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.
A real financial reform package must include an independent Consumer Financial Protection Agency, restoration of the Glass-Steagall Act, and strict new limits on the derivatives market.
To protect citizens from rapacious banks, we need a Consumer Financial Protection Agency to stop abusive mortgages and credit card terms, and other predatory financial schemes.
The Glass-Steagall Act, which separated commercial and investment banking, was enacted after the financial crash of 1929, but it was repealed in 1999. It is crucial to preventing the reckless investing by commercial banks that caused some of the greatest financial disasters in U.S. history.
Rampant speculation in the unregulated derivatives market was a major factor in the collapse of the global financial system. We need tough new restrictions on the derivatives market, or speculators will continue to imperil our country's economic stability for short-term profit.
Unemployment figures in the U.S. are staggering: The official rate stands at 10.2%, the highest in 26 years. A broader measure that includes people who are involuntarily working part-time or who have given up looking for work is at 17.5%. That's a full-blown economic emergency.
But, as Joshua Holland explains for AlterNet, President Barack Obama's response to the unemployment crisis has not matched the urgency of his response to the crisis on Wall Street. This isn't just unfair, it's bad economics.
"It's important to understand that the economic crisis in which we find ourselves is not just a function of a shaky financial system but of a crash in consumption that's come along with the evaporation of $14 trillion worth of the wealth of American families," Holland writes.
Widespread joblessness can be every bit as damaging to the economic structure as a financial crisis. When people are out of work, they buckle down on household expenses. When several million people cut back at the same time, the economic machine grinds to a halt. If people are not buying and selling stuff, the economy isn't working.
As Mary Kane explains for The Washington Independent, about 40% of families don't have enough money to cover expenses through a three-month stretch of unemployment-even if one member of the household is receiving unemployment benefits. Kane highlights a Brandeis University study that reveals the haggard state of the American household and the unfair distribution of wealth along racial lines. A full 66% of African-American and Latino families can't afford three months without work. At a time when 5.6 million workers have been jobless for at least six months, the study highlights just how dire finances have become for many households.
GRITtv's Laura Flanders discusses potential labor market remedies with economist Dean Baker and The Nation's John Nichols. Baker suggests a work-share arrangement, in which employers cut back on their workers' hours to allow more people to work. To prevent losses for households, the government would step in and pay for the shortfall in hours. Employers would have more part-time jobs available, but the government would make sure everyone was paid as if they were working full-time. Baker also endorses a public jobs program, which he says could be especially useful in cities like Detroit and Cleveland that have been hit particularly hard by the economic downturn.
Nichols highlights the political consequences of failing to fix the unemployment mess. Unemployment directly affects the lives of voters. If widespread joblessness persists through November 2010, Democrats will net huge Congressional losses. If Obama thinks it's hard to garner bipartisan support for his legislative priorities now, imagine a few dozen more Republican obstructionists.
It's not that Obama failed to respond to the unemployment crisis. He did. That's what the stimulus package was all about. Today's 10.2% unemployment is a catastrophe, but it would be more like 12% without the stimulus package. But, given the seriousness of the issue, Obama is not giving unemployment enough attention.
In fact, Obama's economic priorities are a mirror-image of his campaign promises, as Robert Scheer argues in both a column for TruthDig and an interview with Amy Goodman on Democracy Now! After talking tough about reining in recklessness on Wall Street and making the financial system more accountable, Obama has hired many of the very policy makers who pushed through the deregulatory agenda back in the 1990s. Top Obama administration officials like Larry Summers, Timothy Geithner, Gary Gensler and Neal Wolin helped make this mess in the first place.
"This is not a minor criticism," Scheer says. "I think the guy is betraying his own presidency."
Obama's timid efforts to rein in Wall Street and heal the ailing job market are setting the stage for a political disaster. If Obama and Congressional Democrats can't take strong action to fix the economy, they will find themselves with much narrower majorities next November. The economy, and the public institutions that support it, are supposed to work for everyone, not just the financial elite.
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More on Smith later this weekend. But for now, when it comes to who Obama--and all the rest of us--ought to be listening to, what Adam Smith said:
Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter.
Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public.
The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.
The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
Ya think?
p.s. My old friend Michael Lind did a much more elaborate mining of Smith for his common sense vs. the mythological image of him, here.
