ballot initiatives targeting the big banks. It's investigative journalists at The Huffington Post and The Nation and Rolling Stone and other blogs and media outlets digging deeper into the sleazy deals these Wall Street guys have been doing.
Something is building out there, and the big bankers and their political cronies had better keep looking over their shoulders. They still have their power and their money, but when people in this country rise up in anger, power and money can still be defeated.
It is irritating but not especially surprising when Goldman Sachs CEO Lloyd Blankfein says things like "they are doing God's work", or claiming that attacking Goldman is "hurting America." I'm sure people like him really believe they are good people just doing their best to help the world economy, in the same way Ayn Rand really believed that selfishness is a virtue and the Gordon Gecko character in Wall Street really believed that greed was good.
What is disturbing is when Obama administration officials like Larry Summers appear to believe it too - or at least believe that these massive mega-banks (the top six controlling assets equal to 63% of our nation's GDP) are needed to keep our economy going. I have been thinking about the Summers quote (given to PBS' Jeffrey Brown) all weekend long:
Brown: The too big to fail issue, why not go further? Why not just limit the size of banks?
Summers: Jeff, that was the approach America took to banking before the depression. That was the approach America took to lending in the thrift sector, before we had the S&L crisis. Most observers who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies, and hurt the competitiveness of the United States. But that's not the important issue, they believe that it would actually make us less stable. Because the individual banks would be less diversified, and therefore at greater risk of failing because they wouldn't have profits in one area to turn to when a different area got in trouble. And most observers believe that dealing with the simultaneous failure of many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.
It is ironic that this quote is so appalling given that the Obama administration has been showing more steel on taking on Wall Street in some ways, and has been effectively fighting back against Republican efforts to completely neuter the bill in terms of at least some issues. I have also been pleased at Obama's political positioning on the issue, finally showing some populist message talking points on the issue. The Summers quote is awful, though - quite possibly the worst quote I have ever seen from this administration on the banking issue, and that's saying something because there have been lots of disappointing ones. Summers historical references are inaccurate and completely misleading: to imply the reason for the Great Depression and the 1980s S&L fraud crisis were due to the companies being too small is laughable and absurd. In fact, the Great Depression and the S&L crisis, as well as the 2008 financial meltdown, were all caused by the same thing: too little oversight over financial institutions that were too economically and politically powerful.
Summers' further argument is that smaller, less diversified banks would be at greater risk of failure ignores 60 years of successful banking regulation under Glass-Steagall and the other New Deal economic reforms. Even worse, he is essentially arguing that our economy needs massive concentrations of wealth and size in a few big banks in order to prosper, which takes the argument for oligarchy to a logical end point that is as right wing as anything I have ever heard Mitch McConnell argue.
What Summers, Dodd, and apparently the President continue to not get is that massive concentrations of wealth and power - both economic and political - do equally massive amounts of damage over time to both a democracy and to the markets that make our economy function. We can only make markets be markets, as the Roosevelt Institute put it in their outstanding report on financial policy, if the big six banks don't have the ability inherent in their size to distort and dominate the economic system. Simon Johnson's experience as Chief Economist at the IMF taught him this very well: when countries are dominated by a financial oligarchy, their markets become corrupted and their economies can't recover until you break up the oligarchy.
As I wrote the other day, there are some solid policy proposals in both the House and Senate bills. Combining the best of these bills (and getting rid of the crap inserted by industry lobbyists) will give you a decent step forward at rebuilding the regulatory framework shredded over the last two decades. But until you pass legislation similar to the Brown-Kaufman bill to actually break up the banks, we aren't going to solve the problems we face in the financial sector due to too much political and economic power by these mega-banks.
Simon Johnson and I were talking this morning about his appearance on Rachel Maddow's show last night (I wrote about here this morning), and about the sleazeball Wall Street front group that funded this ad targeting Harry Reid, Claire McCaskill, Mark Warner and Jim Webb. That conversation led to an idea, and then I got the good folks at Americans United for Change involved: let's do a video calling these fraudulent bankers out. Simon volunteered that he was doing a big speech at Harvard this afternoon, and if AUFC got the ad done in time, he would show it as part of his presentation. We got it done in time, Simon used it in his speech, and I think it came out pretty good. Check it out:
The stakes in the war over financial reform are deadly serious, but I also have to admit it is fun to watch. It has dawned on politicians of both parties that voters' anger at Wall Street is not fading anytime soon, and that the usual insider establishment political tactics aren't working exactly the way they usually do. I have heard a peep lately whining about class warfare because, well, everyone is doing it whether they mean it or not. Republicans and certain Democrats who have taken a lot of money from Wall Street are trying to sound populist, but they are getting nervous that they may have to face some tough decisions on votes around certain amendments. It happened in the House when Alan Grayson forced a vote on opening up the Federal Reserve to an audit, and the banking lobbyists that control the Federal Reserve weren't able to defeat the amendment in a public vote on the floor, and it may well happen again in the Senate on some amendments.
