by Zach Carter, Media Consortium Blogger
Last week, President Barack Obama released key legislation designed to fight the banking industry's too-big-to-fail problem. But Obama's plan doesn't actually address too-big-to-fail at all. It reinforces a broken system in which economically dangerous companies are bailed out whenever they drive themselves to the brink of failure.
If we want the economy to support all people, we have to break up the big banks and start treating the creation of good jobs as an economic priority on par with Wall Street rescues.
The editors of The Nation break the political debate over banking into three camps:
The first camp is composed of bank lobbyists, Republicans and conservative Democrats and wants to do nothing.
Camp two, endorsed by the White House and influential Rep. Barney Frank (D-MA), would impose tougher regulations on too-big-to-fail banks to keep them from getting out of control.
The third camp wants to go even further: If a bank is too-big-to-fail, it is also too-big-to-regulate. Companies that pose a danger to the economy have to be split up into smaller firms that cannot induce economic ruin.
The Nation editors rightly see the third strategy as the most sensible. While the "break-up-the-banks" policy is being portrayed as a left-wing pipe dream by cable news networks, the policy actually relies on an age-old observation of conservative economists. Regulators make mistakes, and they often get co-opted by the very industries they are supposed to be supervising.
The practical policy is to impose structural limits on what activities banks can participate in and how big they can get. Just look at the list of high-profile supporters: former Federal Reserve Chairman Paul Volcker, former Citigroup Chairman John Reed, Bank of England Governor Mervyn King. I don't remember seeing any of those guys at the Iraq War protests.
Many of the regulatory blind spots that brought down the economy were obvious to some policymakers for years. Back in 1994, Sen. Byron Dorgan (D-ND) wrote an article for The Washington Monthly warning that derivatives trading was putting the economy in grave danger. Commodities Futures Trading Commission Chair Brooksley Born tried to take action on these derivatives, but was overruled by other regulators, including then-Fed Chair Alan Greenspan, and then-Treasury Secretary Lawrence Summers, now the top economic adviser to President Obama. Summers and Greenspan even convinced Congress to pass a law banning the regulation of key derivatives, including credit default swaps, which ultimately brought down insurance giant AIG.
Fifteen years after Dorgan's article first ran, The Washington Monthly is featuring it again, along with a recent speech by Dorgan that details massive failures in Wall Street and Washington.
"We had regulators come to town in recent years and willfully boasted that they wanted to be blind as regulators," Dorgan says.
There are good elements of Obama's plan to deal with too-big-to-fail. It gives policymakers the option of putting a too-big-to-fail institution through a special bankruptcy process administered by the executive branch, thus avoiding the problems created in bankruptcy court when Lehman Brothers failed. But the bad part is really bad: Officials would also have the option to provide unlimited bailouts to Big Finance via loans, guarantees and even asset purchases.
As Mike Lillis notes for The Washington Independent, some responsible Democrats like Rep. Brad Sherman (D-CA) have been objecting to this aspect of the legislation for months. Sherman, in fact, calls it "TARP on steroids," noting that the bank bailout at least came with some meager oversight and a limit on the program's actual size.
The bank lobby is spending money like mad to maintain their stranglehold on the economy. Neither Congress or the administration will change course without intense public pressure. So it was very reassuring last week to see thousands of people protesting the annual meeting of top bank lobby group, the American Bankers Association. David Moberg chronicles the protest in a blog post for Working In These Times that covers speeches by both key union leaders and ordinary people facing foreclosure after watching their tax dollars go to the very bankers who wrecked the economy.
"There was broad agreement on anger at the banks for providing so little, if any, public benefit for the massive bail-out, and for so quickly returning to the greed and abuse that precipitated the crisis," Moberg writes.
Laura Flanders covers the protests for GRITtv, including video of protesters chanting "Bust up big banks!" In a roundtable discussion with Christina Clausen of the United Food & Commercial Workers Union, George Goehl of National People’s Action and Rob Robertson of the Right To The City Alliance, Rolling Stone journalist Matt Taibbi explains the overriding impotence of the regulations Congress is about to approve. Regulators will not be able to crack down on abusive derivatives, a full 8,000 of 8,200 banks will be exempt from Consumer Financial Protection Agency oversight, while the same agencies that screwed up heading into this crisis will be charged with preventing the next one.