Last month, the U.S. unemployment rate surged to 9.8% as 260,000 people lost their jobs. Although the stock market and corporate profits appear to be recovering from last year's financial catastrophe, work is harder to find. President Barack Obama and Congress need to act now to get people working again and help soften epic unemployment in years to come.
Arianna Huffington's spot-on post yesterday about our country's broken financial system led with the sentence "The window for reform is closing." Which is word for word what Elizabeth Warren said to me in a conversation we had a few days ago. For all of the incredible power Goldman Sachs and JP Morgan Chase have, their Achilles heel is momentarily exposed because of the incredibly anger the American public justifiably has at them right now, and there is a window for at least some progress on this.
There is, ironically, another reason for urgency as well: as Arianna and I and others have noted in multiple articles in recent weeks, the big Wall St. traders are back to their old tricks, business as usual pure and simple. And those tricks are exactly what brought down our financial system over the last couple of years. With our economy in such fragile shape, their recklessness endangers us greatly. I've heard people say that if we don't fix the problem, we could be in danger of another financial meltdown 10 or 20 years from now, but that way understates the problem. With our economy as weak as it is, we could see another financial crisis next year, not 10 or 20 years from now.
The remarkable thing about all this is that the reforms the White House has proposed are so modest. The Consumer Financial Protection Agency is a commonsense, reasonable proposal that even the Republicans I know from the financial industry think makes perfect sense. For an old lefty populist like myself, I don't think it goes nearly far enough. But even this moderate policy is running into a violent assault by Goldman Sachs, JP Morgan Chase, and the American Bankers Association. If something this reasonable is opposed by these guys, it's a sign of how far out on the ledge these companies have gone in pursuit of making billions by unregulated gambling and chicanery.
The window is closing on financial reform, and the window is closing on health care reform. These are easily the biggest political tests of Obama's Presidency, those that will determine whether his Presidency is going to be a success. A President can come back politically from early failures on big issues, as Bill Clinton did, but if they lose the big early battles, they generally don't try to do anything big or ambitious again.
I wrote in my book The Progressive Revolution about how the pattern of American history is that every so often, the window to create big change comes open for a while, that the combination of crisis, leadership, and political movement make it possible to really make big positive changes in our country. That window is open right now, and President Obama, to his credit, is trying to keep it open by doing some big and important things. But if he gives up the fight and caves in to special interest lobbyists, or if Democrats in Congress don't back his play, or if the reform movements on these big issues can't deliver grassroots strength, then the window will slam shut. That would be an immense tragedy, because this country desperately needs some big changes, and because the Republican opposition to Obama is going down such a dark path.
This country has been very lucky for much of its history. But if we can't fight through the special interest muck and deliver big change soon, I fear that our luck could run out. The economic and political storm are gathering in the sky, and we can't afford to do nothing to change the dynamics.
Today at 12 PM EST, I'll be on GRITtv with Laura Flanders alongside Matt Taibbi of Rolling Stone (author of this great piece on Goldman Sachs), and my good friend Rob Johnson who used to be Chief Economist with the U.S. Senate Banking Committee. We'll be discussing financial regulation and the big banks. You can watch here.
A lot of news today on Goldman and the economy I've been reading (here, here, here, here and here).
There are many terrifying things in the world, but for my money the most terrifying news article I have read in weeks was the one in the New York Times today by Graham Bowley and Jenny Andersen headlined For Goldman, a Swift Return to Lofty Profits. Now it's obvious from my writing that I am not a fan of the big banking companies like Goldman Sachs, but why would it scare me so much that they had made big money this last quarter? Because of how they made it:
In essence, Goldman has managed to do again what it has always done so well: embrace risks that its rivals feared to take and, for the most part, manage those risks better than its rivals dreamed possible.
"It is, in many respects, business as usual at Goldman," said Roger Freeman, an analyst at Barclays Capital.
Traders said Goldman capitalized on the tumult in the credit markets to reap a fortune trading bonds. It profitably navigated a white-knuckled run in stock markets. It bought and sold volatile currencies, as well as commodities like oil. And it reaped lucrative fees from the high-margin business of underwriting stock offerings, which surged this year as other, more troubled financial institutions raced to raise capital.
