On September 15, the fifth anniversary of the collapse of Lehman Brothers, progressives toasted a victory.
True, thanks to Congressional timidity, the biggest banks have only gotten bigger since the financial crisis five years ago, and the men (yes, mostly men) in charge of them are mostly still in charge. But Larry Summers, the architect of a good chunk of the deregulation that set the stage for the crisis in the first place, had withdrawn his name from consideration to be chair of the Federal Reserve, thanks to a populist uprising within the Democratic Party.
That uprising began with a letter circulated by Sen. Sherrod Brown (D-Ohio) and signed by, among others, Sen. Elizabeth Warren (D-Mass.), committing to support current Fed Vice Chair Janet Yellen, rather than Summers, for the top Fed post. Brown and Warren sit on the Banking Committee, through which Summers’ confirmation would have had to pass, and their resistance, along with that of Republicans and a few other Democrats, raised the prospect of a messy fight that President Barack Obama realized he was unlikely to win. In his letter to the president withdrawing his name, Summers said that it was clear his confirmation process would have been “acrimonious.”
The Senate may be a mass of gridlock, beholden to Wall Street donors and clogged by the constant abuse of the filibuster, but Brown and Warren are helping bring bank reform back to life.
Bank reform on life support
Financial reform has been a slow process at best — due to both the weakness of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and regulators’ foot-dragging in carrying out even those modest reforms. As Warren has pointed out, regulatory agencies have missed more than 60 percent of the Dodd-Frank rulemaking deadlines.
“Wall Street rarely loses a fight here [in Washington],” explained Brown when I spoke with him in September. “They know that what they can’t win in Congress, they can win with the regulatory agencies. Once it’s turned over to the regulators to fill in the blanks on what Congress said, lobbying begins by Wall Street, and members of Congress who are major Wall Street beneficiaries start weighing in with these regulatory agencies to weaken it.”
Brown offered a sobering reminder of how far we have to go with regard to bank reform: “A decade and a half ago the six largest banks had assets equal to 17 percent of GDP. Today that number is four times that — the six largest banks have assets equal to about 65 percent of GDP. Clearly there are significant problems there still.”
Yet Brown and Warren, along with a handful of occasionally surprising bipartisan allies, have proposed bills that, though they’re unlikely to be passed into law anytime soon, are nonetheless providing pressure to push regulators into action.
Taking on the banks
In April, Brown and Sen. David Vitter (R-La.) introduced the Terminating Bailouts for Taxpayer Fairness Act of 2013. The bill, known as Brown-Vitter, was designed to raise capital standards, the money banks keep on hand to protect against crisis. With that buffer, Brown says, banks would be less likely to go under (and need a bailout) if something goes wrong, either within the institution or in the broader financial markets. Brown also aims to re-introduce the SAFE Banking Act, which he and then-Senator Ted Kaufman (D-Del.) first proposed as an amendment to the 2010 Dodd-Frank financial reform bill. The act “requires these banks to sell off or spin off a number of their assets so that they’re under $600 billion in size,” Brown explains.
Another bill on the table is Warren and Sen. John McCain’s (R-Ariz.) “21st Century Glass-Steagall Act,” introduced in July. In a speech to the Wall Street watchdog group Better Markets, Warren described her bill this way:
The new Glass-Steagall Act would attack both ‘too big’ and ‘to fail.’ It would reduce failures of the big banks by making banking boring, protecting deposits and providing stability to the system even in bad times. And it would reduce ‘too big’ by dismantling the behemoths, so that big banks would still be big— but not too big to fail or, for that matter, too big to manage, too big to regulate, too big for trial, or too big for jail.
None of these bills is perfect, and Brown-Vitter in particular has been subject to a host of progressive criticisms. Former bank regulator William Black wrote in New Economic Perspectives in May that even the bill’s good provisions will not do what they say they will, and its bad parts may actually wind up protecting big banks from effective regulation. Lynn Parramore noted at AlterNet that Brown-Vitter doesn’t cover insurance companies such as the American International Group (AIG), which received a massive government bailout when its financial products division nearly collapsed in 2008.