The Republicans have put themselves in a tricky situation by using the Frank Luntz talking points about how the bill encourages more Too Big To Fail bailouts. In the short run, it's a good line, but now when they have to vote on specific amendments being offered to break up the big banks and bring them down to size, thus actually doing something real about the Too Big To Fail issue, they have put themselves in a very bad place. One amendment that will make them squirm for sure is the one just introduced by Sherrod Brown and Ted Kaufman. They call it the Safe Banking Act of 2010. It puts hard leverage and size caps financial institutions, limiting total assets to 3% of GDP for any financial company, and only 2% for banks. Given that the six biggest banks have holdings equal to over 60% of GDP, this bill would force the mega-banks to break themselves up. The bill also puts a hard cap of 6% on banks' ability to leverage loans, making the ratio about 16-1 rather than the 50-1 or worse leveraging going on in recent years.
In the meantime, the battle on the issue is being joined off the senate floor by both progressive reformers and fake grassroots groups on the side of the bank lobby. The Roosevelt Institute put together a letter signed by 36 economists and businesspeople calling for a much stronger bill, while the bankers are funding phony front groups with an anti-bank progressive populist message opposing any bill (their cynicism would be stunning if they weren't, well, the Wall Street bankers who destroyed the economy and then screamed for a bailout). Check out this unbelievably cheeky ad the bank front groups are running, and check out this superb segment on Rachel Maddow's show last night where she exposed their game and nailed the hypocrites to the wall. We are going to see a lot more of this faux populism paid for by bailed out bankers before the year is through, and progressives have to be quick to expose it. Thanks to Rachel for calling out their lies last night.
Goldman Sachs, JP Morgan Chase, and these other mega-banks committed fraud in banking, and now they are committing fraud in messaging. The banking wars are in full scale battle mode. If we can continue to expose their fraud, we can win this battle. Here's how I look at the House and Senate bills: they both have nuggets of gold, they both have some weak links, they both have some solid reasonable language, and neither goes far enough. But the big banks are overplaying a weak hand by this kind of blatant lying ad campaign, and we have a chance to isolate them even further in this debate. The potential for making the final bill better if the big banks get ostracized they way they deserve is huge. Forcing a vote on the Brown/Kaufman amendment is incredibly important. We might just win at least some of these battles in spite of the tens of millions being spent by the big boys on Wall Street.
You can feel it starting to grow, a momentum around doing something real to take on the big banks on Wall Street. People are taking to the streets. The SEC is finally beginning to do its job. Democratic politicians are getting more aggressive, and Republicans are getting more nervous. And as John Paul Jones might have put it, we have not yet begun to fight.
Let me stipulate right away that we haven't won anything yet, and that no matter what happens with the financial reform bill currently in front of Congress, this is going to be a very long, very hard fight. Companies as powerful as these Wall Street monsters will not be reined in anytime soon. Even if the best of the House bill gets combined with the best of the Senate bill (and that is a very big if), we won't be even close to where we need to be in terms of breaking up the big banks and bringing them to a reasonable size and a reasonable amount of power. We won't be done with Wall Street cozying up to and capturing regulators or politicians. We won't be done with Wall Street financiers trying to talk corrupt or naïve local officials into doing deals that are terrible for their communities. And even with the best intentions of legislators, we can expect that the price of passage for any bill will be loopholes inserted by Wall Street lobbyists that the clever lawyers and financiers on Wall Street will immediately start worming through.
This will be a long battle, not unlike health care reform in my view. Working to pass the best possible bill is just the first step for progressives, but we need to keep organizing to open up multiple fronts in a long-term battle. Just like with health care, we have to continue to expose Wall Street/insurance company abuses of power, push regulators to do the right things and expose them when they don't, fight battles at the state and local levels, and fight for stronger reforms year after year in Congress.
The story of the golden calf in Exodus is the perfect allegory for the conservative movement's rapturous worship of the free market uber alles. In their religious fervor, the free market is always good, and therefore corporations- no matter their size, power, or history of malfeasance- are always good too, and all government is always bad, all of the time, no matter what. They worship their idol of gold no matter what actually happens in the world around them, and nothing can change their religion. The economy can collapse in a terrible financial panic on their watch, and it still doesn't shake their faith in their golden idol. The big banks can commit fraud and create massive bubbles they know will pop and it still doesn't shake their faith- they still don't want financial regulations. Mine accidents can kill people, and they still don't want more safety inspectors. Toys with lead in them can kill toddlers, and they still don't want stronger consumer protections. The number of people killed from E Coli can rise to record levels, and they still don't want stronger food safety rules. Bridges can collapse, and the still don't want to raise taxes to pay to rebuild our infrastructure. 40,000 people a year can die from a lack of health insurance, millions can be denied coverage because of pre-existing conditions, Medicare can prove to be a popular and effective way of delivering health care to people, and they still don't want government involved in health care. Social Security can lift generations of senior citizens out of abject poverty, and they still want to get rid of it.