So what Goldman is doing is the exact same kind of high-risk, "white-knuckled" trading that led us to the economic collapse of last fall. And because their bets are- so far- paying off, they will be giving out 18 billion dollars in salaries and bonuses to their traders; and because those bets are paying off, most of the other big Wall Street firms will be following them back into these speculative trading ventures.
Goldman is happy to take these risks because, hey look, they are still too big to fail. They know that even if their luck runs out, the Federal Reserve and American taxpayers will still be there to back them up.
This article should be raising five-alarm, all hands on deck red alerts all over Washington, DC. But I fear too much of the business media and DC politicians are once again not paying attention. The good news I can report is that high-level sources in the White House are paying a lot of attention to this, and are very troubled by it. I am very glad about that, but am still concerned that Treasury and most of Capitol Hill seem not to understand the consequences of Goldman and their ilk going back to the exact same dangerous games they had been up to before. It's like last fall's financial collapse never happened.
Now just so you think I'm all doom and gloom, since I started with the scariest article I had read, let me end on the funniest article I've read in weeks. Peter Wallison at the American Enterprise Institute wrote an article attacking the idea of a consumer financial protection agency, in other words, regulations on those big banks' trading practices, saying the idea of protecting consumers and our entire economy from high risk trades is "elitist". Wow, that is comedic chutzpah on a very high level: defending Goldman Sachs and their friends from more regulation, defending the most elite and irresponsible speculators in the world, by calling those of us who want some regulation of them elitist.
That kind of comedy gold is exactly what got us into the mess we are in today. Which I have to admit, isn't so funny after all.
More evidence that the big financial conglomerates on Wall Street are back to their old tricks: check out this article from Naked Capitalism. The money paragraphs are at the end of the post where they quote from the Lex Column:
Those clever investment bankers are at it again. It was surely only a matter of time before banks tried to apply their financial innovation skills to finding ways of profiting from the very crisis that misuse of those skills brought about...
On one level, such initiatives might be welcomed as industry practitioners try to find a market solution to their own problems, reducing the need for taxpayer-funded bail-outs. But there are dangers here. As studies of the origins of the financial crisis such as the UK's Turner Review have concluded, one of the keys to creating a sounder banking system is increasing the quantity and quality of bank capital - which also, of course, means lower returns. Since the new schemes being developed are designed to cut the capital cost of risky assets, they potentially go against the spirit of such proposals.
As I have written before, the big banks, having been resuscitated without having been restructured, are quickly going back to what caused the financial crisis in the first place. We need to fundamentally change the system: realign the incentives, regulate the hell out of trading, and break up these too-big-to-fail companies so that even if they make reckless gambles, the consequences don't come raining down on the rest of us.
Will the new regulations proposed by the Obama administration help? Yes, they add some additional protections, but they don't go nearly far enough. We need to fundamentally restructure this system.
President Barack Obama rolled out his plan to overhaul financial regulation last week. While much of the Obama plan relies on the same regulators and structures that led to the current meltdown, there is one key exception. The establishment of an independent Consumer Financial Protection Agency would give ordinary citizens a seat at the financial policy table for the first time and prevent the abuses in credit card and mortgage lending that have wreaked havoc on households all over the country.
President Barack Obama is scheduled to unveil his agenda for revamping financial regulation later this week. As the economy struggles though a recession created by the banking industry, it's crucial that Obama and his advisers craft a set of rules ensuring that the financial sector strengthens our economy instead of destroying it.
(Here's the promised diary from Demos in tandem with my previous diary - promoted by Paul Rosenberg)
By Caleb Gibson
In remarks made at a summit in Trinidad and Tobago this past weekend, National Economic Council director Larry Summers teed up what has turned out to be a very active week in the credit card reform arena. Summers told NBC’s David Gregory that President Obama would be "very focused in the very near term on a whole set of issues having to do with credit card abuses."
He wasn't kidding.
Thursday, Obama, Summers, Treasury Secretary Timothy Geithner and White House senior advisor Valerie Jarrett held a "pow-wow" with over a dozen executives from the major credit card issuers and networks to discuss lending practices that have roiled consumers and lawmakers.
(Some have compared this meeting to being called to the principal's office or taken out to the woodshed. One Republican credit card lobbyist told POLITICO, "the companies will get the s*** beat out of them by the President and Summers." We consumer advocates would love to get that much attention from the White House.)
But before the White House got their chance to let the credit card companies have it, the industry came under fire from at least three other federal entities.
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