Working In These Times
Fuel for Real Reform? Populist Anger Drives Big Bank Protests
One of the main messages of Monday and Tuesday's protest marches in Chicago will be that the big Wall Street and commercial banks must end their lobbying against financial reform with $17.5 trillions in taxpayer bailouts and guarantees. (See David Moberg's piece yesterday previewing the "Showdown in Chicago" here.)
The main target is the American Bankers Association (ABA), but that organization's lobbying has been boosted by Washington representatives of powerhouse investment banks and trade associations such as the Financial Services Roundtable.
These groups fight to make sure there's no real restrictions on the ability to engage in dangerous speculation, especially since the Obama administration's efforts to clamp down on executive pay don't rein in high-flying firms like J.P Morgan Chase and Goldman Sachs that have already paid back their TARP money—even as they're aided by government loans and guarantees.
As Andrea Frye, a spokesperson for the National People's Action coalition, one of hundreds of organizations backing the protest, told me: "What's clearly happening is that the ABA banks are using the [bailout] fund to hire those lobbyists againt the reforms the American public are asking for."
Indeed, as I reported for Huffington Post and AlterNet earlier this week, all the bailouts, loans and guarantees that have propped up Wall Street have found its way to at least one group of struggling Americans: the often ex-homeless people hired to wait in line on behalf of high-priced lobbyists for financial firms.
Early in the morning outside the House Financial Services Committee hearing room in a building on Capitol Hill earlier this month, there were folks sporting dreadlocks or sloppy jeans mixed in with the pin-striped reps for the financial industry.
They were all seemingly lining up to see what $223 million in financial lobbying in the first six months of this year could buy in thwarting real reform on Capitol Hill. And they were hoping to get the few dozen public seats available inside the room for a critical 10 a.m. hearing marking up a bill that was supposed to regulate the now-private market in complex "derivatives," those secret, unregulated bets on investments sold by the likes of AIG.
The derivatives bill is a cornerstone of the Obama administration's already weakened reform plans that also include a Consumer Financial Protection Agency (CFPA) that faced a final committee vote this week.
The down-and-outers in the narrow hallway, of course, were there as place-holders in the line for the most elite lobbyists and Washington representatives of the even bigger, post-meltdown investment and commercial banks like Goldman Sachs and J.P Morgan Chase; such firms are now on track to pay their employees a record $140 billion this year.
So the sleek, blonde J.P Morgan lobbyist in a smart gray suit set off by a brightly colored scarf was able to saunter in shortly before the doors opened for the hearing to see just how many more loopholes weakening the bill could be added. (She declined to identify herself.)
Like the evicted family in Michael Moore's new film being hired by the bank to clean out their own home, the banking industry lobbyists in D.C. have at long last created the ultimate trickle-down effect from the bailouts. They've hired the jobless ( for $11 to $35 an hour) to hold their places in line to make sure there's no effective federal crackdown preventing more job-destroying speculation in credit default swaps and other derivatives.
How quickly Wall Street chooses to forget: As Heather Booth, the director of the Americans for Financial Reform (AFR) coalition, observes, "Unregulated derivatives trading was a major cause of the economic crisis and loss of homes, jobs and retirement savings."
What's changed since earlier in the year is that a new coalition of leading labor, consumer and activists groups, Americans for Financial Reform, has been formed to push back against the banks. They've already won some modest victories with a new Consumer Financial Protection Agency that was backed by a House finances committee, although their support for tough derivatives reform to prevent AIG-style meltdowns was stymied by industry-backed loopholes that significantly weaken enforcement.
The AFR coalition is mobilizing to strengthen all the pending reform bills before a final vote in the House -- before facing the obstacle course of the Senate. Hill sources now tell me that local nonprofits and advocacy groups have recently become as well-mobilized as local bankers and realtors in reaching members of Congress.
Surprisingly, an issue that had been off the table for the Obama administration -- handling the big banks that are "too big to fail" -- may be given another look in new proposals expected in the upcoming week. But whatever the administration plans, expect it too be too modest and get watered down. The fact is, a risk of another major meltdown remains.
The "Showdown in Chicago" is the main event to raise awareness and rally support for change. The three-day series of protests and rallies (and a "people's Commission") becomes even more important to strengthen the backbone of Congress and the Obama administration in dealing with the financial industury.
Modernize the Community Reinvestment Act (CRA)
Modernizing the Community Reinvestment Act will increase transparency, accountability and stability in the financial system by ensuring banks and mortgage companies provide responsible, quality lending and financial services in American communities. Over 80% of the high-cost subprime loans made between 2004-2007 were made by institutions NOT regulated by CRA. Those loans that have performed the best were loans made by institutions regulated by CRA. We need to update the law to ensure all lenders are covered by the law in order to curb subprime predatory lending and prevent a future rises.
Democratizing the Federal Reserve
The Federal Reserve was established in 1913 and put outside of the reach of Congress and the President. The thought was that removing the Fed from politics, would position it to be more independent and serve the needs of the nation and the economy as a whole. But instead of independence, the Fed is largely under the control of the financial industry and left wholly unaccountable...