I could go on and on and on, because heaven knows conservatives do. But the government is always bad, corporations are always good, religion is going to cost them politically on the banking issue. Republicans are threatening to filibuster a bill to regulate the big banks and hedge funds that trashed our economy and that would be the greatest gift they could possibly give Democrats. Filibuster to your heart's content, Sen. McConnell. Let's have this debate go on and on and on. Let it drag on for weeks, or even better, months. I know you will keep repeating Frank Luntz's talking points word for word about how reining in the power of these mega-banks would lead to more bailouts, but voters are already seeing through the act. Even tea partiers, as anti-government as they are, hate the big banks, so go ahead and do your ritual incantations at your altar of gold, and we'll see how this debate plays out.
I'm happy to have this debate, I'm happy to have the debate over whether people want to repeal the ban against insurance companies not covering people with pre-existing conditions, and I'm happy to have the debate over whether to worship corporate America and the free market in all situations. Progressives understand that businesses, big and small, and entrepreneurs of every type, have a centrally valuable role in building our economy. But we also understand that government has a valuable role to play as well, and that sometimes corporations do abuse their power and hurt people. Conservatives want to leave each of us on our own to deal with corporate oligopolies without any help or support from our government. If we get hurt, so be it, because after all, as Glenn Beck puts it, in nature the lions will eat the weak. Progressives believe that power is corrupting- government power, yes, but also corporate power- and that government should be on the side of the little guy instead of on the side of the richest and most powerful in society.
So let's have this debate. Mitch McConnell wants to make the debate this week about big banks and whether government should play any role in holding them accountable and reining them in. I'm good to go on that debate- and I want to have it on all those other issues as well.
It's time to melt down the golden calf of the free market above all else. That golden calf has turned into golden bull, and it's time to stop worshipping it.
I am not an economist or a policy wonk, I am just an old political hack. But I do know one thing about banking policy that way too many economists and policy wonks don't seem to be aware of: anytime anyone gets too much power, good policy and smart regulation and sound economic theories and formulas all get trumped. That's what Paul Krugman and all the other smart economists who don't prioritize breaking up these big banks don't get: the big six banks have accumulated way too much market power and political power. Until and unless they are tamed, our democracy and our economy will be fundamentally damaged. With the power they have, these massive conglomerates will overwhelm markets, make outrageous financial gambles that they know they will never be punished for, buy off way too many politicians, court and convert and capture regulators. With them so powerful, our real economy will have trouble getting back on its feet, and even if it does, their manipulations could rapidly send it spiraling toward destruction again.
The pluralist political theory our Founding Fathers developed in crafting the American political system has its flaws, but it works pretty well if power is actually distributed widely as they theorized it would be. If a wide variety of regions and industries and constituencies and interest groups all have a fair amount of power, our system has the potential of achieving fair and sensible outcomes. If any one sector has way too much power and wealth compared to everyone else, we have a big problem, and these big banks have way, way, way too much. It corrupts our entire system and you don't have to be an economist to understand why that's bad.
So let's be clear: neither the House nor the Senate finance reform bills does nearly enough to berak up these banks or curb their power. But there is an interesting political dynamic going on here that is encouraging to me. Voters are so angry at Wall Street that the overwhelmingly outspent and undermanned reformers have a shot at making some decent gains. Congressional reformers like Alan Grayson in the House and Ted Kaufman in the Senate have been effective in pushing their ideas. The progressive coalition on the issue, Americans for Financial Reform, even though it's been outspent on a magnitude of about 200 to 1, has been remarkably effective in coordinating the lobbying and messaging of progressive groups. On the Republican side, Mitch McConnell made a serious mistake by going to a Wall Street fundraiser and then showing up on the Senate floor a couple of days later with an opposition statement echoing a Frank Luntz message memo on how to kill banking reform word for word. Meanwhile, the White House and Democratic leadership see this as a fight they want to have, and understand the politics is better for them if they push for a stronger rather than weaker bill.
There is no way to know yet how all of this will turn out. In 21st century America, one should never bet against big corporate interests with as much money as these bankers have. It is still quite possible that we could see the Senate bill get worse, and the conference committee could come out with a really disappointing bill. But there's also a chance that the politics of the issue and the reformers' work will pay off. If you actually got a bill coming out of conference committee that combined the best (or close to it) of the House bill with the best (or close to it) of the Senate bill, that would not be enough to break up these big banks and rein in their power, but it would be a pretty decent first step. Let's keep fighting for it.
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