But Heather McGhee, vice president of policy and outreach at the liberal think tank Demos, sees the combination of these three bills as a potential “game-change” that would force banks to make structural changes in how they operate.
That’s if they pass, which is unlikely in the current Congress, as Brown is the first to admit. “I know Brown-Vitter’s not passing next week,” he says. “I assume Warren and McCain know the same. I know that the SAFE Banking Act won’t. But I also know that our introducing this legislation does two things. It keeps the debate going on these issues, so that there’s a public light shining on risky bank practices. … It also encourages the regulatory agencies to step up.”
Indeed, regardless of the bills’ outcome, Warren and Brown’s work appears to be having an impact. Brown points out that just a few months after Brown-Vitter was introduced, several regulators — the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), with the approval of the Federal Reserve — moved to raise capital standards above international minimums. “I’m not going to take too much credit for it,” he says, “but Brown-Vitter being out there, and the support of people like [former FDIC chair] Sheila Bair and [FDIC Board member] Tom Hoenig [for raising capital standards] and others who are more conservative, politically, keep the pressure on the regulatory agencies to do something.”
Nor are heads of regulatory agencies immune to public embarrassment. As Warren explained to David Dayen at Salon, “It’s all about learning to use the new tools. In the Senate, there are more tools in the toolbox than are obvious.” Warren has become something of a YouTube celebrity thanks to her pointed questioning of bankers and regulators in committee hearings, where she and Brown occasionally tag-team hapless officials, and other senators rarely even show up.
Adam Green of the political action committee Progressive Change Campaign Committee (PCCC), who has worked closely with Warren since she announced her campaign for the Senate, praises her ability to devise questions that are “devastating in their simplicity.” He cites the February hearing where Warren asked OCC Chief Officer Thomas Curry and Securities and Exchange Commission (SEC) Chair Elisse Walter when the last time they took a bank to trial had been. The video of that moment went viral.
“This creates a consequence for the regulators for lax enforcement,” Dayen wrote. “Nobody wants to end up on the business end of an Elizabeth Warren viral video.” Indeed, in recent months, regulators have been talking about stronger action. SEC Chair Mary Jo White promised Warren in June that she would review the policy of pursuing no-fault settlements with banks instead of pushing for accountability, and in August, Attorney General Eric Holder vowed that we’ll see some “significant” prosecutions. The Department of Justice is rumored to have reached a $13 billion civil settlement with J.P. Morgan that does not grant immunity from a criminal trial.
All together, the actions taken by Brown, Warren and a handful of others represent some of the strongest moves against the finance industry since the battle over Dodd-Frank. While other legislators, such as reliable progressive stalwart Bernie Sanders (I-Vt.), have put forth bills pushing back on the power of Wall Street, they’ve garnered few or no co-sponsors and little attention, written off as impossible to pass or too radical. But that seems to be changing – Brown-Vitter was the first time a Republican Senator actually supported a regulatory response to too-big-to-fail. McCain’s signing on to Warren’s Glass-Steagall proposal was the second.
“Republicans have been talking about ‘too big to fail’ for a long time,” McGhee notes. “They love to talk about it at the same time as they say the answer to too big to fail is somehow deregulation.” McCain, of course, has a history of working across the aisle (most famously on campaign finance reform). Vitter, a conservative perhaps best known for a messy sex scandal, may be a better indicator that things are changing, though of course we’re still far from bipartisan consensus on bank reform.
In fact, for far too long bipartisan consensus on Capitol Hill has been on the side of the banks, not on the side of working people. Politicians mouth platitudes about Main Street while they slash regulations and hand out bailouts. The fact that even incomplete reforms are on the agenda in the face of Big Money’s grip on Washington is amazing, considering we’re five years out from crisis and one year out of the most expensive election in U.S. history, bankrolled by $141.2 million in contributions from the Finance, Insurance and Real Estate sector — 54 percent of that to Democrats.