"They've had sweeping powers to do whatever they wanted," Taibbi says. "They've had this regulatory power all along."
What we need are good jobs, and lots of them. Obama's economic stimulus package has made tangible economic progress. It's saved hundreds of thousands of jobs, and is clearly responsible for the turnaround in gross domestic product (GDP) we saw in the third quarter. But a full 17% of the workforce remains unable to find full-time work, as Julianne Malveux explains for The Progressive.
When Wall Street crashed in 1929 and unleashed the Great Depression, the government eventually stepped in as an employer-of-last-resort. The Works Progress Administration (WPA) and Civilian Conservation Corps (CCC). built schools, parks, roads and bridges which still serve our communities today. Both the WPA and the CCC employed literally millions of people—in the 1930s. It's a model that could work very well today.
As the current recession makes clear, ending too-big-to-fail and guaranteeing a good job for everyone in our society who wants one are the two most critical structural reforms our economy needs. Don't let lawmakers forget it.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
JUAN GONZALEZ: And William Black, what is your sense of the prospects now for stronger financial regulation, given the fact that—my understanding is now that the financial and securities firms have invested about $200 million in lobbying—in their lobbying efforts in Congress, and the halls of Congress are filled with the lobbyists now who are trying to influence the members of Congress on the new regulation of the financial system?
WILLIAM BLACK: Well, the earliest effort is—should be a real wake-up call, because it’s horrible. Barney Frank has proposed legislation on financial derivatives that essentially exempts what are called over-the-counter derivatives from most regulation, and it is over-the-counter derivatives that have been a major cause of this crisis. So that’s utterly insane. There’s no conceivable justification for it. And he stacked the hearing. There were nine witnesses; eight of them were from the industry and, of course, testified that they were vital to the world. The ninth witness was the only person who was in the least bit skeptical, and he was promptly gaveled down, unlike the others, by the chair. So it’s not only a farce; they’re willing to have us see that it’s a farce. They are so little afraid of public opinion and outrage that they’re not even taking steps to cover up the cover-up.
AMY GOODMAN: Bill Black, how much does the 2010 elections coming up have to do with what’s happening now—I mean, from preserving the health insurance industry to preserving the financial elite in this country and the money that goes into the—back into politicians’ pockets, into their coffers?
WILLIAM BLACK: Well, it has a lot to do, in particular, with the Blue Dogs. The Blue Dogs are the more conservative Democrats, and they are racking up unprecedented political contributions, because, of course, they’re such a powerful voting bloc. Even though they’re not all that large in number, they can be decisive in whether anything gets through the Senate, in particular, but they can also be real obstructionists in the House. And by being obstructionist, they make themselves very attractive to the lobbyists. And a number of the Blue Dogs are in jurisdictions where, you know, they have to worry about reelection, and so they think maximizing political contributions is the best possible thing they can do. And the result is very perverse, in terms of our ability to get any reforms.
AMY GOODMAN: I want to turn now to a clip of Timothy Geithner speaking on Meet the Press.
TIMOTHY GEITHNER: Barney Frank and Chris Dodd are moving comprehensive financial reform through both houses of Congress now. Chairman Dodd is drafting a comprehensive bill. Chairman Frank, working with the House Financial Services Committee, has passed through the committee very important reforms to give consumers better protection and to prevent kind of risk building up in the system that brought us this system to the edge of collapse, left taxpayer exposed. And I think we’re making a lot of progress. I’m very encouraged by how much progress they’ve made.
AMY GOODMAN: That was Treasury Secretary Timothy Geithner. I’d like you to talk about what he said.
ROBERT JOHNSON: He speaks as though they’re doing very comprehensive reform. Unfortunately, in the United States, one of the reasons we had the bubble and the crisis was because we have a broken political system, where campaign money, lobbying influence of the financial sector is enormous, and it created bad regulations, bad laws. I’m going back into the Reagan period, Bush the senior, particularly the Clinton era. We’ve made a mess, and now we come back from a crisis where the population knows darn well what a mess we’ve made. But the problem is, at this point, the people in power, the moneyed interests are still in power. And a large portion of these reforms are either cosmetic or designed by the industry and quite ineffective.
