Why Can’t Washington Muster Real Wall St. Reform?

Roger Bybee

Activists protest for Wall Street reform and bank accountability on May 17, in Washington, D.C.

New legislation won’t reverse dangerous financialization of the U.S. economy

Re-structuring Wall Street — and re-dedicating America’s banks to rebuilding our productive base — should have been a slam dunk.

After all, We bailed out Wall Street, and they used the money to pay themselves more than $150 billion in bonuses,” notes Les Leopold, author of The Looting of America. Public faith in the big banks has understandably plummeted. Democratic pollsters found that a strong reform package not only delighted 90% of Democrats, but also was support by about half of independents and even 39 percent of Republicans.

But the financial industry know how to play defense with lots of NBA-style sharp elbows and technical fouls — and big money. It spent $1.4 million a day on lobbying, relying on an army of former members of congress and congressional staffers to follow up on $2.2 billion in campaign contributions from 1990 to 2008.

As a result, a promising shot at preventing bailouts and restoring the country’s productive base got swatted away. The disappointing Restore American Financial Stability Act” passed by the Senate last week will still keep the American taxpayer on the hook for potential new big bank bailouts.

On almost every major provision sought by reformers, the Wall Street defense shut them down – sometimes with Treasury Secretary Geithner’s help. Artfully-crafted loopholes will allow many highly-profitable but enormously risky deals on derivatives and other credit default swaps to be shielded from full disclosure. The sensible Depression-era reform of splitting off investment banking from commercial banking will not be restored.

PRODUCTIVE BASE SINKS, FINANCIAL SECTOR SOARS

Equally important, the Financial Stability Act” will allow the financial sector to keep sucking the blood out of America’s productive base and de-stabilizing the lives of American workers, their families and communities. Some 5.6 million manufacturing jobs — 32% of of our industrial jobs — have been lost since 2000.

Over the past three decades, the American economy has undergone a deep transformation, as productive industries like auto, steel, machine tools, and countless others were starved of cash that was diverted into the financial sector in search of huge, quick profits.

Meanwhile, enormous numbers of jobs in these industries were shipped off to repressive low-wage nations like Mexico and China, leaving behind permanently uprooted workers and economically-gutted American communities.

But the social costs of this transformation were drowned out by all the celebrating over the big profits found in the ever-mushrooming financial sector, which rose from 7% of domestic corporate profits to over 30% now.

The financial sector produced $313 billion in profits in 2003, compared with just $119 billion for manufacturing, points out economist William Tabb. The ratio of manufacturing workers to financial-sector employees shifted from 7.7 to 1 in 1960 to a mere 1.6 factory worker to each financier in 2008, as Leopold documents in The Looting of America.

Eventually, of course, the bankers’s bets at the casino went bust. But the bankers knew that they could count on the public to pick up their debts and keep them in the game.

A substantial number of informed progressive voices on finance — Robert Reich, Simon Johnson, Nomi Prins, Les Leopold, Robert Kuttner and Arianna Huffington, among others — all skewered the Restore American Financial Stability Act as it evolved and finally emerged from the Senate. It is now likely that the bill will grow even worse in the conference committee, where it will be reconciled with the House Bill, Huffington writes.

Reich argues persuasively that the Democratic approach was fatally flawed in trying to regulate Wall Street rather than to seek structural reform” that would refocus banks on investing in the productive economy. Or, as economist Paul Krugman put it in the NY Times:

A growing body of analysis suggests that an oversized financial industry is hurting the broader economy. Shrinking that oversized industry won’t make Wall Street happy, but what’s bad for Wall Street would be good for America.

TIME FOR PRO-WORKER STRATEGIES’

Another key piece of re-shaping the economy away from its over-reliance on a bloated, parasitic, and volatile financial sector would involve raising real wages through unionization and increasing the minimum wage,” writes Leopold.

The finance-dominated economy leaves us all vulnerable to deep, persistent downturns like the current recession because the middle class has lost so much of spending power to keep the economy on an even keel. Leopold writes:


This is the time to try these pro-worker strategies precisely because the financial world is changing so dramatically. Our financial elites have wheedled the government into hand the banking industry over a trillion dollars.

More corporate handouts are sure to come. ..Let us learn from the bankers and take bold action while we can.

Unfortunately, such boldness is in short supply whenever the bankers apply full-court pressure, even against desperately-needed, highly popular reforms.

Roger Bybee is a Milwaukee-based freelance writer and University of Illinois visiting professor in Labor Education.Roger’s work has appeared in numerous national publications, including Z magazine, Dollars & Sense, The Progressive, Progressive Populist, Huffington Post, The American Prospect, Yes! and Foreign Policy in Focus.More of his work can be found at zcom​mu​ni​ca​tions​.org/​z​s​p​a​c​e​/​r​o​g​e​r​d​bybee.
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