That kind of money means that your average politician who speaks out against Wall Street in her campaign hasn’t got a prayer. McGhee notes, “If they’re not going to get free media attention because of who they are [like Warren] and they haven’t been a beloved figure in the state [like Brown], they’re not going to adopt a message that’s going to draw out tens of millions of dollars of opposition messaging, opposition ads to their race. It muzzles people.”
Accordingly, Brown and Warren are both the kind of liberal that has faded from prominence in recent years, while the kind that Salon politics editor Blake Zeff calls “SPECs” — socially progressive economic conservatives — has risen to power. Part of that change dates back to Clinton-era “triangulation,” but it also comes from the rise of that corporate money within politics and the corresponding decline of organized labor.
However, in the years since the economic crisis, as we’ve witnessed “recovery” for the top 1% and stagnation or worse for the rest of us, economic populism has taken on new resonance, and those who speak its language are returning to prominence.
With their Main-St.-vs.-Wall-St. rhetoric, Brown and Warren are “very much in the tradition of the original Populists from the 1890s,” says Michael Kazin, a history professor at Georgetown and author of The Populist Persuasion. The Populists of that era took on Wall Street and spoke on behalf of society’s “producers,” the farmers and working people who, they argued, really made the country run. Since the 1890s, both major parties have used this kind of producerist rhetoric — remember Romney/Ryan’s “We Built It”? But Brown and Warren’s populism echoes that early third-party movement by challenging the rule of money over Washington and the country.
To Jim Dean, chair of the progressive PAC Democracy for America, there’s actually reason to be optimistic that Warren and Brown, together with progressives like Bernie Sanders (I-Vt.), Tom Harkin (D-Iowa), Tammy Baldwin (D-Wis.) and Jeff Merkley (D-Ore.), could gain more influence within the Senate. “I think there are going to be some leadership changes,” Dean said. “I know power dies hard in that town, but it’s coming and everybody knows it.”
Kazin agrees, noting that the attention being paid to the populism of New York mayoral candidate Bill de Blasio gives him some hope for a resurgence of politicians who campaign by putting working people’s issues first.
McGhee believes the change in the climate in DC should also be attributed to Occupy Wall Street getting people talking about the power of the banks once again. “It makes perfect sense that there would be more people, more politicians recognizing that the political high ground is in curbing Wall Street.”
Of course, it’s going to take more than words to transform our economy. As Kazin says, “All populists have been good at the critique [of the banks and big money]; better at the critique than at the vision.”
For now, though, by proposing concrete ideas for bank reform, Warren and Brown are providing an example that combines critique and vision. And that vision appears to be gaining traction with Americans. According to the results of not-yet-released PCCC polling on financial reform, Green says that proposals to break up the big banks and to bring them to trial have popular support not only in liberal states, but in Texas and Kentucky. And even the conservative-leaning polling firm Rasmussen Reports found in March that 50 percent of U.S. adults favor a plan to break up the banks.
While that may not happen next week, “the politics of the possible can be expanded over time,” says Kazin. “Inside the Beltway, we sometimes forget that— it’s all about what we can get through. People think about Lyndon Johnson as the model for how you handle things, but of course he was doing a lot of things that 10 years before would’ve been thought impossible.”
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Sarah Jaffe is a Type Media Center Fellow, co-host (with Michelle Chen) of Dissent magazine’s Belabored podcast, and a columnist at The Progressive. She was formerly a staff writer at In These Times and the labor editor at AlterNet. Her previous books are Work Won’t Love You Back: How Devotion to Our Jobs Keeps Us Exploited, Exhausted and Alone and Necessary Trouble: Americans in Revolt, which Robin D.G. Kelley called “The most compelling social and political portrait of our age.” You can follow her on Twitter @sarahljaffe.