AMY GOODMAN: What do you mean the people who have always been in power are still in power? I thought a new administration was elected last year.
ROBERT JOHNSON: We’ve got a new administration, but we have the funders from the four or five largest banks—Citibank, JPMorgan, Goldman Sachs. JPMorgan, I understand, has hired many of the lobbyists that used to represent Freddie Mac and Fannie Mae. The amount of money they’re spending has induced Dick Durbin from Illinois to say the banks own this place. So it’s really the lobbyists and the executives of the financial sector that I’m talking about.
AMY GOODMAN: So, Obama is not in control?
ROBERT JOHNSON: Well, it’s a good question. He’s, like the members of the House and Senate, ultimately very dependent upon campaign finances, so I would say he’s very sensitive, disproportionately sensitive, to their needs, as he must be. This is a structural problem. This is not about bad wiring of Barack Obama; this is about a social architecture that’s malfunctioning.
[...]
ROBERT JOHNSON: I spoke, and during my verbal testimony, Bean cut me off. And then I asked her—
AMY GOODMAN: Congressman Bean.
ROBERT JOHNSON: Right.
AMY GOODMAN: Congresswoman.
ROBERT JOHNSON: And I asked her to continue, and she said to sum it up. And I said, “I’ll put my statement and my interpretations of your bill in the record.” But I said, “There are people other than industry groups that should be heard. And in particular, taxpayers and working people in this country should have a voice, because they’ve been paying the bills.”
AMY GOODMAN: Now, we’re talking about a Democratic-led Congress, a Democratic-led committee.
ROBERT JOHNSON: Mm-hmm.
AMY GOODMAN: You’ve got Barney Frank, who was considered one of the most progressive members of the Democratic Party in Congress.
ROBERT JOHNSON: Mm-hmm.
AMY GOODMAN: So, why is it that you’re forced in at the last minute? It sounds a little like the whole single-payer representative controversy.
ROBERT JOHNSON: Mm-hmm.
AMY GOODMAN: When President Obama had his healthcare summit, 120 people, none of them represented single payer, until there was an outcry, and Conyers, Congress member Conyers, got invited.
ROBERT JOHNSON: Yes.
AMY GOODMAN: But why are they just having pro-industry representatives for starters?
ROBERT JOHNSON: My interpretation of this is that we have a lot of people in the House of Representatives in the Democratic Party who believe that the banks are strong enough they can block anything in derivatives legislation that they don’t like. Number two, we have a situation where, in 2006 and 2008, many traditional Republican districts went Democratic. Now the Democrats are in a place where, with roughly ten percent or more unemployment, they’re going to have to go up for reelection, and they see this as a way to build their war chest for their reelection campaign.
That doesn’t sound at all like “Camp two, endorsed by the White House and influential Rep. Barney Frank (D-MA), would impose tougher regulations on too-big-to-fail banks to keep them from getting out of control.” What’s up with that? Sounds like a myth with which to jack the public again, to me.
Did Frank absent himself so Bean could do the dirty work? By keeping Johnson’s expert testimony off the Web, of course, it’s being excluded from search results, and thus our shared narrative. Talk about “message discipline!”
By knowbuddhau on November 3rd, 2009 at 3:56 pm
NOTICE: GRITtv and GRITradio are not affiliated with Ogden Publications, Inc., and are in no way associated with, or authorized or sponsored by, Ogden Publications Inc. or GRIT Magazine. For information on GRIT magazine, go to www.grit.com.
Thanks for the info. I’ll have to visit The Nation. I wonder, how did they arrive at that description of Camp Two? It’s completely at odds with what Prof. William Black said about Frank’s efforts on Democracy Now! just two weeks ago.
And that skeptic, Robert Johnson, had this to say on Democracy Now! just yesterday:
That doesn’t sound at all like “Camp two, endorsed by the White House and influential Rep. Barney Frank (D-MA), would impose tougher regulations on too-big-to-fail banks to keep them from getting out of control.” What’s up with that? Sounds like a myth with which to jack the public again, to me.
Did Frank absent himself so Bean could do the dirty work? By keeping Johnson’s expert testimony off the Web, of course, it’s being excluded from search results, and thus our shared narrative. Talk about “message discipline!”
By knowbuddhau on November 3rd, 2009 at 3:56 pm