Too Big to Fail
In the US today, three banks hold almost 34% of the nation’s deposits, four banks issue 50% of the country’s mortgages and the five largest credit card lenders control 74% of the market. These companies have a stranglehold on our wallets. And as we’ve seen, when they make bad decisions, they can take the whole economy down with them.
New laws should be put in place that minimize the risk of the “too big to fail” problem. No single institution should be in control of such a large part of the market...
Modernize Home Mortgage Disclosure Act (HMDA)
The Home Mortgage Disclosure Act (HMDA) was enacted in 1975. The law’s success speaks to the power of transparency. HMDA requires lenders to disclose to regulators AND the American people where loans were made and to whom banks were denying loans to. The data showed that banks were denying people credit based on where they lived, even if they were well qualified for the loan...
Unfortunately, HMDA has not kept up with the changing face of lending...HMDA can be strengthened by making banks disclose the interest rate, fees, and other terms of the loans made.
Yet it's still not clear that supporters of reform have the resources to counter-attack with hard-hitting, easily understood attack ads and a mass mobilization against the "death panels"-type smears being promoted by opponents of reform, including the Chamber of Commerce.
The chamber has launched a $2 million ad campaign claiming that the consumer agency would somehow prevent your neighborhood butcher from extending you credit. And during hearings last week, Republicans claimed that the consumer agency would potentially take away Americans' frequent flier miles.
And, they'll likely add in the future, jack-booted federal consumer-crats from Washington will invade your grandmother's house and throw her in the snow because they wouldn't let her get a home equity loan offered by those nice men from the neighborhood Bank of America.
Here's the emerging Republican line of attack on financial reform: With three million jobs lost since Obama took office, can we really afford to deny credit to American families and businesses that need it? And why should we expand the CRA act that spurred low-income subprime home loans that caused the meltdown -- and has been a boondoggle for the fraudsters at ACORN?
Of course it's all demonstrably false -- even the three million jobs lost would have been far worse without the President's stimulus plan -- but will progressives be able to create clear, effective messaging to counteract right-wing lies and distortions on these issues? No matter what Obama or progressives propose, it's always framed by conservatives as a "job-killer."
And, oh yes, ACORN supports such reforms, so it all must be a plot to steal taxpayers' money and destroy our free-enterprise system.
Look for scary ads with montages of closed businesses, jobless lines, ACORN, Obama, and black-masked World Trade Organization protesters coming to a TV screen near you.
Will the reformers be ready to hit back hard while demonizing Wall Street? The attacks over fat bonuses and wasted bailout funds are an important start, but a lot more will need to be done to fight the right-wing, corporate-funded noise machine.
In the House committee last week, the Republicans lost far more amendments than they won on the consumer agency, but gained an important one that included most Democrats: exempting loans from independent auto dealers. And in other arcane areas, such as regulating derivatives and preventing conflicts of interest by investment rating agencies, the business interests have gotten much of what they wanted. And major restructuring of both the big banks and governance of the Fed remain untouched by the Obama administration for now.
Swift-Boating-style attacks have already slowed health reform and the Employee Free Choice Act, so it's important that supporters of financial reform will be able to rally enough money and manpower after Chicago to counter the financial industry's combination of smears and arcane loopholes used to undermine real reform.
Yet there's grounds for hope, as the savvy pollster and pundit Nate Silver observes:
It's becoming increasingly likely that regulation of the banking and financial sector is liable to be the issue that dominates the first half of 2010. Why? Well in the first place, it's badly needed -- there is fairly broad consensus among economists and regulators that there is still very profound systemic risk in the banking industry.
In the second place, it's not clear what else the Obama administration will do on the domestic policy front, once the health care issue gets resolved...
What's fascinating about this issue is how unevenly it breaks down along traditional political lines. The roll calls on the TARP bills that the Congress passed last year were among the strangest in the history of the institution, with divisions between leadership and rank-and-file, between service-sector states and manufacturing states, and between swing districts and safe districts -- all of which played a larger role than one's partisan affiliation.
From a 30,000-foot view, the debate will be between the Volckerists and the Summersists, with the Volckerists arguing that large financial institutions need to be broken up -- probably through something resembling a modern Glass-Steagall Act -- and the Summersists arguing instead for more extensive regulations.
The 'hard', online left will almost certainly take the Volckerist position. In fact, I expect this to be the "public option" of 2010, the badge of pride that "movement progressives" will use to distinguish themselves from "kleptocrats". Like the public option, the Volckerist position ("break up the banks") is easy and intuitive to understand. Also as in the case of the public option, I suspect the Volckerists will ultimately have the preponderance of polling evidence to show in their favor (although no polling has yet been conducted on the issue). In contrast to the public option, opinion among policy wonks is likely to be a little bit more evenly divided -- see for example the difference of opinion between Yves Smith and Simon Johnson, neither of whom have any inherent sympathy whatsoever for the banks.
So, the actions in Chicago could be the match that starts a widespread bonfire of populist action on financial reform.